<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
HOMEBASE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 33-0109661
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
3345 MICHELSON DRIVE
IRVINE, CALIFORNIA 92612
(714) 442-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JOHN L. PRICE, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
HOMEBASE, INC.
3345 MICHELSON DRIVE
IRVINE, CALIFORNIA 92612
(714) 442-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JONATHAN K. LAYNE, ESQ. MARY A. BERNARD, ESQ.
GIBSON, DUNN & CRUTCHER LLP KING & SPALDING
333 SOUTH GRAND AVENUE 1185 AVENUE OF THE AMERICAS
LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10036
(213) 229-7000 (212) 556-2100
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement from the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY OFFERING PRICE FEE(1)
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<S> <C> <C> <C> <C>
5.25% Convertible Subordinated
Notes due 2004................. $100,000,000 100% $100,000,000 $29,500.00
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Common Stock, par value $.01 per
share.......................... (2) -- -- --
=======================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457(i) under the Securities Act of 1933, as
amended.
(2) Such indeterminate number of shares of Common Stock as may be issuable
upon conversion of the 5.25% Convertible Subordinated Notes registered
hereunder, including such shares as may be issuable pursuant to
antidilution adjustments. Pursuant to Rule 457(i), no registration fee is
required for these shares.
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, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED JANUARY 7, 1998
PROSPECTUS
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$100,000,000
[LOGO OF HOMEBASE, INC.]
5.25% Convertible Subordinated Notes due 2004
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This Prospectus relates to the resale from time to time by the holders (the
"Selling Securityholders") of up to $100,000,000 aggregate principal amount of
5.25% Convertible Subordinated Notes due 2004 (the "Notes") of HomeBase, Inc.,
a Delaware corporation ("HomeBase" or the "Company"), and the resale of shares
of Common Stock, par value $.01 per share (the "Common Stock"), of the Company
issuable upon the conversion thereof (the "Conversion Shares"). The Notes were
originally issued by the Company in a private placement on November 17, 1997 to
the Initial Purchaser (as defined). The Notes were resold by the Initial
Purchaser in transactions exempt from registration under the Securities Act of
1933, as amended (the "Securities Act"), in the United States to persons
reasonably believed to be "qualified institutional buyers" as defined in Rule
144A under the Securities Act, and outside the United States in offshore
transactions in reliance on Regulation S under the Securities Act.
The Notes are convertible into shares of Common Stock at any time on or after
February 15, 1998 and prior to the close of business on the maturity date,
unless previously redeemed or repurchased, at a conversion rate of 97.8713
shares of Common Stock per $1,000 principal amount of Notes (equivalent to a
conversion price of $10.2175 per share), subject to adjustment in certain
events. See "Description of the Notes--Conversion Rights." The Company's Common
Stock is listed on the New York Stock Exchange (the "NYSE") under the symbol
"HBI." On December 29, 1997, the last reported sales price of the Common Stock
on the NYSE was $7.75 per share. The Conversion Shares have been approved for
listing, subject to notice of issuance, on the NYSE.
Interest on the Notes is payable on May 1 and November 1 of each year,
commencing on May 1, 1998. The Notes may be redeemed at the option of the
Company on and after November 1, 2000, in whole or in part, at the redemption
prices set forth herein, plus accrued interest to the redemption date. See
"Description of the Notes--Optional Redemption." The Notes are not entitled to
the benefits of any sinking fund.
The Notes constitute unsecured obligations of the Company subordinated in right
of payment to all existing and future Senior Debt (as defined) of the Company
and effectively subordinated in right of payment to all indebtedness and other
liabilities of the Company's subsidiaries. As of November 22, 1997, the Company
had approximately $29.8 million of Senior Debt outstanding, and the Company's
subsidiaries had an aggregate of approximately $0.5 million of indebtedness and
other liabilities outstanding. The Indenture (as defined) does not restrict the
Company from incurring additional Senior Debt or the Company and its
subsidiaries from incurring indebtedness and other liabilities. See
"Description of the Notes--Subordination."
The Selling Securityholders may offer Notes or Conversion Shares from time to
time to purchasers directly or through underwriters, dealers or agents. Such
Notes or Conversion Shares may be sold at market prices prevailing at the time
of sale or at negotiated prices. Each Selling Securityholder will be
responsible for payment of any and all commissions to brokers, which will be
negotiated on an individual basis.
The Notes are eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market.
The Company will not receive any of the proceeds from the sale of any Notes or
Conversion Shares by the Selling Securityholders. Expenses of preparing and
filing the registration statement to which this Prospectus relates and all
post-effective amendments will be borne by the Company. See "Plan of
Distribution" for a description of the indemnification arrangements between the
Company and the Selling Securityholders.
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SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES AND THE COMMON
STOCK OFFERED HEREBY.
- --------------------------------------------------------------------------------
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.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
HomeBase(R), The Base(R) and Infinity(R) are registered trademarks of the
Company and its subsidiaries. All other trade names, trademarks and service
marks are trade names, trademarks and service marks of the respective companies
that utilize them.
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The date of this Prospectus is January , 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and is required to file
periodic reports, proxy statements and other information with the Securities
and Exchange Commission (the "SEC"). Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the SEC located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and at Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can also be obtained from the
SEC at prescribed rates from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. Electronic filings made by the
Company through the SEC's Electronic Data Gathering, Analysis and Retrieval
System are publicly available through the SEC's web site (http://www.sec.gov).
Copies of reports, proxy and information statements and other materials
concerning the Company can be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
This Prospectus is part of a Registration Statement on Form S-3 (together
with all amendments and exhibits thereto, the "Registration Statement") filed
by the Company with the SEC under the Securities Act with respect to the
securities offered hereby. As permitted by the rules and regulations of the
SEC, this Prospectus omits certain information contained in the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such
document filed as an exhibit to the Registration Statement or otherwise filed
with the SEC. Each such statement shall be deemed qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed by the Company with the SEC (File
No. 1-10259) pursuant to the Exchange Act and are hereby incorporated by
reference:
1. Annual Report on Form 10-K for the fiscal year ended January 25,
1997;
2. Quarterly Reports on Form 10-Q for the quarterly periods ended April
26, 1997, July 26, 1997 and October 25, 1997;
3. Current Reports on Form 8-K filed with the SEC on June 6, 1997, June
17, 1997, June 18, 1997, June 27, 1997, July 29, 1997, August 5,
1997, October 29, 1997, November 12, 1997 and November 17, 1997;
4. Proxy Statement on Schedule 14A filed with the SEC on June 6, 1997;
and
5. The description of the Company's Common Stock in the "Description of
Capital Stock" filed as Exhibit 28.1 to the Company's Registration
Statement on Form 10 dated May 12, 1989, and any amendments or
reports filed for the purpose of updating such description.
2
<PAGE>
All documents filed by the Company with the SEC pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering of the Notes and Conversion Shares
offered hereby shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date any such document is filed.
Any statements contained in a document incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus (or in
any other subsequently filed document which also is incorporated by reference
in this Prospectus) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part of this
Prospectus except as so modified or superseded.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person,
a copy of any or all of the documents incorporated herein by reference (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should
be directed to HomeBase, Inc., 3345 Michelson Drive, Irvine, California 92612,
Attn: Director of Investor Relations. Telephone inquiries may be directed to
the Director of Investor Relations at (714) 442-5000.
3
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus and in the documents incorporated by reference
herein. Prior to July 28, 1997, the Company, then known as Waban Inc.
("Waban"), operated through two divisions--the HomeBase Division (the "HomeBase
Division") and the BJ's Wholesale Club Division (the "BJ's Division"). As of
July 26, 1997, the Company transferred all of the net assets of its BJ's
Division to its newly-formed subsidiary, BJ's Wholesale Club, Inc. ("BJI"). On
July 28, 1997, the Company distributed to its stockholders on a pro rata basis
all of the outstanding common stock of BJI (the "Distribution"). References in
this Prospectus to any fiscal year of the Company refer to the 52 or 53 week
period ending on the last Saturday of January in the year following the year
indicated (for example, fiscal 1996 ended January 25, 1997). Except as
otherwise indicated, all references to the "Company" or "HomeBase" refer to
HomeBase, Inc. and its wholly-owned subsidiaries, unless the context otherwise
requires. This Prospectus includes or incorporates by reference forward looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, that involve risks and uncertainties. These statements
appear in a number of places in this Prospectus, and include statements
regarding the intent, belief or current expectations of the Company, its
directors or its officers with respect to, among other things: (i) the
financial prospects of the Company; (ii) the number and location of stores to
be opened or remodeled in future periods; (iii) the Company's financing plans;
(iv) trends affecting the Company's financial condition or results of
operations; (v) the Company's growth strategy and operating strategy; (vi)
trends in the home improvement industry; and (vii) the declaration and payment
of dividends. Prospective investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those in the
forward looking statements as a result of various factors. Certain factors that
could cause the Company's actual results to differ materially from those
anticipated in these forward looking statements are set forth under "Risk
Factors."
THE COMPANY
The Company is the second largest operator of home improvement warehouse
stores in the western United States with 83 stores in 10 states. The Company's
stores average approximately 102,000 square feet of indoor space, typically
with an additional outdoor garden center area. The Company offers a broad
assortment of brand name home improvement and building supply products at
competitive prices to both Do-It-Yourself ("DIY") customers and professional
customers. In certain categories, the Company supplements its brand name
offerings with high quality private label products.
The Company's objective is to be the first choice destination for home
improvement shoppers by combining product selection at competitive prices with
superior customer service. In order to achieve this objective, the Company is
completing the roll-out of its prototype store format. The Company's prototype
store format features a reconfigured store layout designed to be more
attractive to casual and DIY shoppers, while highlighting higher margin items
and segregating merchandise of primary interest to contractors and other
professional customers for easier access. Management believes this prototype
has proven successful in attracting more DIY customers while better meeting the
needs of the professional contractor.
Key elements of the Company's growth strategy include: (i) accelerating the
remodel of virtually all the remaining older stores to the prototype format,
(ii) rapidly expanding the store base by opening new stores to fill in existing
markets and move into contiguous markets, (iii) offering superior customer
service through highly trained staff, and (iv) improving margins by achieving
greater advertising, purchasing, distribution and information systems
efficiencies.
The Company believes that demographic and lifestyle factors such as the
maturing of baby boomers, the increase in home-centered activities and the
aging housing stock will create growing demand for home improvement products
and services. Based on industry sources, the estimated overall market for home
improvement products in the United States exceeded $134 billion in 1996.
4
<PAGE>
Although the home improvement industry remains fragmented, it has experienced
increasing consolidation during recent years, with the sales of the five
largest operators representing approximately 27% of the estimated overall
market in 1996 as compared to 12% of the estimated overall market in 1989. The
Company believes this trend will continue, and that opportunities exist for
service-oriented home improvement retailers to benefit from this continuing
consolidation.
On October 28, 1997, the Company announced an accelerated growth strategy
consisting of two elements: accelerated remodeling of its stores and an
increased pace of new store openings. The Company's strategy is designed to
capitalize on the success of its prototype store format and an expanding
California economy.
Since 1993, the Company has remodeled or relocated 45 of its stores and
opened 16 new stores incorporating the prototype design. The Company expects to
complete the 17 remaining stores in its remodeling program over the next six
months, rather than over the next two years as previously planned. Thus, the
Company believes that virtually all of its stores will be operating in the
prototype format in the spring of 1998, in time for the Company's peak selling
season. This accelerated program will enable the Company to publicize the "Re-
Grand Opening" of the remodeled stores simultaneously, allowing it to maximize
the impact of advertising expenditures, improved store logistics and enhanced
name recognition.
The Company also plans to increase the pace of scheduled store openings over
the next three years. The Company expects that, after scheduled openings of two
to four new stores in fiscal 1998, the pace of expansion will increase to
opening eight to ten stores in each of fiscal 1999 and fiscal 2000,
respectively, compared to the previously scheduled two to four per year. The
Company currently expects that substantially all new stores to be built over
the next three years will be in its existing markets or in contiguous markets.
The Company is incorporated in the State of Delaware. Its principal business
address is 3345 Michelson Drive, Irvine, California 92612, and its telephone
number is (714) 442-5000.
DESCRIPTION OF THE SECURITIES
Securities................ $100,000,000 principal amount of 5.25% Convertible
Subordinated Notes due November 1, 2004 (the
"Notes") and shares of the Company's Common Stock,
par value $.01 per share, issuable upon conversion
of the Notes (the "Conversion Shares").
Conversion Rate........... 97.8713 shares per $1,000 principal amount of Notes
(equivalent to a conversion price of $10.2175 per
share of Common Stock), subject to adjustment.
Interest Payments......... Interest on the Notes will be payable on May 1 and
November 1 of each year, commencing on May 1, 1998.
Conversion Rights......... The Notes will be convertible into shares of Common
Stock of the Company at any time on or after
February 15, 1998 and prior to the close of
business on the maturity date, unless previously
redeemed or repurchased, at the conversion price
set forth above. Holders of Notes called for
redemption or repurchase will be entitled to
convert the Notes until and including, but not
after, the close of business on the date fixed for
redemption or repurchase, as the case may be.
Redemption at the Option
of the Company...........
The Notes may be redeemed at the option of the
Company, in whole or in part, on and after November
1, 2000 at the redemption prices set forth herein
plus accrued interest to the redemption date.
5
<PAGE>
Repurchase at Option of Upon a Change of Control (as defined), holders of
Holders.................. Notes will have the right, subject to certain
conditions, to require the Company to purchase all
or part of their Notes at 100% of the principal
amount thereof, plus accrued interest to the
repurchase date. The repurchase price is payable in
cash or, subject to certain conditions, at the
option of the Company, in Common Stock (valued at
95% of the average of the closing prices of the
Common Stock for the five trading days immediately
preceding and including the third trading day prior
to the repurchase date).
Subordination............. The Notes are subordinated to all existing and
future Senior Debt (as defined) of the Company. The
Notes are also effectively subordinated in right of
payment to all indebtedness and other
liabilities of the Company's subsidiaries. As of
November 22, 1997, the Company had an aggregate of
approximately $29.8 million of Senior Debt
outstanding, and the Company's subsidiaries had an
aggregate of approximately $0.5 million of
indebtedness and other liabilities outstanding. The
Indenture does not restrict the incurrence of
Senior Debt by the Company or other indebtedness or
liabilities by the Company or any of its
subsidiaries.
Events of Default......... Events of Default include: (a) failure to pay
principal of or premium, if any, on any Note when
due, whether or not such payment is prohibited by
the subordination provisions of the Indenture; (b)
failure to pay any interest on any Note when due,
continuing for 30 days, whether or not such payment
is prohibited by the subordination provisions of
the Indenture; (c) failure to provide notice in the
event of a Change of Control; (d) failure to
perform any other covenant of the Company in the
Indenture, continuing for 60 days after written
notice as provided in the Indenture; (e)
indebtedness for money borrowed by the Company in
an outstanding principal amount in excess of
$5,000,000 is not paid at final maturity or the
payment of which is accelerated and which default
or acceleration is not cured or rescinded within 30
days after written notice as provided in the
Indenture; and (f) certain events of bankruptcy,
insolvency or reorganization.
Use of Proceeds........... The Company will not receive any proceeds from the
sale of the Notes or Conversion Shares by the
Selling Securityholders.
Trading................... The Notes are eligible for trading on the PORTAL
market of the National Association of Securities
Dealers, Inc. The Common Stock is listed on the
NYSE under the symbol "HBI."
Form and Denomination..... The Notes offered hereby have been issued only in
registered form. The Notes were initially issued in
minimum denominations of $1,000 and integral
multiples thereof. The Notes initially sold by the
Initial Purchaser to QIBs were represented by the
Restricted Global Note (as defined) and the Notes
initially sold by the Initial Purchaser in reliance
on Regulation S were represented by the Regulation
S Global Note (as defined), in each case deposited
with a custodian for and registered in the name of
a nominee of the Depository Trust Company ("DTC")
and, in the case of the Regulation S Global Note,
for the accounts of CEDEL and for Morgan Guaranty
Trust Company of New York, Brussels office, as
operator of Euroclear. Except as described herein,
Notes in certificated form will not be issued in
exchange for the Restricted Global Note, Regulation
S Global Note or interests therein. See
"Description of the Notes--Form and Denomination"
and "--Transfer, Exchange and Withdrawal."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary consolidated financial and operating data should be
read in connection with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto of the Company included elsewhere herein. See "Selected
Consolidated Financial and Operating Data" for an explanation of the basis of
presentation.
<TABLE>
<CAPTION>
39 WEEKS ENDED FISCAL YEAR ENDED
------------------------ ------------------------------------------------------------------
OCTOBER 25, OCTOBER 26, JANUARY 25, JANUARY 27, JANUARY 28, JANUARY 29, JANUARY 30,
1997 1996 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $1,149,040 $1,142,923 $1,452,696 $1,448,776 $1,357,190 $1,585,956 $1,570,878
Gross profit............ 250,205 253,864 315,699 324,316 300,570 306,872 307,548
Selling, general and
administrative
expenses............... 213,355 216,261 277,841 275,655 248,112 272,256 268,241
Operating income
(loss)(1).............. 9,850 37,603 37,858 48,661 52,458 (66,517) 39,307
Income (loss) from
continuing operations
before extraordinary
loss(1)................ 3,201 18,100 16,347 24,485 26,938 (43,445) 21,168
Income (loss) before
extraordinary loss and
cumulative effect of
change in accounting
principle(1)........... 23,776 51,153 76,660 72,977 64,990 (16,580) 44,242
Net income (loss)(1).... 15,113 51,153 76,660 72,977 64,990 (17,782) 44,242
Income (loss) per common
share from continuing
operations, before
extraordinary loss
Primary(1)............. $ .09 $ 0.55 $ 0.49 $ 0.74 $ 0.81 $ (1.31) $ 0.64
Fully diluted(1)....... $ .09 $ 0.54 $ 0.49 $ 0.71 $ 0.77 $ (1.31) $ 0.64
BALANCE SHEET DATA:
Working capital......... $ 153,538 $ 257,294 $ 275,842 $ 265,450 $ 308,749 $ 213,315 $ 286,313
Net current and non-
current assets of
discontinued
operations(2).......... -- 471,181 423,688 403,713 322,945 301,958 201,192
Total assets............ 663,110 1,144,872 1,077,059 1,066,188 1,011,705 873,478 838,322
Long-term debt and
obligations under
capital leases......... 16,023 242,671 242,548 255,803 269,223 185,566 192,278
Stockholders' equity.... 363,319 605,711 631,925 555,120 488,089 420,492 436,610
CASH FLOW DATA:
Net cash provided by
(used in) operating
activities of
continuing operations.. $ 90,208 $ 15,151 $ (17,688) $ 44,955 $ 54,138 $ 75,793 $ (29,642)
Net cash used in
investing activities of
continuing operations.. (22,614) (17,636) (23,761) (21,633) (92,125) (7,208) (30,024)
Net cash provided by
(used in) financing
activities of
continuing operations.. (131,001) 19,154 (15,599) (21,282) 82,225 (6,314) 104,921
OTHER DATA:
Capital expenditures.... 15,336 42,253 48,393 73,300 37,198 38,875 78,537
EBITDA(1)(3)............ 27,882 54,493 60,824 68,130 71,054 (45,584) 58,617
Ratio of earnings to
fixed charges(4)....... 2.2x 4.5x 3.4x 4.8x 5.2x -- (1) 6.0x
Stores open at end of
period................. 85 84 84 79 77 82 86
</TABLE>
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(1) The income figures shown for the 39 weeks ended October 25, 1997 include a
pre-tax charge of $27.0 million for store closures and other charges. The
loss figures shown for fiscal 1993 include a pre-tax restructuring charge
of $101.1 million. As a result of this charge, earnings were insufficient
to cover fixed charges in fiscal 1993 by $74.2 million.
(2) As of July 26, 1997, the Company transferred all of the net assets of the
BJ's Division to BJI and on July 28, 1997, the Company completed the
Distribution.
(3) Earnings from continuing operations before interest, taxes, depreciation
and amortization ("EBITDA") does not take into account capital expenditures
and does not represent cash generated from operating activities in
accordance with generally accepted accounting principles ("GAAP"), is not
presented as an alternative to net income or any other GAAP measurements as
a measure of operating performance and is not indicative of cash available
to fund all cash needs. The Company's definition of EBITDA may not be
identical to similarly titled measures of other companies. The Company
believes that in addition to cash flows and net income, EBITDA is a useful
financial performance measurement for assessing the operating performance
of the Company because, together with net income and cash flows, EBITDA is
widely used to provide investors with an additional basis to evaluate the
ability of the Company to incur and service debt. To evaluate EBITDA and
the trends it depicts, the components of EBITDA, such as net sales, cost of
sales, and selling, general and administrative expenses, should be
considered. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(4) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include pre-tax income from
continuing operations plus fixed charges. "Fixed charges" include interest,
whether expensed or capitalized and amortization of debt issuance costs.
7
<PAGE>
RISK FACTORS
An investment in the Notes or Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information set forth in this
Prospectus and incorporated by reference herein, in connection with an
investment in the Notes or Conversion Shares offered hereby.
This Prospectus includes or incorporates by reference forward looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, that involve risks and uncertainties. These
statements appear in a number of places in this Prospectus, and include
statements regarding the intent, belief or current expectations of the
Company, its directors or its officers with respect to, among other things:
(i) the financial prospects of the Company; (ii) the number and location of
stores to be opened or remodeled in future periods; (iii) the Company's
financing plans; (iv) trends affecting the Company's financial condition or
results of operations; (v) the Company's growth strategy and operating
strategy; (vi) trends in the home improvement industry; and (vii) the
declaration and payment of dividends. Prospective investors are cautioned that
any such forward looking statements are not guarantees of future performance
and involve risks and uncertainties, and that actual results may differ
materially from those in the forward looking statements as a result of various
factors. The accompanying information contained in this Prospectus, including
without limitation the information set forth under the headings "Recent
Developments," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Business," identifies
important factors that could cause such differences.
RISKS ASSOCIATED WITH ACCELERATED GROWTH STRATEGY. The Company is
implementing a strategy designed to strengthen its market position in the
western United States and improve its profitability. Specifically, the Company
plans to accelerate its store remodeling program and increase the pace of new
store openings. In addition, on January 5, 1998, the Company announced the
closure of two underperforming stores; the Company plans to close one
additional underperforming store. The Company expects to complete the
remodeling of approximately eight stores during fiscal 1997 and 17 stores in
the first quarter of fiscal 1998. The Company estimates that this remodeling
program will require additional capital expenditures aggregating $17 million
over approximately the next six months. The Company may experience a negative
impact on sales and margins at stores being remodeled during the remodel
period. In addition, in the fourth quarter of fiscal 1997 and in the first
quarter of fiscal 1998, the Company expects to incur additional costs of
approximately $4 million per quarter related to the accelerated remodel
program. There can be no assurance that the Company will be able to complete
this remodeling program on schedule or within budget or that remodeled stores
will realize an improvement in net sales or comparable store sales.
The Company opened two new stores in fiscal 1997 and intends to open
approximately two to four new stores during fiscal 1998. The Company expects
that the pace of expansion will increase to opening eight to ten stores in
each of fiscal 1999 and fiscal 2000, instead of the previously planned two to
four stores per year. The Company estimates that it will cost approximately
$4.5 million to open each of these new stores (excluding land acquisition and
building development costs). The Company's ability to open new stores on a
timely and profitable basis is subject to various contingencies, some of which
are beyond the Company's control. These contingencies include the Company's
ability to (i) find suitable new warehouse store locations of sufficient size
and at acceptable prices, (ii) acquire the necessary governmental and
regulatory permits and approvals, including all necessary zoning and
development permits, (iii) construct the warehouse stores at budgeted cost and
in a timely manner, (iv) hire and train sufficient numbers of qualified store
managers and staff for new stores, and (v) integrate these new warehouse
stores into the Company's operations. There can be no assurance that the
Company will achieve its planned expansion or that the Company's new or
remodeled stores will achieve sales, gross profit or operating income
comparable to existing stores. Although the Company's management carefully
selects new store locations, there can be no assurance that the opening of
additional HomeBase stores in existing markets will not negatively impact
sales at existing HomeBase locations.
8
<PAGE>
The accelerated growth strategy will require an increase in Company
personnel, particularly store managers and sales associates, who possess the
training and experience necessary to meet the Company's customer service
standards. The Company may find it difficult to attract, develop and retain the
personnel necessary to pursue its growth strategy successfully. The Company
will also need to continually evaluate the adequacy of its management
information systems, including its inventory control and distribution systems,
and in the future will need to upgrade or reconfigure its management
information systems to support its planned expansion. Moreover, as the Company
grows, it will need to continually analyze the sufficiency of its warehouse and
distribution space and will require additional facilities in order to support
such growth. The inability of the Company to attract and retain the necessary
personnel, to expand and enhance its management information systems, or to
increase its warehouse and distribution space to support its growth strategy
could have a material adverse effect on the Company's results of operations and
financial condition.
The Company's operating results and financial condition could be materially
adversely affected if it encounters difficulties in implementing any part of
its accelerated growth strategy. There can be no assurance that the Company
will be able to successfully implement its accelerated growth strategy or that
such strategy, if successfully implemented, will result in an improvement of
the Company's operating results. See "Recent Developments," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Business."
COMPETITION. The home improvement, hardware and garden businesses are all
highly competitive. The Company competes with a large number and variety of
wholesalers and retailers, including several large national chains in the home
improvement warehouse merchandising business, some of which have significantly
greater financial and marketing resources than the Company. Major competitors
of the Company that use the warehouse store format include The Home Depot,
Inc., Eagle Hardware & Garden, Inc. and Builder's Square Inc. Competition
exists primarily in the areas of price, product selection, location, service
and name recognition. Competitive factors could require price reductions or
cause an increase in operating costs, including increases in expenditures for
marketing and customer service, that would adversely affect the Company's
operating results. The Company will also experience competition for qualified
personnel and for suitable new store locations of sufficient size at acceptable
prices. There can be no assurance that the Company will be able to continue to
compete effectively.
Some markets in which the Company currently operates or might operate in the
future may already be at or near the saturation point in terms of warehouse
stores competitive with the Company's stores. Certain of the Company's
principal competitors appear to have a strategy of clustering stores within or
saturating markets in which they operate, or of placing their warehouse stores
so close to the Company's stores as to directly challenge the Company's
competitive position in such markets. Such strategies could have a material
adverse effect on the Company's current operations and upon the profitability
of the Company's accelerated growth strategy. Approximately 95% of the
Company's stores have at least one home improvement warehouse retailer within
their trading areas at an average distance of approximately three miles. The
Company expects that its existing competitors, some of whom have either
expansion plans in place or may seek to imitate the Company's strategy, will
open additional stores in the Company's current market areas, which could
adversely affect the Company's competitive position. See "Business--
Competition." In early December 1997, The Home Depot, Inc. announced plans to
open 61 new stores in California over the next three years. Some or all of
these new stores may directly compete with the Company's stores, which could
have a material adverse effect on the Company.
ABSENCE OF OPERATING HISTORY AS A SEPARATE COMPANY. Prior to the
Distribution, the business of the Company was operated as a division of a much
larger company, and the Company thus does not have a significant operating
history as a separate stand-alone company. Prior to the Distribution, each of
the BJ's Division and the HomeBase Division had access to the cash flow
generated by the other and to Waban's credit, which was based on the combined
assets and operating results of the BJ's Division and the HomeBase Division.
The ability of the Company to access credit facilities and capital markets in
the future will depend on its financial performance as a separate stand-alone
company. To the extent the Company experiences reduced access to
9
<PAGE>
capital or higher capital costs, the Company may have difficulty financing its
growth strategy, which could have a material adverse effect on the Company's
results of operations and financial condition.
RELIANCE ON CERTAIN MARKETS. The Company's home improvement stores are
located in the western United States, more than half of them in California. The
Company has been adversely affected from time to time by economic downturns
experienced in its geographic markets, and future economic downturns in such
regions could adversely affect the Company. In particular, the performance of
the Company's stores in recent years has been affected by the downturn in the
Southern California housing market. Although the Company believes that the
Southern California housing market is experiencing a recovery, there is no
assurance that such recovery will continue or that such recovery, if sustained,
would improve the Company's operating results. In addition, the Company is
subject to other regional risks, including those related to or arising out of
weather conditions, natural disasters, and state and local government
regulation. The occurrence of any of the events described above may have a
material adverse effect on the Company's results of operations and financial
condition, and on its store expansion and remodeling program.
SEASONALITY AND QUARTERLY RESULTS. The Company's quarterly operating results
have fluctuated in the past and are expected to fluctuate in the future as a
result of a variety of factors, including the timing of store openings and
related preopening expenses, weather conditions, price increases by suppliers,
actions by competitors, conditions in the home improvement industry in general,
regional and national economic conditions and other factors. The Company's
sales and earnings are typically lower in the first and fourth fiscal quarters
than they are in the second and third fiscal quarters, which correspond to the
most active season for home improvement. The Company believes its financial
results will continue to reflect these seasonal patterns.
DECLINES IN COMPARABLE STORE SALES. A variety of factors affects the
Company's same store sales, including, among others, the timing and
concentration of new store openings, actions of competitors (including the
opening of additional stores in the Company's markets), the retail sales
environment, general economic conditions, weather conditions and the Company's
ability to execute its business strategy effectively. In recent years, the
Company's comparable stores sales have been negatively affected by increased
competition and the depressed economic conditions in its major markets,
particularly Southern California. There can be no assurance that these and
other factors will not result in further declines or fluctuations in comparable
store sales, which could have a material adverse effect on the Company's
results of operations and financial condition.
ENVIRONMENTAL RISKS AND REGULATIONS. As is the case with any owner or
operator of real property, the Company is subject to a variety of federal,
state and local governmental laws and regulations relating to the use, storage,
discharge, emission and disposal of hazardous materials. Failure to comply with
environmental laws could result in the imposition of severe penalties or
restrictions on operations by governmental agencies or courts of law which
could adversely affect operations. The Company does not have environmental
liability insurance to cover such events. The Company has engaged and may
continue to engage in real estate development projects and owns several parcels
of real estate on which its stores are located. While the Company is unaware of
any significant environmental hazard on properties it owns or has owned, or
operates or has operated, in the event of any discovery of such hazard, severe
penalties, including the costs of remediation, could be sought against the
Company, which could have a material adverse effect on the Company's results of
operations and financial condition.
DEPENDENCE ON KEY INDIVIDUALS. The Company's success depends in large part on
the abilities and continued service of Herbert J. Zarkin, the Company's
Chairman of the Board, and Allan P. Sherman, the Company's President and Chief
Executive Officer. There can be no assurance that the Company will be able to
retain the services of Messrs. Zarkin and Sherman. The loss of the services of
either of Messrs. Zarkin or Sherman could have a material adverse effect on the
Company's results of operations and financial condition.
NEGATIVE CONSEQUENCE OF FAILURE TO QUALIFY AS TAX FREE SPIN-OFF. Prior to the
Distribution, the Company received a letter ruling (the "Letter Ruling") from
the Internal Revenue Service ("IRS") to the effect that, for Federal income tax
purposes, the Distribution and certain related asset transfers would qualify as
a spin-
10
<PAGE>
off under Section 355 of the Internal Revenue Code of 1986, as amended (the
"Code") that would be tax free to the Company and the holders of the Company's
Common Stock at the time of the Distribution. The Letter Ruling is based on and
subject to certain assumptions, facts, representations and advice provided by
the Company, BJI, holders of 5% or more of the Company's Common Stock and the
Company's financial advisor at the time of the Distribution. Although the
Company is not aware of any facts or circumstances that would make such
assumptions, facts, representations and advice unobtainable or untrue, certain
future events not within the control of the Company and BJI, including, for
example, an IRS challenge to the Distribution in the event that BJI or the
Company is acquired before the end of the Company's fiscal year 1999, could
cause the Distribution not to qualify for tax-free treatment, resulting in
adverse consequences to the Company.
POTENTIAL CONFLICTS OF INTEREST; MANAGEMENT OVERLAP. The interests of BJI and
the Company may potentially conflict due to the ongoing relationships between
the companies. Such sources of conflict include the fact that the Company
remains liable for certain contractual obligations of BJI, including BJI
leases, and the other arrangements between the parties regarding lease
liabilities. In addition, Herbert J. Zarkin currently holds the executive
offices of Chairman of the Company's board of directors and Chairman of the BJI
board of directors, Lorne R. Waxlax serves as a member of the board of
directors of both the Company and BJI and Edward J. Weisberger serves as an
officer and director of both the Company and BJI. Appropriate procedures are
being followed by the board of directors of the Company to limit the
involvement of Messrs. Zarkin, Weisberger and Waxlax in conflict situations,
including requiring them to abstain from voting as directors of the Company on
certain matters. See "Relationship Between BJI and HomeBase After the
Distribution; Conflicts of Interest."
SUBORDINATION. The Notes are unsecured and subordinated in right of payment
to all existing and future Senior Debt of the Company. As a result, in the
event of the Company's liquidation or insolvency, a payment or covenant default
with respect to Senior Debt, or upon acceleration of the Notes due to an event
of default, the assets of the Company will be available to pay obligations on
the Notes only after all Senior Debt has been paid in full, and there may not
be sufficient assets remaining to repay in full all of the Notes then
outstanding. The Notes are also effectively subordinated in right of payment to
all indebtedness and other liabilities, including trade payables, of the
Company's subsidiaries. The incurrence of additional indebtedness and other
liabilities by the Company or its subsidiaries could adversely affect the
Company's ability to pay its obligations on the Notes. The Indenture does not
limit the Company's ability to incur Senior Debt or the Company's or any
subsidiary's ability to incur other indebtedness and liabilities. Senior Debt
includes substantially all indebtedness of the Company other than all
indebtedness that is made subordinate to or pari passu with the Notes by the
instrument creating the indebtedness. As of November 22, 1997, the Company had
an aggregate of approximately $29.8 million of Senior Debt outstanding, and the
Company's subsidiaries had approximately $0.5 million of indebtedness and other
liabilities. The Company does not currently have any borrowings under its
revolving credit line, and had $14.3 million of letters of credit outstanding
at November 22, 1997, under its Senior Bank Facility (as defined). See
"Description of Notes--Subordination" and "Senior Bank Facility."
REPURCHASE OF NOTES AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL; NON-
AVAILABILITY OF FUNDS. In the event of a Change of Control (as defined herein),
each holder of Notes has the right to require the Company to repurchase the
Notes in whole or in part at a redemption price of 100% of the principal amount
thereof, plus accrued interest to the repurchase date. If a Change of Control
were to occur, there can be no assurance that the Company would have the
financial resources or be able to arrange financing on acceptable terms to pay
the repurchase price for all the Notes as to which the purchase right is
exercised. Further, any repurchase in connection with a Change of Control
could, depending on the circumstances and absent a waiver from the holders of
Senior Debt, be blocked by the subordination provisions of the Notes. See
"Description of Notes--Subordination." Failure by the Company to repurchase the
Notes when required may result in an Event of Default with respect to the Notes
(and with respect to Senior Debt) whether or not such repurchase is permitted
by the subordination provisions. See "Description of Notes."
ABSENCE OF PRIOR PUBLIC MARKET; LIMITED TRADING HISTORY. There is no existing
market for the Notes and there can be no assurance as to the liquidity of any
markets that may develop for the Notes, the ability of the
11
<PAGE>
holders to sell their Notes or the price at which holders of the Notes may be
able to sell their Notes. Future trading prices of the Notes will depend on
many factors, including, among other things, prevailing interest rates, the
Company's operating results, the price of the Common Stock and the market for
similar securities. The Initial Purchaser has informed the Company that it
intends to make a market in the Notes offered hereby; however, the initial
Purchaser is not obligated to do so, and any such market making activity may be
terminated at any time without notice to the holders of the Notes. The Notes
have been designated for trading in the PORTAL market; however, the Company
does not intend to apply for listing of the Notes on any securities exchange or
for quotation through Nasdaq.
The Common Stock of the Company on a stand-alone basis has a very limited
trading history. The unadjusted reported sales prices for Common Stock for all
periods prior to July 29, 1997 (the first date after the Distribution on which
the Company's Common Stock was traded on the NYSE) reflect the sales prices for
the combined Waban enterprise including the BJ's Division and the HomeBase
Division. Accordingly, potential purchasers of the Notes will incur the risks
associated with the reduced predictability and potentially greater Common Stock
price volatility arising from such a short trading history.
DIVIDEND POLICY. The Company has never paid or declared a cash dividend and
the Company does not intend to pay or declare any cash dividends on the Common
Stock in the future. The Senior Bank Facility does not permit the Company to
pay cash dividends. The declaration and payment of dividends by the Company
will be at the discretion of the board of directors of the Company. There can
be no assurance that any dividends will be paid in the future.
CONTINUING OBLIGATIONS OF THE COMPANY FOR CERTAIN LEASE LIABILITIES AFTER THE
DISTRIBUTION. Pursuant to the Distribution, BJI assumed all liabilities to
third-party lessors with respect to leases entered into by the Company with
respect to the BJ's Division. While the Company will continue to be liable, by
law, with respect to such lease liabilities, BJI has agreed to indemnify the
Company for such liabilities. However, there is no assurance that BJI will be
able to make payments under the indemnity. See "Relationship Between BJI and
HomeBase After the Distribution; Conflicts of Interest."
CERTAIN ANTITAKEOVER FEATURES. The Company's Certificate of Incorporation and
Bylaws contain certain provisions designed to deter or prevent takeover
attempts. The Company has also adopted a shareholder rights plan designed to
have a similar effect. See "Description of Capital Stock."
12
<PAGE>
RECENT DEVELOPMENTS
ANNOUNCEMENT OF ACCELERATED GROWTH STRATEGY. On October 28, 1997, the
Company announced an accelerated growth strategy that consists primarily of
two elements: accelerated remodeling of its stores and an increased pace of
new store openings. The Company's strategy is designed to capitalize on the
performance of its prototype store format and an expanding California economy.
Since 1993, the Company has remodeled or relocated 45 of its stores and
opened 16 new stores incorporating the prototype design. The Company expects
to complete remodeling 17 of the remaining stores over the next six months,
rather than over the next two years as previously planned. Thus, the Company
believes that virtually all of its stores will be operating in the prototype
format in the spring of 1998, in time for the Company's peak selling season.
This accelerated program will enable the Company to publicize the "Re-Grand
Opening" of the remodeled stores simultaneously, allowing it to maximize the
impact of advertising expenditures, improved store logistics and enhanced name
recognition.
The Company's prototype store format features a reconfigured layout designed
to be more attractive to casual and DIY shoppers, while highlighting higher
margin items and segregating merchandise of primary interest to contractors
and professional customers for easier access. The store remodeling program
also features improvements to interior and exterior decor. All of the
Company's stores remain open for business during remodeling. During the last
three years, upon completion of remodeling, the Company's remodeled stores
have achieved significant increases in sales and in selling margins, as
compared to the same stores prior to remodeling.
Most of the 17 stores that remain to be remodeled are located in Southern
California. The Company believes that the Southern California housing market
is experiencing a recovery. For example, according to Acxiom/Data Quick
Information Systems, home sales prices in six Southern California counties
increased 6.8% from September 1996 to September 1997. In Los Angeles County,
the median home sales price increased 7.4% over the same period, with 18.5%
more homes sold in September 1997 than in September 1996.
The Company also plans to increase the pace of scheduled store openings over
the next three years. The Company expects that, after scheduled openings of
two to four new stores in fiscal 1998, the pace of expansion will increase to
opening eight to ten new stores in each of fiscal 1999 and fiscal 2000,
compared to two to four per year, as previously planned. The Company currently
expects that substantially all new stores to be built over the next three
years will be in its existing markets or in contiguous markets. Because the
Company's growth plans are subject to numerous uncertainties, including those
set forth under "Risk Factors," there can be no assurance that the Company
will open stores at the pace set forth above. Excluding land acquisition and
building development costs, a new HomeBase store entails an initial capital
investment of approximately $1.7 million for fixtures and equipment and an
investment of approximately $2.8 million for inventory (net of accounts
payable) and pre-opening expenses. See "Risk Factors--Accelerated Growth
Strategy."
SPIN-OFF OF BJ'S DIVISION IN JULY 1997. In July 1997, the Company
transferred the net assets of the BJ's Division to BJI, and distributed all of
the stock of that entity to its existing stockholders. In connection with the
Distribution, the Company changed its name from Waban Inc. to HomeBase, Inc.
BJI is now a separate publicly traded company. See "Relationship Between BJI
and HomeBase after the Distribution; Conflicts of Interest."
13
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Notes or the
Conversion Shares by the Selling Securityholders.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
November 22, 1997, which includes the issuance of $100 million of the Notes by
the Company to the Initial Purchaser on November 17, 1997. This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto of the Company, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NOVEMBER 22,
1997
--------------
(IN THOUSANDS,
EXCEPT SHARE
AMOUNTS)
<S> <C>
Senior Bank Facility............................................ $ --
Senior subordinated notes(1).................................... 6,637
Other long-term debt, net of current portion.................... 391
Convertible subordinated notes due 2004......................... 100,000
Obligations under capital leases--long-term..................... 8,694
--------
Total long-term debt, net of current portion................ 115,722
Stockholders' equity:
Common stock, par value $.01, authorized 190,000,000 shares,
outstanding 37,594,036 shares(2)............................. 376
Preferred stock, par value $.01, authorized 10,000,000 shares,
none issued.................................................. --
Additional paid-in capital.................................... 373,248
Retained earnings (deficit)(3)................................ (9,929)
--------
Total stockholders' equity.................................... 363,695
--------
Total capitalization........................................ $479,417
========
</TABLE>
- --------
(1) The Company purchased U.S. Treasury Securities and deposited them in
escrow with the trustee of such notes, to be used to retire the debt and
pay interest through May 15, 1999.
(2) Excludes 5,936,623 shares of Common Stock reserved for issuance under the
Company's stock option plans.
(3) Includes an after-tax charge of approximately $16.3 million during the
third quarter of fiscal 1997 that related primarily to the Company's
planned closure of three underperforming stores. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
14
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is listed on the NYSE under the symbol "HBI." The Company's
Common Stock began trading separately on July 29, 1997. Since that date, the
high and low sales prices per share were $11.13 and $7.56. On December 29,
1997, the last reported sales price of the Common Stock on the NYSE was
$7.75 per share.
The Company has never paid or declared a cash dividend and the Company does
not intend to pay or declare any cash dividends on the Common Stock in the
future. The Senior Bank Facility does not permit the Company to pay cash
dividends. The declaration and payment of dividends by the Company will be at
the discretion of the board of directors of the Company. There can be no
assurance that any dividends will be paid in the future.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial and operating data of the
Company for each of the three fiscal years ended January 25, 1997 are
extracted or derived from, and should be read in conjunction with, the audited
Consolidated Financial Statements, and the Notes thereto, of the Company
included herein, which statements have been audited by Coopers & Lybrand
L.L.P., independent accountants. The selected consolidated financial data of
the Company for the two fiscal years ended January 29, 1994 are extracted or
derived from the unaudited Consolidated Financial Statements of the Company
which are not included herein. The selected consolidated financial data for
the 39 weeks ended October 26, 1996 and October 25, 1997 are extracted or
derived from, and should be read in conjunction with, the unaudited
Consolidated Financial Statements, and the Notes thereto, of the Company
included herein, which, in the opinion of the Company's management, include
all adjustments (consisting of only normal recurring accruals) necessary for a
fair presentation of the financial position and results of operations for such
periods. The results of operations for the 39 weeks ended October 25, 1997 are
not necessarily indicative of results that may be expected for fiscal 1997.
The selected consolidated financial and operating data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations--The Company" and the Consolidated
Financial Statements and Notes thereto of the Company included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
39 WEEKS ENDED FISCAL YEAR ENDED
------------------------ ------------------------------------------------------------------
OCTOBER 25, OCTOBER 26, JANUARY 25, JANUARY 27, JANUARY 28, JANUARY 29, JANUARY 30,
1997 1996 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $1,149,040 $1,142,923 $1,452,696 $1,448,776 $1,357,190 $1,585,956 $1,570,878
Cost of sales, including
buying and occupancy
costs.................. 898,835 889,059 1,136,997 1,124,460 1,056,620 1,279,084 1,263,330
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit............ 250,205 253,864 315,699 324,316 300,570 306,872 307,548
Selling, general and
administrative
expenses............... 213,355 216,261 277,841 275,655 248,112 272,256 268,241
Store closures,
restructuring, and
other charges.......... 27,000 -- -- -- -- 101,133 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss)(1).............. 9,850 37,603 37,858 48,661 52,458 (66,517) 39,307
Interest on debt and
capital leases (net)... 4,528 7,660 10,506 8,790 9,125 7,661 5,158
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes and
extraordinary loss and
cumulative effect of
change in accounting
principle(1)........... 5,322 29,943 27,352 39,871 43,333 (74,178) 34,149
Provision (benefit) for
income taxes........... 2,121 11,843 11,005 15,386 16,395 (30,733) 12,981
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations
before extraordinary
loss and cumulative
effect of change in
accounting
principle(1)........... 3,201 18,100 16,347 24,485 26,938 (43,445) 21,168
Income from discontinued
operations, net of
income tax............. 20,575 33,053 60,313 48,492 38,052 26,865 23,074
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary loss and
cumulative effect of
change in accounting
principle(1)........... 23,776 51,153 76,660 72,977 64,990 (16,580) 44,242
Extraordinary loss...... (8,663) -- -- -- -- -- --
Cumulative effect of
change in accounting
principle.............. -- -- -- -- -- (1,202) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)(1).... $ 15,113 $ 51,153 $ 76,660 $ 72,977 $ 64,990 $ (17,782) $ 44,242
========== ========== ========== ========== ========== ========== ==========
PRIMARY EARNINGS (LOSS)
PER SHARE:
Income (loss) from
continuing operations
before extraordinary
loss and cumulative
effect of change in
accounting principle... $ 0.09 $ 0.55 $ 0.49 $ 0.74 $ 0.81 $ (1.31) $ 0.64
Income from discontinued
operations............. 0.57 0.99 1.82 1.46 1.14 0.81 0.69
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary loss and
cumulative effect of
change in accounting
principle.............. 0.66 1.54 2.31 2.20 1.95 (0.50) 1.33
Extraordinary loss...... (0.24) -- -- -- -- -- --
Cumulative effect of
change in accounting
principle.............. -- -- -- -- -- (0.04) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.............. $ 0.42 $ 1.54 $ 2.31 $ 2.20 $ 1.95 $ (0.54) $ 1.33
========== ========== ========== ========== ========== ========== ==========
FULLY DILUTED EARNINGS
(LOSS) PER SHARE:
Income (loss) from
continuing operations
before extraordinary
loss and cumulative
effect of change in
accounting principle... $ 0.09 $ 0.54 $ 0.49 $ 0.71 $ 0.77 $ (1.31) $ 0.64
Income from discontinued
operations............. 0.57 0.90 1.66 1.34 1.06 0.81 0.69
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary loss and
cumulative effect of
change in accounting
principle.............. 0.66 1.44 2.15 2.05 1.83 (0.50) 1.33
Extraordinary loss...... (0.24) -- -- -- -- -- --
Cumulative effect of
change in accounting
principle.............. -- -- -- -- -- (0.04) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income.............. $ 0.42 $ 1.44 $ 2.15 $ 2.05 $ 1.83 $ (0.54) $ 1.33
========== ========== ========== ========== ========== ========== ==========
Number of common shares
for earnings per share
computations:
Primary................ 35,768 33,224 33,205 33,220 33,405 33,082 33,191
Fully diluted.......... 35,981 37,704 37,713 37,784 37,793 33,082 35,707
BALANCE SHEET DATA:
Working capital......... $ 153,538 $ 257,294 $ 275,842 $ 265,450 $ 308,749 $ 213,315 $ 286,313
Net current and non-
current assets of
discontinued
operations(2).......... -- 471,181 423,688 403,713 322,945 301,958 201,192
Total assets............ 663,110 1,144,872 1,077,059 1,066,188 1,011,705 873,478 838,322
Long-term debt and
obligations under
capital leases......... 16,023 242,671 242,548 255,803 269,223 185,566 192,278
Stockholders' equity.... 363,319 605,711 631,925 555,120 488,089 420,492 436,610
CASH FLOW DATA:
Net cash provided by
(used in) operating
activities of
continuing operations.. $ 90,208 $ 15,151 $ (17,688) $ 44,955 $ 54,138 $ 75,793 $ (29,642)
Net cash used in
investing activities of
continuing operations.. (22,614) (17,636) (23,761) (21,633) (92,125) (7,208) (30,024)
Net cash provided by
(used in) financing
activities of
continuing operations.. (131,001) 19,154 (15,599) (21,282) 82,225 (6,314) 104,921
OTHER DATA:
Capital expenditures.... 15,336 42,253 48,393 73,300 37,198 38,875 78,537
EBITDA(1)(3)............ 27,882 54,493 60,824 68,130 71,054 (45,584) 58,617
Ratio of earnings to
fixed charges(4)....... 2.2x 4.5x 3.4x 4.8x 5.2x -- (1) 6.0x
Stores open at end of
period................. 85 84 84 79 77 82 86
</TABLE>
16
<PAGE>
- --------
(1) The income figures shown for the 39 weeks ended October 25, 1997 include a
pre-tax charge of $27.0 million for store closures and other charges. The
loss figures shown for fiscal 1993 include a pre-tax restructuring charge
of $101.1 million. As a result of this charge, earnings were insufficient
to cover fixed charges in fiscal 1993 by $74.2 million.
(2) As of July 26, 1997, the Company transferred all of the net assets of the
BJ's Division to BJI and on July 28, 1997, the Company completed the
Distribution.
(3) Earnings from continuing operations before interest, taxes, depreciation
and amortization ("EBITDA") does not take into account capital
expenditures and does not represent cash generated from operating
activities in accordance with generally accepted accounting principles
("GAAP"), is not presented as an alternative to net income or any other
GAAP measurements as a measure of operating performance and is not
indicative of cash available to fund all cash needs. The Company's
definition of EBITDA may not be identical to similarly titled measures of
other companies. The Company believes that in addition to cash flows and
net income, EBITDA is a useful financial performance measurement for
assessing the operating performance of the Company because, together with
net income and cash flows, EBITDA is widely used to provide investors with
an additional basis to evaluate the ability of the Company to incur and
service debt. To evaluate EBITDA and the trends it depicts, the components
of EBITDA, such as net sales, cost of sales, and selling, general and
administrative expenses, should be considered. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(4) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include pre-tax income from
continuing operations plus fixed charges. "Fixed charges" include
interest, whether expensed or capitalized and amortization of debt
issuance costs.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto of the Company appearing elsewhere in
this Prospectus or incorporated herein by reference.
OVERVIEW
The Company is the second largest operator of home improvement warehouse
stores in the western United States with 83 stores in 10 states. The Company
offers a broad assortment of brand name home improvement and building supply
products at competitive prices to both DIY customers and professional
contractors. The Company's net sales and net income from continuing operations
for fiscal 1996 were $1,452.7 million and $16.3 million, respectively.
As of July 26, 1997, HomeBase, Inc., formerly known as Waban Inc.,
transferred all of the net assets of its BJ's Division to BJI. On July 28,
1997, the Company distributed to its stockholders on a pro rata basis all of
the outstanding common stock of BJI. The Company's Consolidated Financial
Statements for all periods presented have been restated to present the BJ's
Division as a discontinued operation. Income from discontinued operations in
the year-to-date period ended October 25, 1997 also included transaction costs
of $5.0 million (net of tax) incurred in connection with the Distribution. The
discussion that follows pertains to the continuing operations of the Company
unless otherwise noted.
The Company's comparable store sales during the last two years were
negatively affected by continuing competitive pressures and low levels of home
improvement activity in Southern California, where a significant number of the
Company's stores are located. Sales in fiscal 1995 were also negatively
impacted by significant deflation in lumber prices and by severe weather in
the western United States in the first quarter of fiscal 1995. The Company's
business is subject to seasonal influences. Sales and profits have typically
been lower in the first and fourth quarters of the fiscal year and higher in
the second and third quarters, which include the most active season for home
construction.
The Company operates within a conventional 52 or 53 week accounting fiscal
year. The Company's fiscal year ends on the last Saturday in January. The
fiscal year ended January 25, 1997 is referred to as "1996" or "fiscal 1996"
below. The fiscal years ended January 27, 1996 and January 28, 1995 are
referred to as "1995" or "fiscal 1995" and "1994" or "fiscal 1994,"
respectively.
18
<PAGE>
RESULTS OF OPERATIONS
The following table presents, as a percentage of net sales, the results of
operations for the periods indicated.
<TABLE>
<CAPTION>
39 WEEKS ENDED FISCAL YEAR ENDED
----------------------- -----------------------------------
OCTOBER 25, OCTOBER 26, JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, including
buying and occupancy
costs.................. 78.2 77.8 78.3 77.6 77.9
----- ----- ----- ----- -----
Gross profit............ 21.8 22.2 21.7 22.4 22.1
Selling, general and
administrative
expenses............... 18.6 18.9 19.1 19.0 18.3
Store closures and other
charges................ 2.3 -- -- -- --
----- ----- ----- ----- -----
Operating income........ 0.9 3.3 2.6 3.4 3.8
Interest on debt and
capital leases (net)... 0.4 0.7 0.7 0.6 0.6
----- ----- ----- ----- -----
Income from continuing
operations before
income taxes and
extraordinary loss..... 0.5 2.6 1.9 2.8 3.2
Provision for income
taxes.................. 0.2 1.0 0.8 1.1 1.2
----- ----- ----- ----- -----
Income from continuing
operations before
extraordinary loss..... 0.3 1.6 1.1 1.7 2.0
Income from discontinued
operations, net of
income tax............. 1.8 2.9 4.2 3.3 2.8
----- ----- ----- ----- -----
Income before
extraordinary loss..... 2.1 4.5 5.3 5.0 4.8
Extraordinary loss on
early extinguishment of
debt, net of income
taxes.................. (0.8) -- -- -- --
----- ----- ----- ----- -----
Net income.............. 1.3% 4.5% 5.3% 5.0% 4.8%
===== ===== ===== ===== =====
</TABLE>
THIRTY-NINE WEEKS ENDED OCTOBER 25, 1997 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 26, 1996
Net Sales
Net sales for the 39 weeks ended October 25, 1997 increased 0.5% to $1,149.0
million from $1,142.9 million in the comparable prior-year period. The
increase in net sales was primarily due to new store openings, partially
offset by declines in comparable store sales and store closures. Since the
beginning of fiscal 1996, eight stores have been opened and two stores have
been closed.
Comparable store sales declined 1.9% for the 39 weeks ended October 25,
1997. The declines were primarily attributable to increased competition in
many of the markets in which the Company operates.
Cost of Sales
Cost of sales, including buying and occupancy costs, as a percentage of
sales for the 39 weeks ended October 25, 1997 was 78.2% compared to 77.8% in
the comparable prior-year period. The increase is primarily due to a
combination of slightly lower average selling margins, which were impacted by
competitive conditions, an increase in the provision for inventory shrinkage
and somewhat higher buying and occupancy costs as a percentage of sales, due
to comparable store sales declines.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") were 18.6% of net
sales for the 39 weeks ended October 25, 1997 compared to 18.9% in the
comparable prior-year period. The decrease was primarily attributable to lower
preopening and remodel related costs due to fewer stores being opened or
remodeled in the current year.
19
<PAGE>
In October 1997, the Board of Directors approved an accelerated growth
strategy that includes remodeling the remaining 17 stores in the Company's
remodel program over the following six months and increasing the rate of new
store openings. The Company expects to open between two and four new stores in
fiscal 1998 and to open between eight and 10 new stores in each of the
following two fiscal years. As a result, the Company expects to experience
higher costs in connection with these remodels and expansions. In the fourth
quarter of fiscal 1997 and in the first quarter of fiscal 1998, the Company
expects to incur costs of approximately $4 million per quarter related to the
accelerated remodel program.
Store Closures and Other Charges
In connection with the Company's accelerated growth strategy, the Board of
Directors approved the closure of three under-performing stores. In the third
quarter of fiscal 1997, the Company recorded store closures and other charges
of $27.0 million consisting of $22.3 million for store closures and other
related settlement costs, a $3.0 million increase in the fiscal 1993
restructuring reserve and $1.7 million in asset impairment charges.
Costs included in the reserve for store closures primarily include lease
obligations on closed facilities and write-downs of fixed assets and other
related settlement costs. The Company announced the closure of two stores on
January 5, 1998, and expects to close a third store by the end of fiscal 1999.
The Company increased the fiscal 1993 restructuring reserve by $3.0 million
for additional lease obligations due to delays in obtaining subleases at terms
acceptable to the Company.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("SFAS 121"), long-lived assets held and used by the
Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived
assets, the recoverability test is performed using undiscounted net cash flows
of the individual warehouse stores. The Company updated its analysis in the
quarter ended October 25, 1997 and concluded that the long-lived assets at two
stores were impaired. Accordingly, the Company estimated the fair value of
these assets based on their estimated salvage value and recorded an impairment
charge of $1.7 million, which is included in store closures and other charges.
Interest Expense
The components of consolidated net interest expense were as follows (in
thousands):
<TABLE>
<CAPTION>
39 WEEKS ENDED
-----------------------
OCTOBER 25, OCTOBER 26,
1997 1996
----------- -----------
<S> <C> <C>
Interest expense on debt................................ $ 8,501 $14,652
Interest and investment income.......................... (1,515) (1,478)
------- -------
Interest on debt, net................................... 6,986 13,174
Interest on capital leases.............................. 1,066 1,180
------- -------
Interest on debt and capital leases, net................ 8,052 14,354
Less: interest allocated to discontinued operations..... (3,524) (6,694)
------- -------
Net interest--continuing operations..................... $ 4,528 $ 7,660
======= =======
</TABLE>
Net interest expense from continuing operations for the 39 weeks ended
October 25, 1997 was $4.5 million compared to $7.7 million for the comparable
prior-year period. Corporate interest expense was allocated to discontinued
operations based on the ratio of BJ's net assets to the sum of consolidated
net assets plus consolidated debt.
The decline in net interest expense from continuing operations is primarily
due to lower average outstanding debt balances in the 39 weeks ended October
25, 1997 compared to the comparable prior-year period. In July 1997, $106.7
million of the Company's 6.5% convertible subordinated debentures was
converted into common
20
<PAGE>
stock and the remaining $0.2 million was redeemed for cash. Also in July 1997,
the Company repaid all of its 9.58% senior notes due May 31, 1998, totaling
$12.0 million, and pursuant to a tender offer, $93.4 million of its 11% senior
subordinated notes due May 15, 2004, replacing this debt with short-term
borrowings under its then existing bank credit agreement. BJI assumed $72
million of these borrowings at the time of the Distribution. Partially
offsetting these declines in interest expense was a lower amount of interest
capitalized in the current year, compared to the prior-year period.
Interest expense from continuing operations for the 39 weeks ended October
26, 1996 excludes capitalized interest of $0.9 million.
Income Tax Provision
The income tax provision rate for the 39 weeks ended October 25, 1997 was
39.8% compared to 39.6% in the comparable prior-year period. The increase in
the effective rate is primarily attributed to lower interest income earned on
tax-exempt investments in the current year than in the prior year.
Income From Continuing Operations Before Extraordinary Loss
Income from continuing operations before extraordinary loss for the 39 weeks
ended October 25, 1997 was $3.2 million, or $0.09 per share, fully diluted,
compared to $18.1 million, or $0.54 per share, fully diluted, in the
comparable prior-year period. Excluding the store closures and other charges,
income from continuing operations for the 39 weeks ended October 25, 1997 was
$19.5 million, or $0.54 per share, fully diluted. Excluding the store closures
and other charges, the improvement in income from continuing operations for
the 39 weeks ended October 25, 1997 is primarily attributable to lower
interest expense and lower SG&A, partially offset by a lower gross profit
percentage.
Income from continuing operations includes all of the corporate overhead
expenses incurred by Waban prior to the Distribution and an allocation of
Waban's historical interest expense. As a result of the Distribution, the
conversion of the convertible subordinated debt into common stock and the
refinancing of $112 million of other indebtedness, income from continuing
operations for periods preceding the Distribution is not comparable to the
Company's income from continuing operations after the Distribution.
Net Income
Net income for the 39 weeks ended October 25, 1997 was $15.1 million, or
$0.42 per share, fully diluted, compared to $51.2 million, or $1.44 per share,
fully diluted, in the comparable prior-year period. These amounts include
income from discontinued operations for periods prior to the Distribution.
Income from discontinued operations, which includes the net income of the
BJ's Division before the Distribution reduced by $5.0 million of transaction
costs, net of tax, incurred in connection with the Distribution, was $20.6
million, or $0.57 per share, fully diluted, for the 39 weeks ended October 25,
1997. Income from discontinued operations for the 39 weeks ended October 26,
1996 was $33.1 million, or $0.90 per share, fully diluted.
The results for the 39 weeks ended October 25, 1997 include an extraordinary
loss of $8.7 million, net of tax, recorded in July 1997, associated with the
early extinguishment of the Company's 9.58% senior notes due May 31, 1998 and
$93.4 million of its 11% senior subordinated notes due May 15, 2004.
Restructuring Reserves
As of January 25, 1997, $13.5 million of the Company's fiscal 1993
restructuring charge remained accrued on the Company's consolidated balance
sheet. During the first three quarters of fiscal 1997, the Company incurred
cash expenditures of $2.7 million, primarily for lease obligations on closed
facilities, and non-cash charges of $0.3 million for write-downs of fixed
assets. As of October 25, 1997, $13.5 million remained accrued on the
Company's balance sheet (including additions to the reserve described above),
consisting primarily of lease obligations on closed facilities, which extend
through 2007.
21
<PAGE>
FISCAL YEAR ENDED JANUARY 25, 1997 COMPARED TO FISCAL YEARS ENDED JANUARY 27,
1996 AND JANUARY 28, 1995
Net Sales
Net sales increased by 0.3% to $1,452.7 million in fiscal 1996, compared to
$1,448.8 million in fiscal 1995, and increased by 6.7% in fiscal 1995 from
$1,357.2 million in fiscal 1994. The increases in each such fiscal year were
due to the opening of new stores and remodels of existing stores, partially
offset by comparable store sales decreases due to new competitor store
openings.
The Company's results for fiscal 1994 excluded the sales and operating
losses of 16 stores planned to be closed. Eight of those 16 stores were closed
in fiscal 1994, and two more stores were closed in fiscal 1995. The Company's
reported sales and operating income for fiscal 1995 included all stores in
operation. Sales from the eight stores which closed in fiscal 1994 and the two
stores which closed in fiscal 1995 were excluded from the computation of
comparable store sales growth from fiscal 1994 to fiscal 1995.
Cost of Sales
Cost of sales (including buying and occupancy costs) as a percentage of net
sales was 78.3% in fiscal 1996, compared to 77.6% and 77.9% in fiscal 1995 and
fiscal 1994, respectively. The increase in fiscal 1996 was due to a
combination of slightly lower average selling margins, an increased provision
for inventory shrinkage and higher buying and occupancy costs as a percentage
of net sales. The benefit of increased selling margins, due to an increase in
sales of products with higher margins, from new and remodeled stores was more
than offset by the adverse impact of new competitor store openings affecting a
greater number of the Company's stores.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of net sales
was 19.1% in fiscal 1996, compared to 19.0% and 18.3% in fiscal 1995 and
fiscal 1994, respectively. These increases in each such fiscal year reflect
higher labor cost ratios due to the Company's increased focus on customer
service in recent periods and lower average per store sales volumes.
Interest
The components of net interest expense for the last three fiscal years were
as follows (in millions):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest expense on debt.................... $11.0 $13.4 $12.6
Interest and investment income.............. (1.8) (5.9) (4.9)
----- ----- -----
Interest on debt (net)...................... 9.2 7.5 7.7
Interest on capital leases.................. 1.3 1.3 1.4
----- ----- -----
Interest on debt and capital leases (net)... $10.5 $ 8.8 $ 9.1
===== ===== =====
</TABLE>
Interest expense on debt and capital leases (net) in fiscal 1996 increased
to $10.5 million from $8.8 million in fiscal 1995 as the reduction in interest
expense related to the Company's outstanding long term debt was more than
offset by a decrease in interest and investment income. Interest expense in
fiscal 1995 decreased slightly to $8.8 million from $9.1 million in fiscal
1994 as an increase in interest expense was more than offset by an increase in
interest and investment income.
22
<PAGE>
Income Tax Provision
The income tax provision rate was 40.2% of pre-tax income in fiscal 1996,
compared with 38.6% and 37.8% in fiscal 1995 and 1994, respectively. The
increase in the effective rate in fiscal 1996 is primarily attributed to lower
interest income from tax-exempt investments and a reduction in targeted jobs
tax credits.
Income from Continuing Operations
As a result of the items discussed above, income from continuing operations
for fiscal 1996 declined 33.2% to $16.3 million, compared to $24.5 million in
fiscal 1995, and decreased by 9.1% in fiscal 1995 from $26.9 million in fiscal
1994.
Net Income
Net income was $76.7 million, or $2.15 per share, fully diluted, for fiscal
1996, $73.0 million, or $2.05 per share, fully diluted, for fiscal 1995 and
$65.0 million, or $1.83 per share, fully diluted, for fiscal 1994. These
amounts include income from discontinued operations. Income from discontinued
operations, which includes the net income of BJ's Division, was $60.3 million,
$48.5 million and $38.1 million for fiscal 1996, 1995 and 1994, respectively.
PRO FORMA FINANCIAL INFORMATION
Presented below are tables that recast income from continuing operations on
a pro forma basis to reflect the estimated effects of the Distribution, which
include reductions in administrative expenses and interest costs. On this pro
forma basis, income from continuing operations for the 39 weeks ended October
25, 1997 (which includes the actual results for the quarter ended October 25,
1997 after the Distribution) was $5.4 million, compared to $21.8 million for
the comparable prior-year period. Excluding the store closures and other
charges, pro forma income from continuing operations was $21.6 million.
The following unaudited pro forma financial information for the six quarters
ended July 26, 1997 is based on management's good faith estimate of what the
Company's operating performance would have been as a stand-alone corporation,
and is provided for comparative analytical purposes only. Also shown are the
actual results for the quarter ended October 25, 1997, after the Distribution.
Selling, general, and administrative expenses reflect a pro forma estimate of
costs that the Company would have incurred related to corporate overhead
activities performed by the Waban corporate staff. These costs, estimated at
$5.8 million in each of the fiscal years ended January 1997 and ending January
1998, have been allocated evenly between quarters. Pro forma interest expense
for all periods assumes that the capital structure that was established
immediately after the Distribution had been in place for all periods
presented. The components of interest expense are capital lease interest,
mortgage interest, and credit agreement costs, all of which have been spread
evenly by quarter, and bank borrowing interest expense, which has been spread
to reflect the typical seasonal requirements of the business. The average
estimated draw under the revolving credit facility is assumed to be $23
million. These unaudited financial data do not purport to represent the actual
changes in the historical cash/borrowing position. The provision for income
taxes is estimated at 39.8%. The number of shares used in the calculation of
fully diluted earnings per share is 37.9 million for all periods shown, except
for the quarter ended October 25, 1997, which reflects the weighted average
shares outstanding of 37.6 million. Common stock equivalents are considered
anti-dilutive and are excluded from this calculation. All pro forma
adjustments are based upon available information and assumptions that
management believes are reasonable under the circumstances. This information
does not purport to represent what the results of operations of the Company
would have actually been if the Distribution had in fact been consummated in
prior periods or at any future date or what the results of operations of the
Company will be for any future period.
23
<PAGE>
The pro forma results for the Company are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
JANUARY 31, 1998
--------------------------------
Q1 Q2 Q3
(PRO FORMA) (PRO FORMA) (ACTUAL)
----------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net sales............... $360,204 $420,404 $368,432
Cost of sales, including
buying and occupancy
costs.................. 282,259 327,049 289,527
Selling, general and
administrative
expenses............... 70,642 72,768 68,635
Store closures and other
charges................ -- -- 27,000
-------- -------- --------
Operating income (loss). 7,303 20,587 (16,730)
Interest on debt and
capital leases, net.... 1,012 853 355
Provision (benefit) for
income taxes........... 2,504 7,854 (6,797)
-------- -------- --------
Income (loss) from
continuing operations.. $ 3,787 $ 11,880 $(10,288)
======== ======== ========
Fully diluted earnings
(loss) per share from
continuing operations.. $ 0.10 $ 0.31 $ (0.27)
======== ======== ========
<CAPTION>
PRO FORMA FISCAL YEAR ENDED JANUARY 25, 1997
------------------------------------------------------
Q1 Q2 Q3 Q4 FULL YEAR
----------- ---------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales............... $352,242 $424,271 $366,410 $309,773 $1,452,696
Cost of sales, including
buying and occupancy
costs.................. 272,484 328,602 287,973 247,938 1,136,997
Selling, general and
administrative
expenses............... 72,953 74,181 67,878 61,363 276,375
-------- -------- -------- -------- ----------
Operating income........ 6,805 21,488 10,559 472 39,234
Interest on debt and
capital leases, net.... 1,012 853 771 1,153 3,789
Provision (benefit) for
income taxes........... 2,306 8,213 3,896 (272) 14,143
-------- -------- -------- -------- ----------
Income (loss) from
continuing operations.. $ 3,487 $ 12,422 $ 5,892 $ (409) $ 21,392
======== ======== ======== ======== ==========
Fully diluted earnings
(loss) per share from
continuing operations.. $ 0.09 $ 0.33 $ 0.16 $ (0.01) $ 0.56
======== ======== ======== ======== ==========
</TABLE>
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $3.7 million as of October 25, 1997. Cash
flow from operations and amounts available under the Company's revolving
credit facility are the Company's principal sources of liquidity.
In July 1997, the Company entered into a new $125 million credit agreement
("New Credit Agreement") with a group of banks which expires July 9, 2000.
This agreement replaced the Company's $150 million credit facility which was
scheduled to expire March 30, 1999, but was terminated immediately following
the Distribution. In October 1997, the New Credit Agreement was amended and
the total facility was reduced to $90 million. The New Credit Agreement
includes a $40 million sub-facility for letters of credit and is secured by
inventory and accounts receivable. The Company is required to pay an annual
facility fee which is currently 0.35% of the total commitment. Interest on
borrowings is payable at the Company's option either at (a) the Eurodollar
rate plus a margin, which is currently 1.45% or (b) the agent bank's prime
rate plus a margin, which is currently 0.2%. The facility fee and borrowing
margins are subject to adjustment based upon the Company's fixed-charge
coverage ratio. The credit facility is subject to certain covenants which
include minimum tangible net worth and fixed-charge coverage requirements, a
maximum funded debt-to-capital limitation, and a prohibition on the payment of
cash dividends.
At October 25, 1997, the Company had no borrowings under its revolving
facility, and had $15.5 million of letters of credit outstanding. At November
22, 1997, the Company had $75.7 million available for borrowing under the
revolving facility.
During the 39 weeks ended October 25, 1997, net cash provided by operating
activities of continuing operations was $90.2 million compared to $15.2
million in the comparable prior-year period. The increase in the current year
was primarily attributable to a lower accounts payable-to-inventory ratio at
the beginning of this year as compared to the beginning of last year.
Net cash used in investing activities of continuing operations was $22.6
million for the 39 weeks ended October 25 1997, compared to $17.6 million in
the prior-year period. Investing activities primarily consist of capital
expenditures and investments in marketable securities.
Year-to-date capital expenditures for property additions for continuing
operations were $15.3 million this year versus $42.3 million in the comparable
prior-year period. During the first 39 weeks of fiscal 1997, the Company
opened two new warehouse stores and closed one warehouse store. In the
comparable prior-year period, the Company opened six new warehouse stores and
closed one store. Capital expenditures for the first 39 weeks of fiscal 1997
also include the remodeling of 10 stores (eight of which have been completed),
compared to capital expenditures for the remodeling of 16 stores (14 of which
had been completed) in the comparable prior-year period. The Company's capital
expenditures are expected to total approximately $35 million to $40 million in
fiscal 1997. The timing of actual store openings and renovations and the
amount of related expenditures could vary from these estimates due, among
other things, to the complexity of the real estate development process.
As a result of the Company's accelerated growth strategy, the Company
expects to incur additional costs of approximately $4 million per quarter in
the fourth quarter of fiscal 1997 and the first quarter of fiscal 1998 related
to the accelerated remodel program. In addition, the Company expects capital
expenditures on these remodels to be approximately $17 million in the
aggregate over these two quarters. The Company expects to finance these
capital expenditures with the proceeds from a $100 million convertible debt
offering, which was completed November 17, 1997 (See "--Subsequent Event").
During the 39 weeks ended October 25, 1997, the Company had purchases of
$7.7 million of marketable securities, compared to net proceeds of $20.2
million in the comparable prior-year period. Current year purchases of
marketable securities were for U.S. Treasury securities, which the Company
deposited in escrow with the trustee of its 11% senior subordinated notes to
cover remaining interest and principal payments for the outstanding balance of
$6.6 million at October 25, 1997.
25
<PAGE>
Net cash used in financing activities of continuing operations was $131.0
million for the 39 weeks ended October 25, 1997, compared to net cash provided
by financing activities of continuing operations of $19.2 million in the
comparable prior year period. Current year activities primarily consisted of
repayment of $130.7 million in long-term debt, including approximately $12.7
million of call premiums, and cash paid to BJI of $5.0 million in connection
with the spin-off. Partially offsetting these cash payments were the proceeds
from the sale and issuance of common stock of $5.9 million.
During the second quarter of fiscal 1997, the Company repaid its 9.58%
senior notes totaling $24.0 million (including $12.0 million currently due and
$12.0 million due May 15, 1998), and repaid $93.4 million of its 11% senior
subordinated notes, replacing this debt with $96 million of short-term
borrowings under its then existing bank credit facility. BJI assumed $72
million of these borrowings at the time of the Distribution. A total of $6.6
million of the Company's 11% senior subordinated notes remains outstanding,
which the Company intends to call and repay on May 15, 1999, with the
maturities of the U.S. Treasury Securities deposited with the trustee of the
notes.
During the quarter ended July 26, 1997, $106.7 million of the Company's 6.5%
convertible subordinated debentures was converted into common stock and the
remaining $0.2 million was redeemed for cash.
The Company expects that its current resources, including the revolving
facility, together with anticipated cash flow from operations and proceeds
from the $100 million convertible debt offering, will be sufficient to finance
its operations and capital expenditures through January 30, 1999.
Subsequent Event
On November 17, 1997 the Company completed the private placement of $100
million, 5.25% convertible subordinated notes due November 1, 2004 through a
Rule 144A/Regulation S offering, receiving net proceeds of approximately $96
million, net of debt issue costs. The notes are convertible, subject to
adjustment in certain events, into approximately 9.8 million shares of the
Company's common stock at a conversion price of $10.2175 per share at any time
after February 15, 1998 and prior to maturity unless earlier redeemed or
repurchased. Subsequent to November 1, 2000, the notes are redeemable at the
option of the Company, in whole or in part, initially at 103.15% of principal
and thereafter at prices declining to 100% on or after November 1, 2003,
together with accrued interest. Interest is payable semi-annually on May 1 and
November 1 of each year, commencing on May 1, 1998. The Company expects to use
the proceeds to finance its accelerated growth strategy as follows:
(i) approximately $17 million will be used to remodel 17 existing stores with
completion expected in the spring of 1998; (ii) approximately $25 million and
$50 million will be used to fund capital expenditures in connection with the
new store opening plan during fiscal 1998 and fiscal 1999, respectively; and
(iii) the remainder will be used for working capital and other general
corporate purposes.
RECENT ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," was issued in February 1997 and becomes effective for the Company's
fiscal year ending January 31, 1998. SFAS No. 128 modifies the way in which
earnings per share ("EPS") is calculated and disclosed. Currently, the Company
discloses primary and fully diluted EPS. Upon adoption of this standard for
the fiscal year ending January 31, 1998, the Company will disclose basic and
diluted EPS for fiscal 1997 and will restate all prior period EPS data
presented. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS, similar to fully diluted EPS,
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings
of the entity. If the Company had adopted SFAS No. 128 for fiscal 1996, basic
EPS would have been $2.33 per share versus $2.31 reported for primary EPS.
Diluted EPS would have been $2.15 per share, unchanged from fully diluted EPS
reported in 1996.
In July 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. Adoption of this
statement will not have a material effect on historical results of operations.
26
<PAGE>
BUSINESS
GENERAL
The Company is the second largest operator of home improvement warehouse
stores in the western United States with 83 stores in 10 states. The Company's
stores average approximately 102,000 square feet of indoor space, typically
with an additional outdoor garden center area. The Company offers a broad
assortment of brand name home improvement and building supply products at
competitive prices to both DIY customers and professional customers. In
certain categories, the Company supplements its brand name offerings with high
quality private label products.
The Company's objective is to be the first choice destination for home
improvement shoppers by combining product selection at competitive prices with
superior customer service. In order to achieve this objective, the Company is
completing the roll-out of its prototype store format. The Company's prototype
store format features a reconfigured layout designed to be more attractive to
casual and DIY shoppers, while highlighting higher margin items and
segregating merchandise of primary interest to contractors and other
professional customers for easier access. Management believes this prototype
has proven successful in attracting more DIY customers while better meeting
the needs of the professional contractor.
INDUSTRY OVERVIEW
The Company believes that demographic and lifestyle factors such as the
maturing of baby boomers, the increase in home-centered activities and the
aging housing stock will create growing demand for home improvement products
and services. Based on industry sources, the estimated overall market for home
improvement products in the United States exceeded $134 billion in 1996.
Over the last ten years, warehouse-format home improvement retailers have
gained significant market share in the United States by offering lower prices,
greater product selection and more in-stock merchandise than traditional home
center, hardware and lumber yard operators. In addition, warehouse store
operators have been able to take advantage of economies created by large sales
volumes. Although the home improvement industry remains fragmented, it has
experienced increasing consolidation during recent years, with the sales of
the five largest operators representing approximately 27% of the estimated
overall market in 1996 as compared to 12% of the estimated overall market in
1989. The Company believes this trend will continue, and that opportunities
exist for service-oriented home improvement retailers to benefit from this
continuing consolidation.
STORE BASE
The Company is among the two largest home improvement operators in most of
the metropolitan markets which it serves. The Company's new store opening plan
is oriented towards reinforcing its position in these existing markets and
expanding selectively into contiguous markets. In an announcement made on
October 28, 1997, the Company disclosed plans to increase the pace of
scheduled store openings over the next three years. The Company expects that,
after scheduled openings of two to four new stores in fiscal 1998, the pace of
expansion will increase to opening eight to ten stores in each of fiscal 1999
and fiscal 2000, compared to the previously scheduled two to four per year.
See "Risk Factors--Accelerated Growth Strategy."
27
<PAGE>
The following table shows the number of Company stores opened and closed
during the last five fiscal years and during the current fiscal year through
January 5, 1998 (including the two stores the closure of which was announced
on January 5, 1998):
<TABLE>
<CAPTION>
STORES IN
OPERATION AT STORES OPENED STORES CLOSED STORES IN
BEGINNING OF DURING THE DURING THE OPERATION AT
FISCAL YEAR PERIOD PERIOD PERIOD END OF PERIOD
- ----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
1992.................... 73 13 -- 86
1993.................... 86 5 9 82
1994.................... 82 3 8 77
1995.................... 77 4 2 79
1996.................... 79 5 -- 84
1997 (through January 5,
1998).................. 84 2 3 83
</TABLE>
Since 1993, the Company has remodeled or relocated 45 of its stores and
opened 16 new stores incorporating the prototype store design. In October
1997, the Company announced that it expects to complete the 17 remaining
stores in its remodeling program over the next six months, rather than over
the next two years, as previously planned. Thus, virtually all of the
Company's stores will be operating in the prototype format in the spring of
1998, in time for the Company's peak selling season.
CUSTOMER SERVICE
The Company is committed to providing superior service to its two targeted
customer groups. At each store, carefully selected home improvement
specialists, many of whom have extensive experience in their respective
fields, are available throughout the store to assist DIY customers and
professional contractors. The Company's project design centers and kitchen
design centers feature computer assisted design tools that allow customers to
work with design coordinators to conceptualize and plan virtually any home
improvement project. The majority of the Company's stores also offer the
services of professional interior decorators who provide free design
consultations in customers' homes.
The Company believes that it is important to expand its DIY business by
encouraging new DIY customers and upgrading the skills and confidence levels
of existing DIY customers. Accordingly, the Company provides assistance and
training to DIY customers, including regularly scheduled customer clinics on a
wide range of home improvement projects. Delivery and installation are also
available as services to DIY customers.
The Company's stores offer services to specifically address the needs of
contractors. A majority of the Company's stores have Contractor Desks, with
staff dedicated to handling contractors' special needs, including the ability
to receive faxed orders and pre-assemble them for pick-up, and quickly
obtaining special items and sizes. The Company's stores also deliver bulk
purchases to job sites for a nominal fee. The Company's stores offer extended
hours, opening early in the morning to serve professional contractors.
The Company strives to develop the skills of its store personnel to ensure
that customers consistently receive knowledgeable and courteous assistance.
The Company's training programs emphasize the importance of customer service
and improve store employees' selling skills. The Company provides extensive
training for its entry-level store personnel through a comprehensive in-house
training program that combines on-the-job training with formal seminars and
meetings. On an ongoing basis, store personnel attend periodic in-house
training sessions conducted by the Company's training staff or by
manufacturers' representatives, and they receive sales, product and other
information in frequent meetings with store managers. The Company's satellite
television system permits it to simultaneously broadcast training sessions
from its Irvine, California headquarters to every individual store location.
The Company offers its own private label credit card to customers under a
non-recourse program operated by a major financial institution and also
accepts MasterCard, Visa, Discover and American Express.
28
<PAGE>
MERCHANDISING
The Company's stores provide a broad selection of brand name merchandise to
both DIY customers and professional contractors, offering between 32,000 and
42,000 SKUs depending upon the season. The Company believes that the operating
efficiencies of the warehouse store format provide substantial savings over
other channels of home improvement and building supply product distribution.
In order to achieve greater operational efficiencies and reduce freight and
handling costs, as well as improve the manner in which it purchases products,
the Company has centralized its merchandise replenishment operations and
improved its logistics of distribution. This program also permits the Company
to redeploy more store personnel to customer service activities.
Merchandise sold by the Company's stores includes lumber, building
materials, plumbing supplies and fixtures, electrical materials and fixtures,
kitchen cabinets, hand and power tools, hardware, paint, garden supplies,
nursery items, home decorative items and related seasonal and household
merchandise. The Company's brand name orientation allows customers to compare
the Company's prices to the same items offered by competitors. In selected
categories, the Company supplements these brand name offerings with high
quality private label products, such as its Infinity(R) brand line of paint.
Most of the Company's merchandise is purchased from manufacturers for
shipment either directly to the individual store or to cross-docking
facilities where large shipments are broken down and separated for transfer to
individual stores, generally on a same-day basis. The Company estimates that
more than 50% of its merchandise is distributed to individual stores through
the Company's consolidation and distribution center in Rancho Cucamonga,
California. By operating warehouse-format stores, the Company can keep its
fixturing and operating costs substantially below those of traditional home
improvement retailers.
SEASONALITY
Sales and earnings for the Company have typically been lower in the first
and fourth quarters of the fiscal year and higher in the second and third
quarters, which include the most active season for home improvement. See "Risk
Factors--Seasonality and Quarterly Results."
MARKETING AND ADVERTISING
The Company addresses its primary target customers through a mix of
newspaper, direct mail, radio and television advertising. The primary
advertising medium is newspaper advertisements, including both freestanding
inserts and run-of-press ads. Television and radio advertising is used to
reinforce the Company's image of providing superior customer service and a
broad assortment of merchandise at competitive prices. Additionally, the
Company participates in or hosts a variety of home shows, customer hospitality
events and contractor product shows. The Company solicits vendor participation
in many of its advertising programs.
MANAGEMENT INFORMATION SYSTEMS
The Company uses a fully integrated management information system to monitor
sales, track inventory and provide rapid feedback on the performance of its
business. Each Company store operates point-of-sale terminals which capture
information on each item sold via UPC scanning. Minicomputers at each store
process and consolidate this information during the selling day and transmit
it each night to the Company's information center via satellite, where it is
processed daily to support merchandising, inventory replenishment and
promotional decisions.
The Company introduced scanning to the home improvement industry and is a
leader in implementing electronic data interchange ("EDI"). EDI permits both
the Company and its vendors to save money and reduce errors by electronically
transmitting advance shipment notices and purchase order and invoicing
information. The Company now uses EDI with more than 1,200 vendors and
continues to expand its use of this technology.
29
<PAGE>
COMPETITION
The Company competes with other home improvement warehouse stores and a wide
range of businesses engaged in the wholesale or retail sale of home
improvement and building supply merchandise, including home centers, hardware
stores, lumber yards and discount stores. The Company believes the major
competitive factors in the markets in which it competes are customer service,
product selection, location, price and name recognition. The Company believes
that its improved level of customer service, the value offered by its
competitive prices and the one-stop shopping available through its full range
of home improvement products give it an advantage over many of its traditional
home center competitors. The major competitor in the Company's market areas
that also uses the warehouse store format is The Home Depot, Inc., which has
significantly greater financial and marketing resources than the Company.
Approximately 85% of the Company's stores compete with Home Depot units. The
Company also competes with Builders Square Inc. and a number of smaller
regional operators such as Eagle Hardware & Garden, Inc. and Orchard Supply &
Hardware (a division of Sears). Approximately 95% of the Company's stores have
at least one home improvement warehouse retailer in their trading areas within
an average distance of approximately three miles. See "Risk Factors--
Competition."
EMPLOYEES
As of November 22, 1997, the Company had approximately 9,000 employees, of
whom approximately 3,000 were considered part-time employees (persons who work
less than 33 hours per week). Approximately 500 employees were employed in
divisional management and office support functions; the balance worked in the
Company's stores. None of the Company's employees are represented by a union.
The Company considers its relations with its employees to be excellent.
PROPERTIES
The Company operated 83 stores as of January 5, 1998 (not including the two
stores the closure of which was announced on January 5, 1998), of which 65 are
leased under long-term leases and 18 are owned. The unexpired terms of the
leases range from approximately four years to 20 years, and average
approximately 13 years. The Company has options to renew all of its leases for
periods that range from approximately five to 25 years and average
approximately 18 years. These leases require fixed monthly rental payments
which are subject to various adjustments. In addition, certain leases require
payment of a percentage of the store's gross sales in excess of certain
amounts. The Company also remains obligated under leases for three additional
stores that have been closed. Most leases require that the Company pay all
property taxes, insurance, utilities and other operating costs of the store.
The following table sets forth the number and location of the Company's
stores:
<TABLE>
<CAPTION>
NUMBER OF
STATE STORES
----------- ---------
<S> <C>
California.............................. 47
Washington.............................. 8
Colorado................................ 7
Arizona................................. 5
Oregon.................................. 4
Nevada.................................. 3
New Mexico.............................. 3
Utah.................................... 3
Texas................................... 2
Idaho................................... 1
---
Total................................. 83
===
</TABLE>
The average size of the Company's 83 stores in operation at January 5, 1998
was approximately 102,000 square feet. Most of the Company's stores also
utilize outside selling space for nursery and garden
30
<PAGE>
centers. The Company's stores are located in both free-standing locations and
local shopping centers. In some locations, a HomeBase store is combined with a
membership warehouse club or other large store retailer in a shopping center
known as a power center.
Including space for parking, a typical new HomeBase store requires eight to
ten acres of land. Construction and site development costs for a new HomeBase
store average approximately $5.0 million, land acquisition costs generally
range from $2.0 million to $6.0 million and the initial capital investment for
fixtures and equipment averages approximately $1.7 million. In addition to
capital expenditures, each new store requires an investment of approximately
$2.8 million for inventory (net of accounts payable) and pre-opening expenses.
The Company's home office in Irvine, California occupies 164,000 square feet
under a lease expiring July 24, 2004, with options to extend the lease through
July 24, 2019. The Company's consolidation and distribution center in Rancho
Cucamonga, California occupies 410,074 square feet under a lease expiring
March 31, 1999, with options to extend the lease through March 31, 2009.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings incident to the nature
of its business. Although it is not possible to predict the outcome of these
proceedings, or any claims against the Company related thereto, the Company
believes that such proceedings will not, individually or in the aggregate,
have a material adverse effect on its financial condition or results of
operations.
31
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company as of December 29, 1997.
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE POSITION WITH THE COMPANY EXPIRES
- ------------------------ --- ---------------------------------------------------- -------------
<S> <C> <C> <C>
Herbert J. Zarkin....... 59 Chairman of the Board 1998
Allan P. Sherman........ 53 Director, President and Chief Executive Officer 1998
Thomas F. Gallagher..... 45 Executive Vice President, Store Operations --
Scott Richards.......... 39 Executive Vice President, Merchandising --
William B. Langsdorf.... 41 Executive Vice President and Chief Financial Officer --
John L. Price........... 47 Vice President, General Counsel and Secretary --
John D. Barr............ 50 Director 1999
Lorne R. Waxlax......... 64 Director 1999
Arthur F. Loewy......... 68 Director 2000
Edward J. Weisberger.... 55 Director 2000
</TABLE>
Herbert J. Zarkin has been Chairman of the Board since July 1997 and a
Director since May 1993. From May 1993 to July 1997 Mr. Zarkin served as
President and Chief Executive Officer of the Company. From 1990 to May 1993 he
served as President of the BJ's Division. From 1989 to May 1993 he served as
Executive Vice President of the Company. Mr. Zarkin also serves as Chairman of
the Board of Directors of BJI.
Allan P. Sherman has been a Director, President and Chief Executive Officer
of the Company since July 1997. From 1993 to 1997 he served as Executive Vice
President of the Company and President of the HomeBase Division. From May 1993
to September 1993 he served as Executive Vice President of the Company and
President of the BJ's Division. From 1991 to May 1993 he served as Senior Vice
President and General Merchandise Manager--Non-Food of the BJ's Division.
Thomas F. Gallagher has been Executive Vice President, Store Operations
since July 1997. From 1996 to July 1997 he served as Executive Vice President,
Store Operations of the HomeBase Division. From 1993 to 1996 he served as Vice
President, Sales Operations of the BJ's Division. From 1991 to 1993 he served
as Assistant Vice President, Regional Manager of the BJ's Division.
Scott Richards has been Executive Vice President, Merchandising since July
1997. From 1996 to July 1997, he served as Executive Vice President,
Merchandising of the HomeBase Division. From 1993 to 1996 he served as Vice
President, Merchandising of the HomeBase Division. From 1991 to 1993 he served
as a Buyer for the HomeBase Division.
William B. Langsdorf has been Executive Vice President and Chief Financial
Officer since July 1997. From 1993 to July 1997 he served as Senior Vice
President, Finance of the HomeBase Division. From 1991 to 1993 he served as
Assistant Vice President, Finance of the HomeBase Division.
John L. Price has been Vice President, General Counsel and Secretary since
July 1997. From 1995 to 1997 he served as Assistant General Counsel of 20th
Century Industries. From 1991 to 1995 he was in private legal practice.
John D. Barr has been a Director since July 1997. Since 1995 Mr. Barr has
been a Director, President and Chief Operating Officer of Quaker State
Corporation. From 1987 to 1995 he served as Senior Vice President of Ashland,
Inc. and President of its subsidiary, The Valvoline Company.
Lorne R. Waxlax has been a Director since January 1990 and served as
Chairman of the Board from 1996 to July 1997. From 1985 to 1993, Mr. Waxlax
served as an Executive Vice President of The Gillette Company. Mr. Waxlax is
also a Director of BJI, Clean Harbors, Inc., Hon Industries, Inc., Quaker
State Corporation and The Iams Company.
32
<PAGE>
Arthur F. Loewy has been a Director of the Company since February 1989. From
1982 to 1989 he served as Chief Financial Officer and Executive Vice
President--Finance of Zayre Corp. Mr. Loewy also serves as a Director of The
TJX Companies, Inc.
Edward J. Weisberger has been a Director and Senior Vice President, Finance
since July 1997. From 1994 to July 1997 he served as Senior Vice President and
Chief Financial Officer of the Company. From April 1989 to September 1994 he
served as Vice President--Finance of the Company. Mr. Weisberger is an
employee of both BJI and the Company and a Director of BJI.
In accordance with the Company's Certificate of Incorporation, the Company's
Board of Directors is divided into three classes with staggered terms. Each
class of directors is elected for a term of three years and until their
respective successors are duly elected and qualified. Directors for each class
will be elected at the annual meeting of stockholders held in the year in
which the term for such class expires.
Executive officers are elected by, and serve at the discretion of the Board
of Directors. The Company has entered into employment agreements with certain
of its executive officers. See "Management--Employment Agreements."
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid an annual retainer
of $20,000 and fees of $1,250 for each Board meeting attended, $750 for each
Committee meeting attended and $750 for certain telephone meetings. The
Chairman of the Audit Committee and the Chairman of the Executive Compensation
Committee are each paid $2,500 per annum for their services as such. All
directors are reimbursed for out-of-pocket expenses incurred in attending such
meetings. Directors may participate in the Company's General Deferred
Compensation Plan.
Under the Company's 1995 Director Stock Option Plan (the "Director Plan")
each new non-employee director receives an initial grant of options to
purchase 3,000 shares of Common Stock and annual grants of options to purchase
1,500 shares of Common Stock thereafter. The exercise price for each of these
options is the fair market value of a share of Common Stock on the date of
grant. Each option is nontransferable except upon death, will expire 10 years
after the date of grant and will become exercisable in three equal annual
installments beginning on the first day of the month which includes the first
anniversary of the date of grant. If the director dies or otherwise ceases to
be a director prior to the date the option becomes exercisable, the option
will immediately expire. Any vested options will remain exercisable for a
period of one year following cessation of service as a director of the
Company. All unexercised options will become exercisable in full beginning
20 days prior to the consummation of a merger or consolidation (as described
in the Director Plan), acquisition, reorganization or liquidation and, to the
extent not exercised, shall terminate immediately after the consummation of
such merger, consolidation, acquisition, reorganization or liquidation.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board has four committees: (i) Audit, (ii) Executive, (iii)
Executive Compensation, and (iv) Finance.
The Audit Committee reviews with management, the internal audit group and
the independent public accountants the Company's financial statements, the
accounting principles applied in their preparation, the scope of the audit,
any comments made by the public accountants upon the financial condition of
the Company and its accounting controls and procedures, and such other matters
as the Committee deems appropriate. The Committee reviews with management such
matters relating to compliance with corporate policies as the Committee deems
appropriate.
The Executive Committee is authorized to act on behalf of the Board during
intervals between meetings of the Company's Board of Directors. In addition,
the Executive Committee has responsibility for consideration of
33
<PAGE>
the qualifications of, and recommendation to the Board of Directors of,
nominees to fill vacancies on the Board of Directors and considers nominees
recommended by stockholders if such recommendations are in writing and timely
filed with the Secretary of the Company.
The Executive Compensation Committee reviews salary policies and
compensation of officers and other members of management, including incentive
compensation plans for certain officers and other members of management. In
addition, the Executive Compensation Committee has responsibility for matters
of corporate governance other than recommendations to the Board of Directors
of nominees to fill vacancies on the Board of Directors.
The Finance Committee reviews with management and advises the Company's
Board with respect to the Company's finances, including exploring methods of
meeting the Company's financing requirements and planning the Company's
capital structure.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual and
long-term compensation provided to Mr. Zarkin, who served as Chief Executive
Officer until July 1997, to Mr. Sherman, the Company's current Chief Executive
Officer, and the four other most highly compensated executive officers
(collectively the "Named Executive Officers") who were serving as executive
officers on January 25, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- --------------------------------
AWARDS PAYOUTS
OTHER --------------------- ---------- ALL
ANNUAL RESTRICTED SECURITIES OTHER
NAME AND PRINCIPAL FISCAL COMPEN- STOCK UNDERLYING LTIP COMPEN-
POSITION(1) YEAR SALARY BONUS SATION(2) AWARDS(3) OPTIONS(4) PAYOUTS(5) SATION(6)
- ------------------------ ------ -------- -------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 1996 $605,962 $199,361 $ 25,633 $ -- 250,000 $360,640 $34,792
Chairman of the Board, 1995 570,000 171,285 24,112 -- 100,000 -- 33,000
President and Chief 1994 552,692 442,154 23,380 -- 100,000 -- 31,969
Executive Officer
Allan P. Sherman........ 1996 451,346 -- 237,562 -- 82,976 83,190 27,019
President and Chief 1995 435,000 40,000 241,652 -- 207,440 -- 26,250
Executive Officer 1994 422,885 189,420 296,133 -- 269,672 -- 25,644
Edward J. Weisberger.... 1996 238,077 46,996 10,071 -- 70,000 180,320 16,404
Senior Vice President, 1995 225,000 40,567 9,518 -- 40,000 -- 15,750
Finance and Chief 1994 197,847 86,777 8,369 -- 40,000 -- 14,392
Financial Officer
Thomas F. Gallagher..... 1996 176,078 40,484 190,318 155,250 46,673 80,874 13,304
Executive Vice 114,634 29,470 3,895 -- -- -- 10,232
President, 1995
Store Operations 1994 106,558 40,152 3,621 -- 16,595 -- 9,191
Scott Richards.......... 1996 167,923 2,709 6,610 129,375 50,822 24,957 12,562
Executive Vice
President, 1995 130,539 11,122 21,927 -- -- -- 11,027
Merchandising 1994 121,577 40,871 4,870 -- 29,042 -- 10,125
William B. Langsdorf.... 1996 155,558 -- 6,218 -- 16,595 27,730 12,076
Executive Vice President
and 1995 143,942 7,500 24,031 -- -- -- 11,697
Chief Financial Officer 1994 129,904 38,790 5,204 -- 37,339 -- 10,366
</TABLE>
- --------
(1) Mr. Zarkin is currently Chairman of the Board, and served as President and
Chief Executive Officer of the Company until July 1997. Mr. Sherman has
been President and Chief Executive Officer since July 1997. Mr. Weisberger
is currently Senior Vice President, Finance, and served as Senior Vice
President and Chief Financial Officer until July 1997. Mr. Langsdorf has
been Executive Vice President and Chief Financial Officer since July 1997.
(2) Includes for Mr. Sherman $130,344, $135,204 and $139,724 in fiscal 1996,
fiscal 1995 and fiscal 1994, respectively, for loan forgiveness and the
value of the interest-free component of a housing loan from the Company
pursuant to the
34
<PAGE>
terms of his employment contract, and $80,671, $80,797 and $60,374 in fiscal
1996, fiscal 1995 and fiscal 1994, respectively, for reimbursement of tax
liabilities related to that loan and certain items under "All Other
Compensation." Includes for Mr. Gallagher $102,141 in fiscal 1996 for
relocation costs and $74,727 for reimbursement of tax liabilities related to
those costs and certain items under "All Other Compensation." Includes for
Messrs. Zarkin, Richards, Langsdorf and Weisberger in fiscal 1996, fiscal
1995 and fiscal 1994 and for Mr. Gallagher in fiscal 1995 and fiscal 1994
the reimbursement for tax liabilities related to the Company's contributions
under the Company's Executive Retirement Plan and excludes perquisites
having an aggregate value less than the lesser of $50,000 or 10% of salary
plus bonus.
(3) Restricted stock awards were issued at no cost to Mr. Gallagher and Mr.
Richards in 1996. The dollar value of these awards is based on the closing
market price of the Company's Common Stock on the date of grant. Thirty-
three and one-third percent of the shares granted to Mr. Gallagher vest in
each of June 1998, June 1999 and June 2000. Forty percent of the shares
granted to Mr. Richards vested in June 1997, with 20% vesting in each of
June 1998, 1999 and 2000. Vesting is contingent upon continued employment
on the vesting dates. The dollar values of restricted stock holdings based
on the fair market value of the Company's Common Stock on January 25, 1997
were as follows: Mr. Zarkin, $46,489; Mr. Sherman, $144,752; Mr.
Weisberger, $23,081; Mr. Gallagher, $175,272; Mr. Richards, $148,513; and
Mr. Langsdorf, $12,263. In the event of a change of control (as defined),
each person's restricted shares would become unrestricted. Holders of
restricted shares are entitled to the same dividends as those paid to
holders of unrestricted shares.
(4) Reflects the grant of options to purchase Common Stock. Number of shares
are as adjusted as a consequence of the Distribution. The Company has
never granted stock appreciation rights.
(5) Payouts for fiscal 1996 represent 50% of the Company's Growth Incentive
Plan award earned by the named person for the three-year performance
period ended January 25, 1997. The remaining 50% of the award is payable
in April 1998, contingent on employment continuing through March 31, 1998.
(6) For fiscal 1996, represents the Company's contributions under its 401(k)
Savings Plan for Salaried Employees and the Company's Executive Retirement
Plan (see "--Incentive and Other Plans--Executive Retirement Plan") as
presented below:
<TABLE>
<CAPTION>
1996 COMPANY
CONTRIBUTIONS
------------------
401(K) EXECUTIVE
SAVINGS RETIREMENT
NAME PLAN PLAN
-------------- ------- ----------
<S> <C> <C>
Herbert J. Zarkin......................................... $4,494 $30,298
Allan P. Sherman.......................................... 4,500 22,519
Edward J. Weisberger...................................... 4,500 11,904
Thomas F. Gallagher....................................... 4,500 8,804
Scott Richards............................................ 4,312 8,250
William B. Langsdorf...................................... 4,314 7,762
</TABLE>
35
<PAGE>
STOCK OPTION GRANTS
The following table sets forth the stock option grants made by the Company
to the Named Executive Officers during fiscal 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
NUMBER PERCENT OF POTENTIAL REALIZABLE
OF TOTAL OPTIONS VALUE AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM(1)
OPTIONS IN FISCAL BASE PRICE EXPIRATION -------------------------------
NAME GRANTED(2) YEAR PER SHARE(2)(3) DATE 0%(4) 5% 10%
- ------------------------ ---------- ------------- --------------- ---------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 40,000 1.8% $4.310 4/11/06 $ -- $108,421 $ 274,761
210,000 9.3 3.985 9/19/06 -- 526,290 1,333,723
Allan P. Sherman........ 82,976 3.7 5.970 4/11/06 -- 311,533 789,487
Edward J. Weisberger.... 20,000 0.9 4.310 4/11/06 -- 54,211 137,381
50,000 2.2 3.985 9/19/06 -- 125,307 317,553
Thomas F. Gallagher..... 9,334 0.4 5.970 4/11/06 -- 35,045 88,810
37,339 1.6 6.240 6/11/06 -- 146,530 371,335
Scott Richards.......... 9,334 0.4 5.970 4/11/06 -- 35,045 88,810
41,488 1.8 5.520 9/19/06 -- 144,025 364,989
William B. Langsdorf.... 16,595 0.7 5.970 4/11/06 -- 62,306 157,895
</TABLE>
- --------
(1) The dollar amounts in these columns are the result of calculations at 0%
and the arbitrary appreciation rates of 5% and 10% set by the Commission
and are not intended to forecast possible future stock price appreciation,
if any.
(2) Number of shares and exercise prices are as adjusted as a consequence of
the Distribution.
(3) All options granted in fiscal 1996 were granted with an exercise price
equal to the closing price of the Common Stock on the New York Stock
Exchange on the date of grant, as adjusted as a consequence of the
Distribution and expire ten years from the date of grant. The options vest
in equal annual installments over four years except for those granted on
September 19, 1996 to Mr. Zarkin and Mr. Weisberger, which vest in equal
annual installments over three years. All options vest upon a change of
control (as defined).
(4) No gain to the optionees is possible without an increase in stock price,
which will benefit all stockholders commensurately.
AGGREGATED OPTION EXERCISES AND VALUATION
The following table sets forth, on an aggregated basis, the exercise of
stock options during fiscal 1996 by the Named Executive Officers and the
fiscal year-end value of unexercised options held by such officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NUMBER OF AT FISCAL YEAR-END (1) AT FISCAL YEAR-END (3)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE (1) REALIZED (2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... -- $ -- 265,000 335,000 $2,950,313 $1,949,688
Allan P. Sherman........ 78,827 215,688 449,108 281,081 1,140,844 546,594
Edward J. Weisberger.... 500 6,688 72,000 95,500 754,250 508,563
Thomas F. Gallagher..... 12,239 33,038 -- 77,686 -- 65,184
Scott Richards.......... 12,322 31,185 19,914 75,375 49,350 104,581
William B. Langsdorf.... 19,707 56,031 31,323 52,690 84,459 99,447
</TABLE>
- --------
(1) Number of shares are as adjusted as a consequence of the Distribution.
(2) Based on the difference between the option exercise price and the fair
market value of the Common Stock on the date of exercise.
(3) Based on the fair market value of the Company's Common Stock on January
25, 1997, less the option exercise price.
36
<PAGE>
LONG-TERM INCENTIVE AWARDS
The following table sets forth information related to long-term incentive
awards granted to the Named Executive Officers during fiscal 1996 pursuant to
the Company's Growth Incentive Plan:
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
OF SHARES, OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR MATURATION -----------------------------------
NAME OTHER RIGHTS(1) OR PAYOUT THRESHOLD TARGET MAXIMUM
---- --------------- ------------------ ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 10 Units FYE 1/97 - 1/99 $129,600 $0 $1,710,000
Allan P. Sherman........ 15 Units FYE 1/97 - 1/99 194,400 0 1,305,000
Edward J. Weisberger ... 5 Units FYE 1/97 - 1/99 64,800 0 675,000
Thomas F. Gallagher..... 8 Units FYE 1/97 - 1/99 103,680 0 351,216
Scott Richards.......... 8 Units FYE 1/97 - 1/99 103,680 0 402,000
William B. Langsdorf.... 5 Units FYE 1/97 - 1/99 64,800 0 450,000
</TABLE>
- --------
(1) Number of Shares, Units or Other Rights are as adjusted as a consequence of
the Distribution.
Employees in high-level management positions in the Company, as selected by
the Executive Compensation Committee, were awarded units under the Company's
Growth Incentive Plan during fiscal 1996. Each unit has a value in dollars
equal to a designated percentage of improvement in net income (for corporate
executives) or divisional pre-tax income (for divisional executives) during
the three-year fiscal period ending January 30, 1999 over base period income,
as defined, for fiscal 1995. No payment will be made unless cumulative net or
pre-tax income, as applicable, reflects at least 10% compounded growth over
the base period amount. The "threshold" amounts in the table above would be
earned upon achievement of 10% compounded growth in earnings. No participant
may receive a cash award in excess of 300% of the participant's annualized
base salary as of the beginning of the award period. This limit is reflected
in the "maximum" amount column of the table above. The Growth Incentive Plan
does not specify a target payout amount. Accordingly, pursuant to Commission
rules, the target payout level in the table above assumes in each case that
fiscal 1996's income level will be achieved in each of the three fiscal years
during the award period. This assumption would result in no payout for each of
the named executive officers because cumulative net or pre-tax income reflects
less than 10% compounded growth over the base period amount. The dollar
amounts in the table are not intended to forecast future payments, if any,
under the Growth Incentive Plan.
One-half of the cash award earned under the Growth Incentive Plan for the
three-year award period ending January 30, 1999 will be paid in April 1999 to
participants employed through January 30, 1999. The remaining one-half of the
award will be paid in April 2000, contingent upon employment continuing
through March 31, 2000.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Zarkin,
Sherman, Gallagher, Richards, Langsdorf and Weisberger. Pursuant to Mr.
Zarkin's employment agreement, Mr. Zarkin is employed as Chairman of the Board
of Directors of the Company. Mr. Zarkin receives a minimum annual base salary
of $350,000 and participates in specified incentive and other benefit plans.
Mr. Zarkin generally must devote approximately one-half of his working time
and attention to the performance of his duties and responsibilities under his
employment agreement. The Company is entitled to terminate Mr. Zarkin's
employment at any time with or without cause (as defined). If his employment
terminates by reason of death, disability, incapacity or termination by the
Company other than for cause, or if Mr. Zarkin resigns as a result of his
being removed from his positions with the Company or as a result of his
failure to be reelected to the office of Chairman of the Board of Directors
and a member of the Executive Committee, Mr. Zarkin is entitled to payment of
certain cash compensation amounts and continuation of base salary and certain
benefits for a period of 12 months after termination at the rate in effect
upon termination. In addition, Mr. Zarkin will be entitled to payments under
the Company's Management Incentive Plan (the "MIP") for the fiscal year ended
immediately prior to the date of termination of Mr. Zarkin's employment (if
not already paid), and a pro rated MIP award for the year of
37
<PAGE>
termination. Any stock options or other stock-based awards held by Mr. Zarkin
on the date of termination will become fully vested. The continuing base
salary payments are subject to reduction after three months for compensation
earned by Mr. Zarkin from other employment (other than employment at BJI), and
the continuing benefits are subject to reduction at any time for comparable
benefits received by Mr. Zarkin from other employment. Mr. Zarkin entered into
a substantially similar employment agreement with BJI, providing for salary
and other compensation equivalent to that payable by the Company.
Under the Company's employment agreement with Mr. Sherman, Mr. Sherman is
employed as the President and Chief Executive Officer of the Company and
receives a minimum annual base salary of $520,000. Mr. Sherman also
participates in specified incentive and other benefit plans. In addition, in
connection with his election as President of the HomeBase Division in 1993,
the Company agreed to extend to him an interest-free loan of $700,000 for the
purchase of a residence in California and to forgive the loan over seven years
in equal installments, $100,000 of which was forgiven in each of fiscal 1994,
1995 and 1996. The Company also agreed to make certain tax "gross-up" payments
to Mr. Sherman. The Company is entitled to terminate Mr. Sherman's employment
at any time with or without cause (as defined). If Mr. Sherman's employment
terminates by reason of death, disability or termination by the Company other
than for cause, the Company is required to pay certain cash compensation
amounts, to continue payment of Mr. Sherman's base salary and certain benefits
for 52 weeks after termination at the rate in effect upon termination, and to
extend the term of Mr. Sherman's relocation loan, including the provisions for
debt forgiveness. The continuing base salary payments are subject to reduction
after three months for compensation earned by Mr. Sherman from other
employment, and the continuing benefits are subject to reduction at any time
for comparable benefits received by Mr. Sherman from other employment.
The Company has entered into an employment agreement with each of Messrs.
Gallagher, Richards and Langsdorf under which each serves as an executive
officer of the Company, receives a minimum annual base salary of $220,000,
$220,000 and $190,000, respectively, and participates in specified incentive
and other benefit plans. If employment terminates by reason of termination by
the Company other than for cause, each such executive officer will be entitled
to payment of certain cash compensation amounts and to certain benefits and
continuation of base salary for 12 months after termination at the rate in
effect upon termination. The continuing base salary payments will be subject
to reduction after three months for compensation from other employment, and
the continuing benefits will be subject to reduction at any time for
comparable benefits received from other employment.
Pursuant to Mr. Weisberger's employment agreement, Mr. Weisberger is
employed as the Senior Vice President, Finance of the Company. Mr. Weisberger
receives a minimum annual base salary of $150,000 and participates in
specified incentive and other benefit plans. Mr. Weisberger must generally
devote approximately one-half of his working time and attention to the
performance of his duties and responsibilities under his employment agreement.
If Mr. Weisberger's employment is terminated by the Company, other than for
cause, Mr. Weisberger is entitled to certain cash compensation amounts and to
certain benefits and continuation of base salary for 12 months after
termination (but not beyond July 29, 2000) at a rate in effect upon
termination. The continuing base salary payments are subject to reduction
after three months for compensation earned by Mr. Weisberger from other
employment (other than employment at BJI), and the continuing benefits are
subject to reduction at any time for comparable benefits received from other
employment.
In the event of a change of control followed by termination of employment as
described below under "--Change of Control Severance Benefits," each of the
executive officers with an employment agreement with the Company, as well as
Mr. Weisberger, would be entitled to the termination benefits described
thereunder, to the extent such benefits would exceed the benefits otherwise
described above.
CHANGE OF CONTROL SEVERANCE BENEFITS
The Company provides change of control severance benefits, under separate
change of control agreements, to each of the Company's executive officers with
an employment agreement, as well as to Mr. Weisberger. Under such agreements,
in general, upon a change of control (as defined) of the Company, the
executive would be
38
<PAGE>
entitled to accelerated payment of the Company MIP target award for the year
in which the change of control occurs. If, during the 24-month period
following a change of control, the Company were to terminate the executive's
employment other than for cause (as defined) or the executive were to
terminate his employment for reasons specified in the agreement, or if
employment were to terminate by reason of death, disability or incapacity, the
executive would be entitled to receive a lump-sum amount equal to two times
the executive's annual base salary plus one times the executive's MIP target
award. For up to two years following termination the Company would also be
obligated to provide specified benefits, including continued health, medical
and life insurance benefits. The foregoing benefits would be payable whether
or not they gave rise to a federal excise tax on so-called "excess parachute
payments" or were non-deductible, except to the extent a reduction in amounts
paid would increase the executive's after-tax benefits. The Company would also
be obligated to pay all legal fees and expenses reasonably incurred by the
executive in seeking enforcement of contractual rights following a change of
control. In addition, upon involuntary termination within 24 months following
a change of control, any agreement by the executive not to compete with the
Company following termination of his employment would cease to be effective.
INDEMNIFICATION AGREEMENTS
The Company entered into indemnification agreements with each of its
directors and executive officers indemnifying them against expenses,
settlements, judgments and fines incurred in connection with any threatened,
pending or completed action, suit, arbitration or proceeding, where the
individual's involvement is by reason of the fact that he or she is or was a
director or officer of the Company or served at the Company's request as a
director or officer of another organization (except that indemnification is
not provided against judgments and fines in a derivative suit unless permitted
by Delaware law). An individual may not be indemnified if he or she is found
not to have acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Company, except to the
extent Delaware law permits broader contractual indemnification. The
indemnification agreements provide procedures, presumptions and remedies
designed to substantially strengthen the indemnity rights beyond those
provided by the Company's Certificate of Incorporation and by Delaware law.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of December 29, 1997,
concerning beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to beneficially own more than five percent of the
outstanding shares of the Company's Common Stock, (ii) each director of the
Company, (iii) each executive officer of the Company, and (iv) all directors
and executive officers of the Company as a group. Unless otherwise indicated,
all amounts reflected in the table represent shares in which the beneficial
owners have sole voting and investment power.
<TABLE>
<CAPTION>
PERCENT OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL SHARES OF COMMON STOCK SHARES OF COMMON STOCK
OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
- ------------------------------ ---------------------- ----------------------
<S> <C> <C>
David J. Greene and Company..... 5,124,555(2) 13.6%
599 Lexington Avenue
New York, NY 10022
First Pacific Advisors, Inc..... 4,186,414(3) 11.1%
11400 West Olympic Boulevard,
Suite 1200
Los Angeles, CA 90064
Franklin Resources, Inc. et al.
............................... 3,951,300(4) 10.5%
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94404
The Prudential Insurance Company
of America..................... 3,105,160(5) 8.3%
751 Broad Street
Newark, NJ 01102
Morgan Stanley Group, Inc....... 1,811,495(6) 4.8%
1585 Broadway
New York, NY 10036
Arthur F. Loewy................. 9,711(7) *
Lorne R. Waxlax................. 9,500 *
Herbert J. Zarkin............... 466,082 1.2%
Allan P. Sherman................ 456,272 1.2%
Edward J. Weisberger............ 118,887 *
John D. Barr.................... -- *
Thomas F. Gallagher............. 28,678 *
Scott Richards.................. 27,639 *
William B. Langsdorf............ 23,733 *
John L. Price................... -- *
All Directors and Executive
Officers as a Group
(10 persons).................... 1,140,502 3.0%
</TABLE>
- --------
* Indicates less than 1%.
(1) Includes the following shares of Common Stock that may be acquired upon
exercise of outstanding stock options which were exercisable on December
29, 1997 or within 60 days thereafter: Mr. Loewy, 2,075 shares; Mr.
Waxlax, 2,500 shares; Mr. Zarkin, 403,400 shares; Mr. Sherman, 389,447
shares; Mr. Weisberger, 103,170 shares; Mr. Richards, 10,372 shares;
Mr. Langsdorf, 6,742 shares; all Directors and Executive Officers as a
group, 917,706 shares.
(2) Information is as of September 8, 1997 and is based on a Schedule 13G
filed with the Commission by David J. Greene and Company. David J. Greene
and Company reported that it has sole power to vote 399,200
40
<PAGE>
shares and shared power to vote 2,971,200 shares and has sole dispositive
power with respect to 399,200 shares and shared dispositive power with
respect to 4,725,355 shares.
(3) Information is as of December 9, 1997 and is based on a Schedule 13G filed
with the Commission by First Pacific Advisors, Inc. First Pacific Advisors,
Inc. reported that they have shared power to vote 1,406,998 shares and
shared dispositive power with respect to 4,186,414 shares.
(4) Information is as of October 8, 1997 and is based on a Schedule 13G filed
with the Commission by Franklin Resources, Inc., et al. Franklin Resources,
Inc., et al. reported that (i) they have sole power to vote or to direct
the voting of 3,715,300 shares and Templeton Investment Counsel, Inc. has
sole power to vote or direct the voting of 236,000 shares; and (ii) they
have sole dispositive power with respect to 3,715,300 shares and Templeton
Investment Counsel, Inc. has sole dispositive power with respect to 236,000
shares.
(5) As of September 30, 1997 based on information provided to the Company by
The Prudential Insurance Company of America ("Prudential Insurance").
Prudential Insurance reported that it has sole power to vote 224,400 shares
and shared power to vote 2,880,760 shares and has sole dispositive power
with respect to 224,400 shares and shared dispositive power with respect to
2,880,760 shares.
(6) Information is as of December 31, 1996 and is based on a Schedule 13G filed
with the Commission by Morgan Stanley Group Inc. ("Morgan Stanley"). Morgan
Stanley reported that it has shared voting power with respect to 1,708,895
shares and shared dispositive power with respect to 1,811,495 shares.
Morgan Stanley has not filed an amendment to the Schedule 13G from which
the foregoing share ownership information was derived.
(7) Excludes 413 shares beneficially owned by or for the benefit of the spouse
of Arthur F. Loewy, as to which Mr. Loewy disclaims beneficial ownership.
RELATIONSHIP BETWEEN BJI AND HOMEBASE AFTER THE DISTRIBUTION;
CONFLICTS OF INTEREST
In connection with the Distribution, BJI and the Company entered into a
series of agreements, as described below. Although the following summaries of
these agreements set forth an accurate description of their material terms and
provisions, such summaries are qualified in their entirety by reference to the
detailed provisions of the agreements, the forms of which previously have been
filed with the Commission and are incorporated herein by reference.
DISTRIBUTION AGREEMENT
BJI and the Company entered into a Separation and Distribution Agreement (the
"Distribution Agreement"), which provided for, among other things, (i) the
principal corporate transactions required to effect the Distribution, (ii) the
division between BJI and the Company of certain assets and liabilities and
(iii) the execution and delivery of the Services Agreement, the Employee
Benefits Agreement and the Tax Sharing Agreement, each of which, as described
below, governs certain aspects of the relationship between BJI and the Company
following the Distribution.
The Distribution Agreement provided for, among other things, (i) the transfer
by the Company to BJI of all of the assets of the BJ's Division, including the
stock of subsidiaries which held assets of the BJ's Division, and the assets
associated with the Company's corporate headquarters in Massachusetts, (ii)
BJI's assumption of the leases and other liabilities of the BJ's Division and
75% of the amount of all bank indebtedness of the Company existing as of the
date of the Distribution, and (iii) the issuance by BJI to the Company of the
common stock of BJI to be distributed in the Distribution.
Under the Distribution Agreement, except as provided in the Employee Benefits
Agreement or the Tax Sharing Agreement, the Company agreed to indemnify BJI for
liabilities relating to the Company's business. Similarly, BJI agreed to
indemnify the Company for liabilities pertaining to BJI's business. The
Distribution Agreement also requires BJI and the Company to indemnify each
other for losses incurred due to a failure to
41
<PAGE>
perform their respective obligations under the Distribution Agreement or any
other agreement entered into in connection with the Distribution. In addition,
the Distribution Agreement provides that the Company will provide liability
insurance for a period of six years following the Distribution to each
individual who served as a director or officer of the Company prior to the
Distribution. BJI also agreed to indemnify, defend and hold harmless each such
individual from any losses and liabilities incurred by them in connection with
the approval of the Distribution Agreement.
LEASES
Upon the Distribution, BJI assumed all liabilities to third-party lessors
with respect to leases entered into by the Company with respect to the
warehouse club business. While the Company will continue to be liable, by law,
with respect to such lease liabilities, BJI has agreed to indemnify the
Company for such liabilities.
In connection with the spin-off of the Company by The TJX Companies, Inc.
("TJX") in 1989, the Company and TJX entered into an agreement (the "1989
Agreement") pursuant to which the Company must indemnify TJX against any
liabilities that TJX might incur with respect to 45 current Company real
estate leases as to which TJX is either a lessee or guarantor. On April 10,
1997, TJX filed a complaint against the Company in the Superior Court for
Middlesex County, Massachusetts, alleging, among other things, that BJI is
required under the terms of the 1989 Agreement to assume the Company's
indemnification obligations under the 1989 Agreement. On April 18, 1997, in
exchange for mutual releases, TJX and the Company settled such litigation by
agreeing that BJI would assume a portion of the Company's obligations under
the 1989 Agreement. Specifically, under the settlement agreements, BJI agreed
that for approximately five years after the Distribution it will indemnify TJX
with respect to any liabilities (as defined in the 1989 Agreement) that TJX
may incur with respect to the Company leases and thereafter it will indemnify
TJX for 50% of such liabilities. In addition, the Company has agreed that
after the Distribution, the Company will not renew any lease identified in the
1989 Agreement as to which TJX is a lessee or guarantor unless the applicable
lessor agrees to remove TJX as a lessee or guarantor.
The Distribution Agreement contains restrictions on the renewal of Company
leases similar to those contained in the agreement between the Company and
TJX. BJI may not renew any of its real estate leases (other than ground
leases) for which the Company may be liable during any period during which BJI
does not meet certain standards of creditworthiness.
SERVICES AGREEMENT
BJI and the Company entered into a Services Agreement (the "Services
Agreement") pursuant to which BJI provides certain tax administration services
with respect to the Company's tax year ending January 31, 1998. In addition,
to the extent requested by the Company, BJI provides risk management, legal,
investor relations and treasury services to the Company for a period of up to
twelve months following the Distribution. The Services Agreement provides that
the Company will pay BJI a fixed fee of $72,000 for tax administration
services through November 22, 1997, and that tax services (after November 22,
1997), risk management, legal, investor relations and treasury services
requested by the Company to be provided by BJI will be billed on an hourly
basis at 2.5 times the providing employee's hourly rate. BJI and the Company
believe that such rates are as favorable as could have been obtained from
disinterested third parties. If a dispute arises between the parties under the
Services Agreement that cannot be resolved, it will be submitted to
arbitration.
EMPLOYEE BENEFITS AGREEMENT
The Company and BJI entered into an Employee Benefits Agreement (the
"Employee Benefits Agreement") which contains a number of provisions
pertaining to employee benefit plan matters. BJI agreed to establish employee
benefit plans substantially similar to the employee benefit plans currently
maintained by the Company and to assume or retain under the applicable BJI
Plan with respect to each BJI employee or former employee of the BJ's Division
all liabilities under the corresponding Company plan accrued for the period
ending on the date on which the employee's employment is transferred to BJI or
its affiliates (or the date of the former
42
<PAGE>
employee's termination of employment). In addition, the Employee Benefits
Agreement provides that the Waban Inc. Retirement Plan will be terminated and,
in connection with such termination, BJI will pay to the Company 75% of any
amount contributed or to be contributed by the Company to the Waban Inc.
Retirement Plan after the date of the Distribution in order for the Waban Inc.
Retirement Plan to pay all accrued benefits.
The Employee Benefits Agreement provides for appropriate asset transfers
(and corresponding credit for service with Waban prior to the Distribution)
from Waban's 401(k) Savings Plans and Executive Retirement Plan in respect of
persons who became BJI employees. In addition, the Employee Benefits Agreement
contains provisions for the issuance of replacement stock options and
restricted stock by BJI to persons who became BJI employees on the
Distribution Date, subject to such persons' surrender of their corresponding
Waban awards. See "Management of BJI--Incentive and Other Plans."
TAX SHARING AGREEMENT
The Company and BJI entered into a Tax Sharing Agreement (the "Tax Sharing
Agreement") providing for the allocation between the parties of federal,
state, local and foreign tax liabilities, and the entitlement to tax refunds,
for periods ending on or prior to the Distribution Date, and various related
matters.
PROCEDURES FOR ADDRESSING CONFLICTS
As a result of the Distribution, BJI and the Company have significant
contractual and other ongoing relationships that may present certain conflict
situations for Mr. Zarkin, who serves as Chairman of the Board of Directors of
both companies, and for Messrs. Waxlax and Weisberger, who serve as directors
of both companies. Each of these persons also owns (or have options or other
rights to acquire) a significant number of shares of common stock in both
companies. See "Risk Factors--Potential Conflicts of Interest." The Company
has adopted procedures to be followed by its Board of Directors to limit the
involvement of such persons in conflict situations whereby all transactions
being considered by the Company which relate to BJI must (i) be approved by a
majority of the Board of Directors and by a majority of the disinterested
members of the Board of Directors and (ii) be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
TAX-FREE SPIN-OFF
Prior to the Distribution, the Company received the Letter Ruling from the
IRS to the effect that, for Federal income tax purposes, the Distribution
would qualify as a spin-off under Section 355 of the Code, that would be tax
free to the Company and the holders of the Company's Common Stock at the time
of the Distribution. Certain future events not within the control of the
Company could cause the Distribution not to qualify for tax-free treatment.
See "Risk Factors--Consequences of Failure to Qualify as Tax Free Spin-off."
SENIOR BANK FACILITY
The Company has entered into a Credit Agreement (the "Senior Bank Facility")
with The First National Bank of Chicago (the "Agent") and certain lenders
party thereto (the "Lenders") providing for a revolving credit facility in an
amount not exceeding $90 million. The following description summarizes the
principal terms of the Senior Bank Facility and is qualified in its entirety
by reference to such agreement.
Subject to the satisfaction of customary conditions and meeting certain
borrowing base requirements, advances under the Senior Bank Facility may be
made at any time prior to July 9, 2000 (the "Termination Date") to be used for
working capital and general corporate purposes. Up to $40 million of the
Senior Bank Facility will be available for letters of credit. The funds
available to be advanced may not exceed the aggregate of 70% of the eligible
accounts receivable of the Company and certain of its subsidiaries and 60% of
the eligible inventory of the Company and certain of its subsidiaries, in each
case as defined in the Senior Bank Facility and
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subject to certain reserves that may be established by the Agent. All amounts
advanced under the Senior Bank Facility become due and payable on the
Termination Date.
All obligations of the Company under the Senior Bank Facility are secured by
a first priority security interest in all accounts receivable and inventory of
the Company and its subsidiaries and all of the capital stock of the Company's
direct and indirect subsidiaries. The obligations of the Company under the
Senior Bank Facility will be guaranteed by each of the Company's existing and
future subsidiaries.
At the Company's election, amounts advanced under the Senior Bank Facility
will bear interest at (i) the Alternate Base Rate plus .20% or (ii) the
Eurodollar Rate plus 1.45%. The foregoing margins are subject to reduction to
specified amounts based on improvements in the Fixed Charge Coverage Ratio (as
such term is defined in the Senior Bank Facility). The "Alternate Base Rate"
is equal to the highest of (a) the Agent's corporate base rate, or (b) the
federal funds rate plus 0.5%, in each case as in effect from time to time. The
"Eurodollar Rate" is the rate offered by the Agent for eurodollar deposits for
one, two, three or six months (as selected by the Company) in the interbank
eurodollar market in the approximate amount of the Agent's share of the
advance under the Senior Bank Facility. Interest payments on advances which
bear interest based upon the Alternate Base Rate are due monthly in arrears,
upon repayment and on the Termination Date, and interest payments on advances
which bear interest based upon the Eurodollar Rate are due on the last day of
each relevant interest period (or, if such period exceeds three months,
quarterly after the first day of such period), upon repayment and on the
Termination Date.
The Company is required to repay and permanently reduce the Senior Bank
Facility with 50% of the net proceeds of certain Senior Debt. The Senior Bank
Facility contains extensive affirmative and negative covenants, including
among others, covenants relating to leverage, tangible net worth and fixed
charge coverage and certain limits on, among other things, the ability of the
Company to incur indebtedness, make capital expenditures, create liens, engage
in mergers and consolidations, make voluntary prepayments, repurchases or
redemptions of subordinated indebtedness, make dividends or other restricted
payments, make asset sales, make investments and acquisitions or engage in
transactions with affiliates. The Senior Bank Facility also contains customary
events of default, including upon a change of control.
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DESCRIPTION OF THE NOTES
The Notes were issued under an Indenture, dated as of November 10, 1997 (the
"Indenture"), between the Company and State Street Bank and Trust Company of
California, N.A., as Trustee (the "Trustee"), copies of which are available
for inspection at the Corporate Trust Office of the Trustee in the Borough of
Manhattan, The City of New York. Wherever particular defined terms of the
Indenture (including the Notes and the various forms thereof) are referred to,
such defined terms are incorporated herein by reference (the Notes and various
terms relating to the Notes being referred to in the Indenture as
"Securities"). References in this section to the "Company" are solely to
HomeBase, Inc. and not to its subsidiaries. The following summaries of certain
provisions of the Indenture do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the detailed provisions
of the Notes and the Indenture, including the definitions therein of certain
terms. Section references below are references to sections of the Indenture.
GENERAL
The Notes are unsecured subordinated obligations of the Company and will
mature on November 1, 2004. The Notes bear interest at the rate per annum
shown on the front cover of this Prospectus from November 17, 1997 or from the
most recent Interest Payment Date to which interest has been paid or provided
for, payable semiannually on May 1 and November 1 of each year, commencing on
May 1, 1998.
The Notes will be convertible into Common Stock initially at the conversion
rate stated on the cover page hereof, subject to adjustment upon the
occurrence of certain events described under "--Conversion Rights," at any
time on and after February 15, 1998 and prior to the close of business on the
maturity date, unless previously redeemed or repurchased.
The Notes are redeemable at the option of the Company under the
circumstances and at the redemption prices set forth below under "--Optional
Redemption," plus accrued interest to the redemption date. The Notes also are
subject to repurchase by the Company at the option of the Holders as described
under "--Repurchase at Option of Holders Upon Change of Control."
The Notes were issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
FORM AND DENOMINATION
Notes sold to QIBs in reliance upon Rule 144A were initially represented by
one or more global Notes in fully registered form without interest coupons
(collectively, the "Restricted Global Note") and were deposited with the
Trustee as custodian for DTC and registered in the name of a nominee of DTC.
Notes issued pursuant to Regulation S were initially represented by one or
more global notes in fully registered form without interest coupons
(collectively, the "Regulation S Global Note" and, together with the
Restricted Global Note, the "Global Notes" or each individually, a "Global
Note") registered in the name of a nominee of DTC and deposited with the
Trustee, for the accounts of the Euroclear System ("Euroclear") and Cedel
Bank, societe anonyme ("CEDEL").
Any beneficial interest in one of the Global Notes that is transferred to a
person who takes delivery in the form of an interest in the other Global Note
will, upon transfer, cease to be an interest in such Global Note and will
become an interest in the other Global Note and, accordingly, will thereafter
be subject to all transfer restrictions and other procedures applicable to
beneficial interests in such other Global Note for so long as it remains such
an interest.
Except in the limited circumstances described below under "--Global Notes,"
owners of beneficial interests in Global Notes will not be entitled to receive
physical delivery of certificated Notes. The Notes are not issuable in bearer
form.
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The Company initially appointed the Trustee at its Corporate Trust Office as
paying agent, transfer agent, registrar and conversion agent for the Notes. In
such capacities, the Trustee is responsible for, among other things, (i)
maintaining a record of the aggregate holdings of Notes represented by the
Regulation S Global Note and the Restricted Global Note and accepting Notes
for exchange and registration of transfer, (ii) ensuring that payments of
principal, premium, if any, and interest in respect of the Notes received by
the Trustee from the Company are duly paid to DTC or its nominees, (iii)
transmitting to the Company any notices from holders, (iv) accepting
conversion notices and related documents, and transmitting the relevant items
to the Company and (v) delivering certificates for Common Stock issued in
conversion of the Notes.
The Company will cause each transfer agent to act as a registrar and will
cause to be kept at the office of each transfer agent a register in which,
subject to such reasonable regulations as it may prescribe, the Company will
provide for the registration of the Notes and registration of transfers of the
Notes. The Company may vary or terminate the appointment of any paying agent,
transfer agent or conversion agent, or appoint additional or other such agents
or approve any change of the office through which any such agent acts,
provided that there shall at all times be a paying agent, a transfer agent and
a conversion agent in the Borough of Manhattan, The City of New York, New
York. The Company will cause notice of any registration, termination or
appointment of the Trustee or any paying agent, transfer agent or conversion
agent, and of any change of the office through which any such agent will act,
to be provided to holders of the Notes.
The following description of the operations and procedures of DTC, Euroclear
and CEDEL is provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them from time to time. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code, as amended, and a "Clearing Agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). DTC was created to hold securities for
its participating organizations (collectively, "participants") and facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies
and clearing corporations and may include certain other organizations.
Indirect access to the DTC system is available to other entities such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Upon the issuance of the Regulation S Global Note and the Restricted Global
Note, DTC credited, on its internal system, the respective principal amount of
the individual beneficial interests represented by such Global Notes to the
accounts of DTC participants or persons who hold interests through
participants. Ownership of beneficial interests in the Global Notes will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
participants) or by the participants and the indirect participants (with
respect to other owners of beneficial interests in the Global Notes).
As long as DTC, or its nominee, is the registered Holder of a Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner and
Holder of the Notes represented by such Global Note for all purposes under the
Indenture and the Notes. Unless DTC notifies the Company that it is unwilling
or unable to continue as depository for a Global Note, or ceases to be a
"Clearing Agency" registered under the Exchange Act, or announces an intention
permanently to cease business or does in fact do so, or an Event of Default
has occurred and is continuing with respect to a Global Note, owners of
beneficial interests in a Global Note will not be entitled to have any
portions of such Global Note registered in their names, will not receive or be
entitled to receive physical delivery of Notes in definitive form and will not
be considered the owners or Holders of the Global Note (or any Notes presented
thereby) under the Indenture or the Notes. In addition, no beneficial owner
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of an interest in a Global Note will be able to transfer that interest except
in accordance with DTC's applicable procedures (in addition to those under the
Indenture referred to herein and, if applicable, those of Euroclear and
CEDEL). In the event that owners of beneficial interests in a Global Note
become entitled to receive Notes in definitive form, such Notes will be issued
only in registered form in denominations of U.S. $1,000 and integral multiples
thereof.
Investors may hold their interests in the Regulation S Global Note through
CEDEL or Euroclear, if they are participants in such systems, or indirectly
through organizations which are participants in such systems. Investors may
also hold such interests through organizations other than CEDEL and Euroclear
that are participants in the DTC system. CEDEL and Euroclear will hold
interests in the Regulation S Global Note on behalf of their participants
through customers' securities accounts in their respective names on the books
of their respective depositaries, which, in turn, will hold such interests in
the Regulation S Global Note in customer's securities accounts in the
depositaries' names on the books of DTC. Investors may hold their interests in
the Restricted Global Note directly through DTC, if they are participants in
such system, or indirectly through organizations (including Euroclear and
CEDEL) which are participants in such system. All interests in a Global Note,
including those held through Euroclear or CEDEL, may be subject to the
procedures and requirements of DTC. Those interests held through Euroclear and
CEDEL may also be subject to the procedures and requirements of such system.
Except as described above and under "Certificated Notes," owners of
interests in Global Notes will not have Notes registered in their names, will
not receive physical delivery of Notes in certificated form and will not be
considered the registered owners or holders thereof under the Indenture for
any purpose.
Payments of the principal of, premium, if any, and interest on Global Notes
will be made to DTC or its nominee as the registered owner thereof. The
Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note representing any Notes held
by it or its nominee, will immediately credit participants' accounts with
payment in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Notes for such Notes as shown on the
records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Notes held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers registered in "street name." Such payments will be the
responsibility of such participants. Neither the Company, the Trustee nor any
of their respective agents will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Transfers of beneficial interests in the Global Notes between participants
will be effected in accordance with DTC's procedures and will trade in DTC's
Same-Day Funds Settlement System, and secondary market trading activity in
such interests will therefore settle in immediately available funds. Transfers
of beneficial interests in the Global Notes between participants in Euroclear
and CEDEL will be effected in the ordinary way in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes
described above, cross-market transfers between DTC participants, on the one
hand, and Euroclear or CEDEL participants, on the other hand, will be effected
by DTC in accordance with DTC's rules on behalf of Euroclear or CEDEL, as the
case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or CEDEL, as
the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or CEDEL, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and CEDEL
participants may not deliver instructions directly to the depositaries for
Euroclear or CEDEL.
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Because of time zone differences, the securities account of a Euroclear or
CEDEL participant purchasing an interest in a Global Note from a DTC
participant will be credited, and any such crediting will be reported to the
relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear and CEDEL)
immediately following the DTC settlement date. Cash received in Euroclear or
CEDEL as a result of sales of interests in a Global Note by or through a
Euroclear or CEDEL participant to a DTC participant will be received with value
on the DTC settlement date but will be available in the relevant Euroclear or
CEDEL cash account only as of the business day for Euroclear or CEDEL following
the DTC settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account with DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of the Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default (as defined below) under the Notes, DTC reserves the
right to exchange the Global Notes for legended Notes in certificated form, and
to distribute such Notes to its participants.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures in
order to facilitate transfers of beneficial ownership interests in the Global
Notes among participants of DTC, Euroclear and CEDEL, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Trustee
nor any of their respective agents will have any responsibility for the
performance by DTC, Euroclear and CEDEL, their participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations, including maintaining, supervising or reviewing the
records relating to, or payments made on account of, beneficial ownership
interests in Global Notes.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for the
reasons set forth above under "--Global Notes," or, in the case of a Global
Note held for an account of Euroclear or CEDEL, Euroclear or CEDEL (as the case
may be) is closed for business for 14 continuous days or announces an intention
to cease or permanently ceases business, the Company will issue certificates
for the Notes in definitive, fully registered, non-global form without interest
coupons in exchange for the Regulation S Global Note or Restricted Global Note,
as the case may be.
The holder of a Note in non-global form may transfer such Note by
surrendering it at the office or agency maintained by the Company for such
purpose in the Borough of Manhattan, the City of New York, which initially will
be the office of the Trustee. Notwithstanding any statement herein, the Company
and the Trustee reserve the right to impose such transfer, certification,
exchange or other requirements, and to require such restrictive legends on
certificates evidencing Notes, as they may determine are necessary to ensure
compliance with the securities laws of the United States and the States therein
and any other applicable laws, to ensure that any amendment to the Shelf
Registration Statement covering the Notes and the Common Stock is declared
effective by the Commission or as DTC, Euroclear or CEDEL may require.
REGISTRATION RIGHTS
The holders of the Notes and the Common Stock issuable upon conversion
thereof are entitled to the benefits of a Registration Rights Agreement, dated
as of November 10, 1997, between the Company and the Initial Purchaser (the
"Registration Rights Agreement"). Pursuant to the Registration Rights
Agreement, the Company has agreed for the benefit of the holders from time to
time of the Notes and the Common Stock issuable upon conversion thereof that it
will, at its expense, use its best efforts to maintain this Shelf Registration
Statement continuously effective under the Securities Act until the second
annual anniversary of the date of the effectiveness of this Shelf Registration
Statement or such earlier date as is provided in the Registration Rights
Agreement.
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If (i) on or prior to February 15, 1998, a Shelf Registration Statement has
not been filed with the Commission, or (ii) on or prior to 180 days following
the Settlement Date, such Shelf Registration Statement is not declared
effective (each, a "Registration Default"), additional interest ("Liquidation
Damages") will accrue on the Notes from and including the day following such
Registration Default to but excluding the day on which such Registration
Default has been cured. Liquidated Damages will be paid semi-annually in
arrears, with the first semi-annual payment due on the first Interest Payment
Date in respect of the Notes following the date on which such Liquidated
Damages begin to accrue, and will accrue at a rate per annum equal to an
additional one-quarter of one percent (0.25%) of the principal amount of the
Notes to and including the 90th day following such Registration Default and at
a rate per annum equal to one-half of one percent (0.50%) thereof from and
after the 91st day following such Registration Default. In the event that the
Shelf Registration Statement ceases to be effective prior to the second annual
anniversary of the initial effective date of the Shelf Registration Statement
or such earlier date as is provided in the Registration Rights Agreement for a
period in excess of 60 days, whether or not consecutive, during any 12-month
period, then the Interest rate borne by the Notes shall increase by an
additional one-half of one percent (0.50%) per annum on the 61st day of the
applicable 12-month period such Shelf Registration Statement ceases to be
effective to but excluding the day on which the Shelf Registration Statement
again becomes effective.
A holder who elects to sell any Registrable Securities pursuant to the Shelf
Registration Statement will be required to be named as a selling security
holder in the related prospectus, may be required to deliver a prospectus to
purchasers, may be subject to certain civil liability provisions under the
Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to a
holder making such election (including certain indemnification provisions).
CONVERSION RIGHTS
The Holder of any Note has the right, at the Holder's option, to convert any
portion of the principal amount of a Note that is an integral multiple of
$1,000 into shares of Common Stock at any time on or after February 15, 1998
and prior to the close of business on the maturity date, unless previously
redeemed or repurchased, at a conversion rate of 97.8713 shares of Common Stock
per $1,000 principal amount of Notes (the "Conversion Rate") (equivalent to a
conversion price of approximately $10.2175 per share of Common Stock), subject
to adjustment as described below. The right to convert a Note called for
redemption or delivered for repurchase will terminate at the close of business
on the Redemption Date or Repurchase Date for such Note. See "--Optional
Redemption."
The right of conversion attaching to any Note may be exercised by the Holder
by delivering the Note at the specified office of the Conversion Agent,
accompanied by a duly signed and completed notice of conversion, a copy of
which may be obtained from the Trustee. The conversion date will be the date on
which the Note and the duly signed and completed notice of conversion are so
delivered. As promptly as practicable on or after the conversion date, the
Company will issue and deliver to the Trustee a certificate or certificates for
the number of full shares of Common Stock issuable upon conversion, together
with payment in lieu of any fraction of a share or, at the Company's option,
rounded up to the next whole number of shares; such certificate will be sent by
the Trustee to the Conversion Agent (if other than the Trustee) for delivery to
the Holder. Such shares of Common Stock issuable upon conversion of the Notes,
in accordance with the provisions of the Indenture, will be fully paid and
nonassessable and will rank pari passu with the other shares of Common Stock of
the Company outstanding from time to time. Any Note surrendered for conversion
during the period from the close of business on any Regular Record Date to the
opening of business on the next succeeding Interest Payment Date (except Notes
called for redemption on a Redemption Date or to be repurchased on a Repurchase
Date during, in each case, such period) must be accompanied by payment of an
amount equal to the interest payable on such Interest Payment Date on the
principal amount of such Notes being surrendered for conversion, and the
interest payable on such Interest Payment Date in respect of such Note shall be
paid to the Holder of such Note as of the Regular Record Date. The interest
payable on such Interest Payment Date with respect to any Note which has been
called for redemption on a Redemption Date, or is repurchaseable on a
Repurchase Date, occurring, in either case,
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during the period referred to in the parenthetical in the immediately preceding
sentence, which Note is surrendered for conversion during such period, shall be
paid to the Holder of such Note being converted in an amount equal to the
interest that would have been payable on such Note if such Note had been
converted as of the close of business on such Interest Payment Date. Interest
payable in respect of any Note surrendered for conversion on or after an
Interest Payment Date shall be paid to the Holder of such Note as of the next
preceding Regular Record Date, notwithstanding the exercise of the right of
conversion.
As a result of the foregoing provisions, Holders that surrender Notes for
conversion on a date that is not an Interest Payment Date will not receive any
interest for the period from the Interest Payment Date next preceding the date
of conversion to the date of conversion or for any later period, even if the
Notes are surrendered after a notice of redemption (except for the payment of
interest on Notes called for redemption on a Redemption Date or to be
repurchased on a Repurchase Date between a Regular Record Date and the Interest
Payment Date to which it relates). No other payment or adjustment for interest,
or for any dividends in respect of Common Stock, will be made upon conversion.
Holders of Common Stock issued upon conversion will not be entitled to receive
any dividends payable to holders of Common Stock as of any record time before
the close of business on the conversion date. No fractional shares will be
issued upon conversion but, in lieu thereof, the Company will calculate an
appropriate amount to be paid in cash on the basis set forth in the Indenture
or, at its option, round up to the next whole number of shares.
A Holder delivering a Note for conversion will not be required to pay any
taxes or duties in respect of the issue or delivery of Common Stock on
conversion but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the Common Stock
in a name other than that of the Holder of the Note. Certificates representing
shares of Common Stock will not be issued or delivered unless the person
requesting such issue has paid to the Company the amount of any such tax or
duty or has established to the satisfaction of the Company that such tax or
duty has been paid.
The Conversion Rate is subject to adjustment in certain events, including,
without duplication: (a) dividends (and other distributions) payable in Common
Stock on shares of capital stock of the Company, (b) the issuance to all
holders of Common Stock of rights, options or warrants entitling them to
subscribe for or purchase Common Stock at less than the then current market
price of such Common Stock (determined as provided in the Indenture) as of the
record date for shareholders entitled to receive such rights, options or
warrants, (c) subdivisions, combinations and reclassifications of Common Stock,
(d) distributions to all holders of Common Stock of evidences of indebtedness
of the Company, shares of capital stock, cash or assets (including securities,
but excluding those dividends, rights, options, warrants and distributions
referred to above, dividends and distributions paid exclusively in cash and in
mergers and consolidations to which the second succeeding paragraph applies),
(e) distributions consisting exclusively of cash (excluding any cash portion of
distributions referred to in (d) above or cash distributed upon a merger or
consolidation to which the next succeeding paragraph applies) to all holders of
Common Stock in an aggregate amount that, combined together with (i) other such
all-cash distributions made within the preceding 12 months in respect of which
no adjustment has been made and (ii) any cash and the fair market value of
other consideration payable in respect of any tender offer by the Company or
any of its subsidiaries for Common Stock concluded within the preceding 12
months in respect of which no adjustment has been made exceeds 10% of the
Company's market capitalization (being the product of the then current market
price (determined as provided in the Indenture) per share of the Common Stock
and the number of shares of Common Stock then outstanding) on the record date
for such distribution, and (f) the successful completion of a tender offer made
by the Company or any of its subsidiaries for Common Stock which involves an
aggregate consideration that, together with (i) any cash and other
consideration payable in a tender offer by the Company or any of its
subsidiaries for Common Stock expiring within the 12 months preceding the
expiration of such tender offer in respect of which no adjustment has been made
and (ii) the aggregate amount of any such all-cash distributions referred to in
(e) above to all holders of Common Stock within the 12 months preceding the
expiration of such tender offer in respect of which no adjustments have been
made, exceeds 10% of the Company's market capitalization on the expiration of
such tender offer. The Company reserves the right
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to make such increases in the Conversion Rate in addition to those required in
the foregoing provisions as it considers to be advisable in order that any
event treated for federal income tax purposes as a dividend or distribution of
stock or issuance of rights or warrants to purchase or subscribe for stock will
not be taxable to the recipients. No adjustment of the Conversion Rate will be
required to be made until the cumulative adjustments amount to 1.0% or more of
the Conversion Rate. The Company shall compute any adjustments to the
Conversion Rate pursuant to this paragraph and will give notice to the Holders
of the Notes of any adjustments.
In case of any consolidation or merger of the Company with or into another
Person or any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale or transfer of all or
substantially all of the assets of the Company, each Note then outstanding
will, without the consent of the Holder of any Note, become convertible only
into the kind and amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of
shares of Common Stock into which such Note was convertible immediately prior
thereto (assuming such holder of Common Stock failed to exercise any rights of
election and that such Note was then convertible).
The Company from time to time may increase the Conversion Rate by any amount
for any period of at least 20 days, in which case the Company shall give at
least 15 days' notice of such increase, if the Board of Directors has made a
determination that such increase would be in the best interest of the Company,
which determination shall be conclusive. No such increase shall be taken into
account for purposes of determining whether the closing price of the Common
Stock exceeds the Conversion Price by 105% in connection with an event which
otherwise would be a Change of Control.
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
federal income tax purposes (e.g., distributions of evidences of indebtedness
or assets of the Company, but generally not stock dividends on Common Stock or
rights to subscribe for Common Stock) and, pursuant to the anti-dilution
provisions of the Indenture, the number of shares into which Notes are
convertible is increased, such increase may be deemed for federal income tax
purposes to be the payment of a taxable dividend to Holders of Notes. See
"Certain Federal Income Tax Considerations."
SUBORDINATION
The payment of the principal of, premium, if any, and interest on (including
any amounts payable upon the redemption or repurchase of the Notes permitted by
the Indenture) the Notes are subordinated in right of payment, to the extent
set forth in the Indenture, to the prior payment in full of the principal of,
premium, if any, interest and other amounts in respect of all Senior Debt of
the Company. The Notes also are effectively subordinated in right of payment to
all indebtedness and other liabilities of the Company's subsidiaries. As of
November 22, 1997, the Company had approximately $29.8 million of Senior Debt
outstanding, and the Company's subsidiaries had approximately $0.5 million of
indebtedness and other liabilities outstanding.
Senior Debt is defined in the Indenture to mean the principal of (and
premium, if any) and interest (including all interest accruing subsequent to
the commencement of any bankruptcy or similar proceeding, whether or not a
claim for post-petition interest is allowable as a claim in any such
proceeding) on, and all fees and other amounts payable in connection with, the
following, whether direct or indirect, absolute or contingent, secured or
unsecured, due or to become due, outstanding on the date of the Indenture or
thereafter created, incurred or assumed: (a) indebtedness of the Company for
money borrowed or evidenced by credit or loan agreement, bonds, debentures,
notes or similar instruments, (b) all obligations of the Company evidenced by a
note or similar instrument or written agreement given in connection with the
acquisition of any businesses, properties or assets, including securities, (c)
obligations of the Company as lessee under leases capitalized on the balance
sheet of the lessee under generally accepted accounting principles, (d)
obligations of the Company under interest rate and currency swaps, caps,
floors, collars, hedge agreements, forward contracts, or similar agreements or
arrangements intended to protect the Company against fluctuations in interest
or currency exchange rates or commodity prices,
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(e) all reimbursement obligations of the Company with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of
the Company, (f) indebtedness of others of the kinds described in the preceding
clauses (a), (b), (c), (d) and (e) that the Company has assumed, guaranteed or
otherwise assured the payment thereof, directly or indirectly, and/or (g)
deferrals, renewals, extensions and refundings of, or bonds, debentures, notes
or other evidences of indebtedness issued in exchange for, or amendments,
modifications or supplements to, or covenants and other obligations of the
Company in connection with, the indebtedness described in the preceding clauses
(a) through (f) whether or not there is any notice to or consent of the Holders
of Notes; except (i) indebtedness and advances among the Company and its direct
and indirect subsidiaries; and (ii) any particular indebtedness, deferral,
renewal, extension or refunding, if it is expressly stated in the governing
terms or in the assumption thereof that the indebtedness involved is not Senior
Debt.
No payment on account of principal, premium, if any, or interest on the Notes
may be made if there shall have occurred (i) a default in the payment of the
principal of, premium, if any, interest (including a default under any
repurchase or redemption obligation) with respect to any Senior Debt or (ii)
any other event of default with respect to any Senior Debt, permitting the
holders thereof to accelerate the maturity thereof, and such event of default
shall not have been cured or waived or shall not have ceased to exist after
written notice of such event of default shall have been given to the Company
and the Trustee by any holder of Senior Debt. Upon the acceleration of the
principal due on the Notes or payment or distribution of assets of the Company
to creditors upon any dissolution, winding up, liquidation or reorganization,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other proceedings, all principal, premium, if any and interest due on all
Senior Debt must be paid in full before the Holders of the Notes are entitled
to receive any payment. By reason of such subordination, in the event of
insolvency, creditors of the Company who are holders of Senior Debt may recover
more, ratably, than the Holders of the Notes, and such subordination may result
in a reduction or elimination of payments to the Holders of the Notes.
The Indenture does not limit the Company's ability to incur Senior Debt or
any other indebtedness or the ability of any subsidiary of the Company to incur
any indebtedness or other liabilities.
OPTIONAL REDEMPTION
The Notes may not be redeemed prior to November 1, 2000. Thereafter, the
Notes may be redeemed, in whole or in part, at the option of the Company, upon
not less than 30 nor more than 60 days' prior notice as provided under "--
Notices" below, at the redemption prices set forth below. Such redemption
prices (expressed as a percentage of principal amount) are as follows for the
12-month period beginning on November 1, of the following years:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000................................... 103.15%
2001................................... 102.10
2002................................... 101.05
</TABLE>
and thereafter at a redemption price equal to 100% of the principal amount, in
each case together with accrued interest to the date of redemption.
No sinking fund is provided for the Notes.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE OF CONTROL
If a Change of Control (as defined) occurs, each Holder of Notes shall have
the right, at the Holder's option, to require the Company to repurchase all of
such Holder's Notes, or any portion of the principal amount thereof that is
equal to $1,000 or an integral multiple of $1,000 in excess thereof, on the
date (the "Repurchase Date") that is 45 days after the date of the Company
Notice (as defined), at a price equal to 100% of the principal amount of the
Notes to be repurchased, together with interest accrued to the Repurchase Date
(the "Repurchase Price").
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The Company may, at its option, in lieu of paying the Repurchase Price in
cash, pay the Repurchase Price in Common Stock valued at 95% of the average of
the last reported sale price of the Common Stock for the five consecutive
Trading Days ending on and including the third Trading Day preceding the
Repurchase Date; provided that payment may not be made in Common Stock unless
the Company satisfies certain conditions prior to the Repurchase Date as
provided in the Indenture.
Within 30 days after the occurrence of a Change of Control, the Company is
obligated to give to all Holders of the Notes notice, as provided in the
Indenture (the "Company Notice"), of the occurrence of such Change of Control
and of the repurchase right arising as a result thereof. The Company must also
deliver a copy of the Company Notice to the Trustee. To exercise the
repurchase right, a Holder of Notes must deliver on or before the 30th day
after the date of the Company Notice irrevocable written notice to the Trustee
of the Holder's exercise of such right, together with the Notes with respect
to which the right is being exercised. At least two business days prior to the
Repurchase Date, the Company must publish a notice in the manner described
above specifying whether the Company will pay the Repurchase Price in cash or
Common Stock.
A Change of Control shall be deemed to have occurred at such time after the
original issuance of the Notes as there shall occur:
(i) the acquisition by any Person (including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of
beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of shares of
capital stock of the Company entitling such Person to exercise 50% or more
of the total voting power of all shares of capital stock of the Company
entitled to vote generally in elections of directors, other than any such
acquisition by the Company, any subsidiary of the Company or any employee
benefit plan of the Company; or
(ii) any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company, or
any conveyance, sale, transfer or lease of all or substantially all of the
assets of the Company to another Person (other than (a) any such
transaction (x) which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of capital stock of the
Company and (y) pursuant to which the holders of the Common Stock
immediately prior to such transaction are entitled to exercise, directly or
indirectly, 50% or more of the total voting power of all shares of capital
stock entitled to vote generally in the election of directors of the
continuing or surviving corporation immediately after such transaction and
(b) any merger which is effected solely to change the jurisdiction of
incorporation of the Company and results in a reclassification, conversion
or exchange of outstanding shares of Common Stock solely into shares of
common stock; provided, however, that a Change of Control shall not be
deemed to have occurred if the last reported sale price per share of the
Common Stock for any five Trading Days within the period of 10 consecutive
Trading Days ending immediately after the later of the Change of Control or
the public announcement of the Change of Control (in the case of a Change
of Control under clause (a) above) or ending immediately before the Change
of Control (in the case of a Change of Control under clause (b) above)
shall equal or exceed 105% of the Conversion Price of the Notes in effect
on each such Trading Day. "Beneficial owner" shall be determined in
accordance with Rule 13d-3 promulgated by the Commission under the Exchange
Act, as in effect on the date of original execution of the Indenture.
The Company's ability to repurchase Notes upon the occurrence of a Change of
Control is subject to limitations. There can be no assurance that the Company
would have the financial resources or be able to arrange financing on
acceptable terms to pay the Repurchase Price for all the Notes as to which the
purchase right is exercised. Further, any repurchase in connection with a
Change of Control could, depending on the circumstances and absent a waiver
from the holders of Senior Debt, be blocked by the subordination provisions of
the Notes. See "--Subordination." The Agreements relating to the Company's
current Senior Debt would limit the Company's ability to repurchase the Notes.
Failure by the Company to repurchase the Notes when required may result in an
Event of Default with respect to the Notes (and with respect to Senior Debt)
whether or not such repurchase is permitted by the subordination provisions.
See "--Events of Default" and "Risk Factors--Repurchase of Notes at the Option
of Holders Upon a Change of Control; Availability of Funds."
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Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to Holders of
the Notes. The Company will comply with this rule to the extent applicable at
that time.
The foregoing provisions would not necessarily afford Holders of the Notes
protection in the event of highly leveraged or other transactions involving
the Company that may adversely affect Holders.
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not consolidate with or merge into any other Person or,
directly or indirectly, convey, transfer, sell, lease or otherwise dispose of
its properties and assets substantially as an entirety to any Person (other
than a conveyance, sale, transfer or lease to a wholly-owned subsidiary), and
the Company may not permit any Person (other than a wholly-owned subsidiary)
to consolidate with or merge into the Company or convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets
substantially as an entirety to the Company, unless (a) the Person formed by
such consolidation or into which the Company is merged or the Person to which
the properties and assets of the Company are so conveyed, transferred sold or
leased is a corporation, limited liability company, partnership or trust
organized and existing under the laws of the United States, any State thereof
or the District of Columbia and has expressly assumed the due and punctual
payment of the principal of, premium, if any, and interest on the Notes and
the performance of the other covenants of the Company under the Indenture, (b)
immediately after giving effect to such transaction, no Event of Default, and
no event which, after notice or lapse of time or both, would become an Event
of Default, shall have occurred and be continuing, and (c) the Company has
provided to the Trustee an Officer's Certificate and Opinion of Counsel if
required by the Indenture.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture: (a) failure to pay
principal or Redemption Price of any Note when due, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (b)
failure to pay any interest (including Liquidated Damages) on any Note when
due, continuing for 30 days, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (c) failure to provide a Company
Notice in the event of a Change of Control; (d) failure to perform any other
covenant or warranty of the Company in the Indenture, continuing for 60 days
after written notice as provided in the Indenture; (e) any indebtedness for
money borrowed by the Company in an aggregate principal amount in excess of
$5,000,000 is not paid at final maturity or the payment thereof is accelerated
and such default in payment or acceleration is not cured or rescinded within
30 days after written notice as provided in the Indenture; and (f) certain
events of bankruptcy, insolvency or reorganization. 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, 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 have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee.
If an Event of Default (other than an Event of Default specified in
subsections (a), (b), and (f) above) occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of the Outstanding
Notes may declare the principal of all the Notes to be due and payable
immediately, and upon any such declaration such principal and any accrued
interest and any unpaid Liquidated Damages thereon will become immediately due
and payable (or, if there are amounts outstanding under the Senior Bank
Facility, will become due and payable no earlier than five business days after
notice to the Agent thereunder, if such Event of Default remains continuing).
If an Event of Default specified in subsections (a) or (b) occurs and is
continuing, the holder of any Outstanding Note may, by notice in writing to
the Company (with a copy to the Trustee), declare the principal of such Note
to be due and payable immediately, and upon any such declaration such
principal and
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(subject to the Indenture) any accrued interest and Liquidated Damages thereon
will become immediately due and payable (or, if there are amounts outstanding
under the Senior Bank Facility, will become due and payable no earlier than
five business days after notice to the Agent thereunder, if such Event of
Default remains continuing). If an Event of Default specified in subsection
(f) occurs and is continuing, the principal and any accrued interest, together
with any Liquidated Damages thereon, on all of the then Outstanding Notes
shall ipso facto become due and payable immediately without any declaration or
other Act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made but before a
judgment or decree based on acceleration, the Holders of a majority in
aggregate principal amount of Outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of accelerated principal and interest, have been
cured or waived as provided in the Indenture.
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 and unless also the Holders of at least 25% in aggregate
principal amount of the Outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a
majority in aggregate principal amount of the 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 a Note for the enforcement of payment of the
principal of, premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note or of the right to convert such
Note in accordance with the Indenture.
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 default in such performance.
MEETINGS, MODIFICATION AND WAIVER
The Indenture contains provisions for convening meetings of the Holders of
Notes to consider matters affecting their interests.
Modifications and amendments of the Indenture may be made, and certain past
defaults by the Company may be waived, (i) with the written consent of the
Holders of not less than a majority in aggregate principal amount of the Notes
at the time Outstanding or (ii) by the adoption of a Resolution, at a meeting
of Holders of the Notes at which a quorum is present, by the Holders of at
least 66 2/3% in aggregate principal amount of the Outstanding Notes
represented at such meeting. However, no such modification or amendment may,
without the consent of the Holder of each outstanding Note affected thereby,
(a) change the Stated Maturity of the principal of, or any installment of
interest on, any Note, (b) reduce the principal amount of, or the premium, if
any, or rate of interest on, any Note, (c) reduce the amount payable upon
redemption or repurchase, (d) modify the provisions with respect to the
repurchase right of the Holders in a manner adverse to the Holders, (e) change
the place or currency of payment of principal of, premium, if any, or interest
on, any Note (including any payment of any Liquidated Damages or the
Repurchase Price in respect of such Note), (f) impair the right to institute
suit for the enforcement of any payment on or with respect to any Note, (g)
modify the obligation of the Company to maintain an office or agency in New
York City, (h) except as otherwise permitted by the Indenture or contemplated
by provisions concerning consolidation, merger, conveyance, transfer, sale or
lease of all or substantially all of the property and assets of the Company,
adversely affect the right of Holders to convert any of the Notes or to
require the Company to repurchase any Note other than as provided in the
Indenture, (i) modify the subordination provisions in a manner adverse to the
Holders of the Notes, (j) reduce the above-stated percentage of Outstanding
Notes necessary to modify or amend the Indenture, (k) reduce the percentage of
aggregate principal amount of Outstanding Notes necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (l) reduce the percentage in aggregate principal amount of Notes
Outstanding required for the adoption of a Resolution or the quorum required
at any meeting of Holders of Notes
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<PAGE>
at which a Resolution is adopted, or (m) modify the obligation of the Company
to deliver information required under Rule 144A to permit resales of Notes and
Common Stock issuable upon conversion thereof in the event the Company ceases
to be subject to certain reporting requirements under the United States
securities laws. The quorum at any meeting called to adopt a Resolution will
be persons holding or representing a majority in aggregate principal amount of
the Notes at the time Outstanding and, at any reconvened meeting adjourned for
lack of quorum, 25% of such aggregate principal amount.
The Holders of a majority in aggregate principal amount of the Outstanding
Notes may waive compliance by the Company with certain restrictive provisions
of the Indenture. The Holders of a majority in aggregate principal amount of
the Outstanding Notes also may waive any past default under the Indenture,
except a default in the payment of principal, premium, if any, or interest and
certain covenants.
TRANSFER, EXCHANGE AND WITHDRAWAL
The Company has initially appointed the Trustee as security registrar and
transfer agent, acting through its Corporate Trust Office in New York City.
The Company reserves the right to vary or terminate the appointment of the
security registrar or of any transfer agent or to appoint additional or other
transfer agents or to approve any Change of the office through which any
security registrar or any transfer agent acts.
In the event of a redemption of the Notes for any of the reasons set forth
below under "--Redemption," the Company will not be required (a) to register
the transfer or exchange of Notes for a period of 15 days immediately
preceding the date notice is given identifying the serial numbers of the Notes
called for such redemption or (b) to register the transfer of or exchange any
Registered Note, or portion thereof, called for redemption.
PURCHASE AND CANCELLATION
The Company or any subsidiary may at any time and from time to time purchase
Notes at any price in the open market or otherwise.
All Notes surrendered for payment, redemption, repurchase, registration of
transfer or exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee. All Notes so delivered to the
Trustee shall be canceled promptly by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes canceled as provided in
the Indenture. Unless otherwise requested by the Company and confirmed in
writing, the Trustee shall, from time to time but not less than once annually,
destroy all canceled Notes and deliver to the Company a certificate of
destruction, which certificate shall specify the number, principal amount and,
in the case of Notes the form of each canceled Note so destroyed.
TITLE
The Company and the Trustee may treat the registered owner (as reflected in
the Security Register) of any Note as the absolute owner thereof (whether or
not such Note shall be overdue) for the purpose of making payment and for all
other purposes.
NOTICES
Notice to Holders of the Notes will be given by mail to the addresses of
such Holders as they appear in the Security Register. Such notices will be
deemed to have been given on the date of the first such publication or on the
date of such mailing, as the case may be.
Notice of a redemption of Notes will be given at least once not less than 30
nor more than 60 days prior to the redemption date (which notice shall be
irrevocable) and will specify the redemption date.
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REPLACEMENT OF NOTES
Notes that become mutilated, destroyed, stolen or lost will be replaced by
the Company at the expense of the Holder upon delivery to the Trustee of the
mutilated Notes or evidence of the loss, theft or destruction thereof
satisfactory to the Company and the Trustee. In the case of a lost, stolen or
destroyed Note, indemnity satisfactory to the Trustee and the Company may be
required at the expense of the Holder of such Note before a replacement Note
will be issued.
PAYMENT OF STAMP AND OTHER TAXES
The Company shall pay all stamp and other duties, if any, which may be
imposed by the United States or United Kingdom or any political subdivision
thereof or taxing authority thereof or therein with respect to the issuance of
the Notes. The Company will not be required to make any payment with respect
to any other tax, assessment or governmental charge imposed by any government
or any political subdivision thereof or taxing authority therein.
SATISFACTION AND DISCHARGE
The Company may discharge its payment obligations under the Indenture while
Notes remain outstanding if (a) all outstanding Notes have become due and
payable or will become due and payable at their scheduled maturity within one
year, (b) all outstanding Notes are scheduled for redemption within one year
or (c) all outstanding Notes are delivered to the Trustee for conversion in
accordance with the Indenture and in the case of (a) or (b) above, the Company
has deposited with the Trustee an amount sufficient to pay and discharge the
entire indebtedness on all outstanding Notes on the date of their scheduled
maturity or the scheduled date of redemption.
GOVERNING LAW
The Indenture and the Notes are governed by and are to be construed in
accordance with the laws of the State of New York.
THE TRUSTEE
In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the degree of care of a prudent person in the
conduct of his own affairs in the exercise of its powers. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders of
Notes, unless they shall have offered to the Trustee reasonable security or
indemnity.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Company's authorized capital stock consists of 200 million shares of
capital stock, of which 190 million shares are designated as Common Stock, and
ten million shares are designated as preferred stock, $.01 par value per share
(the "Preferred Stock"). The Common Stock is listed on the New York Stock
Exchange under the symbol "HBI."
COMMON STOCK
The Company is authorized to issue 190 million shares of Common Stock. As of
December 29, 1997 approximately 37.6 million shares of Common Stock were
issued and outstanding. Subject to the rights of holders of Preferred Stock
and any other senior class of stock, holders of Common Stock are entitled to
receive such dividends as may from time to time be declared by the board of
directors. Holders of Common Stock are entitled to one vote per share on every
question submitted to them at a meeting of stockholders or otherwise. In the
event of a liquidation, dissolution or winding up and distribution of the
assets of the Company, after paying or setting aside for the holders of
Preferred Stock and any other senior class of stock the full preferential
amounts to which they are entitled, and subject to the rights of any series of
Preferred Stock to participate pro rata with the Common Stock with respect to
distributions, the holders of Common Stock are entitled to receive pro rata
all of the remaining assets of the Company available for distribution to
stockholders. There are no pre-emptive rights with respect to Common Stock.
The shares of Common Stock are not liable for further calls or assessments.
PREFERRED STOCK
The Company is authorized to issue up to ten million shares of Preferred
Stock without further stockholder approval (except as may be required by
applicable stock exchange rules). Accordingly, the Board of Directors is
authorized to determine, without any further action by the holders of Common
Stock, the dividend rights, dividend rate, conversion or exchange rights,
voting rights, rights and terms of redemption, liquidation preferences and
sinking fund terms of any series of Preferred Stock, the number of shares
constituting any such series, and the designation thereof. No shares of
Preferred Stock are outstanding. One hundred thousand shares of Preferred
Stock have been designated as Series A Junior Participating Preferred Stock
and have been reserved for issuance upon the exercise of Preferred Stock
Purchase Rights attached to each share of Common Stock. Should the board of
directors elect to exercise its authority to issue any additional series of
Preferred Stock, the rights, preferences and privileges of holders of Common
Stock would be made subject to the rights, preferences and privileges of such
additional series.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND THE BY-LAWS
The internal affairs of the Company are governed by, among other things, the
laws of the State of Delaware, the Company's Certificate of Incorporation (the
"Certificate") and the Company's By-laws (the "By-laws"). The Certificate
contains several provisions that may impede the acquisition of control of the
Company by means of a tender offer, proxy fight or other means. The By-laws
also contains provisions that could have an anti-takeover effect. Set forth
below is a description of such provisions in the Certificate and the By-laws,
and of certain related provisions of Delaware law.
CLASSIFIED BOARD OF DIRECTORS
The Certificate and By-laws provide for the Company's Board of Directors
(the "Board") to be divided into three classes of directors serving staggered
three-year terms. The classified board would significantly extend the time
required to effect any change in control of the Board and may tend to
discourage any hostile takeover bid for the Company. Because only a minority
of the directors will be elected at each annual meeting, it would normally
take at least two annual meetings for holders of even a significant majority
of the Company's voting stock to effect a change in the composition of a
majority of the Board, absent approval of the Board.
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NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The By-laws provide that the number of directors will be determined by the
majority of the entire Board. This power could be used to prevent a
stockholder from obtaining majority representation on the Board. The
Certificate provides that directors may be removed only for cause and only by
a vote of at least 67% of the outstanding shares of Common Stock.
The By-laws provide that vacancies on the Board may only be filled by the
majority vote of the remaining directors and not by the stockholders, except
in the case of newly created directorships. This provision may have the effect
in practice of limiting the power to fill vacancies only to the Board because
the By-laws do not permit stockholders to call a special meeting. See "--
Special Meetings; Stockholder Action by Written Consent" below.
These removal and vacancy provisions of the Certificate and the By-laws may
preclude the holder of a majority of the Common Stock from removing incumbent
directors, or otherwise taking advantage of vacancies on the Board, and
simultaneously gaining control of the Board by filling such resulting
vacancies with its own nominees.
SPECIAL MEETINGS; STOCKHOLDER ACTION BY WRITTEN CONSENT
The By-laws provide that special meetings of stockholders may be called only
by the President or the Chairman of the Board or by vote of a majority of the
entire Board. This provision precludes independent stockholder action to call
a special meeting of stockholders for consideration of any proposals,
including proposals for certain takeovers or proposals to remove directors
from office prior to the annual meeting of stockholders, unless such officers
or the Board believe consideration of such proposals to be appropriate.
The Certificate provides that all stockholder action must be effected at a
duly called meeting (and not by a consent in writing). This provision gives
all of the stockholders of the Company an opportunity to participate in
determining the appropriateness of any proposed action and prevents the
holders of a majority of the voting stock from using the written consent
procedure otherwise permitted by Delaware law to take action, including any
attempt to gain control of the Company.
ADVANCE NOTICE PROVISION FOR STOCKHOLDER NOMINATIONS OF DIRECTORS AND OTHER
STOCKHOLDER PROPOSALS
The By-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders and for nominations by
stockholders of candidates for election as directors at an annual or special
meeting at which directors are elected. Only such business may be conducted at
an annual meeting of stockholders as has been brought before the meeting by,
or at the direction of, the Board of Directors, or by a stockholder of the
Company who is entitled to vote at the meeting who has given to the Secretary
of the Company timely written notice of the stockholder's intention to bring
that business before the meeting. Only persons who are nominated by, or at the
direction of, the Board of Directors, or who are nominated by a stockholder
who has given timely notice, in proper form, to the Secretary prior to a
meeting at which directors are to be elected will be eligible for election as
director of the Company.
CONSIDERATION OF NON-STOCKHOLDER CONSTITUENCIES
The Certificate provides that in determining whether to take or to refrain
from taking corporate action on any matter, the Board may take into account
the interests of creditors, customers, employees and other constituencies of
the Company and its subsidiaries, and the effect upon communities in which the
Company and its subsidiaries do business in addition to any other
considerations which the Board may lawfully take into account. These
provisions emphasize the Board's authority to act to maintain and protect the
Company as an enterprise.
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AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE AND THE BY-LAWS
Under Delaware law, the stockholders may adopt, amend or repeal the by-laws,
and with the approval of the board of directors, the certificate of
incorporation. If the certificate so provides, the by-laws may be adopted,
amended or repealed by the board of directors. The Certificate provides for
such actions to be taken by the Board, except as provided below. The
Certificate contains provisions requiring the affirmative vote of the holders
of at least 80% of all outstanding shares of Common Stock, (i) to alter,
amend, repeal or adopt certain provisions of the Certificate (including the
provisions of the Certificate discussed above in this section and including
the amendment provisions described in this sentence) or (ii) to amend, alter
or repeal provisions of the By-laws (including the provisions of the By-laws
described above in this section). These supermajority voting requirements will
make it more difficult for stockholders to make changes designed to facilitate
the exercise of control over the Company. In addition, these supermajority
voting requirements enable the holders of a minority of the outstanding shares
of Company Common Stock to prevent the holders of a majority or more from
amending the above-described provisions of the Certificate or the By-laws. The
supermajority vote requirements may be difficult to obtain, since the holders
of at least 80% of all outstanding shares of Common Stock must be present or
represented by proxy at any meeting at which any such amendment is proposed
and must vote in favor of such amendment.
SHAREHOLDER RIGHTS PLAN
In 1989, the Board authorized a Rights Agreement, pursuant to which one
preferred stock purchase right (a "Right") was distributed together with and
attached to each share of Common Stock. The Rights will expire on April 6,
1999, unless earlier redeemed or exchanged. Each Right will entitle the holder
to purchase one one-hundredth of a share of Series A Junior Participating
Preferred Stock (the "Series A Preferred Stock") of the Company at an exercise
price of $75, which may be adjusted from time to time by the Board. The Rights
will be exercisable only if a person or group has acquired beneficial
ownership of 15% or more of the outstanding Common Stock or commences a tender
or exchange offer that would result in such person or group owning 15% or more
of the Common Stock. If any person becomes the beneficial owner of 15% or more
of the shares of Common Stock (an "Acquiring Person"), except pursuant to a
Permitted Offer (as defined in the Rights Agreement), each Right not owned by
such Acquiring Person will enable its holder to purchase that number of shares
of the Common Stock which equals the exercise price of the right divided by
one-half of the current market price of the Common Stock at the date of the
occurrence of the event. In addition, if, after a person or group has become
an Acquiring Person, the Company is involved in a merger or other business
combination transaction in which it is not the surviving corporation or in
connection with which the Common Stock is changed or exchanged (other than a
merger which follows a Permitted Offer), or it sells or transfers 30% or more
of its assets or earning power, each Right that has not previously been
exercised or voided will entitle its holder to purchase that number of shares
of Common Stock of such other person which equals the exercise price of the
Right divided by one-half of the current market price of such Common Stock at
the date of the occurrence of the event. The Company will generally be
entitled to redeem the Rights at $.01 per Right at any time until the tenth
business day following public announcement that a person or group has become
an Acquiring Person.
The Series A Preferred Stock purchasable upon exercise of the Rights will
not be redeemable. Subject to the rights of holders of any shares of any
Preferred Stock ranking prior and superior to the Series A Preferred Stock,
each share of Series A Preferred Stock will be entitled to a preferential
quarterly dividend payment of the greater of (a) $1.00 per share or (b) an
aggregate dividend of 100 times the dividend declared per share of Common
Stock. In the event of liquidation, the holders of the Series A Preferred
Stock will be entitled to a minimum preferential liquidation payment of $100
per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, and will be entitled to an aggregate payment of 100
times the payment made per share of Common Stock. Each share of Series A
Preferred Stock will have 100 votes, voting together with the Common Stock.
Finally, in the event of any merger, consolidation or other transaction in
which Common Stock is exchanged, each share of Series A Preferred Stock will
be entitled to receive 100 times the amount received per share of Common
Stock. These rights are protected by customary antidilution provisions.
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Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including without limitation the right to
vote or receive dividends. The Rights are designed to protect stockholders of
the Company in the event of unsolicited offers to acquire the Company and
other coercive takeover tactics. The Rights may cause substantial dilution to
a person or group that attempts to acquire the Company on terms not approved
by the Board, and therefore may render an unsolicited takeover of the Company
more difficult or less likely to occur. However, the Rights should not
interfere with any merger or other business combination approved by the Board
since the Rights may be redeemed by the Company at $.01 per Right prior to the
tenth business day following public announcement that a person or group has
become an Acquiring Person.
CERTAIN RELATED PROVISIONS OF DELAWARE LAW
Under Section 203 of the Delaware General Corporation Law, a corporation is
prohibited from engaging in a business combination (as defined in Section 203)
with any Interested Stockholder (defined to include any person or group owning
more than 15% of the corporation's outstanding voting stock) for a period of
three years following the time such person or group became an Interested
Stockholder. This prohibition does not apply if (i) prior to such time, the
corporation's board of directors approved either the pertinent business
combination or the transaction in which the Interested Stockholder became
such, (ii) upon consummation of the transaction which resulted in such person
or group first becoming an Interested Stockholder, such Interested Stockholder
owned at least 85% of the corporation's voting stock outstanding at the time
the transaction commenced (excluding, in the calculation of such 85% ownership
level, shares owned by persons who are both officers and directors and shares
owned by employee benefit plans under which participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer) or (iii) subsequent to such time, the
pertinent business combination is approved by the corporation's board of
directors and holders of at least two-thirds of the corporation's voting stock
not owned by the Interested Stockholder voting at an annual or special
stockholders' meeting. Any such special stockholders' meeting could only be
called in the manner described above under "--Special Meetings; Stockholder
Action by Written Consents." In addition, subject to certain notice and
related timing requirements, business combinations consisting of (x) mergers
or consolidations requiring stockholder approval, (y) certain asset sales or
related transactions and (z) tender or exchange offers for more than 50% of
the corporation's voting stock are permitted where such business combination
(i) is with a person or group which either was not an Interested Stockholder
during the preceding three years or which became such with the approval of the
corporation's board of directors and (ii) is approved (or not opposed) by a
majority of the disinterested directors (as defined in Section 203).
The Company is subject to the provisions of Section 203. Any future election
to opt out of Section 203 can be effected only by an amendment to the
Certificate or the By-laws. Any such election would not be effective for a
period of 12 months following the date of adoption of such amendment and would
not apply to a business combination with any Interested Stockholder who became
such prior to such date of adoption.
INDEMNIFICATION AND INSURANCE
The Certificate provides that each person who was or is made a party to, or
is involved in, any threatened, pending or completed action, suit, proceeding
or claim by reason of the fact that he or she is or was a director or officer
of the Company (or if such person is or was serving at the request of the
Company as a director, officer, employee or agent for any other entity) shall
be indemnified and held harmless by the Company, to the full extent authorized
by Delaware law against all expenses (including attorneys' fees), judgments,
fines, penalties and amounts to be paid in settlement incurred by such person
in connection with the investigation, preparation to defend or defense of such
action, suit, proceeding or claim. The rights to indemnification and the
payment of expenses to be provided by the Certificate do not apply to any
action, suit, proceeding or claim initiated by or on behalf of a person
otherwise entitled to the benefit of such provisions.
The Company has entered into indemnification agreements with each of its
directors and officers. The Company is expected to maintain insurance, at its
expense, to protect itself and any of its directors, officers,
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employees or agents covered thereby against any expense, liability or loss,
whether or not the Company would have the power to indemnify such person
against such expense, liability or loss under the Delaware law, so long as
such insurance is available at reasonable rates.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
Consistent with applicable provisions of Delaware law, the Certificate
limits a director's monetary liability to the Company or its stockholders for
breach of fiduciary duty, except for situations entailing bad faith,
intentional misconduct, a knowing violation of law, unlawful dividend payments
or stock purchases or redemptions, acquisition of improper personal benefit or
breach of duty of loyalty. As a result of inclusion of this provision,
stockholders may be unable to recover monetary damages against directors for
actions which constitute negligence or gross negligence or which are in
violation of their fiduciary duties, although it may be possible to obtain
injunctive or other equitable relief with respect to such actions. Such
exculpation provisions would not limit directors' liability for violation of
the federal securities laws. Such provisions will not apply to officers who
are not directors of the Company.
TRANSFER AGENT. The Transfer Agent for the Company's Common Stock is The
First Chicago Trust Company of New York.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income and
estate tax considerations relevant to holders of the Notes and of Common Stock
into which Notes may be converted, but does not purport to be a complete
analysis of all the potential tax considerations relating thereto. This
summary is based on laws, regulations, rulings and decisions now in effect
(or, in the case of certain United States Treasury Regulations ("Treasury
Regulations"), now in proposed form), all of which are subject to change,
possibly on a retroactive basis. This summary deals only with holders that
will hold Notes and Common Stock into which Notes may be converted as "capital
assets" (within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code")) and does not address tax considerations
applicable to investors that may be subject to special tax rules, such as
banks, tax-exempt organizations, insurance companies, dealers in securities or
currencies, persons that will hold Notes as a position in a hedging
transaction, "straddle" or "conversion transaction" for tax purposes, or
persons that have a "functional currency" other than the U.S. dollar. The
Company has not sought any ruling from the Internal Revenue Service with
respect to the statements made and the conclusions reached in the following
summary, and there can be no assurance that the Internal Revenue Service will
agree with such statements and conclusions. INVESTORS CONSIDERING THE PURCHASE
OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION
OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX
TREATY.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means the beneficial owner
of a Note or Common Stock that for United States federal income tax purposes
is (i) a citizen or resident of the United States, (ii) treated as a domestic
corporation or domestic partnership, or (iii) an estate or trust other than a
"foreign estate" or "foreign trust" as defined in Section 7701(a) (31) of the
Code.
PAYMENT OF INTEREST
Interest on a Note generally will be includable in the income of a United
States Holder as ordinary income at the time such interest is received or
accrued, in accordance with such Holder's method of accounting for United
States federal income tax purposes.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange or redemption of a Note, a United States Holder
generally will recognize capital gain or loss equal to the difference between
(i) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption (except to the extent such amount
is attributable to accrued interest income, which is taxable as ordinary
income) and (ii) such Holder's adjusted tax basis in the Note. A United States
Holder's adjusted tax basis in a Note generally will equal the cost of the
Note to such Holder, less any principal payments received by such Holder. The
tax rate applicable to such a capital gain will depend, among other things,
upon the Holder's holding period for the Notes that are sold, exchanged or
redeemed.
CONVERSION OF THE NOTES
A United States Holder generally will not recognize any income, gain or loss
upon conversion of a Note into Common Stock except to the extent of ordinary
income recognized with respect to accrued and unpaid interest on the Notes at
that time. A Holder also will recognize capital gain or loss upon the receipt
of cash in lieu of a fractional share of Common Stock equal to the amount of
cash received less the Holder's tax basis in such fractional share. Such
Holder's tax basis in the Common Stock received on conversion of a Note will
be the same as such Holder's adjusted tax basis in the Note at the time of
conversion (reduced by any basis allocable to a fractional share interest),
and the holding period for the Common Stock received on conversion will
generally include the holding period of the Note converted.
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DIVIDENDS
Dividends paid on the Common Stock generally will be includable in the
income of a United States Holder as ordinary income to the extent of the
Company's current or accumulated earnings and profits, then as a tax-free
return of capital to the extent of a Holder's tax basis in the Common Stock
and thereafter as gain from the sale or exchange of such stock.
In general, a dividend distribution to a corporate Holder will qualify for
the 70% dividends received deduction if the Holder owns less than 20% of the
voting power and value of the Company's stock (other than certain non-voting,
non-convertible, non-participating preferred stock). A corporate Holder that
owns 20% or more of the voting power and value of the Company's stock (other
than certain non-voting, non-convertible, non-participating preferred stock)
generally will qualify for an 80% dividends received deduction. The dividends
received deduction is subject, however, to certain holding period, taxable
income and other limitations.
SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, a United States Holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash and the fair market value of any property received upon the
sale or exchange and (ii) such Holder's adjusted tax basis in the Common
Stock. The tax rate applicable to such capital gain will depend, among other
things, upon the Holder's holding period for the Shares of Common Stock that
are sold or exchanged. A United States Holder's basis and holding period in
Common Stock received upon conversion of a Note are determined as discussed
above under "--Conversion of the Notes."
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of the Notes as having received a constructive distribution from the
Company in the event that the conversion ratio of the Notes were adjusted if
(i) as a result of such adjustment, the proportionate interest (measured by
the quantum of Common Stock into or for which the Notes are convertible or
exchangeable) of the holders of the Notes in the assets or earnings and
profits of the Company were increased, and (ii) the adjustment was not made
pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in
the conversion ratio would not be considered made pursuant to such formula if
the adjustment was made to compensate for certain taxable distributions with
respect to the Common Stock. Thus, under certain circumstances, a reduction in
the conversion price for the holders may result in deemed dividend income to
holders to the extent of the Company's current or accumulated earnings and
profits.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note, payments of dividends on
Common Stock, payments of the proceeds of the sale of a Note and payments of
the proceeds of the sale of Common Stock to certain noncorporate United States
Holders, and a 31% backup withholding tax may apply to such payments if the
United States Holder (i) fails to furnish or certify his correct taxpayer
identification number to the payor in the manner required, (ii) is notified by
the Internal Revenue Service (the "IRS") that he has failed to report payments
of interest and dividends properly, or (iii) under certain circumstances,
fails to certify that he has not been notified by the IRS that he is subject
to backup withholding for failure to report interest and dividend payments.
Any amounts withheld under the backup withholding rules from a payment to a
United States Holder will be allowed as a credit against such Holder's United
States federal income tax and may entitle the Holder to a refund, provided
that the required information is furnished to the IRS.
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NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means any beneficial
owner of a Note or Common Stock that is not a United States Holder. The rules
governing the United States federal income and estate taxation of a Non-United
States Holder are complex and no attempt will be made herein to provide more
than a summary of such rules. NON-UNITED STATES HOLDERS SHOULD CONSULT WITH
THEIR OWN TAX ADVISORS TO DETERMINE THE EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS WITH REGARD TO AN INVESTMENT IN THE NOTES AND COMMON STOCK,
INCLUDING ANY REPORTING REQUIREMENTS.
PAYMENT OF INTEREST
Generally, payment of interest on a Note by the Company or any Paying Agent
to a Non-United States Holder will qualify for the "portfolio interest
exemption" and therefore will not be subject to United States federal income
tax or withholding tax, provided that such interest income is not effectively
connected with a United States trade or business of the Non-United States
Holder and provided that the Non-United States Holder (i) does not actually or
constructively own 10% or more of the combined voting power of all classes of
stock of the Company entitled to vote, (ii) is not a controlled foreign
corporation related to the Company actually or constructively through stock
ownership, (iii) is not a bank receiving interest on a loan entered into in
the ordinary course of business and (iv) either (a) provides a Form W-8 (or a
suitable substitute form) signed under penalties of perjury that includes its
name and address and certifies as to its non-United States status in
compliance with applicable law and regulations, or (b) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business holds the Note and
provides a statement to the Company or its agent under penalties of perjury in
which it certifies that such a Form W-8 (or a suitable substitute) has been
received by it from the Non-United States Holder or qualifying intermediary
and furnishes the Company or its agent with a copy thereof.
Recently released Treasury Regulations provide alternative methods for
satisfying the certification requirements described in clause (iv) above. The
Treasury Regulations generally are effective for payments made after December
31, 1998, subject to certain transition rules. Non-United States Holders are
urged to consult their own tax advisors regarding the new Treasury
Regulations.
Except to the extent that an applicable treaty otherwise provides, a Non-
United States Holder generally will be taxed in the same manner as a United
States Holder with respect to interest if the interest income is effectively
connected with a United States trade or business of the Non-United States
Holder. Effectively connected interest received by a corporate Non-United
States Holder may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate (or, if applicable, a lower
treaty rate). Even though such effectively connected interest is subject to
income tax, and may be subject to the branch profits tax, it is not subject to
withholding tax if the Holder delivers IRS Form 4224 to the payor.
Interest income of a Non-United States Holder that is not effectively
connected with a United States trade or business and that does not qualify for
the portfolio interest exemption described above will generally be subject to
a withholding tax at a 30% rate (or, if applicable, a lower treaty rate).
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
A Non-United States Holder of a Note will generally not be subject to United
States federal income tax or withholding tax on any gain realized on the sale,
exchange or redemption of the Note (including the receipt of cash in lieu of
fractional shares upon conversion of a Note into Common Stock) unless (1) the
gain is effectively connected with a United States trade or business of the
Non-United States Holder, (2) in the case of a Non-United States Holder who is
an individual, such Holder is present in the United States for a period or
periods aggregating 183 days or more during the taxable year of the
disposition, and either such Holder has a "tax home" in the United States or
the disposition is attributable to an office or other fixed place of business
maintained by such Holder in the United States, (3) the Holder is subject to
tax pursuant to the provisions of the Code applicable to
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certain United States expatriates, or (4) the Company is a United States real
property holding corporation (see discussion under "United States Foreign
Investment in Real Property Tax Act" below).
CONVERSION OF THE NOTES
In general, no United States federal income tax or withholding tax will be
imposed upon the conversion of a Note into Common Stock by a Non-United States
Holder except with respect to the receipt of cash in lieu of fractional shares
by Non-United States Holders upon conversion of a Note where any of the
conditions described above under "Non-United States Holders--Sale, Exchange or
Redemption of the Notes" is satisfied.
SALE OR EXCHANGE OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax or withholding tax on the sale or exchange of Common Stock
unless any of the conditions described above under "Non-United States
Holders--Sale, Exchange or Redemption of the Notes" is satisfied.
DIVIDENDS
Dividends paid (or deemed paid, as described above under "United States
Holders--Dividends") on Common Stock to a Non-United States Holder (excluding
dividends that are effectively connected with the conduct of a trade or
business in the United States by such Holder and are taxable as described
below) will be subject to United States federal withholding tax at a 30% rate
(or lower rate provided under any applicable income tax treaty). Except to the
extent that an applicable tax treaty otherwise provides, a Non-United States
Holder will be taxed in the same manner as a United States Holder on dividends
paid (or deemed paid) that are effectively connected with the conduct of a
trade or business in the United States by the Non-United States Holder. If
such Non-United States Holder is a foreign corporation, it may also be subject
to a United States branch profits tax on such effectively connected income at
a 30% rate or such lower rate as may be specified by an applicable income tax
treaty. Even though such effectively connected dividends are subject to income
tax, and may be subject to the branch profits tax, they will not be subject to
U.S. withholding tax if the Holder delivers IRS Form 4224 to the payor.
Under currently applicable Treasury Regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and for purposes of determining the applicability
of a tax treaty rate. Under recently issued Treasury Regulations, however,
Non-United States Holders of Common Stock who wish to claim the benefit of an
applicable treaty rate would be required to satisfy certain certification
requirements. The new Treasury Regulations are generally effective for
payments made after December 31, 1998. Non-United States Holders are urged to
consult their own tax advisors regarding the new Treasury Regulations.
DEATH OF A NON-UNITED STATES HOLDER
A Note held by an individual who is not a citizen or resident of the United
States at the time of death will not be includable in the decedent's gross
estate for United States estate tax purposes, provided that such Holder or
beneficial owner did not at the time of death actually or constructively own
10% or more of the combined voting power of all classes of stock of the
Company entitled to vote, and provided that, at the time of death, payments
with respect to such Note would not have been effectively connected with the
conduct by such Non-United States Holder of a trade or business within the
United States.
Common Stock actually or beneficially held (other than through a foreign
corporation) by a Non-United States Holder at the time of his or her death (or
previously transferred subject to certain retained rights or powers) will be
subject to United States federal estate tax unless otherwise provided by an
applicable estate tax treaty.
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INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
United States information reporting requirements and backup withholding tax
will not apply to payments on a Note to a Non-United States Holder if the
statement described in "Non-United States Holders--Payment of Interest" is
duly provided by such Holder, provided that the payor does not have actual
knowledge that the Holder is a United States person.
Information reporting requirements and backup withholding tax will not apply
to any payment of the proceeds of the sale of a Note or any payment of the
proceeds of the sale of Common Stock effected outside the United States by a
foreign office of a "broker" (as defined in applicable Treasury Regulations),
unless such broker (i) is a United States person, (ii) derives 50% or more of
its gross income for certain periods from the conduct of a trade or business
in the United States or (iii) is a controlled foreign corporation as to the
United States. Payment of the proceeds of any such sale effected outside the
United States by a foreign office of any broker that is described in (i), (ii)
or (iii) of the preceding sentence will not be subject to backup withholding
tax, but will be subject to information reporting requirements unless such
broker has documentary evidence in its records that the beneficial owner is a
Non-United States Holder and certain other conditions are met, or the
beneficial owner otherwise establishes an exemption. Payment of the proceeds
of any such sale to or through the United States office of a broker is subject
to information reporting and backup withholding requirements, unless the
beneficial owner of the Note provides the statement described in "Non-United
States Holders--Payment of Interest" or otherwise establishes an exemption.
Recently released Treasury Regulations make certain modifications to the
withholding, backup withholding and information reporting rules described
above. The new Treasury Regulations will generally be effective for payments
made after December 31, 1998, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the new
Treasury Regulations.
UNITED STATES FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"), any person
who acquires a "United States real property interest" (as described below)
from a foreign person must deduct and withhold a tax equal to 10% of the
amount realized by the foreign transferor. In addition, a foreign person who
disposes of a United States real property interest generally is required to
recognize gain or loss that is subject to United States federal income tax. A
"United States real property interest" generally includes any interest (other
than an interest solely as a creditor) in a United States corporation unless
it is established under specific procedures that the corporation is not (and
was not for the prior five-year period) a "United States real property holding
corporation". The Company does not believe that it is a United States real
property holding corporation as of the date hereof, although it has not
conducted or obtained an appraisal of its assets to determine whether it is
now or will be a United States real property holding corporation. If it is not
established that the Company is not a United States real property holding
corporation, then, unless an exemption applies, both the Common Stock and the
Notes would be treated as United States real property interests. As discussed
below, however, an exemption should apply to the Common Stock and the Notes
except with respect to a Non-United States Holder whose beneficial ownership
of Common Stock or Notes exceeds 5% of the total fair market value of the
Common Stock.
An interest in a United States corporation generally will not be treated as
a United States real property interest if, at any time during the calendar
year, any class of stock of the corporation is "regularly traded" on an
established securities market (the "regularly-traded exemption"). The Company
believes that the Company's Common Stock is regularly traded on an established
securities market within the meaning of the applicable regulations, although
there can be no assurance that the Common Stock will remain regularly traded.
The remainder of this discussion assumes that the Common Stock is and will
remain regularly traded on an established securities market.
The regularly-traded exemption is not available to a regularly traded
interest (such as the Common Stock) if such interest is owned by a person who
beneficially owns (actually or constructively) more than 5% of the
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total fair market value of that class of interests at any time during the
five-year period ending on the date of disposition of such interest or other
applicable determination date. Accordingly, except with respect to a sale or
other disposition of Common Stock by a Non-United States Holder whose
aggregate beneficial ownership has exceeded that 5% threshold, no withholding
or income taxation under the FIRPTA rules should be required with respect to
the sale, exchange or other disposition of Common Stock by a Non-United States
Holder.
The regularly-traded exemption will apply to a "non-regularly traded class
of interests" in a United States corporation that is convertible into a
regularly traded class of interests in the corporation unless, on the date
such non-regularly traded interest was acquired by its present holder, such
interest had a fair market value greater than the fair market value on that
date of 5% of the regularly traded class of the corporation's stock into which
it is convertible. (Interests of a nonregularly traded class acquired over a
period of time will be aggregated and valued as of the date of the subsequent
acquisition for purposes of applying the 5% test described above.)
Accordingly, except with respect to the sale, exchange, conversion or
redemption of the Notes by a Non-United States Holder whose aggregate actual
or constructive ownership of such Notes on an applicable determination date
had a fair market value greater than 5% of the Common Stock, no withholding or
income taxation under the FIRPTA rules should be required with respect to the
sale, exchange, conversion or redemption of Notes by a Non-United States
Holder. The foregoing discussion assumes that the Notes constitute interests
that are nonregularly traded interests convertible into a regularly traded
class of interests. If the Notes were to become regularly traded, the
regularly-traded exemption might not apply to Notes owned by a person who
beneficially owns (actually or constructively) more than 5% of the total fair
market value of the Notes at any time during the five year period ending on
the date of disposition of the Notes or other applicable determination date.
Any investor that may approach or exceed any of the 5% ownership thresholds
discussed above, either alone or in conjunction with related persons, should
consult its own tax advisor concerning the United States tax consequences that
may result. A Non-United States Holder who sells or otherwise disposes of
Notes may be required to inform its transferee whether such Notes constitute a
United States real property interest.
68
<PAGE>
SELLING SECURITYHOLDERS
The Notes were originally issued by the Company in a private placement on
November 17, 1997 to Prudential Securities Incorporated (the "Initial
Purchaser"). The Notes were resold by the Initial Purchaser, in transactions
exempt from the registration requirements of the Securities Act, in the United
States to persons reasonably believed by the Initial Purchaser to be
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) and outside the United States in offshore transactions in reliance on
Regulation S under the Securities Act.
The following table sets forth information, as of January 5, 1998, with
respect to the Selling Securityholders and the respective principal amount of
Notes and Common Stock beneficially owned by each Selling Securityholder that
may be offered pursuant to this Prospectus. Except as otherwise indicated, to
the knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their securities. Such information has been
obtained from the Selling Securityholders and the Trustee. The term "Selling
Securityholders" includes the holders listed below and the beneficial owners
of the Notes and their transferees, pledgees, donees or other successors.
<TABLE>
<CAPTION>
COMMON STOCK
PRINCIPAL AMOUNT PRINCIPAL AMOUNT OF OWNED PRIOR COMMON STOCK
SELLING SECURITYHOLDERS OF NOTES OWNED NOTES OFFERED HEREBY TO THE OFFERING OFFERED HEREBY
----------------------- ---------------- -------------------- --------------- --------------
<S> <C> <C> <C> <C>
Allstate Insurance
Company................ $ 1,500,000 -- -- --
American Home Assurance
Company................ 3,000,000 -- -- --
Argent Classic
Convertible Arbitrage
Fund L.P. ............. 2,000,000 -- -- --
Bank of America Pension
Plan................... 2,000,000 -- -- --
CFW-C, L.P. ............ 2,500,000 -- -- --
Chrysler Corporation
Master Retirement
Trust.................. 2,465,000 -- -- --
Commonwealth Life
Insurance Comp.--Stock
Trac (Teamsters I)..... 2,000,000 -- -- --
Delta Air Lines Master
Trust.................. 1,995,000 -- -- --
Deutsche Morgan Grenfell
Inc. .................. 350,000 -- (1) --
FJH Absolute Return
Fund, L.P. ............ 400,000 -- -- --
Highbridge Capital
Corporation............ 7,000,000 -- -- --
Hughes Aircraft Company
Master Retirement
Trust.................. 1,285,000 -- -- --
Husic Capital Management
as a Discretionary
Asset Manager for
the Ameritech Pension
Plan under an
Investment Agreement
dated December 22,
1995................... 7,600,000 -- -- --
JMG Convertible
Investments, L.P. ..... 700,000 -- 5,000 --
KA Management Ltd. ..... 855,000 -- -- --
KA Trading L.P. ........ 645,000 -- -- --
LDG Limited............. 500,000 -- -- --
Mainstay Convertible
Fund................... 2,300,000 -- 74,146 --
McMahan Securities Co.
L.P. .................. 750,000 -- -- --
Minnesota Power & Light
Co. ................... 500,000 -- -- --
Nationwide Select
Advisors--First
Pacific................ 20,000 -- -- --
NatWest Securities
Limited................ 10,137,000 -- -- --
New York Life Separate
Account #7............. 700,000 -- -- --
OCM Convertible Trust... 3,595,000 -- -- --
Orrington International
Fund Ltd. ............. 100,000 -- -- --
Orrington Investments
Limited Partnership.... 175,000 -- -- --
Paloma Securities
L.L.C. ................ 2,550,000 -- -- --
Partner Reinsurance
Company Ltd. .......... 345,000 -- -- --
Prudential Securities,
Inc. .................. 4,500,000 -- -- --
Shepherd Investments
International Ltd. .... 8,388,000 -- -- --
Silverton International
Fund Limited........... 1,700,000 -- -- --
State Employees
Retirement Plan of the
State of Delaware...... 875,000 -- -- --
State of Connecticut
Combined Investment
Funds.................. 3,150,000 -- -- --
Susquehanna Capital
Group.................. 500,000 -- -- --
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
PRINCIPAL AMOUNT PRINCIPAL AMOUNT OF OWNED PRIOR COMMON STOCK
SELLING SECURITYHOLDERS OF NOTES OWNED NOTES OFFERED HEREBY TO THE OFFERING OFFERED HEREBY
----------------------- ---------------- -------------------- --------------- --------------
<S> <C> <C> <C> <C>
Swiss Bank Corporation--
London Branch.......... 1,500,000 -- -- --
The Northwestern Mutual
Life Insurance Company. 4,000,000 -- (2) --
TQA Arbitrage Fund,
L.P. .................. 500,000 -- -- --
TQA Convertible
Investments, L.P. ..... 1,250,000 -- -- --
TQA Leverage Fund,
L.P. .................. 925,000 -- -- --
TQA Vantage Fund, Ltd. . 1,250,000 -- -- --
TQA Vantage Plus, Ltd. . 400,000 -- -- --
Triton Capital
Investments, Ltd. ..... 625,000 -- 5,000 5,000
Vanguard Convertible
Securities Fund, Inc. . 2,290,000 -- -- --
Wachovia Bank, NA,
trustee for Southern
Farm Bureau Life
Insurance Co. First
Pacific
Advisors/Romich........ 650,000 -- -- --
</TABLE>
- --------
(1) Deutsche Morgan Grenfell Inc. and its affiliated companies and/or
individuals may, from time to time, own, have positions in or options in
the Company's securities and may also perform advisory services and/or
lending or other credit relationships with the Company.
(2) In the ordinary course of business, Northwestern Mutual Investment
Services, Inc., Robert W. Baird & Co. Incorporated, Baird/Mark Capital
Group, and MGIC Mortgage Securities Corporation, each of which is a
broker-dealer and affiliated with The Northwestern Mutual Life Insurance
Company, may, from time to time, have acquired or disposed of, or may in
the future acquire or dispose of, securities of the Company or its
affiliates, for such broker-dealers' own accounts or for the accounts of
others. Other affiliates of The Northwestern Mutual Life Insurance Company
may, in the ordinary course of business, effect transactions in the
securities of the Company or its affiliates. The Northwestern Mutual Life
Insurance Company and its affiliates may, in the ordinary course of
business, take part in transactions involving the real property of the
Company or its affiliates.
Unless otherwise indicated, none of the Selling Securityholders has, or
within the past three years has had, any position, office or other material
relationship with the Company or any of its predecessors or affiliates.
Because the Selling Securityholders may, pursuant to this Prospectus, offer
all or some portion of the Notes or the Conversion Shares they presently hold,
no estimate can be given as to the amount of the Notes or the Conversion
Shares that will be held by the Selling Securityholders upon termination of
any such sales. In addition, the Selling Securityholders identified above may
have sold, transferred or otherwise disposed of all or a portion of their
Notes, in transactions exempt from the registration requirements of the
Securities Act, since the date on which they provided the information
regarding their Notes. See "Plan of Distribution."
Only Selling Securityholders identified above who beneficially own the Notes
set forth opposite each such Selling Securityholder's name in the foregoing
table on the effective date of the Registration Statement of which this
Prospectus forms a part may sell such Notes pursuant to the Registration
Statement. The Company may from time to time, in accordance with the
Registration Rights Agreement, include additional Selling Securityholders in
supplements to this Prospectus.
PLAN OF DISTRIBUTION
The Notes were originally issued by the Company in a private placement. The
Notes and Conversion Shares offered hereby may be sold from time to time by
the Selling Securityholders in one or more transactions in the over-the-
counter market, in negotiated transactions, or a combination of such methods
of sale, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. The Notes and
Conversion Shares may be sold directly or through broker-dealers, to whom
Selling Securityholders may pay brokerage commissions and charges. The sale of
Notes and Conversion Shares may be effected as follows: (a) in a block trade
(which may involve crosses) in which the broker or dealer so engaged will
attempt to sell the
70
<PAGE>
securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) by a broker or dealer as
principal and resale by such broker or dealer for its own account pursuant to
this Prospectus; (c) in exchange distributions and/or secondary distributions;
(d) in ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and (e) in privately negotiated transactions.
Pursuant to the provisions of the Registration Rights Agreement between the
Company and the Initial Purchaser, the Company will pay the costs and expenses
incident to the registration and qualification of the Notes and Conversion
Shares offered hereby, including registration and filing fees. In addition,
the Company has agreed to indemnify the Selling Securityholders against
certain liabilities, including liabilities arising under the Securities Act.
The Company reasonably believes that the holders of the Notes and/or
Conversion Shares are qualified institutional buyers within the meaning of
Rule 144A of the Securities Act or non-U.S. persons within the meaning of
Regulation S under the Securities Act. Prior to any use of this Prospectus for
the resale of the Notes and Conversion Shares, this Prospectus will be amended
or supplemented to set forth the name of the Selling Securityholder, the
amount of the Notes and/or the number of Conversion Shares beneficially owned
by such Selling Securityholder, and the amount of the Notes and/or the number
of Conversion Shares to be offered for resale by such Selling Securityholder.
The supplemented or amended Prospectus will also disclose whether any Selling
Securityholder has held any position or office with, been employed by or
otherwise had a material relationship with, the Company or any of its
affiliates during the three years prior to the date of the supplemented or
amended prospectus.
The Selling Securityholders and any broker-dealer participating in the
distribution of the Notes and Conversion Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit and
any commissions paid, or any discounts or concessions allowed to any such
broker-dealer may be deemed to be underwriting discounts and commissions under
the Securities Act. The Selling Securityholders may indemnify any broker-
dealer that participates in transactions involving the sale of Notes and
Conversion Shares against certain liabilities, including liabilities under the
Securities Act.
There can be no assurance that the Selling Securityholders will sell any or
all of the Notes and/or Conversion Shares offered by them hereunder.
The resale of the Notes and/or Conversion Shares will be freely transferable
in the hands of persons other than affiliates of the Company. The Common Stock
is listed on the NYSE under the symbol "HBI."
The Company will not receive any of the proceeds from the resale of the
Notes and/or Conversion Shares.
71
<PAGE>
LEGAL MATTERS
The validity of the Notes and the Conversion Shares offered hereby will be
passed upon for the Company by Gibson, Dunn & Crutcher LLP, Los Angeles,
California.
EXPERTS
The consolidated balance sheets of the Company as of January 25, 1997 and
January 27, 1996, and the consolidated statements of income, cash flows and
stockholders' equity for the fiscal years ended January 25, 1997, January 27,
1996 and January 28, 1995, included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
72
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Statements of Income for the fiscal years ended January 25,
1997, January 27, 1996 and January 28, 1995, and for the 39 weeks ended
October 25, 1997 (unaudited) and October 26, 1996 (unaudited)........... F-3
Consolidated Balance Sheets as of January 25, 1997, January 27, 1996 and
October 25, 1997 (unaudited)............................................ F-4
Consolidated Statements of Cash Flows for the fiscal years ended January
25, 1997, January 27, 1996 and January 28, 1995, and for the 39 weeks
ended October 25, 1997 (unaudited) and October 26, 1996 (unaudited)..... F-5
Consolidated Statements of Stockholders' Equity for the fiscal years
ended January 25, 1997, January 27, 1996 and January 28, 1995, and for
the 39 weeks ended October 25, 1997 (unaudited)......................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of HomeBase, Inc.:
We have audited the accompanying consolidated balance sheets of HomeBase,
Inc. (formerly Waban Inc.) and subsidiaries as of January 25, 1997 and January
27, 1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three fiscal years in the period ended
January 25, 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 audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of HomeBase,
Inc. (formerly Waban Inc.) and subsidiaries as of January 25, 1997 and January
27, 1996 and the consolidated results of their operations and their cash flows
for each of the three fiscal years in the period ended January 25, 1997 in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
July 28, 1997 except as to the
information presented in
Notes 4 and 12, for which the
date is October 28, 1997, and
Note 14, for which the date
is November 17, 1997.
F-2
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
39 WEEKS ENDED FISCAL YEAR ENDED
------------------------ -----------------------------------
OCTOBER 25, OCTOBER 26, JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $1,149,040 $1,142,923 $1,452,696 $1,448,776 $1,357,190
Cost of sales, including
buying and occupancy
costs.................. 898,835 889,059 1,136,997 1,124,460 1,056,620
---------- ---------- ---------- ---------- ----------
Gross profit............ 250,205 253,864 315,699 324,316 300,570
Selling, general and
administrative
expenses............... 213,355 216,261 277,841 275,655 248,112
Store closures and other
changes................ 27,000 -- -- -- --
---------- ---------- ---------- ---------- ----------
Operating income........ 9,850 37,603 37,858 48,661 52,458
Interest on debt and
capital leases (net)... 4,528 7,660 10,506 8,790 9,125
---------- ---------- ---------- ---------- ----------
Income from continuing
operations before
income taxes and
extraordinary loss..... 5,322 29,943 27,352 39,871 43,333
Provision for income
taxes.................. 2,121 11,843 11,005 15,386 16,395
---------- ---------- ---------- ---------- ----------
Income from continuing
operations before
extraordinary loss..... 3,201 18,100 16,347 24,485 26,938
Income from discontinued
operations, net of
income tax of $16,496,
$13,939, $38,661,
$31,075, and $24,807 .. 20,575 33,053 60,313 48,492 38,052
---------- ---------- ---------- ---------- ----------
Income before
extraordinary loss..... 23,776 51,153 76,660 72,977 64,990
Extraordinary loss on
early extinguishment of
debt, net of income tax
benefit of $5,896...... (8,663) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income.............. $ 15,113 $ 51,153 $ 76,660 $ 72,977 $ 64,990
========== ========== ========== ========== ==========
Net income per common
share:
Primary earnings per
share:
Income from continuing
operations before
extraordinary loss..... $ 0.09 $ 0.55 $ 0.49 $ 0.74 $ 0.81
Income from discontinued
operations............. 0.57 0.99 1.82 1.46 1.14
---------- ---------- ---------- ---------- ----------
Income before
extraordinary loss..... 0.66 1.54 2.31 2.20 1.95
Extraordinary loss...... (0.24) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income.............. $ 0.42 $ 1.54 $ 2.31 $ 2.20 $ 1.95
========== ========== ========== ========== ==========
Fully diluted earnings
per share:
Income from continuing
operations before
extraordinary loss..... $ 0.09 $ 0.54 $ 0.49 $ 0.71 $ 0.77
Income from discontinued
operations............. 0.57 0.90 1.66 1.34 1.06
---------- ---------- ---------- ---------- ----------
Income before
extraordinary loss..... 0.66 1.44 2.15 2.05 1.83
Extraordinary loss...... (0.24) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income.............. $ 0.42 $ 1.44 $ 2.15 $ 2.05 $ 1.83
========== ========== ========== ========== ==========
Number of common shares
for earnings per share
computations:
Primary............... 35,768 33,224 33,205 33,220 33,405
Fully diluted......... 35,981 37,704 37,713 37,784 37,793
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY JANUARY
OCTOBER 25, 25, 27,
1997 1997 1996
----------- ---------- ----------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 3,714 $ 16,896 $ 33,606
Marketable securities.................... -- -- 20,339
Accounts receivable, net of allowance for
doubtful accounts of $725, $227 and $107
at October 25, 1997, January 25, 1997
and January 27, 1996.................... 35,128 25,261 28,279
Merchandise inventories.................. 326,715 316,538 298,798
Current deferred income taxes............ 16,439 9,876 13,070
Prepaid expenses and other current
assets.................................. 5,161 4,975 4,023
Prepaid federal and state income taxes .. -- 8,768 1,331
Net current assets of discontinued
operations.............................. -- 62,942 77,207
--------- ---------- ----------
Total current assets................... 387,157 445,256 476,653
Property and equipment, net................ 245,540 249,035 231,428
Property under capital leases, net......... 5,747 6,090 6,726
Property held for sale, net................ -- -- 4,603
Deferred income taxes...................... 14,574 11,300 15,474
Other assets............................... 10,092 4,632 4,798
Net noncurrent assets of discontinued
operations................................ -- 360,746 326,506
--------- ---------- ----------
Total assets........................... $ 663,110 $1,077,059 $1,066,188
========= ========== ==========
<CAPTION>
LIABILITIES
-----------
<S> <C> <C> <C>
Current liabilities:
Accounts payable......................... $ 136,580 $ 84,903 $ 106,848
Restructuring reserve.................... 4,775 2,799 7,175
Accrued expenses and other current
liabilities............................. 89,413 69,058 83,959
Accrued federal and state income taxes... 2,578 -- --
Current installments of long-term debt... 70 12,474 12,828
Obligations under capital leases due
within one year......................... 203 180 393
--------- ---------- ----------
Total current liabilities.............. 233,619 169,414 211,203
Long-term debt............................. 7,034 221,018 233,524
Obligations under capital leases, less
portion due within one year............... 8,716 8,876 9,058
Noncurrent restructuring reserve........... 8,764 10,738 20,623
Other noncurrent liabilities............... 41,658 35,088 36,660
Commitments and contingencies
<CAPTION>
STOCKHOLDERS' EQUITY
--------------------
<S> <C> <C> <C>
Common stock, par value $.01 authorized
190,000,000 shares, issued 37,593,829,
33,269,537 and 33,296,935 shares.......... 376 333 333
Additional paid-in capital................. 373,231 329,719 328,619
Unrealized holding gains................... -- -- 22
Retained earnings (deficit)................ (10,288) 311,873 235,213
Treasury stock, at cost, 0, 528,596 and
567,571 shares............................ -- (10,000) (9,067)
--------- ---------- ----------
Total stockholders' equity............. 363,319 631,925 555,120
--------- ---------- ----------
Total liabilities and stockholders'
equity................................ $ 663,110 $1,077,059 $1,066,188
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
39 WEEKS ENDED FISCAL YEAR ENDED
------------------------ -----------------------------------
OCTOBER 25, OCTOBER 26, JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income.............. $ 15,113 $ 51,153 $ 76,660 $ 72,977 $ 64,990
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Net income from
discontinued
operations........... (20,575) (33,053) (60,313) (48,492) (38,052)
Depreciation and
amortization......... 18,482 17,370 23,620 20,118 19,261
Extraordinary loss.... 14,559 -- -- -- --
(Gain) loss on
property disposals... 66 864 1,037 671 1,113
Amortization of
premium on marketable
securities........... -- 120 122 752 388
Other noncash items
(net)................ 213 210 375 643 1,298
Deferred income taxes. (9,837) 3,041 7,384 4,044 13,103
Increase (decrease) in
cash due to changes
in:
Accounts receivable.. (9,867) (5,368) 3,018 394 9,454
Merchandise
inventories......... (10,177) (35,341) (17,740) (20,036) 15,031
Prepaid expenses..... (186) (1,425) (952) (724) 1,614
Other assets......... (386) (588) (488) (154) 1,159
Accounts payable..... 51,677 24,862 (21,945) 7,210 (15,670)
Restructuring
reserves............ (253) (13,883) (14,591) (14,460) (25,769)
Accrued expenses..... 21,270 4,182 (6,988) 5,188 11,611
Accrued income taxes. 13,540 2,124 (5,315) 10,466 (11,825)
Other noncurrent
liabilities......... 6,569 883 (1,572) 6,358 6,432
--------- -------- -------- --------- ---------
Net cash provided by
(used in) operating
activities of:
Continuing
operations.......... 90,208 15,151 (17,688) 44,955 54,138
Discontinued
operations.......... 1,559 24,675 111,851 57,543 77,269
--------- -------- -------- --------- ---------
Net cash provided by
operating activities. 91,767 39,826 94,163 102,498 131,407
--------- -------- -------- --------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of marketable
securities............ (7,694) (20,873) (29,903) (146,778) (120,944)
Sale of marketable
securities............ -- 37,927 46,957 131,632 37,303
Maturity of marketable
securities............ -- 3,140 3,140 58,352 19,082
Property additions..... (15,336) (42,253) (48,393) (73,300) (37,198)
Property disposals..... 416 4,423 4,438 8,461 9,632
--------- -------- -------- --------- ---------
Net cash used in
investing activities
of:
Continuing operations. (22,614) (17,636) (23,761) (21,633) (92,125)
Discontinued
operations........... (23,269) (58,890) (71,282) (90,114) (67,998)
--------- -------- -------- --------- ---------
Net cash used in
investing activities.. (45,883) (76,526) (95,043) (111,747) (160,123)
--------- -------- -------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Borrowings of long-term
debt.................. -- 35,000 -- -- 100,000
Repayment of long-term
debt.................. (130,728) (12,813) (12,828) (12,763) (15,374)
Debt issuance costs.... (986) -- -- -- (2,747)
Repayment of capital
lease obligations..... (137) (319) (395) (657) (951)
Purchase of treasury
stock................. -- (11,392) (11,392) (9,906) --
Proceeds from sale and
issuance of common
stock................. 5,850 8,678 9,016 2,044 1,297
Cash paid to BJ's
Wholesale Club, Inc.
in spin-off........... (5,000) -- -- -- --
--------- -------- -------- --------- ---------
Net cash provided by
(used in) financing
activities of:
Continuing operations. (131,001) 19,154 (15,599) (21,282) 82,225
Discontinued
operations........... 71,935 (200) (231) (304) (276)
--------- -------- -------- --------- ---------
Net cash used in
financing activities.. (59,066) 18,954 (15,830) (21,586) 81,949
--------- -------- -------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents........... (13,182) (17,746) (16,710) (30,835) 53,233
Cash and cash
equivalents at
beginning of year..... 16,896 33,606 33,606 64,441 11,208
--------- -------- -------- --------- ---------
Cash and cash
equivalents at end of
period................ $ 3,714 $ 15,860 $ 16,896 $ 33,606 $ 64,441
========= ======== ======== ========= =========
Supplemental cash flow
information:
Interest paid
(including
discontinued
operations)........... $ 9,251 $ 10,434 $ 21,229 $ 21,038 $ 18,280
Income taxes paid
(including
discontinued
operations)........... 29,729 37,179 45,937 37,222 29,723
Noncash financing and
investing activities:
Conversion of long-term
debt to stock (net)... 107,061 -- 32 -- --
Tax benefit of employee
stock options......... 2,194 1,964 2,122 953 221
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL HOLDING RETAINED TREASURY STOCK TOTAL
-------------- PAID-IN GAINS EARNINGS --------------- STOCKHOLDERS'
SHARES $ CAPITAL (LOSSES) (DEFICIT) SHARES $ EQUITY
-------- ----- ---------- ---------- --------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 29,
1994................... 33,086 $331 $322,915 $-- $ 97,246 -- $ -- $ 420,492
Net income............ -- -- -- -- 64,990 -- -- 64,990
Unrealized holding
losses............... -- -- -- (44) -- -- -- (44)
Exercise of stock
options.............. 119 1 1,296 -- -- -- -- 1,297
Income tax benefit of
stock options........ -- -- 221 -- -- -- -- 221
Issuance of restricted
stock................ 6 -- -- -- -- -- -- --
Amortization of
restricted stock
grants............... -- -- 1,133 -- -- -- -- 1,133
Cancellation of
restricted stock..... (25) -- -- -- -- -- -- --
------- ----- -------- ---- --------- ---- -------- ---------
Balance, January 28,
1995................... 33,186 332 325,565 (44) 162,236 -- -- 488,089
Net income............ -- -- -- -- 72,977 -- -- 72,977
Unrealized holding
gains................ -- -- -- 66 -- -- -- 66
Purchase of treasury
stock................ -- -- -- -- -- (622) (9,906) (9,906)
Exercise of stock
options.............. 126 1 1,204 -- -- 54 839 2,044
Income tax benefit of
stock options........ 3 -- 955 -- -- -- -- 955
Issuance of restricted
stock................ -- -- -- -- -- -- -- --
Amortization of
restricted stock
grants............... -- -- 895 -- -- -- -- 895
Cancellation of
restricted stock..... (18) -- -- -- -- -- -- --
------- ----- -------- ---- --------- ---- -------- ---------
Balance, January 27,
1996................... 33,297 333 328,619 22 235,213 (568) (9,067) 555,120
Net income............ -- -- -- -- 76,660 -- -- 76,660
Unrealized holding
losses............... -- -- -- (22) -- -- -- (22)
Purchase of treasury
stock................ -- -- -- -- -- (570) (11,392) (11,392)
Exercise of stock
options.............. -- -- (715) -- -- 567 9,731 9,016
Income tax benefit of
stock options........ -- -- 2,122 -- -- -- -- 2,122
Issuance of restricted
stock................ -- -- (704) -- -- 41 704 --
Amortization of
restricted stock
grants............... -- -- 397 -- -- -- -- 397
Cancellation of
restricted stock .... (27) -- -- -- -- -- -- --
Conversion of 6.5%
debentures........... -- -- -- -- -- 1 24 24
------- ----- -------- ---- --------- ---- -------- ---------
Balance, January 25,
1997................... 33,270 333 329,719 -- 311,873 (529) (10,000) 631,925
(Unaudited)
Net income............ -- -- -- -- 15,113 -- -- 15,113
Exercise of stock
options.............. 155 2 1,767 -- -- 213 4,031 5,800
Income tax benefit of
stock options........ -- -- 2,194 -- -- -- -- 2,194
Issuance of restricted
stock................ 153 1 -- -- -- -- -- 1
Amortization of
restricted stock
grants............... -- -- 263 -- -- -- -- 263
Cancellation of
restricted stock .... (46) -- -- -- -- -- -- --
Conversion of 6.5%
debentures........... 4,062 40 101,052 -- -- 316 5,969 107,061
Equity transfer in
spin-off of BJ's
Wholesale Club Inc... -- -- (61,764) -- (337,274) -- -- (399,038)
------- ----- -------- ---- --------- ---- -------- ---------
Balance, October 25,
1997................... 37,594 $376 $373,231 $-- $ (10,288) -- $ -- $ 363,319
======= ===== ======== ==== ========= ==== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
HomeBase, Inc. (the "Company"), formerly known as Waban Inc. ("Waban"),
operates home improvement warehouse stores in 10 western states.
On July 26, 1997, the Company transferred all of the net assets of its BJ's
Wholesale Club division ("BJ's") to BJ's Wholesale Club, Inc. ("BJI"). On July
28, 1997, the Company distributed to its stockholders on a pro rata basis all
of the outstanding common stock of BJI (the "Distribution"). The financial
statements for all periods presented have been restated to present the BJ's
Wholesale Club division as a discontinued operation. Income from discontinued
operations in the year-to-date period ended July 26, 1997 also included
transaction costs of $5.0 million (net of tax) incurred in connection with the
Distribution.
2. SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company include the financial
statements of the Company's subsidiaries, all of which are wholly-owned.
Fiscal Year
The Company operates within a conventional 52 or 53 week accounting fiscal
year. The Company's fiscal year ends on the last Saturday in January.
Use of 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.
Interim Financial Statements (unaudited)
The consolidated balance sheet of the Company as of October 25, 1997 and the
consolidated statements of income and cash flows for the 39 weeks ended
October 25, 1997 and October 26, 1996 are unaudited, but include all
adjustments (consisting of only normal recurring accruals) which the Company
considers necessary for a fair presentation of its consolidated financial
position, results of operations and cash flows for these periods. The data
disclosed in these notes to the consolidated financial statements for those
interim periods are also unaudited. Results of operations for interim periods
are not necessarily indicative of the results for a full fiscal year.
Cash Equivalents and Marketable Securities
The Company considers highly liquid investments with an original maturity of
three months or less at time of purchase to be cash equivalents. Investments
with maturities exceeding three months are classified as marketable
securities.
Merchandise Inventories
Inventories are stated at the lower of cost, determined under the average
cost method, or market. The Company recognizes the write-down of slow-moving
or obsolete inventory in cost of sales when such write-downs are probable and
estimable.
F-7
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation expense includes
amortization of property under capital leases. Depreciation and amortization
is provided using the straight-line method using the following estimated
useful lives.
<TABLE>
<S> <C>
Buildings...................................................... 33 years
Property under capital leases and leasehold improvements....... Lease term
Furniture, fixtures, and equipment............................. 3-10 years
</TABLE>
Preopening Costs
Preopening costs consist of direct incremental costs of opening a facility
and are charged to operations within the fiscal year that a new warehouse
store opens.
Interest on Debt and Capital Leases
Interest on debt and capital leases in the consolidated statements of income
is presented net of interest income and investment income of $1.8 million,
$5.9 million and $4.9 million in fiscal years 1996, 1995 and 1994,
respectively.
Capitalized Interest
The Company capitalizes interest related to the development of owned
facilities. Interest in the amount of $0.9 million, $1.6 million and $1.1
million was capitalized in fiscal years 1996, 1995 and 1994, respectively.
Long-lived assets
In fiscal year 1996, the Company adopted Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"). The adoption of SFAS 121
had no impact on the Company's financial position or on its results of
operations.
In accordance with SFAS No. 121, long-lived assets held and used by the
Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived
assets, the recoverability test is performed using undiscounted net cash flows
of the individual warehouse stores and consolidated undiscounted net cash
flows for long-lived assets not identifiable to individual warehouse stores.
Advertising Costs
Advertising costs are expensed as incurred. Net advertising expense was
$18.9 million, $18.1 million and $16.2 million for fiscal years 1996, 1995 and
1994, respectively.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial statements or
tax returns. In estimating future tax consequences, SFAS 109 generally
considers all expected future events other than proposed changes in the tax
law or rates.
F-8
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Discontinued Operations
Net sales from discontinued operations were $1,464.4 million, $2,053.9
million, $2,922.8 million, $2,529.6 million and $2,293.1 million for the 39
weeks ended October 25, 1997 and October 26, 1996 and for fiscal years 1996,
1995 and 1994, respectively. Corporate interest expense was allocated to
discontinued operations based on the ratio of BJ's net assets to the sum of
consolidated net assets plus consolidated debt.
Stock-Based Compensation
The Company applies the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations in accounting for its
stock-based compensation.
Net Income Per Common Share
Primary and fully diluted earnings per share have been calculated by
dividing net income by the weighted average number of shares of common stock
and common stock equivalents and other dilutive securities outstanding in each
period.
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
was issued in February 1997 and becomes effective for the Company's fiscal
year ending January 31, 1998. SFAS No. 128 modifies the way in which earnings
per share ("EPS") is calculated and disclosed. Currently, the Company
discloses primary and fully diluted EPS. Upon adoption of this standard, the
Company will disclose basic and diluted EPS for fiscal 1997 and will restate
all prior period EPS data presented. Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the weighted-
average number of common shares outstanding for the period. Diluted EPS,
similar to fully diluted EPS, reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. If the Company had adopted SFAS No.
128 for fiscal 1996, basic EPS would have been $2.33 per share versus $2.31
reported for primary EPS. Diluted EPS would have been $2.15 per share,
unchanged from fully diluted EPS reported in 1996.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current year presentation.
New Accounting Standards
In July 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS No. 130") was issued. This statement
establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. Adoption of this statement will not have a
material effect on historical results of operations.
F-9
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SUPPLEMENTAL BALANCE SHEET INFORMATION
Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
OCTOBER 25, JANUARY 25, JANUARY 27,
1997 1997 1996
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and buildings....................... $ 157,354 $156,862 $141,958
Leasehold improvements................... 57,947 58,762 50,822
Furniture, fixtures and equipment........ 134,018 132,409 125,021
--------- -------- --------
349,319 348,033 317,801
Accumulated depreciation................. (103,779) (98,998) (86,373)
--------- -------- --------
Property and equipment, net.............. $ 245,540 $249,035 $231,428
========= ======== ========
</TABLE>
Property under Capital Leases
Net property under capital leases consists of the following:
<TABLE>
<CAPTION>
OCTOBER 25, JANUARY 25, JANUARY 27,
1997 1997 1996
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Property under capital leases............ $ 9,696 $10,213 $11,540
Accumulated depreciation................. (3,949) (4,123) (4,814)
------- ------- -------
Property under capital lease, net........ $ 5,747 $ 6,090 $ 6,726
======= ======= =======
</TABLE>
Accrued Expenses and Other Current Liabilities
The major components of accrued expenses and other current liabilities are as
follows:
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Self-insurance reserves........................... $14,497 $14,397
Employee compensation............................. 12,856 12,458
Sales and use taxes............................... 11,691 12,261
Rent, utilities, advertising and other............ 30,014 44,843
------- -------
$69,058 $83,959
======= =======
</TABLE>
F-10
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. DEBT
At October 25, 1997, January 25, 1997 and January 27, 1996, long-term debt,
exclusive of current installments, consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 25, JANUARY 25, JANUARY 27,
1997 1997 1996
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate debt, interest 9.25%,
maturing through March 1, 2003......... $ 397 $ 450 $ 924
General Corporate Debt:
Senior notes, interest at 9.58%,
maturing May 31, 1997 through May 31,
1998................................. -- 12,000 24,000
Senior Subordinated Debt:
Senior subordinated notes, interest at
11%, maturing May 15, 2004........... 6,637 100,000 100,000
Convertible Subordinated Debt:
Convertible debentures, interest at
6.5%, maturing July 1, 2002.......... -- 108,568 108,600
------ -------- --------
$7,034 $221,018 $233,524
====== ======== ========
</TABLE>
The aggregate maturities of long-term debt outstanding at January 25, 1997
were as follows:
<TABLE>
<CAPTION>
FISCAL
YEARS REAL GENERAL SENIOR CONVERTIBLE
ENDING ESTATE CORPORATE SUBORDINATED SUBORDINATED
JANUARY DEBT DEBT DEBT DEBT TOTAL
------- ------ --------- ------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1999................... $ 72 $12,000 $ -- $ -- $ 12,072
2000................... 79 -- -- -- 79
2001................... 86 -- -- -- 86
2002................... 95 -- -- -- 95
Later years............ 118 -- 100,000 108,568 208,686
---- ------- -------- -------- --------
Total................ $450 $12,000 $100,000 $108,568 $221,018
==== ======= ======== ======== ========
</TABLE>
As of January 25, 1997, long-term real estate debt was collateralized by
land and buildings with a net book value of $8.7 million.
The Company's 9.58% unsecured senior notes are payable in two annual
installments of $12 million on May 31, 1997 and May 31, 1998. The 11.0% senior
subordinated notes are due May 15, 2004. The 6.5% convertible subordinated
debentures, due July 1, 2002, are convertible into the Company's common stock
at a conversion price of $24.75 per share.
During the quarter ended July 26, 1997, $106.7 million of the Company's 6.5%
convertible subordinated debentures were converted into common stock and the
remaining $.2 million were redeemed for cash. In July 1997, the Company repaid
all of its 9.58% senior notes due May 31, 1998 totaling $12.0 million, and,
pursuant to a tender offer, $93.4 million of its 11% senior subordinated notes
due May 15, 2004. Results for the year-to-date period ended July 26, 1997
included an extraordinary loss of $8.7 million for the after-tax cost of the
early extinguishment of debt, related to these transactions.
A total of $6.6 million of the Company's senior subordinated notes remains
outstanding at October 25, 1997, which the Company intends to call and repay
on May 15, 1999. In July 1997, the Company purchased U.S. Treasury Securities
and deposited them in escrow with the trustee of the notes to be used to
retire the debt and pay interest through May 1999.
F-11
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's senior subordinated debt and bank credit agreements contain
covenants which, among other things, include minimum working capital, net
worth and fixed charge coverage requirements and a maximum funded debt-to-
capital limitation, and limit the payment of cash dividends on common stock.
Under the most restrictive requirement, cash dividends are limited to not more
than 25% of the Company's consolidated net income for the immediately
preceding fiscal year.
In the second quarter of fiscal 1996 the Company extended its $150 million
credit agreement with a group of banks through March 30, 1999. The agreement
includes a $20 million sub-facility for standby letters of credit. The Company
is currently required to pay an annual facility fee of $0.2 million.
Borrowings can be made at prime rate, at LIBOR plus a surcharge (currently
0.40%), or on a competitive bid basis. The current annual facility fee and
surcharge on borrowings made at LIBOR are the minimum provided under the
agreement and are both subject to change based upon the Company's fixed charge
ratio. There are no compensating balance requirements under this agreement. At
January 25, 1997, $8.7 million of stand-by letters of credit were outstanding
under the sub-facility; the remainder of the line of credit was available for
use.
In July 1997, the Company entered into a new $125 million credit agreement
("New Credit Agreement") with a group of banks which expires July 9, 2000.
This agreement replaced the Company's $150 million credit facility which was
scheduled to expire March 30, 1999, but was terminated immediately following
the Distribution. In October 1997, the New Credit Agreement was amended and
the total facility was reduced to $90 million. The New Credit Agreement
includes a $40 million sub-facility for letters of credit and is secured by
inventory and accounts receivable. The Company is required to pay an annual
facility fee which is currently 0.35% of the total commitment. Interest on
borrowings is payable at the Company's option either at (a) the Eurodollar
rate plus a margin, which is currently 1.45% or (b) the agent bank's prime
rate plus a margin, which is currently 0.20%. The facility fee and borrowing
margins are subject to adjustment based upon the Company's fixed charge
coverage ratio. The credit facility is subject to certain covenants which
include minimum tangible net worth and fixed charge coverage requirements and
a maximum funded debt-to-capital limitation, and prohibit the payment of cash
dividends.
At January 25, 1997, the Company had additional letter of credit facilities
of approximately $45.2 million primarily to support the purchase of
inventories, of which approximately $17.5 million were outstanding.
5. COMMITMENTS AND CONTINGENCIES
The Company is obligated under long-term leases for the rental of real
estate and fixtures and equipment, some of which are classified as capital
leases pursuant to SFAS No. 13. In addition, the Company is generally required
to pay insurance, real estate taxes and other operating expenses and, in some
cases, additional rentals based on a percentage of sales or increases in the
Consumer Price Index. The real estate leases range up to 25 years and have
varying renewal options. The fixture and equipment leases range up to 10
years.
F-12
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments as of January 25, 1997 were:
<TABLE>
<CAPTION>
FISCAL
YEARS
ENDING CAPITAL OPERATING
JANUARY LEASES LEASES
------- ------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998..................................................... $ 1,412 $ 64,051
1999..................................................... 1,433 62,186
2000..................................................... 1,455 59,420
2001..................................................... 1,455 58,569
2002..................................................... 1,455 55,312
Later years.............................................. 13,222 396,861
------- --------
Total minimum lease payments............................. $20,432 $696,399
========
Less amount representing interest........................ 11,376
-------
Present value of net minimum capital lease payments...... $ 9,056
=======
</TABLE>
Rental expense under operating leases (including contingent rentals which
were not material) amounted to $65.1 million, $62.4 million and $54.1 million
in 1996, 1995 and 1994, respectively. These amounts exclude rent of $3.5
million, $5.2 million and $12.5 million charged to the restructuring reserve
in 1996, 1995 and 1994, respectively.
The table of future minimum lease payments above includes lease commitments
for three warehouse stores which have closed in connection with the Company's
restructuring as of January 25, 1997, but which were not subleased or assigned
at that date. As of January 25, 1997, the Company was also contingently liable
on one warehouse store lease that was assigned to a third party; the Company
believes that this contingent liability will not have a material effect on its
financial condition or results of operations.
The Company is involved in various legal proceedings incident to the
character of its business. Although it is not possible to predict the outcome
of these proceedings, or any claims against the Company related thereto, the
Company believes that such proceedings will not, individually or in the
aggregate, have a material effect on its financial condition or results of
operations.
6. CAPITAL STOCK, STOCK OPTIONS AND STOCK PURCHASE PLANS
At January 25, 1997, the Company has two stock-based compensation plans.
Under its 1989 Stock Incentive Plan, the Company has granted certain key
employees options, which expire five to ten years from the grant date, to
purchase common stock at prices equal to 100% of market price on the grant
date. Options outstanding are exercisable over various periods generally
starting one year after the grant date. The Company has also issued restricted
stock awards to certain key employees at no cost under its 1989 Stock
Incentive Plan. The restrictions on the transferability of those shares tied
to Company performance lapse over periods that range up to eight years; for
other awards, restrictions on the sale of shares range up to four years. The
maximum number of shares of common stock issuable under the 1989 Stock
Incentive Plan is 5,750,000.
Under its 1995 Director Stock Option Plan, the Company has granted its
external directors options to purchase common stock at prices equal to 100% of
the market price on the grant date. These options, which expire ten years from
the grant date, are exercisable starting one year after they are granted. A
maximum of 150,000 shares may be issued under the 1995 Director Stock
Incentive Plan.
F-13
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its stock-based compensation. During 1996, 41,000 shares of
restricted stock were issued at a weighted-average grant-date fair value of
$22.92. Total pre-tax compensation cost recognized in income for stock-based
employee compensation awards in 1996 was $0.4 million, and consisted entirely
of restricted stock expense, which is charged to income ratably over the
period during which the restrictions lapse. No compensation cost was
recognized for the Company's stock options under APB 25 because the exercise
price equaled the market price of the underlying stock on the date of the
grant.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
and has been determined as if the Company had accounted for its stock options
under the fair value method of that statement. The fair value for these
options was estimated at the grant date using the Black-Scholes option pricing
model with the following weighted average assumptions: risk-free interest
rates of 6.47% and 5.80% in 1996 and 1995, respectively; volatility factor of
the expected market price of the Company's common stock of .37, and expected
life of the options of 4.5 years in both 1996 and 1995. No dividends were
expected.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for earnings per
share information):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Pro forma net income................................. $75,559 $72,386
Pro forma earnings per share:
Primary............................................ $ 2.28 $ 2.19
Fully diluted...................................... $ 2.13 $ 2.04
</TABLE>
The effects of applying the provisions of FASB Statement No. 123 for pro
forma disclosure are not necessarily representative of the effects on reported
net income for future years because options vest over several years and
additional awards generally are made each year. In accordance with the
transition requirements of FASB Statement No. 123, the pro forma disclosures
above only include stock options awarded after January 28, 1995.
F-14
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the Company's stock option activity, and related information
for the fiscal years January 28, 1995 through January 25, 1997 is presented
below:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Fiscal Year Ended January 28, 1995:
Outstanding at beginning of year............. 1,502,901 $14.69
Granted...................................... 1,427,200 17.52
Exercised.................................... (119,873) 11.41
Forfeited.................................... (267,499) 16.42
Expired...................................... -- --
--------- ------
Outstanding at January 28, 1995................ 2,542,729 $16.25
Fiscal Year Ended January 27, 1996:
Granted...................................... 270,500 15.74
Exercised.................................... (189,126) 11.30
Forfeited.................................... (144,553) 16.40
Expired...................................... -- --
--------- ------
Outstanding at January 27, 1996................ 2,479,550 $16.56
Fiscal Year Ended January 25, 1997:
Granted...................................... 789,625 24.13
Exercised.................................... (566,923) 15.96
Forfeited.................................... (162,628) 19.22
Expired...................................... -- --
--------- ------
Outstanding at January 25, 1997................ 2,539,624 $18.88
========= ======
Exercisable at:
January 28, 1995............................. 676,220 $15.21
January 27, 1996............................. 953,031 $16.66
January 25, 1997............................. 1,064,190 $16.67
Weighted-average fair value of options granted
during the year:
Fiscal 1996.................................. $ 6.60
Fiscal 1997.................................. $10.40
</TABLE>
Additional information related to stock options outstanding at January 25,
1997 is presented below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------- ---------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
RANGE OF AVERAGE REMAINING AVERAGE
EXERCISE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
PRICES OUTSTANDING PRICE LIFE (YEARS) EXERCISABLE PRICE
-------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$12.625-$15.875......... 746,609 $14.52 6.6 601,315 $14.78
$16.625-$19.625......... 954,140 17.56 7.3 375,825 17.64
$21.50 -$25.625......... 838,875 24.25 8.9 87,050 25.60
--------- ---------
$12.625-$25.625......... 2,539,624 18.88 7.6 1,064,190 16.67
========= =========
</TABLE>
As of January 25, 1997 and January 27, 1996, respectively, 1,687,373 and
2,327,972 shares were reserved for future stock awards under the Company's
1989 Stock Incentive Plan and 1995 Director Stock Option Plan.
F-15
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the Distribution, all outstanding options issued from the
Company's stock option plans that were held by directors and employees who
transferred to BJI were canceled and all outstanding options held by remaining
directors and employees of the Company were converted based upon a ratio of
the average closing price of the Company's common stock for the 10 days
immediately following the Distribution to the market price of the Company's
common stock before the Distribution. Immediately after conversion,
approximately 2.4 million options were outstanding.
In 1989 the Company adopted a shareholder rights plan designed to discourage
attempts to acquire the Company on terms not approved by the Board of
Directors. Under the plan, shareholders were issued one Right for each share
of common stock owned, which entitles them to purchase 1/100 share of Series A
Junior Participating Preferred Stock ("Series A Preferred Stock") at an
exercise price of $75. The Company has designated 1,900,000 shares of Series A
Preferred Stock for use under the rights plan; none has been issued. Generally
the terms of the Series A Preferred Stock are designed so that 1/100 share of
Series A Preferred Stock is the economic equivalent of one share of the
Company's common stock. In the event any person acquires 15% or more of the
Company's outstanding stock, the Rights become exercisable for the number of
common shares which, at the time, would have a market value of two times the
exercise price of the Right.
The Company has authorized 10,000,000 shares of preferred stock, $.01 par
value, of which no shares have been issued.
7. INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current................................ $ 3,710 $15,380 $ 5,045
Deferred............................... 5,822 (2,143) 7,972
State
Current................................ (73) 1,916 1,261
Deferred............................... 1,546 233 2,117
------- ------- -------
Total income tax provision........... $11,005 $15,386 $16,395
======= ======= =======
</TABLE>
The following is a reconciliation of the statutory federal income tax rates
and the effective income tax rates.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate....... 35% 35% 35%
State income taxes, net of federal tax
benefit................................ 4 4 5
Targeted jobs tax credit................ -- -- (1)
Other................................... 1 -- (1)
--- --- ---
Effective income tax rates.............. 40% 39% 38%
=== === ===
</TABLE>
F-16
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
as of January 25, 1997 and January 27, 1996 are as follows:
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Self-insurance reserves............................ $14,539 $14,579
Rental step liabilities............................ 5,008 5,239
Restructuring reserves............................. 5,869 12,440
Capital leases..................................... 1,201 1,104
Compensation and benefits.......................... 2,765 3,012
Other.............................................. 2,530 2,016
------- -------
Total deferred tax assets........................ 31,912 38,390
Deferred tax liabilities:
Accelerated depreciation-property.................. 8,551 9,175
Other.............................................. 2,185 671
------- -------
Total deferred tax liabilities................... 10,736 9,846
------- -------
Net deferred tax assets............................ $21,176 $28,544
======= =======
</TABLE>
The Company has not established a valuation allowance because its deferred
tax assets can be realized by offsetting taxable income mainly in the
carryback period, and also against deferred tax liabilities and future taxable
income, which management believes will more likely than not be earned, based
on the Company's historical earnings record.
8. PENSIONS
The Company has a non-contributory defined benefit retirement plan covering
full-time employees who have attained twenty-one years of age and have
completed one year of service. Benefits are based on compensation earned in
each year of service. No benefits have accrued under this plan since July 4,
1992, when it was frozen. In June 1995, the Company terminated its non-
contributory retirement plan covering directors who were not employees or
officers of the Company. The net income effect of the termination and
settlement of this plan was not material.
Net periodic pension cost under the Company's plans, presented in accordance
with SFAS No. 87, includes the following components (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost............................... $ 89 $ 94 $ 111
Interest cost on projected benefit
obligation................................ 226 223 231
Actual return on assets.................... (466) (646) (39)
Net amortization and deferrals............. 278 463 (140)
----- ----- -----
Net pension cost......................... $ 127 $ 134 $ 163
===== ===== =====
</TABLE>
F-17
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the funded status of the Company's defined
benefit pension plan for full-time employees as of January 25, 1997 and
January 27, 1996 in accordance with SFAS No. 87 (in thousands):
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation:
Vested benefits................................... $(3,204) $ (3,100)
======= ========
Projected benefit obligation........................ $(3,204) $( 3,100)
Plan assets at fair market value.................. 3,206 3,103
------- --------
Projected benefit obligation less than plan
assets........................................... 2 3
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions........................... 436 563
------- --------
Prepaid pension cost................................ $ 438 $ 566
======= ========
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.25% in 1996 and 1995. The
expected long-term rate of return on assets used was 9.0% in 1996 and 1995.
The Company's funding policy is to contribute annually an amount allowable for
federal income tax purposes. Pension plan assets consist primarily of equity
and fixed income securities.
The Company's Board of Directors approved the termination of the Waban Inc.
Retirement Plan effective July 26, 1997. However, in accordance with generally
accepted accounting principles, the additional cost to terminate the Plan is
not recognized until the Plan termination is settled. Prior to the
Distribution, the Company contributed to the Plan amounts sufficient to make
the Plan's assets equal to its estimated termination liabilities, based on
actuarial projections. The Company's share of these amounts is included in
prepaid expenses on its balance sheet. The Company expects to record a post-
tax charge applicable to its Plan participants of approximately $.5 million in
the fourth quarter of the current fiscal year or in the first quarter of the
following year, when the Plan termination is settled
Under the Company's 401(k) Savings Plans, participating employees may make
pre-tax contributions up to 15% of covered compensation. The Company matches
employee contributions at 100% of the first one percent of covered
compensation and 50% of the next four percent. Beginning in 1996, the
Company's matching contribution is payable as of the end of each calendar
quarter. Previously, the matching contribution was payable at the end of the
year. The Company's expense under these plans was $2.1 million in 1996, $2.1
million in 1995, and $1.9 million in 1994.
In 1994, the Company established a non-contributory defined contribution
retirement plan for certain key employees. Under the plan, the Company funds
annual retirement contributions for the designated participants, on an after-
tax basis. For 1994, 1995 and 1996, the Company's contribution equaled 5% of
the participants' base salary. Participants become fully vested in their
contribution accounts at the end of the fiscal year in which they complete
four years of service. The Company's expense under this plan was $0.4 million,
in 1996, $0.5 million in 1995 and $0.4 million in 1994.
F-18
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. POSTRETIREMENT MEDICAL BENEFITS
The Company sponsors a defined benefit postretirement medical plan that
covers employees and their spouses who retire after age 55 with at least 10
years of service, who are not eligible for Medicare, and who participated in a
Company-sponsored medical plan. Amounts contributed by retired employees under
this plan are based on years of service prior to retirement. The plan is not
funded. Net periodic postretirement medical benefit cost presented in
accordance with SFAS No. 106, includes the following components:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost............. $69 $63 $70
Interest cost............ 24 23 24
Net amortization and
deferrals............... (8) (5) --
--- --- ---
Net periodic
postretirement benefit
cost.................. $85 $81 $94
=== === ===
</TABLE>
The following table sets forth the status of the Company's postretirement
medical plan and the amount recognized in the Company's balance sheets at
January 25, 1997 and January 27, 1996 in accordance with SFAS No. 106:
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retired participants.............................. $ -- $ --
Fully eligible active participants................ 35 33
Other active participants......................... 358 269
---- ----
Unfunded accumulated postretirement benefit
obligation......................................... 393 302
Unrecognized net gain............................... 115 121
---- ----
Accrued postretirement benefit cost included in
balance sheet...................................... $508 $423
==== ====
</TABLE>
For measurement purposes, an annual rate of increase in the per capita cost
of medical coverage of 8% in 1996 grading down to 4.5% after 8 years was
assumed as of January 27, 1996. Increasing the assumed health care cost trend
rate one percentage point would increase the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for 1996
by $17,000 and would increase the accumulated postretirement benefit
obligation as of January 25, 1997 by $67,000.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation as of January 25, 1997 and January 27, 1996
was 7.25%.
10. INVESTMENTS IN MARKETABLE SECURITIES
The Company classifies its investments in marketable securities as either
available-for-sale securities or held-to-maturity securities in accordance
with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
F-19
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
There were no available-for-sale securities at October 25, 1997 or January
25, 1997; available-for-sale securities at January 27, 1996 included the
following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED AGGREGATE
COST HOLDING HOLDING FAIR
BASIS GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Debt securities issued by states
or their political subdivisions. $20,303 $40 $(4) $20,339
</TABLE>
The contractual maturities of available-for-sale securities at January 27,
1996 were as follows:
<TABLE>
<CAPTION>
AMORTIZED AGGREGATE
COST FAIR
BASIS VALUE
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Less than one year....................................... $ 7,535 $ 7,552
1-5 years................................................ 12,768 12,787
------- -------
$20,303 $20,339
======= =======
</TABLE>
Other information on available-for-sale securities was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Sales proceeds...................................... $46,957 $131,632
Gross realized gains................................ 13 257
Increase in unrealized holding gains (losses), net
of taxes........................................... (22) 66
</TABLE>
The specific identification method is used as the basis for computing
realized gains or losses on the sale of marketable securities.
As of October 25, 1997, marketable securities classified as held-to-maturity
consisted of U.S. Treasury securities, which are included in other assets on
the balance sheet at their amortized cost of $7.7 million. These securities
were purchased and deposited in escrow with the trustee of the Company's
senior subordinated notes to be used to retire the debt and pay interest
through May 1999.
The contractual maturities of held-to-maturity securities as of October 25,
1997 are as follows (in thousands):
<TABLE>
<S> <C>
Less than one year.................................................... $ 731
1-5 years............................................................. 7,732
------
Total................................................................. $8,463
======
</TABLE>
F-20
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity of
these instruments.
Marketable Securities
The fair value of the Company's marketable securities is based on quoted
values provided by an independent pricing service utilized by broker dealers
and mutual fund companies.
Real Estate Debt and General Corporate Debt
The fair value of the Company's real estate debt and general corporate debt
is estimated based on the current rates for similar issues or on the current
rates offered to the Company for debt of the same remaining maturities.
Subordinated Debt
The fair value of the Company's subordinated debt is based on quoted market
prices.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
JANUARY 25, 1997 JANUARY 27, 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents........ $ 16,896 $ 16,896 $ 33,606 $ 33,606
Marketable securities............ -- -- 20,339 20,339
Real estate debt................. (924) (944) (1,752) (1,850)
General corporate debt........... (24,000) (24,771) (36,000) (37,577)
Senior subordinated debt......... (100,000) (111,750) (100,000) (103,250)
Convertible subordinated debt.... (108,568) (120,510) (108,600) (108,600)
</TABLE>
12. STORE CLOSURES AND OTHER CHARGES
In October 1997, the Board of Directors approved an accelerated growth
strategy that includes remodeling the remaining 17 stores in the Company's
remodel program over the following six months and increasing the rate of new
store openings. In connection with this strategy, the Company announced it
will close three under-performing stores. In the third quarter of fiscal 1997,
the Company recorded store closures and other charges of $27.0 million
consisting of $22.3 million for store closures and other related settlement
costs, a $3.0 million increase in the fiscal 1993 restructuring reserve and
$1.7 million in asset impairment charges.
Costs included in the reserve for store closures primarily include lease
obligations on closed facilities and write-downs of fixed assets and other
related settlement costs. The Company expects to close two stores in the
fourth quarter of fiscal 1997 and close a third store by the end of fiscal
1999. The Company increased the fiscal 1993 restructuring reserve by $3.0
million for additional lease obligations due to delays in obtaining subleases
on terms acceptable to the Company.
F-21
<PAGE>
HOMEBASE, INC.
(FORMERLY WABAN INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("SFAS 121"), long-lived assets held and used by the
Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived
assets, the recoverability test is performed using undiscounted net cash flows
of the individual warehouse stores. The Company updated its analysis in the
quarter ended October 25, 1997 and concluded that the long-lived assets at two
stores were impaired. Accordingly, the Company estimated the fair value of
these assets based on their estimated salvage value and recorded an impairment
charge of $1.7 million, which is included in store closures and other charges.
13. RESTRUCTURING RESERVES
As of January 25, 1997, $13.5 million of the Company's fiscal 1993
restructuring charge remained accrued on the Company's consolidated balance
sheet. During the first three quarters of fiscal 1997, the Company incurred
cash expenditures of $2.7 million, primarily for lease obligations on closed
facilities, and non-cash charges of $0.3 million for write-downs of fixed
assets. As of October 25, 1997, $13.5 million remained accrued on the
Company's balance sheet (including additions to the reserve described above),
consisting primarily of lease obligations on closed facilities, which extend
through 2007.
14. SUBSEQUENT EVENT (UNAUDITED)
On November 17, 1997 the Company completed the private placement of $100
million, 5.25% convertible subordinated notes due November 1, 2004 through a
Rule 144A/Regulation S offering, and received approximately $96 million, net
of debt issue costs. The notes are convertible, subject to adjustment in
certain events, into approximately 9.8 million shares of the Company's common
stock at a conversion price of $10.2175 per share at any time after
February 15, 1998 and prior to maturity unless earlier redeemed or
repurchased. Subsequent to November 1, 2000, the notes are redeemable at the
option of the Company, in whole or in part, initially at 103.15% of principal
and thereafter at prices declining to 100% on or after November 1, 2003,
together with accrued interest. Interest is payable semi-annually on May 1 and
November 1 of each year, commencing on May 1, 1998.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER MADE
HEREBY OTHER THAN THOSE 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 OR THE SELLING SECURITYHOLDERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Information by Reference......................... 2
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 8
Recent Developments....................................................... 13
Use of Proceeds........................................................... 14
Capitalization............................................................ 14
Price Range of Common Stock and Dividend Policy........................... 15
Selected Consolidated Financial and Operating Data........................ 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 27
Management................................................................ 32
Principal Stockholders.................................................... 40
Relationship Between BJI and HomeBase After the Distribution; Conflicts of
Interest................................................................. 41
Senior Bank Facility...................................................... 43
Description of the Notes.................................................. 45
Description of Capital Stock.............................................. 58
Certain Federal Income Tax Considerations................................. 63
Selling Securityholders................................................... 69
Plan of Distribution...................................................... 70
Legal Matters............................................................. 72
Experts................................................................... 72
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$100,000,000
LOGO
5.25% Convertible Subordinated Notes due 2004
---------------------------
PROSPECTUS
---------------------------
January , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Company in
connection with the offering of the Notes and the Conversion Shares being
registered, other than discounts and commissions. The Selling Securityholders
will not share any portion of these expenses.
<TABLE>
<S> <C>
Registration Fee............................................... $29,500.00
Printing Expenses..............................................
Legal Fees and Expenses........................................
Accounting Fees and Expenses...................................
Trustee, Transfer Agent and Registrar Fees.....................
Miscellaneous..................................................
----------
Total........................................................ $
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. The Company's Certificate of Incorporation also
contains provisions requiring the Company to indemnify its directors and
officers to the fullest extent permitted by the General Corporation Law of
Delaware. The Company believes that these provisions will assist the Company
in attracting and retaining qualified individuals to serve as directors and
officers. The Company also indemnifies officers and directors pursuant to
certain indemnification agreements. The Company purchases customary directors
and officers insurance.
ITEM 16. EXHIBIT
The following exhibits are filed herewith or incorporated by reference:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.1 Specimen Common Stock Certificate.
4.2 5.25% Convertible Subordinated Note (Rule 144A).
4.3 5.25% Convertible Subordinated Note (Regulation S).
4.4 Indenture, dated as of November 10, 1997, between the Company and
State Street Bank and Trust Company of California, N.A.
4.5 Registration Rights Agreement, dated as of November 10, 1997, by and
between the Company and Prudential Securities Incorporated.
4.6 Purchase Agreement, dated as of December 10, 1997 between the
Company and Prudential Securities Incorporated.
4.7* Rights Agreement dated as of May 23, 1989 between the Company and
First Chicago Trust Company of New York, formerly Morgan Shareholder
Services Trust Company, as Rights Agent.
5.1** Opinion of Gibson, Dunn & Crutcher LLP as to legality of the Notes
and Common Stock registered hereby.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
23.2 Consent of Coopers & Lybrand L.L.P.
24.1*** Power of Attorney.
25.1 Statement of Eligibility of Trustee under the Trust Indenture Act
of 1939 on Form T-1.
99.1**** Separation and Distribution Agreement, dated as of July 10, 1997,
between the Company and BJ's Wholesale Club, Inc.
99.2**** Services Agreement, dated as of July 28, 1997, between the Company
and BJ's Wholesale Club, Inc.
99.3**** Tax Sharing Agreement, dated as of July 28, 1997, between the
Company and BJ's Wholesale Club, Inc.
99.4**** Employee Benefits Agreement, dated as of July 28, 1997, between the
Company and BJ's Wholesale Club, Inc.
</TABLE>
- --------
* Previously filed as Exhibit 4.3 to the Company's Registration Statement
on Form 10 filed with the SEC, dated May 12, 1989, as amended to date,
incorporated herein by reference.
** To be filed as an exhibit to a pre-effective amendment to this
Registration Statement.
*** Contained on signature page hereto.
**** Previously filed as Exhibits 10.1 to 10.4, respectively, to the Company's
Current Report on Form 8-K, filed with the SEC on August 5, 1997,
incorporated herein by reference.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (l)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information
required to be included in the post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Irvine, State of California, on January 5th, 1998.
HomeBase, Inc.
/s/ Herbert J. Zarkin
By: ________________________________
Herbert J. Zarkin
Chairman of the Board of Directors
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Herbert J. Zarkin, Allan P. Sherman and William
B. Langsdorf, and each of them, his attorneys-in-fact and agents, each with
full power of substitution and resubstitution, for him in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection
therewith, as fully as to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of said attorneys-in-
fact and agents, or any of them, or their or his substitute or substitutes,
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Herbert J. Zarkin Chairman of the Board of January 5, 1998
____________________________________ Directors
Herbert J. Zarkin
/s/ Allan P. Sherman President, Chief Executive January 5, 1998
____________________________________ Officer of the Company and
Allan P. Sherman Director (Principal
Executive Officer)
/s/ William B. Langsdorf Executive Vice President, January 5, 1998
____________________________________ Chief Financial Officer
William B. Langsdorf (Principal Financial
Officer and Principal
Accounting Officer)
/s/ John D. Barr Director January 5, 1998
____________________________________
John D. Barr
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Lorne R. Waxlax Director January 5, 1998
____________________________________
Lorne R. Waxlax
/s/ Arthur F. Loewy Director January 5, 1998
____________________________________
Arthur F. Loewy
/s/ Edward J. Weisberger Director January 5, 1998
____________________________________
Edward J. Weisberger
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.1 Specimen Common Stock Certificate.
4.2 5.25% Convertible Subordinated Note (Rule 144A).
4.3 5.25% Convertible Subordinated Note (Regulation S).
4.4 Indenture, dated as of November 10, 1997, between the Company and
State Street Bank and Trust Company of California, N.A.
4.5 Registration Rights Agreement, dated as of November 10, 1997, by and
between the Company and Prudential Securities Incorporated.
4.6 Purchase Agreement, dated as of December 10, 1997 between the Company
and Prudential Securities Incorporated.
4.7* Rights Agreement dated as of May 23, 1989 between the Company and
First Chicago Trust Company of New York, formerly Morgan Shareholder
Services Trust Company, as Rights Agent.
5.1** Opinion of Gibson, Dunn & Crutcher LLP as to legality of the
Debentures and Common Stock registered hereby.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
23.2 Consent of Coopers & Lybrand L.L.P.
24.1*** Power of Attorney.
25.1 Statement of Eligibility of Trustee under the Trust Indenture Act of
1939 on Form T-1.
99.1**** Separation and Distribution Agreement, dated as of July 10, 1997,
between the Company and BJ's Wholesale Club, Inc.
99.2**** Services Agreement, dated as of July 28, 1997, between the Company
and BJ's Wholesale Club, Inc.
99.3**** Tax Sharing Agreement, dated as of July 28, 1997, between the Company
and BJ's Wholesale Club, Inc.
99.4**** Employee Benefits Agreement, dated as of July 28, 1997, between the
Company and BJ's Wholesale Club, Inc.
</TABLE>
- --------
* Previously filed as Exhibit 4.3 to the Company's Registration Statement
on Form 10 filed with the SEC, dated May 12, 1989, as amended to date,
incorporated herein by reference.
** To be filed as an exhibit to a pre-effective amendment to this Registration
Statement.
*** Contained on signature page hereto.
**** Previously filed as Exhibits 10.1 to 10.4, respectively, to the Company's
Current Report on Form 8-K, filed with the SEC on August 5, 1997,
incorporated herein by reference.
<PAGE>
EXHIBIT 4.1
NUMBER SHARES
HB
INCORPORATED UNDER THE LAWS CUSIP 43738E 10 8
OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NEW YORK
HOMEBASE, INC.
- --------------------------------------------------------------------------------
This certifies that
Is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF ONE CENT ($.01) EACH,
OF THE COMMON STOCK OF
HomeBase, Inc. (herein called the "Corporation") transferable upon the books of
the Corporation in person or by attorney upon surrender of this certificate July
endorsed or assigned. This certificate and the shares represented hereby are
subject to the laws of the State of Delaware, and to the Certificate of
Incorporation and the By-Laws of the Corporation as amended from time to time
(copies of which are on file with the Transfer Agent). This certificate is
not valid until countersigned by the Transfer Agent and registered by the
Registrar.
In Witness Whereof, HomeBase, Inc., has caused its facsimile corporate seal and
the facsimile signatures of its duly authorized officers to be hereunto affixed.
Dated: 8/25/97 8/25/97
/s/ William Langsdorf /s/ Allan Sherman
CHIEF FINANCIAL OFFICER AND TREASURER PRESIDENT
[CORPORATE SEAL APPEARS HERE]
AUTHORIZED SIGNATURE
COUNTERSIGNED AND REGISTERED:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
TRANSFER AGENT
AND REGISTRAR
By /s/ Joseph F. Spadaford
AUTHORIZED SIGNATURE
<PAGE>
HOMEBASE, Inc.
The Corporation will furnish without charge to each stockholder who so
requests the designations, preferences and relative, participating, optional
or other special rights of each class of stock or series thereof and the
qualifications, limitation or restrictions of such preferences and/or rights.
Requests may be directed to HomeBase, Inc., 3345 Michelson Drive, Irvine,
California 92715, or to the Transfer Agent.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM --as tenants in common UNIF GIFT MIN ACT - _________ Custodian __________
(Cust) (Minor).
TEN ENT --as tenants by the entireties Under Uniform Gifts to Minors
JT TEN --as joint tenants with right of
survivorship and not as tenants
in common Act ___________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________
________________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE. OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________shares
of the capital stock represented by the within Certificates, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _____________________________
__________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
Signature(s) Guaranteed:
By: __________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between HomeBase, Inc. and First
Chicago Trust Company of New York, dated as of May 23, 1989 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by reference
and a copy of which is on file at the principal executive offices of
HomeBase, Inc. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. HomeBase, Inc. will mail to the
holder of this certificate a copy of the Rights Agreement without charge
after receipt of a written request therefor. As described in the Rights
Agreement, Rights issued to or held by any Person who becomes an Acquiring
Person (as defined in the Rights Agreement) shall become null and void.
<PAGE>
EXHIBIT 4.2
Registered (Rule 144A) Global Security
THE SECURITY EVIDENCED HEREBY AND THE SHARES OF COMMON STOCK ISSUABLE UPON
THEIR CONVERSION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT (A)(1) TO A PERSON WHOM THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
ACQUIRING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN
INSTITUTION THAT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501 (A)
(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT IN A TRANSACTION
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (IF AVAILABLE)
OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES.
<PAGE>
HOMEBASE, INC.
5 1/4% CONVERTIBLE SUBORDINATED NOTE
DUE NOVEMBER 1, 2004
No. 01 $98,500,000
Registered Global Security - CUSIP No. 43738E AA 6
HOMEBASE, INC., a Delaware corporation (herein called the "Company," which
term includes any successor Person under the Indenture referred to on the
reverse hereof), for value received, hereby promises to pay to The Depository
Trust Company, or registered assigns, the principal sum of NINETY EIGHT MILLION
FIVE HUNDRED THOUSAND U.S. DOLLARS ($98,500,000), (which principal amount may
from time to time be increased or decreased to such other principal amounts
(which, taken together with the principal amounts of all other Outstanding
Securities, shall not exceed $115,000,000 in the aggregate at any time) by
adjustments made on the records of the Trustee hereinafter referred to in
accordance with the Indenture) on November 1, 2004, and to pay interest thereon
from November 17, 1997 or from the most recent Interest Payment Date (as defined
below) to which interest has been paid or duly provided for, semi-annually in
arrears on May 1 and November 1 in each year, commencing on May 1, 1998, and at
Maturity at the rate of 5 1/4% per annum, until the principal hereof is paid or
made available for payment, provided that any amount of such principal or
--------
interest that is overdue shall bear interest at the rate of 5 1/4% per annum (to
the extent that payment of such interest shall be legally enforceable), from the
date such amount is due until it is paid or made available for payment, and such
interest on any overdue amount shall be payable on demand. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in such Indenture, be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, which shall be the April
15 or October 15 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, provided notice thereof shall have been given to
Holders of Securities not less than 10 days prior to such Special Record Date,
or be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture.
Payment of the principal of and interest on this Security will be made in
immediately available funds and in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts, at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, provided, however,
-------- -------
that payment of interest may, at the option of the Company, be made by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security
2
<PAGE>
Register. If this Security is a Global Security, then each such payment will be
made in accordance with the procedures of the Depositary as then in effect.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof or an Authenticating Agent by the
manual signature of one of their respective authorized signatories, this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed under its corporate seal.
HOMEBASE, INC.
[Corporate Seal]
By /s/ Allan Sherman
---------------------------
Name: Allan Sherman
Title: President and CEO
Attest:
/s/ John L.
- ----------------------
Title: Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated: November 17, 1997 STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.,
as Trustee
By: /s/
--------------------------
Authorized Signatory
4
<PAGE>
(Reverse of Security)
This Security is one of a duly authorized issue of securities of the
Company designated as its "5 1/4% Convertible Subordinated Notes due November 1,
2004" (herein called the "Securities"), limited in aggregate principal amount to
$115,000,000, issued and to be issued under an Indenture, dated as of November
10, 1997 (herein called the "Indenture") between the Company and State Street
Bank and Trust Company of California, N.A., as Trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture), to
which the Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee, the Holders of Senior Debt of
the Company and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
No sinking fund is provided for in the Securities. The Securities may not
be redeemed at the option of the Company prior to November 1, 2000. Thereafter,
the Securities may be redeemed at the option of the Company, in whole or in
part, at the Redemption Prices set forth below: Such Redemption Prices
(expressed as a percentage of principal amount) are as follows for the 12-month
period beginning on November 1 of the following years:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2000 103.15%
2001 102.10
2002 101.05
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount, in
each case together with accrued interest to the Redemption Date provided that
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.
Notice of redemption (which notice shall be irrevocable) will be given by
first-class mail to Holders of Securities at their registered addresses as
recorded in the Security Register. Notice will be given not more than 60 nor
less than 30 days prior to the Redemption Date, as provided in the Indenture.
In any case where the due date for the payment of the principal of,
premium, if any, or interest (including Liquidated Damages) on, any Security or
the last day on which a Holder of a Security has a right to convert his Security
shall be at any place of payment or place of conversion, as the case may be, a
day on which banking institutions at such place of payment or place of
conversion are authorized or obligated by law or executive order to close, then
payment of principal of, premium, if any, or interest (including Liquidated
Damages) on, or delivery for conversion of such Security need not be made on or
by such date at such place but may be made on or by the next
5
<PAGE>
succeeding day at such place which is not a day on which banking institutions
are authorized or obligated by law or executive order to close, with the same
force and effect as if made on the date for such payment or the date fixed for
redemption or repurchase, or at the Stated Maturity or by such last day for
conversion, and no interest shall accrue for the period after such date.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at his option, at any time on or after the
90th day following the last original issue date of the Securities (the "Non-
Conversion Period") and prior to the close of business on November 1, 2004, or
in case this Security is called for redemption or the Holder hereof has
exercised its right to require the Company to repurchase this Security, then in
respect of this Security until and including, but (unless the Company defaults
in making the payment due upon redemption or repurchase, as the case may be) not
after, the close of business on the Redemption Date or the Repurchase Date, as
the case may be, to convert this Security into newly issued fully paid and
nonassessable shares of Common Stock of the Company at an initial Conversion
Rate equal to 97.815 shares of Common Stock per $1,000 principal amount of
Securities (or at the current adjusted Conversion Rate if an adjustment has been
made as provided in the Indenture) by surrender of this Security, and also a
duly executed conversion notice, substantially in the form provided in Annex A
of the Indenture (including the tax certification contained in such notice), to
the Company, subject to any laws or regulations applicable thereto and subject
to the right of the Company to terminate the appointment of the Conversion Agent
(as defined below), at the office or agency of the Company in The City of New
York or at such other offices or agencies outside the United States that the
Company may designate (each a "Conversion Agent"). Any Security surrendered for
conversion during a Record Date Period (except Securities called for redemption
on a Redemption Date or to be repurchased on a Repurchase Date during, in each
case, such period) must be accompanied by payment of an amount equal to the
interest payable on the Interest Payment Date relating to such Record Date
Period on the principal amount of such Security being surrendered for
conversion, and the interest payable in respect of such Security on such
Interest Payment Date shall be paid to the Holder of such Security as of the
Regular Record Date relating to such Record Date Period. The interest payable
on such Interest Payment Date with respect to any Security which has been called
for redemption on a Redemption Date, or is repurchaseable on a Repurchase Date,
occurring, in either case, during a Record Date Period, which Security is
surrendered for conversion during such Record Date Period, shall be paid to the
Holder of such Security being converted in an amount equal to the interest that
would have been payable on such Security if such Security had been converted as
of the close of business on such Interest Payment Date. Interest payable in
respect of any Security surrendered for conversion on or after an Interest
Payment Date shall be paid to the Holder of such Security as of the next
preceding Regular Record Date, notwithstanding the exercise of the right of
conversion.
The Company shall thereafter deliver to the Holder the fixed number of
shares of Common Stock (together with any cash adjustment, as provided in the
Indenture) into which this Security is convertible and such delivery will be
deemed to satisfy the Company's obligation to pay the principal amount of this
Security. No fractions of shares or scrip representing fractions of shares will
be issued on conversion, but instead of any fractional interest (calculated to
the nearest 1/100th of
6
<PAGE>
a share) the Company shall pay a cash adjustment as provided in the Indenture,
or alternatively the Company shall round up the conversion transaction to the
next higher whole share. In addition, the Indenture provides that in case of
certain consolidations or mergers to which the Company is a party or the sale or
transfer of all or substantially all of the assets of the Company, the Indenture
shall be amended, without the consent of any Holders of Securities, so that this
Security, if then Outstanding, will be convertible thereafter, during the period
this Security shall be convertible as specified above, only into the kind and
amount of securities, cash and other property receivable upon consolidation,
merger, sale or transfer by a holder of the number of shares of Common Stock of
the Company into which this Security might have been converted immediately prior
to such consolidation, merger, sale or transfer (assuming such holder of Common
Stock failed to exercise any rights of election and received per share the kind
and amount received per share by at least a plurality of Non-Electing Shares).
Adjustments in the Conversion Rate of less than one percent of such price will
not be required, but any adjustment that would otherwise be required to be made
will be carried forward and taken into account in the computation of any
subsequent adjustment.
Notwithstanding any provision hereof, no securities will be delivered on
conversion of this Security or any portion hereof unless the certification and
other requirements described in the Indenture are satisfied.
Subject to certain limitations in the Indenture, at any time when the
Company is not subject to Section 13 or 15(d) of the United States Securities
Exchange Act of 1934, as amended, upon the request of a Holder of a Restricted
Security or the holder of shares of Common Stock issued upon conversion thereof,
the Company will promptly furnish or cause to he furnished Rule 144A Information
(as defined below) to such Holder of Restricted Securities or such holder of
shares of Common Stock issued upon conversion of Restricted Securities, or to a
prospective purchaser of any such security designated by any such Holder or
holder, as the case may be, to the extent required to permit compliance by any
such holder with Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"). "Rule 144A Information" shall be such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto).
If this Security is a Registrable Security, then the Holder of this
Security and the Common Stock of the Company issuable upon conversion thereof is
entitled to the benefits of a Registration Rights Agreement (subject to the
provisions thereof), dated as of November 10, 1997, between the Company and the
Initial Purchaser (the "Registration Rights Agreement"). Pursuant to the
Registration Rights Agreement, the Company has agreed for the benefit of the
Holders from time to time of the Securities and the Common Stock issuable upon
conversion thereof that it will, at its expense, (a) within 90 days after the
first date of original issuance of the Securities, file a shelf registration
statement (the "Shelf Registration Statement") with the Commission with respect
to resales of the Securities and the Common Stock issuable upon conversion
thereof (together, the "Registrable Securities"), (b) use its best efforts to
cause such Shelf Registration Statement to be declared effective by the
Commission as promptly as practicable but no later than 180 days after the first
date of original issuance of the Securities (the "Settlement Date"), and (c) use
its best efforts to maintain such Shelf Registration Statement continuously
effective under the Securities Act, until the
7
<PAGE>
second anniversary of the date of the effectiveness of the Shelf Registration
Statement or such earlier date as is provided in the Registration Rights
Agreement.
If (i) on or prior to 90 days following the first date of original issuance
of the Securities, a Shelf Registration Statement has not been filed with the
Commission, or (ii) on or prior to 180 days following the Settlement Date, such
Shelf Registration Statement is not declared effective (each, a "Registration
Default"), additional interest ("Liquidated Damages") will accrue on this
Security from and including the day following such Registration Default to but
excluding the day on which such Registration Default has been cured. Liquidated
Damages will be paid semi-annually in arrears, with the first semi-annual
payment due on the first Interest Payment Date in respect of the Securities
following the date on which such Liquidated Damages begin to accrue, and will
accrue at a rate per annum equal to an additional one-quarter of one percent
(0.25%) of the principal amount of the Securities to and including the 90th day
following such Registration Default and at a rate per annum equal to one-half of
one percent (0.50%) thereof from and after the 91st day following such
Registration Default. In the event that the Shelf Registration Statement ceases
to be effective prior to the second annual anniversary of the initial effective
date of the Shelf Registration Statement or such earlier date as is provided in
the Registration Rights Agreement for a period in excess of 60 days, whether or
not consecutive, during any 12-month period, then the interest rate borne by the
Securities shall increase by an additional one-half of one percent (0.50%) per
annum from the 61st day of the applicable 12-month period such Shelf
Registration Statement ceases to be effective to but excluding the day on which
the Shelf Registration Statement again becomes effective.
Whenever in this Security there is a reference, in any context, to the
payment of the principal of, premium, if any, or interest on, or in respect of,
any Security such reference shall be deemed to include reference to the payment
of Liquidated Damages payable as described in the preceding paragraph to the
extent that, in such context, Liquidated Damages are, were or would be payable
in respect of such Security and express mention of the payment of Liquidated
Damages (if applicable) in any provisions of this Security shall not be
construed as excluding Liquidated Damages in those provisions of this Security
where such express mention is not made.
The Holder of this Security, by its acceptance thereof, agrees to be bound
by the terms of the Registration Rights Agreement relating to the Securities and
the Common Stock issuable upon conversion thereof.
If a Change in Control occurs, the Holder of this Security shall have the
right, at the Holder's option in accordance with the provisions of the
Indenture, to require the Company to repurchase this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000) for cash at
a Repurchase Price equal to 100% of the principal amount thereof plus interest
accrued to the Repurchase Date. At the option of the Company, the Repurchase
Price may be paid in cash or, except as otherwise provided in the Indenture, by
delivery of Common Stock having a fair market value equal to the Repurchase
Price. Payment may not be made in Common Stock unless the Company satisfies
certain conditions prior to the Repurchase Date as provided in the Indenture.
For purposes of this paragraph, the fair market value of shares of Common Stock
shall be determined
8
<PAGE>
by the Company and shall be equal to 95% of the average of the Closing Prices
Per Share for the five consecutive Trading Days ending on and including the
third Trading Day immediately preceding the Repurchase Date. Whenever in this
Security there is a reference, in any context, to the principal of any Security
as of any time, such reference shall be deemed to include reference to the
Repurchase Price payable in respect of such Security to the extent that such
Repurchase Price is, was or would be so payable at such time, and express
mention of the Repurchase Price in any provision of this Security shall not be
construed as excluding the Repurchase Price in those provisions of this Security
when such express mention is not made.
The indebtedness evidenced by this Security is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all amounts then or thereafter to become due on all
Senior Debt of the Company, and this Security is issued subject to such
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on its behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee its attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared due and payable to the extent, in the manner and
with the effect provided in the Indenture. Upon payment (i) of the amount of
principal so declared due and payable and (ii) of interest on any overdue
principal and overdue interest, all of the Company's obligations in respect of
the payment of the principal of and interest on the Securities shall terminate.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee either (a) with the written consent of
the Holders of a majority in principal amount of the Securities at the time out
standing, or (b) by the adoption of a resolution, at a meeting of Holders of the
Outstanding Securities at which a quorum is present by the Holders of 66-2/3% in
aggregate principal amount of the Outstanding Securities represented at such
meeting. The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their conse quences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
in exchange herefor or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Security or such other Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default, the Holders of not less
than 25%
9
<PAGE>
in aggregate principal amount of the Outstanding Securities shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default and offered the Trustee indemnity satisfactory to it and the Trustee
shall not have received from the Holders of a majority in principal amount of
the Securities Outstanding a direction inconsistent with such request and shall
have failed to institute any such proceedings for 60 days after receipt of such
notice, request and offer of indemnity. The foregoing shall not apply to any
suit instituted by the Holder of this Security for the enforcement of any
payment of principal hereof or interest hereon (including any Liquidated
Damages) on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligations of the Company, which are
absolute and unconditional, to pay the principal of, premium, if any, and
interest (including Liquidated Damages) on this Security at the times, places
and rate, and in the coin or currency, herein prescribed or to convert this
Security as provided in the Indenture.
As provided in the Indenture and subject to certain limitations and
satisfaction of certain requirements therein set forth, the transfer of this
Security is registrable on the Security Register upon surrender of this Security
for registration of transfer at the office or agency of the Company as may be
designated by it for such purpose in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees. No
service charge shall be made to a Holder for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to recover
any tax or other governmental charge payable in connection therewith.
Prior to due presentation of this Security for registration of transfer the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered, as the owner thereof for all
purposes, whether or not such Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA
WITHOUT REGARD TO PRINCIPLES REGARDING CONFLICTS OF LAWS.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
10
<PAGE>
ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 15.1 of the Indenture, the undersigned hereby
elects to have this Security repurchased by the Company.
2. The undersigned hereby directs the Trustee or the Company to pay it or
_______________________________________________________________ an amount in
cash or, at the Company's election, Common Stock valued as set forth in the
Indenture, equal to 100% of the principal amount hereof, plus interest accrued
to the Repurchase Date, as provided in the Indenture.
Dated: ____________________
--------------------
Signature
--------------------
Signature Guaranteed
Principal amount to be repurchased: _______________
Remaining principal amount following such repurchase: _____________________
NOTICES: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
If payment is to be made to a person other than the signatory above, the
signature must be guaranteed by an "Eligible Institution" (banks, stock brokers,
savings and loan associations and credit unions) with membership in an approved
signature guarantee medallion program pursuant to Commission Rule 17Ad-15.
11
<PAGE>
EXHIBIT 4.3
REGISTERED (REG. S) GLOBAL SECURITY
THE SECURITY EVIDENCED HEREBY AND THE SHARES OF COMMON STOCK ISSUABLE UPON
THEIR CONVERSION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT (A)(1) TO A PERSON WHOM THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
ACQUIRING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN
INSTITUTION THAT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501 (A)
(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT IN A TRANSACTION
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (IF AVAILABLE)
OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES.
<PAGE>
HOMEBASE, INC.
5 1/4% CONVERTIBLE SUBORDINATED NOTE
DUE NOVEMBER 1, 2004
No. 02 $1,500,000
Registered Regulation S Global Security - CUSIP No. U4368W AA2
ISIN No. US4368W AA28
HOMEBASE, INC., a Delaware corporation (herein called the "Company," which
term includes any successor Person under the Indenture referred to on the
reverse hereof), for value received, hereby promises to pay to The Depository
Trust Company, or registered assigns, the principal sum of ONE MILLION FIVE
HUNDRED THOUSAND U.S. DOLLARS ($1,500,000), (which principal amount may from
time to time be increased or decreased to such other principal amounts (which,
taken together with the principal amounts of all other Outstanding Securities,
shall not exceed $115,000,000 in the aggregate at any time) by adjustments made
on the records of the Trustee hereinafter referred to in accordance with the
Indenture) on November 1, 2004, and to pay interest thereon from November 17,
1997 or from the most recent Interest Payment Date (as defined below) to which
interest has been paid or duly provided for, semi-annually in arrears on May 1
and November 1 in each year, commencing on May 1, 1998, and at Maturity at the
rate of 5 1/4% per annum, until the principal hereof is paid or made available
for payment, provided that any amount of such principal or interest that is
--------
overdue shall bear interest at the rate of 5 1/4% per annum (to the extent that
payment of such interest shall be legally enforceable), from the date such
amount is due until it is paid or made available for payment, and such interest
on any overdue amount shall be payable on demand. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, which shall be the April 15 or
October 15 (whether or not a Business Day), as the case may be, next preceding
such Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, provided notice thereof shall have been given to Holders of
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in said
Indenture.
Payment of the principal of and interest on this Security will be made in
immediately available funds and in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts, at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, provided, however,
-------- -------
that payment of interest may, at the option of the Company, be made by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security
2
<PAGE>
Register. If this Security is a Global Security, then each such payment will be
made in accordance with the procedures of the Depositary as then in effect.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof or an Authenticating Agent by the
manual signature of one of their respective authorized signatories, this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed under its corporate seal.
HOMEBASE, INC.
[Corporate Seal]
/s/ Allan Sherman
By __________________________
Name: Allan Sherman
Title: President and CEO
Attest:
/s/
______________________
Title: Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated: November 17, 1997 STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.,
as Trustee
/s/
By:______________________________
Authorized Signatory
4
<PAGE>
(Reverse of Security)
This Security is one of a duly authorized issue of securities of the
Company designated as its "5 1/4% Convertible Subordinated Notes due November 1,
2004" (herein called the "Securities"), limited in aggregate principal amount to
$115,000,000, issued and to be issued under an Indenture, dated as of November
10, 1997 (herein called the "Indenture") between the Company and State Street
Bank and Trust Company of California, N.A., as Trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture), to
which the Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee, the Holders of Senior Debt of
the Company and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
No sinking fund is provided for in the Securities. The Securities may not
be redeemed at the option of the Company prior to November 1, 2000. Thereafter,
the Securities may be redeemed at the option of the Company, in whole or in
part, at the Redemption Prices set forth below: Such Redemption Prices
(expressed as a percentage of principal amount) are as follows for the 12-month
period beginning on November 1 of the following years:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2000 103.15%
2001 102.10
2002 101.05
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount, in
each case together with accrued interest to the Redemption Date provided that
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.
Notice of redemption (which notice shall be irrevocable) will be given by
first-class mail to Holders of Securities at their registered addresses as
recorded in the Security Register. Notice will be given not more than 60 nor
less than 30 days prior to the Redemption Date, as provided in the Indenture.
In any case where the due date for the payment of the principal of,
premium, if any, or interest (including Liquidated Damages) on, any Security or
the last day on which a Holder of a Security has a right to convert his Security
shall be at any place of payment or place of conversion, as the case may be, a
day on which banking institutions at such place of payment or place of
conversion are authorized or obligated by law or executive order to close, then
payment of principal of, premium, if any, or interest (including Liquidated
Damages) on, or delivery for conversion of such Security need not be made on or
by such date at such place but may be made on or by the next
5
<PAGE>
succeeding day at such place which is not a day on which banking institutions
are authorized or obligated by law or executive order to close, with the same
force and effect as if made on the date for such payment or the date fixed for
redemption or repurchase, or at the Stated Maturity or by such last day for
conversion, and no interest shall accrue for the period after such date.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at his option, at any time on or after the
90th day following the last original issue date of the Securities (the "Non-
Conversion Period") and prior to the close of business on November 1, 2004, or
in case this Security is called for redemption or the Holder hereof has
exercised its right to require the Company to repurchase this Security, then in
respect of this Security until and including, but (unless the Company defaults
in making the payment due upon redemption or repurchase, as the case may be) not
after, the close of business on the Redemption Date or the Repurchase Date, as
the case may be, to convert this Security into newly issued fully paid and
nonassessable shares of Common Stock of the Company at an initial Conversion
Rate equal to 97.815 shares of Common Stock per $1,000 principal amount of
Securities (or at the current adjusted Conversion Rate if an adjustment has been
made as provided in the Indenture) by surrender of this Security, and also a
duly executed conversion notice, substantially in the form provided in Annex A
of the Indenture (including the tax certification contained in such notice), to
the Company, subject to any laws or regulations applicable thereto and subject
to the right of the Company to terminate the appointment of the Conversion Agent
(as defined below), at the office or agency of the Company in The City of New
York or at such other offices or agencies outside the United States that the
Company may designate (each a "Conversion Agent"). Any Security surrendered for
conversion during a Record Date Period (except Securities called for redemption
on a Redemption Date or to be repurchased on a Repurchase Date during, in each
case, such period) must be accompanied by payment of an amount equal to the
interest payable on the Interest Payment Date relating to such Record Date
Period on the principal amount of such Security being surrendered for
conversion, and the interest payable in respect of such Security on such
Interest Payment Date shall be paid to the Holder of such Security as of the
Regular Record Date relating to such Record Date Period. The interest payable
on such Interest Payment Date with respect to any Security which has been called
for redemption on a Redemption Date, or is repurchaseable on a Repurchase Date,
occurring, in either case, during a Record Date Period, which Security is
surrendered for conversion during such Record Date Period, shall be paid to the
Holder of such Security being converted in an amount equal to the interest that
would have been payable on such Security if such Security had been converted as
of the close of business on such Interest Payment Date. Interest payable in
respect of any Security surrendered for conversion on or after an Interest
Payment Date shall be paid to the Holder of such Security as of the next
preceding Regular Record Date, notwithstanding the exercise of the right of
conversion.
The Company shall thereafter deliver to the Holder the fixed number of
shares of Common Stock (together with any cash adjustment, as provided in the
Indenture) into which this Security is convertible and such delivery will be
deemed to satisfy the Company's obligation to pay the principal amount of this
Security. No fractions of shares or scrip representing fractions of shares will
be issued on conversion, but instead of any fractional interest (calculated to
the nearest 1/100th of
6
<PAGE>
a share) the Company shall pay a cash adjustment as provided in the Indenture,
or alternatively the Company shall round up the conversion transaction to the
next higher whole share. In addition, the Indenture provides that in case of
certain consolidations or mergers to which the Company is a party or the sale or
transfer of all or substantially all of the assets of the Company, the Indenture
shall be amended, without the consent of any Holders of Securities, so that this
Security, if then Outstanding, will be convertible thereafter, during the period
this Security shall be convertible as specified above, only into the kind and
amount of securities, cash and other property receivable upon consolidation,
merger, sale or transfer by a holder of the number of shares of Common Stock of
the Company into which this Security might have been converted immediately prior
to such consolidation, merger, sale or transfer (assuming such holder of Common
Stock failed to exercise any rights of election and received per share the kind
and amount received per share by at least a plurality of Non-Electing Shares).
Adjustments in the Conversion Rate of less than one percent of such price will
not be required, but any adjustment that would otherwise be required to be made
will be carried forward and taken into account in the computation of any
subsequent adjustment.
Notwithstanding any provision hereof, no securities will be delivered on
conversion of this Security or any portion hereof unless the certification and
other requirements described in the Indenture are satisfied.
Subject to certain limitations in the Indenture, at any time when the
Company is not subject to Section 13 or 15(d) of the United States Securities
Exchange Act of 1934, as amended, upon the request of a Holder of a Restricted
Security or the holder of shares of Common Stock issued upon conversion thereof,
the Company will promptly furnish or cause to he furnished Rule 144A Information
(as defined below) to such Holder of Restricted Securities or such holder of
shares of Common Stock issued upon conversion of Restricted Securities, or to a
prospective purchaser of any such security designated by any such Holder or
holder, as the case may be, to the extent required to permit compliance by any
such holder with Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"). "Rule 144A Information" shall be such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto).
If this Security is a Registrable Security, then the Holder of this
Security and the Common Stock of the Company issuable upon conversion thereof is
entitled to the benefits of a Registration Rights Agreement (subject to the
provisions thereof), dated as of November 10, 1997, between the Company and the
Initial Purchaser (the "Registration Rights Agreement"). Pursuant to the
Registration Rights Agreement, the Company has agreed for the benefit of the
Holders from time to time of the Securities and the Common Stock issuable upon
conversion thereof that it will, at its expense, (a) within 90 days after the
first date of original issuance of the Securities, file a shelf registration
statement (the "Shelf Registration Statement") with the Commission with respect
to resales of the Securities and the Common Stock issuable upon conversion
thereof (together, the "Registrable Securities"), (b) use its best efforts to
cause such Shelf Registration Statement to be declared effective by the
Commission as promptly as practicable but no later than 180 days after the first
date of original issuance of the Securities (the "Settlement Date"), and (c) use
its best efforts to maintain such Shelf Registration Statement continuously
effective under the Securities Act, until the
7
<PAGE>
second anniversary of the date of the effectiveness of the Shelf Registration
Statement or such earlier date as is provided in the Registration Rights
Agreement.
If (i) on or prior to 90 days following the first date of original issuance
of the Securities, a Shelf Registration Statement has not been filed with the
Commission, or (ii) on or prior to 180 days following the Settlement Date, such
Shelf Registration Statement is not declared effective (each, a "Registration
Default"), additional interest ("Liquidated Damages") will accrue on this
Security from and including the day following such Registration Default to but
excluding the day on which such Registration Default has been cured. Liquidated
Damages will be paid semi-annually in arrears, with the first semi-annual
payment due on the first Interest Payment Date in respect of the Securities
following the date on which such Liquidated Damages begin to accrue, and will
accrue at a rate per annum equal to an additional one-quarter of one percent
(0.25%) of the principal amount of the Securities to and including the 90th day
following such Registration Default and at a rate per annum equal to one-half of
one percent (0.50%) thereof from and after the 91st day following such
Registration Default. In the event that the Shelf Registration Statement ceases
to be effective prior to the second annual anniversary of the initial effective
date of the Shelf Registration Statement or such earlier date as is provided in
the Registration Rights Agreement for a period in excess of 60 days, whether or
not consecutive, during any 12-month period, then the interest rate borne by the
Securities shall increase by an additional one-half of one percent (0.50%) per
annum from the 61st day of the applicable 12-month period such Shelf
Registration Statement ceases to be effective to but excluding the day on which
the Shelf Registration Statement again becomes effective.
Whenever in this Security there is a reference, in any context, to the
payment of the principal of, premium, if any, or interest on, or in respect of,
any Security such reference shall be deemed to include reference to the payment
of Liquidated Damages payable as described in the preceding paragraph to the
extent that, in such context, Liquidated Damages are, were or would be payable
in respect of such Security and express mention of the payment of Liquidated
Damages (if applicable) in any provisions of this Security shall not be
construed as excluding Liquidated Damages in those provisions of this Security
where such express mention is not made.
The Holder of this Security, by its acceptance thereof, agrees to be bound
by the terms of the Registration Rights Agreement relating to the Securities and
the Common Stock issuable upon conversion thereof.
If a Change in Control occurs, the Holder of this Security shall have the
right, at the Holder's option in accordance with the provisions of the
Indenture, to require the Company to repurchase this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000) for cash at
a Repurchase Price equal to 100% of the principal amount thereof plus interest
accrued to the Repurchase Date. At the option of the Company, the Repurchase
Price may be paid in cash or, except as otherwise provided in the Indenture, by
delivery of Common Stock having a fair market value equal to the Repurchase
Price. Payment may not be made in Common Stock unless the Company satisfies
certain conditions prior to the Repurchase Date as provided in the Indenture.
For purposes of this paragraph, the fair market value of shares of Common Stock
shall be determined
8
<PAGE>
by the Company and shall be equal to 95% of the average of the Closing Prices
Per Share for the five consecutive Trading Days ending on and including the
third Trading Day immediately preceding the Repurchase Date. Whenever in this
Security there is a reference, in any context, to the principal of any Security
as of any time, such reference shall be deemed to include reference to the
Repurchase Price payable in respect of such Security to the extent that such
Repurchase Price is, was or would be so payable at such time, and express
mention of the Repurchase Price in any provision of this Security shall not be
construed as excluding the Repurchase Price in those provisions of this Security
when such express mention is not made.
The indebtedness evidenced by this Security is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all amounts then or thereafter to become due on all
Senior Debt of the Company, and this Security is issued subject to such
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on its behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee its attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared due and payable to the extent, in the manner and
with the effect provided in the Indenture. Upon payment (i) of the amount of
principal so declared due and payable and (ii) of interest on any overdue
principal and overdue interest, all of the Company's obligations in respect of
the payment of the principal of and interest on the Securities shall terminate.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee either (a) with the written consent of
the Holders of a majority in principal amount of the Securities at the time
outstanding, or (b) by the adoption of a resolution, at a meeting of Holders of
the Outstanding Securities at which a quorum is present by the Holders of 66-
2/3% in aggregate principal amount of the Outstanding Securities represented at
such meeting. The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
in exchange herefor or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Security or such other Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default, the Holders of not less
than 25%
9
<PAGE>
in aggregate principal amount of the Outstanding Securities shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default and offered the Trustee indemnity satisfactory to it and the Trustee
shall not have received from the Holders of a majority in principal amount of
the Securities Outstanding a direction inconsistent with such request and shall
have failed to institute any such proceedings for 60 days after receipt of such
notice, request and offer of indemnity. The foregoing shall not apply to any
suit instituted by the Holder of this Security for the enforcement of any
payment of principal hereof or interest hereon (including any Liquidated
Damages) on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligations of the Company, which are
absolute and unconditional, to pay the principal of, premium, if any, and
interest (including Liquidated Damages) on this Security at the times, places
and rate, and in the coin or currency, herein prescribed or to convert this
Security as provided in the Indenture.
As provided in the Indenture and subject to certain limitations and
satisfaction of certain requirements therein set forth, the transfer of this
Security is registrable on the Security Register upon surrender of this Security
for registration of transfer at the office or agency of the Company as may be
designated by it for such purpose in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees. No
service charge shall be made to a Holder for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to recover
any tax or other governmental charge payable in connection therewith.
Prior to due presentation of this Security for registration of transfer the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered, as the owner thereof for all
purposes, whether or not such Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA
WITHOUT REGARD TO PRINCIPLES REGARDING CONFLICTS OF LAWS.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
10
<PAGE>
ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 15.1 of the Indenture, the undersigned hereby
elects to have this Security repurchased by the Company.
2. The undersigned hereby directs the Trustee or the Company to pay it or
_______________________________________________________________ an amount in
cash or, at the Company's election, Common Stock valued as set forth in the
Indenture, equal to 100% of the principal amount hereof, plus interest accrued
to the Repurchase Date, as provided in the Indenture.
Dated: ____________________
____________________
Signature
____________________
Signature Guaranteed
Principal amount to be repurchased: ______________________________
Remaining principal amount following such repurchase: ____________________
NOTICES: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever. If payment is to be made to a person other than the
signatory above, the signature must be guaranteed by an "Eligible Institution"
(banks, stock brokers, savings and loan associations and credit unions) with
membership in an approved signature guarantee medallion program pursuant to
Commission Rule 17Ad-15.
11
<PAGE>
EXHIBIT 4.4
HOMEBASE, INC.,
ISSUER
AND
STATE STREET BANK AND
TRUST COMPANY OF CALIFORNIA, N.A.,
TRUSTEE
____________________
INDENTURE
Dated as of November 10, 1997
____________________
$100,000,000
53% CONVERTIBLE SUBORDINATED NOTES
DUE NOVEMBER 1, 2004
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RECITALS........................................................................................ 1
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 1.1 Definitions...................................................................... 1
Section 1.2 Compliance Certificates and Opinions
Section 1.3 Form of Documents Delivered to Trustee........................................... 10
Section 1.4 Acts of Holders of Securities.................................................... 11
Section 1.5 Notices, Etc..................................................................... 13
Section 1.6 Notice to Holders of Securities; Waiver.......................................... 14
Section 1.7 Effect of Headings and Table of Contents......................................... 14
Section 1.8 Successors and Assigns........................................................... 14
Section 1.9 Separability Clause.............................................................. 15
Section 1.10 Benefits of Indenture............................................................ 15
Section 1.11 Governing Law.................................................................... 15
Section 1.12 Legal Holidays................................................................... 15
Section 1.13 Conflict with Trust Indenture Act................................................ 15
ARTICLE II
SECURITY FORMS
Section 2.1 Forms Generally.................................................................. 16
Section 2.2 Form of Face of Security......................................................... 17
Section 2.3 Form of Reverse of Security...................................................... 21
Section 2.4 Form of Trustee's Certificate of Authentication.................................. 28
ARTICLE III
THE SECURITIES
Section 3.1 Title and Terms.................................................................. 29
Section 3.2 Denominations.................................................................... 30
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Section 3.3 Execution, Authentication, Delivery and Dating................................... 30
Section 3.4 Temporary Securities............................................................. 30
Section 3.5 Registration, Registration of Transfer and Exchange;
Restrictions on Transfer....................................................... 31
Section 3.6 Mutilated, Destroyed, Lost or Stolen Securities.................................. 36
Section 3.7 Payment of Interest, Interest Rights Preserved................................... 37
Section 3.8 Persons Deemed Owners............................................................ 38
Section 3.9 Cancellation..................................................................... 38
Section 3.10 Computation of Interest.......................................................... 39
Section 3.11 CUSIP Numbers.................................................................... 39
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1 Satisfaction and Discharge of Indenture.......................................... 39
Section 4.2 Application of Trust Money....................................................... 40
ARTICLE V
REMEDIES
Section 5.1 Events of Default................................................................ 41
Section 5.2 Acceleration of Maturity; Rescission and Annulment............................... 42
Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee.................. 44
Section 5.4 Trustee May File Proofs of Claim................................................. 44
Section 5.5 Trustee May Enforce Claims Without Possession of Securities...................... 45
Section 5.6 Application of Money Collected................................................... 46
Section 5.7 Limitation on Suits.............................................................. 46
Section 5.8 Unconditional Right of Holders to Receive Principal and Interest and to Convert.. 47
Section 5.9 Restoration of Rights and Remedies............................................... 47
Section 5.10 Rights and Remedies Cumulative................................................... 47
Section 5.11 Delay or Omission Not Waiver..................................................... 48
Section 5.12 Control by Holders of Securities................................................. 48
Section 5.13 Waiver of Past Defaults.......................................................... 48
Section 5.14 Undertaking for Costs............................................................ 49
Section 5.15 Waiver of Stay or Extension Laws................................................. 49
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ARTICLE VI
THE TRUSTEE
Section 6.1 Certain Duties and Responsibilities.............................................. 49
Section 6.2 Notice of Defaults............................................................... 50
Section 6.3 Certain Rights of Trustee........................................................ 51
Section 6.4 Not Responsible for Recitals or Issuance of Securities........................... 52
Section 6.5 May Hold Securities, Act as Trustee Under Other Indentures....................... 52
Section 6.6 Money Held in Trust.............................................................. 52
Section 6.7 Compensation and Indemnification of Trustee and Its Prior Claims................. 52
Section 6.8 Corporate Trustee Required; Eligibility.......................................... 53
Section 6.9 Resignation and Removal; Appointment of Successor................................ 54
Section 6.10 Acceptance of Appointment by Successor........................................... 55
Section 6.11 Merger, Conversion, Consolidation or Succession to Business...................... 56
Section 6.12 Authenticating Agent............................................................. 57
Section 6.13 Disqualification; Conflicting Interests.......................................... 58
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1 Company to Furnish Trustee Names and Addresses of Holders........................ 58
Section 7.2 Preservation of Information; Communications to Holders........................... 59
Section 7.3 Reports by the Company........................................................... 59
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1 Company May Consolidate, Etc., Only on Certain Terms............................. 60
Section 8.2 Successor Substituted............................................................ 60
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ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1 Supplemental Indentures Without Consent of Holders of Securities................. 61
Section 9.2 Supplemental Indentures with Consent of Holders of Securities.................... 62
Section 9.3 Trustee Protected................................................................ 63
Section 9.4 Execution of Supplemental Indentures............................................. 63
Section 9.5 Effect of Supplemental Indentures................................................ 63
Section 9.6 Reference in Securities to Supplemental Indentures............................... 63
Section 9.7 Notice of Supplemental Indentures................................................ 64
ARTICLE X
MEETINGS OF HOLDERS OF SECURITIES
Section 10.1 Purposes for Which Meetings May Be Called........................................ 64
Section 10.2 Call, Notice and Place of Meetings............................................... 64
Section 10.3 Persons Entitled to Vote at Meetings............................................. 65
Section 10.4 Quorum; Action................................................................... 65
Section 10.5 Determination of Voting Rights; Conduct and Adjournment of Meetings.............. 65
Section 10.6 Counting Votes and Recording Action of Meetings.................................. 66
ARTICLE XI
COVENANTS
Section 11.1 Payment of Principal and Interest................................................ 67
Section 11.2 Maintenance of Offices or Agencies............................................... 67
Section 11.3 Money for Security Payments To Be Held in Trust.................................. 68
Section 11.4 Corporate Existence.............................................................. 69
Section 11.5 Maintenance of Properties........................................................ 69
Section 11.6 Compliance with Laws............................................................. 69
Section 11.7 Payment of Taxes and Other Claims................................................ 70
Section 11.8 Delivery of Certain Information.................................................. 70
Section 11.9 Statement by Officers as to Default.............................................. 70
Section 11.10 Resale of Certain Securities..................................................... 71
Section 11.11 Waiver of Certain Covenants...................................................... 71
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Section 11.12 Registration Rights.............................................................. 71
Section 11.13 Book-Entry System................................................................ 72
ARTICLE XII
REDEMPTION OF SECURITIES
Section 12.1 Right of Redemption.............................................................. 73
Section 12.2 Applicability of Article......................................................... 73
Section 12.3 Election to Redeem; Notice to Trustee............................................ 73
Section 12.4 Selection by Trustee of Securities to be Redeemed................................ 73
Section 12.5 Notice of Redemption............................................................. 74
Section 12.6 Deposit of Redemption Price...................................................... 74
Section 12.7 Securities Payable on Redemption Date............................................ 75
ARTICLE XIII
CONVERSION OF SECURITIES
Section 13.1 Conversion Privilege and Conversion Rate......................................... 75
Section 13.2 Exercise of Conversion Privilege................................................. 76
Section 13.3 Fractions of Common Stock........................................................ 78
Section 13.4 Adjustment of Conversion Rate.................................................... 78
Section 13.5 Notice of Adjustments of Conversion Rate......................................... 83
Section 13.6 Notice of Certain Corporate Action............................................... 83
Section 13.7 Company to Reserve Common Stock.................................................. 84
Section 13.8 Taxes on Conversions............................................................. 84
Section 13.9 Covenant as to Common Stock...................................................... 84
Section 13.10 Cancellation of Converted Securities............................................. 85
Section 13.11 Provision in Case of Consolidation, Merger or Conveyance of Assets............... 85
Section 13.12 Responsibility of Trustee for Conversion Provisions.............................. 86
ARTICLE XIV
SUBORDINATION
Section 14.1 Securities Subordinate to Senior Debt............................................ 86
Section 14.2 Payment Over of Proceeds Upon Dissolution, Etc................................... 87
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Section 14.3 No Payment When Senior Debt in Default........................................... 88
Section 14.4 Payment Permitted If No Default.................................................. 89
Section 14.5 Subrogation to Rights of Holders of Senior Debt.................................. 89
Section 14.6 Provisions Solely to Define Relative Rights...................................... 89
Section 14.7 Trustee to Effectuate Subordination.............................................. 90
Section 14.8 No Waiver of Subordination Provisions............................................ 90
Section 14.9 Notice to Trustee................................................................ 90
Section 14.10 Reliance on Judicial Order or Certificate of Liquidating Agent................... 91
Section 14.11 Trustee Not Fiduciary for Holders of Senior Debt................................. 91
Section 14.12 Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights..... 91
Section 14.13 Article Applicable to Paying Agents.............................................. 92
Section 14.14 Subsidiaries..................................................................... 92
Section 14.15 Rescission....................................................................... 92
Section 14.16 Payment.......................................................................... 92
ARTICLE XV
REPURCHASE OF SECURITIES AT THE OPTION OF THEHOLDER UPON A CHANGE IN CONTROL
Section 15.1 Right to Require Repurchase...................................................... 93
Section 15.2 Notices; Method of Exercising Repurchase Right, Etc.............................. 93
Section 15.3 Certain Definitions.............................................................. 97
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EXHIBIT 4.4
INDENTURE, dated as of November 10, 1997, between HOMEBASE, INC., a
Delaware corporation (herein called the "Company"), and STATE STREET BANK AND
TRUST COMPANY OF CALIFORNIA, N.A., a national banking association, as Trustee
hereunder (herein called the "Trustee").
RECITALS
The Company has duly authorized the creation of an issue of its 53%
Convertible Subordinated Notes due November 1, 2004 (herein called the
"Securities") of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION I.1 DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) Unless the context otherwise requires, any reference to an
"Article" or a "Section," or to an "Annex," refers to an Article or Section
of, or an Annex attached to, this Indenture, as the case may be;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United States prevailing at the time of any relevant
computation hereunder; and
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(4) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision; provided, however that where such
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words are used in any form of Security, form of notice or form of
certificate, such words shall refer only to the particular form of
Security, form of notice or form of certificate, as the case may be, in
which such words are contained.
"Act," when used with respect to any Holder of a Security, has the meaning
specified in Section 1.4.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Members" has the meaning specified in Section 3.5.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of Euroclear and CEDEL, and of the Depositary for such Security, in
each case to the extent applicable to such transaction and as in effect from
time to time.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.12 to act on behalf of the Trustee to authenticate Securities.
"Authorized Newspaper" means a newspaper in the English language,
customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays, and of general circulation in the place in
connection with which the term is used or in the financial community of such
place. Where successive publications are required to be made in Authorized
Newspapers, the successive publications may be made in the same or in different
newspapers in the same city meeting the foregoing requirements and in each case
on any Business Day.
"Board of Directors" means the board of directors of the Company, or any
committee of the board of directors of the Company, empowered to act for the
Company, as the case may be, with respect to this Indenture.
"Board Resolution" means a resolution duly adopted by the Board of
Directors, a copy of which, certified by the Secretary or an Assistant Secretary
of the Company, as the case may be, to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification,
shall have been delivered to the Trustee.
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"Business Day" means, with respect to any particular place of payment,
place of conversion or any other place, as the case may be, each Monday,
Tuesday, Wednesday, Thursday and Friday, other than any such day on which
banking institutions in The City of New York, New York or in such particular
place are authorized or obligated by law or executive order to close. If any
day on which any delivery, request, surrender, payment or other action is
required or permitted hereunder to be taken by or on behalf of a Holder is not a
Business Day in any place where such action is permitted hereunder to be taken,
then such actions may be taken at such or any other permitted place on the next
succeeding Business Day at such place with the same force and effect as if taken
at the same time on such day that is not a business day at such place.
"CEDEL" means Cedel Bank, societe anonyme (or any successor securities
clearing agency).
"Change in Control" has the meaning specified in Section 15.3.
"Closing Price Per Share" means, with respect to the Common Stock of the
Company, for any day, the reported last sales price regular way per share on
such day or, in case no such reported sale takes place on such day, the average
of the reported closing bid and asked prices regular way, in either case (i) on
the principal (as determined by the Company's Board of Directors) national
securities exchange on which the Common Stock is listed or admitted to trading
or (ii) if not listed or admitted to trading on any national securities
exchange, on the Nasdaq National Market or (iii) if the Common Stock is not
listed or admitted to trading on any national securities exchange or quoted on
such National Market, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
selected from time to time by the Company for that purpose.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Commission" means the U.S. Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under applicable law, then
the body performing such duties at such time.
"Common Stock" means the Common Stock, par value $1.00 per share, of the
Company authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 1311, shares issuable on conversion or
repurchase of Securities shall include only shares of Common Stock or shares of
any class or classes of common stock resulting from any reclassification or
reclassifications thereof; provided, however, that if at any time there shall be
more than one such resulting class, the shares so issuable on conversion of
Securities shall include shares of all such classes, and the shares of each such
class then so issuable shall be substantially in the proportion which the total
number of shares of such class resulting from all such reclassifications bears
to the total number of shares of all such classes resulting from all such
reclassifications.
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"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any one of its Chairman of the Board, its
Chief Executive Officer, its President, or any Vice President, and by any one of
its Chief Financial Officer, Treasurer, any Assistant Treasurer, its Secretary
or any Assistant Secretary, and delivered to the Trustee.
"Constituent Person" has the meaning specified in Section 13.11.
"Conversion Agent" means any Person authorized by the Company to convert
Securities in accordance with Article XIII. The Company has initially appointed
the Trustee as Conversion Agent.
"Conversion Price" and "Conversion Rate" have the meanings specified in
Section 13.1 hereof, as adjusted in accordance with Section 13.4.
"Conversion Securities" means the securities delivered on conversion of
Securities (or any securities successor thereto), together with any securities
successor thereto to those so delivered on conversions.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time the trust created by this Indenture shall be administered (which
at the date of this Indenture is located at 725 South Figueroa Street, Los
Angeles, CA, 90017 Attention: Corporate Trust Administration (HomeBase, Inc. __%
Convertible Subordinated Notes Due 2004)).
"corporation" means a corporation, association, company, joint-stock
company or business trust.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depositary" means DTC until a successor depositary shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Depositary" shall mean such successor Depositary.
"Dollar" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States as at the time shall be legal tender for the
payment of public and private debts.
"DTC" means The Depository Trust Company, a New York corporation.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, including any successor or amendatory statutes.
"Euroclear" means the Euroclear Clearance System (or any successor
securities clearing agency).
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the U.S. Securities Exchange Act of 1934 (including
any successor act thereto), as it may be amended from time to time, and (unless
the context otherwise requires) includes the rules and regulations of the
Commission promulgated thereunder.
"Expiration Date" has the meaning specified in Section 1.4(g).
"Global Security" means any of the Restricted Global Security and the
Regulation S Global Security.
"Holder" means a Person in whose name such Security is registered in the
Security Register.
"Indebtedness" means obligations (other than nonrecourse obligations) of,
or guaranteed or assumed by, the Company for borrowed money, including
obligations evidenced by bonds, debentures, notes or other similar instruments
and reimbursement and cash collateralization of letters of credit, bankers'
acceptances, interest rate hedge and currency hedge agreements.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof including, for
all purposes of this instrument and any such supplemental indenture, the Annexes
attached to this instrument.
"Initial Purchaser" means Prudential Securities Incorporated.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Liquidated Damages" has the meaning specified in Section 11.12.
"Maturity," when used with respect to any Security, means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption, exercise of the repurchase right set forth in Article XV or
otherwise.
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"Non-Conversion Period" has the meaning specified in Section 2.3.
"Non-Electing Share" has the meaning specified in Section 13.11.
"Notice of Default" has the meaning specified in Section 5.1.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Financial Officer, the Treasurer, the Controller, an
Assistant Treasurer, an Assistant Controller, the Secretary, an Assistant
Secretary or any Vice President of the Company.
"Officers' Certificate" means a written certificate signed by any one of
the Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or any Vice President of the Company and by any one of the
Treasurer, the Controller, an Assistant Treasurer, an Assistant Controller, the
Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee; provided, however, that, for purposes of Section 11.9, an "Officers'
--------
Certificate" means a written certificate signed by the principal executive,
financial or accounting officer of the Company and any one of the other Officers
referred to above and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company and who shall be reasonably acceptable to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
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(i) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for the payment or redemption of which money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Securities, provided that if such Securities are to
--------
be redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made;
and
(iii) Securities which have been paid pursuant to Section 3.6 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
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provided, however, that in determining whether the Holders of the requisite
- -------- -------
principal amount of Outstanding Securities are present at a meeting of Holders
of Securities for quorum purposes or have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in conclusively relying upon any such determination as to the presence of a
quorum or upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
actually knows to be so owned shall be so disregarded. Securities so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Securities and that the pledgee is not the Company or
any other obligor upon the Securities or any Affiliate of the Company or such
other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, estate,
unincorporated organization or other legal entity or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Qualified Institutional Buyer" has the meaning specified in Rule 144A.
"Record Date" means any Regular Record Date or Special Record Date.
"Record Date Period" means the period from the close of business on any
Regular Record Date next preceding any Interest Payment Date to the opening of
business on such Interest Payment Date.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Registration Default" has the meaning specified in Section 11.12.
"Registration Rights Agreement" has the meaning specified in Section 11.12.
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"Regular Record Date" for interest payable in respect of any Security on
any Interest Payment Date means the April 15 or October 15 (whether or not a
Business Day) next preceding the relevant Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act (including any
successor regulation thereto), as it may be amended from time to time.
"Regulation S Global Security" has the meaning specified in Section 2.1.
"Repurchase Date" has the meaning specified in Section 15.1.
"Repurchase Price" has the meaning specified in Section 15.1.
"Responsible Officer," when used with respect to the Trustee, shall mean
any officer of the Trustee within the Corporate Trust Office including any
Senior Vice President, Assistant Vice President, Trust Officer, Secretary,
Assistant Secretary or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of such officer's knowledge and familiarity
with the particular subject.
"Restricted Global Security" has the meaning specified in Section 2.1.
"Restricted Period" has the meaning specified in Section 2.1.
"Restricted Securities" has the meaning specified in Section 2.1.
"Rule 144" means Rule 144 under the Securities Act (including any successor
rule thereto), as the same may be amended from time to time.
"Rule 144A" means Rule 144A under the Securities Act (including any
successor rule thereto), as the same may be amended from time to time.
"Rule 144A Information" has the meaning specified in Section 11.8.
"Securities" has the meaning ascribed to it in the first paragraph under
the caption "Recitals."
"Securities Act" means the Securities Act of 1933 (including any successor
act thereto), as it may be amended from time to time, and (unless the context
otherwise requires) includes the rules and regulations of the Commission
promulgated thereunder.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 3.5.
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"Senior Credit Facility" means that certain Credit Agreement dated as of
July 9, 1997 by and among the Company and the financial institutions party
thereto, as Lenders, and the First National Bank of Chicago, as agent, as
amended.
"Senior Debt" means the principal of (and premium, if any) and interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) on, and all fees and
other amounts payable in connection with, the following, whether direct or
indirect, absolute or contingent, secured or unsecured, due or to become due,
outstanding on the date of the Indenture or thereafter created, incurred or
assumed: (a) indebtedness of the Company for money borrowed or evidenced by
credit or loan agreement, bonds, debentures, notes or similar instruments, (b)
all obligations of the Company evidenced by a note or similar instrument or
written agreement given in connection with the acquisition of any businesses,
properties or assets, including securities, (c) obligations of the Company as
lessee under leases capitalized on the balance sheet of the lessee under
generally accepted accounting principles, (d) obligations of the Company under
interest rate and currency swaps, caps, floors, collars, hedge agreements,
forward contracts, or similar agreements or arrangements intended to protect the
Company against fluctuations in interest or currency exchange rates or commodity
prices, (e) all reimbursement obligations of the Company with respect to letters
of credit, bankers' acceptances or similar facilities issued for the account of
the Company, (f) indebtedness of others of the kinds described in the preceding
clauses (a), (b), (c), (d) and (e) that the Company has assumed, guaranteed or
otherwise assured the payment thereof, directly or indirectly, and/or (g)
deferrals, renewals, extensions and refundings of, or bonds, debentures, notes
or other evidences of indebtedness issued in exchange for, or amendments,
modifications or supplements to, or covenants and other obligations of the
Company in connection with, the indebtedness described in the preceding clauses
(a) through (f) whether or not there is any notice to or consent of the Holders
of the Securities; except (i) indebtedness and advances among the Company and
its Subsidiaries; and (ii) any particular indebtedness, deferral, renewal,
extension or refunding, if it is expressly stated in the governing terms or in
the assumption thereof that the indebtedness involved is not Senior Debt.
"Shelf Registration Statement" has the meaning specified in Section 11.12.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity," when used with respect to any Security or any
installment of interest thereon, means 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.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For the purposes of this definition,
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<PAGE>
"voting stock" means stock or other similar interests which ordinarily has or
have voting power for the election of directors, or persons performing similar
functions, whether at all times or only so long as no senior class of stock has
such voting power by reason of any contingency.
"Trading Days" means (i) if the Common Stock is listed or admitted for
trading on any national securities exchange, days on which such national
securities exchange is open for business or (ii) if the Common Stock is not
listed or admitted for trading on any national securities exchange, days on
which trades may be made on the Nasdaq National Market or any similar system of
automated dissemination of quotations of securities prices on which the Common
Stock is quoted or (iii) if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted on such National Market or
similar system, days on which the Common Stock is traded regular way in the
over-the-counter market and for which a closing bid and a closing asked price
for the Common Stock is available.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Trust Indenture Act" means the United States Trust Indenture Act of 1939
(including any successor act thereto), as it may be amended from time to time,
and (unless the context otherwise requires) includes the rules and regulations
of the Commission thereunder.
"United States person" means a citizen or resident of the United States, a
domestic partnership, a domestic corporation or any estate or trust the income
of which is subject to United States federal income taxation regardless of its
source.
"Unrestricted Securities" has the meaning specified in Section 2.1.
"Vice President," when used with respect to the Company, means any Vice
President, whether or not designated by a number or a word or words added before
or after the title "Vice President."
SECTION 1.2 COMPLIANCE CERTIFICATES AND OPINIONS
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
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Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.3 FORM OF DOCUMENTS DELIVERED TO THE TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4 ACTS OF HOLDERS OF SECURITIES.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided or permitted by this Indenture to be given or taken by
Holders of Securities may be embodied in and evidenced by (1) one or more
instruments of substantially similar tenor signed by such Holders in person or
by agent or proxy duly appointed in writing, (2) the record of Holders of
Securities voting in favor thereof, either in person or by proxies duly
appointed in writing, at any meeting of Holders of Securities duly called and
held in accordance with the provisions of Article X or (3) a combination of such
instruments and any such record. Except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments or record
or both are delivered to the Trustee and, where it is hereby expressly required,
to the Company. Such instrument or instruments and record (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders of Securities signing such instrument or instruments
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<PAGE>
and so voting at such meeting. Proof of execution of any such instrument or of
a writing appointing any such agent or proxy, or of the holding by any Person of
a Security, shall be sufficient for any purpose of this Indenture and (subject
to Section 6.1) conclusive in favor of the Trustee and the Company if made in
the manner provided in this Section. The record of any meeting of Holders of
Securities shall be proved in the manner provided in Section 10.6.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority.
(c) The ownership of Securities shall be proven by the Security Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
(e) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given, made or taken by
Holders of Securities, provided that the Company may not set a record date for,
--------
and the provisions of this paragraph shall not apply with respect to, the giving
or making of any notice, declaration, request or direction referred to in the
next paragraph. If any record date is set pursuant to this paragraph, the
Holders of Outstanding Securities on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date; provided that no such action shall be
--------
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities on such
record date. Nothing in this paragraph shall be construed to prevent the
Company from setting a new record date for any action for which a record date
has previously been set pursuant to this paragraph (whereupon the record date
previously set shall automatically and with no action by any Person be canceled
and of no effect), and nothing in this paragraph shall be construed to render
ineffective any action taken by Holders of the requisite principal amount of
Outstanding Securities on the date such action is taken. Promptly after any
record date is set pursuant to this paragraph, the Company, at its own expense,
shall cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Trustee in writing and to each
Holder of Securities in the manner set forth in Section 1.6.
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<PAGE>
(f) The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the giving
or making of (i) any Notice of Default, (ii) any declaration of acceleration
referred to in Section 5.2, (iii) any request to institute proceedings referred
to in Section 5.7(2) or (iv) any direction referred to in Section 5.12. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities on such record date, and no other Holders, shall be entitled to join
in such notice, declaration, request or direction, whether or not such Holders
remain Holders after such record date; provided that no such action shall be
--------
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities on such
record date. Nothing in this paragraph shall be construed to prevent the
Trustee from setting a new record date for any action (whereupon the record date
previously set shall automatically and without any action by any Person be
canceled and of no effect), nor shall anything in this paragraph be construed to
render ineffective any action taken by Holders of the requisite principal amount
of Outstanding Securities on the date such action is taken. Promptly after any
record date is set pursuant to this paragraph, the Trustee, at the Company's
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Company in writing and to
each Holder of Securities in the manner set forth in Section 1.6.
(g) With respect to any record date set pursuant to this Section, the
party hereto that sets such record date may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day, provided that no such change shall be effective unless notice of the
--------
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities in the manner set forth in Section 1.6, on or prior
to the existing Expiration Date. If an Expiration Date is not designated with
respect to any record date set pursuant to this Section, the party hereto that
set such record date shall be deemed to have initially designated the 180th day
after such record date as the Expiration Date with respect thereto, subject to
its right to change the Expiration Date as provided in this paragraph.
Notwithstanding the foregoing, no Expiration Date shall be later than the 180th
day after the applicable record date.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
SECTION 1.5 NOTICES, ETC.
Any request, demand, authorization, direction, notice, consent, election,
waiver or other Act of Holders of Securities or other document provided or
permitted by this Indenture to be made upon, given or furnished to, or filed
with,
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<PAGE>
(1) the Trustee by any Holder of Securities or by the Company shall
be sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee and received at its Corporate Trust
Office, Attention: Corporate Trust Administration (HomeBase, Inc. 53%
Convertible Subordinated Notes Due 2004), or
(2) the Company by the Trustee or by any Holder of Securities shall
be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing, mailed, first-class postage prepaid, or
telexed or telecopied and confirmed by mail, first-class postage prepaid,
or delivered by hand or overnight courier, addressed to the Company at 3345
Michelson Drive, telephone no.: (714) 442-5000; telecopy no.: (714) 442-
5127, Attention: Chief Financial Officer, or at any other address
previously furnished in writing to the Trustee by the Company.
Any request, demand, authorization, direction, notice, consent, election or
waiver required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.
SECTION 1.6 NOTICE TO HOLDERS OF SECURITIES; WAIVER.
Except as otherwise provided herein, where this Indenture provides for
notice to Holders of any event, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his registered
address as recorded in the Security Register. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Holder entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by
Holders shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
SECTION 1.7 EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
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<PAGE>
SECTION 1.8 SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall bind
its respective successors and assigns, whether so expressed or not.
SECTION 1.9 SEPARABILITY CLAUSE.
In case any provision in this Indenture or the Securities shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.10 BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors and
assigns hereunder, the holders of Senior Debt of the Company and the Holders of
Securities and, solely with respect to this Article I and Sections 11.8, 13.8,
and 13.9, the holders of Conversion Securities, any benefit or legal or
equitable right, remedy or claim under this Indenture.
This Article I and Sections 11.8, 13.8 and 13.9 shall not be amended or
modified, and neither compliance by the Company with, nor any default by it
under, such Article or any such Sections, shall be waived, in any manner that
adversely affects the interest of any holder of a Conversion Security at the
time outstanding without such Holder's consent.
SECTION 1.11 GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA.
SECTION 1.12 LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date, Repurchase
Date or Stated Maturity of any Security or the last day on which a Holder of a
Security has a right to convert his Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal of, premium, if any, or interest (including Liquidated
Damages) on, or the payment of the Repurchase Price (whether the same is payable
in cash or in shares of Common Stock) with respect to, or delivery for
conversion of, such Security need not be made on or by such day, but may be made
on or by the next succeeding Business Day with the same force and effect as if
made on the Interest Payment Date, Redemption Date, Repurchase Date, or at the
Stated Maturity or by such last day for conversion, as the case may be;
provided, however, that in the case that payment is made on such succeeding
- -------- -------
Business Day, no interest shall accrue on the amount so payable for the period
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<PAGE>
from and after such Interest Payment Date, Redemption Date, Repurchase Date,
Stated Maturity or last day for conversion, as the case may be.
SECTION 1.12 CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act that is required under such Act to be a part of and
govern this Indenture (or would be required to be a part of and govern this
Indenture if this Indenture were required to be qualified under the Trust
Indenture Act), the latter provision shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture Act that may
be so modified or excluded, the latter provision shall be deemed to apply to
this Indenture as so modified or to be excluded, as the case may be.
ARTICLE II
SECURITY FORMS
SECTION 2.1 FORMS GENERALLY.
The Securities shall be in substantially the forms set forth in this
Article, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or Depositary thereof, the Code and regulations thereunder,
or as may, consistently herewith, be determined by the Officers executing such
Securities, as evidenced by their execution thereof. The Company shall approve
the form of the Securities and any notation, legend or endorsement on the
Securities.
Any definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Securities
may be listed or quoted, as the case may be, all as determined by the Officers
executing such Securities as evidenced by their execution thereof.
In certain cases described elsewhere herein, the legends set forth in the
first four paragraphs of Section 2.2 may be omitted from Securities issued
hereunder.
Securities offered and sold in their initial distribution in reliance on
Regulation S shall be initially represented by one or more Regulation S Global
Notes (the "Regulation S Global Security") issued in fully registered form
without interest coupons, substantially in the form of Security set forth in
Sections 2.2 and 2.3, with such applicable legends as are provided for in
Section 2.2. Such Regulation S Global Security shall be registered in the name
of the Depositary or its nominee and deposited with the Trustee, as custodian
for the Depositary,
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<PAGE>
duly executed by the Company and authenticated by the Trustee as hereinafter
provided, for credit to the respective accounts at the Depositary of the
depositories for Morgan Guaranty Trust Company of New York, Brussels office, as
operator of Euroclear or CEDEL. Until such time as the Restricted Period shall
have terminated, investors may hold beneficial interests in such global Notes
only through Euroclear and CEDEL, unless delivery of such beneficial interest
shall be made through the Restricted Global Note in accordance with the
certification requirements discussed below in Section 3.5(b)(3). After such
time as the Restricted Period shall have terminated, such certification
requirements shall no longer be required for such transfers. As used herein,
the term "Restricted Period" means the period up to (but not including) the 40th
day following the later of (i) the day on which the Securities are first offered
to persons other than distributors (as defined in Regulation S) in reliance on
Regulation S and (ii) the last original issuance date of the Securities. The
Regulation S Global Security following the Restricted Period and all other
Securities that are not Restricted Securities shall collectively be referred to
herein as the "Unrestricted Securities."
Securities offered and sold in their initial distribution in reliance on
Rule 144A shall initially be issued in the form of one or more Global Securities
(collectively, the "Restricted Global Security") in fully registered form
without interest coupons, substantially in the form of Security set forth in
Sections 2.2 and 2.3, with such applicable legends as are provided for in
Section 2.2, except as otherwise permitted herein. Such Restricted Global
Security shall be registered in the name of the Depositary or its nominee and
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of the Restricted Global Security may be increased or
decreased from time to time by adjustments made on the records of the Trustee,
as custodian for the Depositary, in connection with a corresponding decrease or
increase in the aggregate principal amount of the Regulation S Global Security,
as hereinafter provided. The Restricted Global Security and all other
Securities evidencing the debt, or any portion of the debt, initially evidenced
by such Global Security, other than Securities transferred or exchanged upon
certification as provided in Section 3.5(b)(2) or (4), shall collectively be
referred to herein as the "Restricted Securities."
The Securities will be issued only in registered form. The Securities will
be issued in minimum denominations of $1,000, as provided in Section 3.2.
SECTION 2.2 FORM OF FACE OF SECURITY.
THE SECURITY EVIDENCED HEREBY AND THE SHARES OF COMMON STOCK ISSUABLE UPON
THEIR CONVERSION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT (A)(1) TO A PERSON WHOM THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
ACQUIRING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
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144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR
RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), (4) TO AN INSTITUTION THAT IS AN ACCREDITED INVESTOR WITHIN THE
MEANING OF RULE 501 (A) (1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES."
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HOMEBASE, INC.
5 1/4% CONVERTIBLE SUBORDINATED NOTES
DUE NOVEMBER 1, 2004
No. _________ $
[Registered Global Security - CUSIP No. 43738E AA 6]
[Registered Regulation S Global Security - CUSIP No. U4368W AA 2]
HOMEBASE, INC., a Delaware corporation (herein called the "Company," which
term includes any successor Person under the Indenture referred to on the
reverse hereof), for value received, hereby promises to pay to _______________,
or registered assigns, the principal sum of _____________ U.S. Dollars, [IF THIS
SECURITY IS A GLOBAL SECURITY, THEN INSERT -- (which principal amount may from
time to time be increased or decreased to such other principal amounts (which,
taken together with the principal amounts of all other Outstanding Securities,
shall not exceed $115,000,000 in the aggregate at any time) by adjustments made
on the records of the Trustee hereinafter referred to in accordance with the
Indenture)] on November 1, 2004, and to pay interest thereon from November 17,
1997 or from the most recent Interest Payment Date (as defined below) to which
interest has been paid or duly provided for, semi-annually in arrears on May 1
and November 1 in each year, commencing on May 1, 1998, and at Maturity at the
rate of 5 1/4% per annum, until the principal hereof is paid or made available
for payment, provided that any amount of such principal or interest that is
--------
overdue shall bear interest at the rate of 5 1/4% per annum (to the extent that
payment of such interest shall be legally enforceable), from the date such
amount is due until it is paid or made available for payment, and such interest
on any overdue amount shall be payable on demand. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, which shall be the April 15 or
October 15 (whether or not a Business Day), as the case may be, next preceding
such Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, provided notice thereof shall have been given to Holders of
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in said
Indenture.
Payment of the principal of and interest on this Security will be made in
immediately available funds and in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts, at the office or agency of the
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Company maintained for that purpose in the Borough of Manhattan, The City of New
York, provided, however, that payment of interest may, at the option of the
-------- -------
Company, be made by check mailed to the address of the Person entitled thereto
as such address shall appear in the Security Register. If this Security is a
Global Security, then each such payment will be made in accordance with the
procedures of the Depositary as then in effect.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof or an Authenticating Agent by the
manual signature of one of their respective authorized signatories, this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed under its corporate seal.
HOMEBASE, INC.
[Corporate Seal]
By____________________________
Title:
Attest:
______________________
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated: STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:___________________________
Authorized Signatory
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SECTION 2.3 FORM OF REVERSE OF SECURITY.
This Security is one of a duly authorized issue of securities of the
Company designated as its "5 1/4% Convertible Subordinated Notes due November 1,
2004" (herein called the "Securities"), limited in aggregate principal amount to
$115,000,000, issued and to be issued under an Indenture, dated as of November
10, 1997 (herein called the "Indenture") between the Company and State Street
Bank and Trust Company of California, N.A., as Trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture), to
which the Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee, the Holders of Senior Debt of
the Company and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
No sinking fund is provided for in the Securities. The Securities may not
be redeemed at the option of the Company prior to November 1, 2000. Thereafter,
the Securities may be redeemed at the option of the Company, in whole or in
part, at the Redemption Prices set forth below: Such Redemption Prices
(expressed as a percentage of principal amount) are as follows for the 12-month
period beginning on November 1 of the following years:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2000......................... 103.15%
2001......................... 102.10
2002......................... 101.05
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount, in
each case together with accrued interest to the Redemption Date provided that
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.
Notice of redemption (which notice shall be irrevocable) will be given by
first-class mail to Holders of Securities at their registered addresses as
recorded in the Security Register. Notice will be given not more than 60 nor
less than 30 days prior to the Redemption Date, as provided in the Indenture.
In any case where the due date for the payment of the principal of,
premium, if any, or interest (including Liquidated Damages) on, any Security or
the last day on which a Holder of a Security has a right to convert his Security
shall be at any place of payment or place of conversion, as the case may be, a
day on which banking institutions at such place of payment or place of
conversion are authorized or obligated by law or executive order to close, then
payment of principal of, premium, if any, or interest (including Liquidated
Damages) on, or
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delivery for conversion of such Security need not be made on or by such date at
such place but may be made on or by the next succeeding day at such place which
is not a day on which banking institutions are authorized or obligated by law or
executive order to close, with the same force and effect as if made on the date
for such payment or the date fixed for redemption or repurchase, or at the
Stated Maturity or by such last day for conversion, and no interest shall accrue
for the period after such date.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at his option, at any time on or after the
90th day following the last original issue date of the Securities (the "Non-
Conversion Period") and prior to the close of business on November 1, 2004, or
in case this Security is called for redemption or the Holder hereof has
exercised its right to require the Company to repurchase this Security, then in
respect of this Security until and including, but (unless the Company defaults
in making the payment due upon redemption or repurchase, as the case may be) not
after, the close of business on the Redemption Date or the Repurchase Date, as
the case may be, to convert this Security into newly issued fully paid and
nonassessable shares of Common Stock of the Company at an initial Conversion
Rate equal to 97.815 shares of Common Stock per $1,000 principal amount of
Securities (or at the current adjusted Conversion Rate if an adjustment has been
made as provided in the Indenture) by surrender of this Security, and also a
duly executed conversion notice, substantially in the form provided in Annex A
of the Indenture (including the tax certification contained in such notice), to
the Company, subject to any laws or regulations applicable thereto and subject
to the right of the Company to terminate the appointment of the Conversion Agent
(as defined below), at the office or agency of the Company in The City of New
York or at such other offices or agencies outside the United States that the
Company may designate (each a "Conversion Agent"). Any Security surrendered for
conversion during a Record Date Period (except Securities called for redemption
on a Redemption Date or to be repurchased on a Repurchase Date during, in each
case, such period) must be accompanied by payment of an amount equal to the
interest payable on the Interest Payment Date relating to such Record Date
Period on the principal amount of such Security being surrendered for
conversion, and the interest payable in respect of such Security on such
Interest Payment Date shall be paid to the Holder of such Security as of the
Regular Record Date relating to such Record Date Period. The interest payable
on such Interest Payment Date with respect to any Security which has been called
for redemption on a Redemption Date, or is repurchaseable on a Repurchase Date,
occurring, in either case, during a Record Date Period, which Security is
surrendered for conversion during such Record Date Period, shall be paid to the
Holder of such Security being converted in an amount equal to the interest that
would have been payable on such Security if such Security had been converted as
of the close of business on such Interest Payment Date. Interest payable in
respect of any Security surrendered for conversion on or after an Interest
Payment Date shall be paid to the Holder of such Security as of the next
preceding Regular Record Date, notwithstanding the exercise of the right of
conversion.
The Company shall thereafter deliver to the Holder the fixed number of
shares of Common Stock (together with any cash adjustment, as provided in the
Indenture) into which
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this Security is convertible and such delivery will be deemed to satisfy the
Company's obligation to pay the principal amount of this Security. No fractions
of shares or scrip representing fractions of shares will be issued on
conversion, but instead of any fractional interest (calculated to the nearest
1/100th of a share) the Company shall pay a cash adjustment as provided in the
Indenture, or alternatively the Company shall round up the conversion
transaction to the next higher whole share. In addition, the Indenture provides
that in case of certain consolidations or mergers to which the Company is a
party or the sale or transfer of all or substantially all of the assets of the
Company, the Indenture shall be amended, without the consent of any Holders of
Securities, so that this Security, if then Outstanding, will be convertible
thereafter, during the period this Security shall be convertible as specified
above, only into the kind and amount of securities, cash and other property
receivable upon consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock of the Company into which this Security might
have been converted immediately prior to such consolidation, merger, sale or
transfer (assuming such holder of Common Stock failed to exercise any rights of
election and received per share the kind and amount received per share by at
least a plurality of Non-Electing Shares). Adjustments in the Conversion Rate
of less than one percent of such price will not be required, but any adjustment
that would otherwise be required to be made will be carried forward and taken
into account in the computation of any subsequent adjustment.
Notwithstanding any provision hereof, no securities will be delivered on
conversion of this Security or any portion hereof unless the certification and
other requirements described in the Indenture are satisfied.
Subject to certain limitations in the Indenture, at any time when the
Company is not subject to Section 13 or 15(d) of the United States Securities
Exchange Act of 1934, as amended, upon the request of a Holder of a Restricted
Security or the holder of shares of Common Stock issued upon conversion thereof,
the Company will promptly furnish or cause to he furnished Rule 144A Information
(as defined below) to such Holder of Restricted Securities or such holder of
shares of Common Stock issued upon conversion of Restricted Securities, or to a
prospective purchaser of any such security designated by any such Holder or
holder, as the case may be, to the extent required to permit compliance by any
such holder with Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"). "Rule 144A Information" shall be such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto).
If this Security is a Registrable Security, then the Holder of this
Security and the Common Stock of the Company issuable upon conversion thereof is
entitled to the benefits of a Registration Rights Agreement (subject to the
provisions thereof), dated as of November 10, 1997, between the Company and the
Initial Purchaser (the "Registration Rights Agreement"). Pursuant to the
Registration Rights Agreement, the Company has agreed for the benefit of the
Holders from time to time of the Securities and the Common Stock issuable upon
conversion thereof that it will, at its expense, (a) within 90 days after the
first date of original issuance of the Securities, file a shelf registration
statement (the "Shelf Registration Statement") with the
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Commission with respect to resales of the Securities and the Common Stock
issuable upon conversion thereof (together, the "Registrable Securities"), (b)
use its best efforts to cause such Shelf Registration Statement to be declared
effective by the Commission as promptly as practicable but no later than 180
days after the first date of original issuance of the Securities (the
"Settlement Date"), and (c) use its best efforts to maintain such Shelf
Registration Statement continuously effective under the Securities Act, until
the second anniversary of the date of the effectiveness of the Shelf
Registration Statement or such earlier date as is provided in the Registration
Rights Agreement.
If (i) on or prior to 90 days following the first date of original issuance
of the Securities, a Shelf Registration Statement has not been filed with the
Commission, or (ii) on or prior to 180 days following the Settlement Date, such
Shelf Registration Statement is not declared effective (each, a "Registration
Default"), additional interest ("Liquidated Damages") will accrue on this
Security from and including the day following such Registration Default to but
excluding the day on which such Registration Default has been cured. Liquidated
Damages will be paid semi-annually in arrears, with the first semi-annual
payment due on the first Interest Payment Date in respect of the Securities
following the date on which such Liquidated Damages begin to accrue, and will
accrue at a rate per annum equal to an additional one-quarter of one percent
(0.25%) of the principal amount of the Securities to and including the 90th day
following such Registration Default and at a rate per annum equal to one-half of
one percent (0.50%) thereof from and after the 91st day following such
Registration Default. In the event that the Shelf Registration Statement ceases
to be effective prior to the second annual anniversary of the initial effective
date of the Shelf Registration Statement or such earlier date as is provided in
the Registration Rights Agreement for a period in excess of 60 days, whether or
not consecutive, during any 12-month period, then the interest rate borne by the
Securities shall increase by an additional one-half of one percent (0.50%) per
annum from the 61st day of the applicable 12-month period such Shelf
Registration Statement ceases to be effective to but excluding the day on which
the Shelf Registration Statement again becomes effective.
Whenever in this Security there is a reference, in any context, to the
payment of the principal of, premium, if any, or interest on, or in respect of,
any Security such reference shall be deemed to include reference to the payment
of Liquidated Damages payable as described in the preceding paragraph to the
extent that, in such context, Liquidated Damages are, were or would be payable
in respect of such Security and express mention of the payment of Liquidated
Damages (if applicable) in any provisions of this Security shall not be
construed as excluding Liquidated Damages in those provisions of this Security
where such express mention is not made.
The Holder of this Security, by its acceptance thereof, agrees to be bound
by the terms of the Registration Rights Agreement relating to the Securities and
the Common Stock issuable upon conversion thereof.
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If a Change in Control occurs, the Holder of this Security shall have the
right, at the Holder's option in accordance with the provisions of the
Indenture, to require the Company to repurchase this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000) for cash at
a Repurchase Price equal to 100% of the principal amount thereof plus interest
accrued to the Repurchase Date. At the option of the Company, the Repurchase
Price may be paid in cash or, except as otherwise provided in the Indenture, by
delivery of Common Stock having a fair market value equal to the Repurchase
Price. Payment may not be made in Common Stock unless the Company satisfies
certain conditions prior to the Repurchase Date as provided in the Indenture.
For purposes of this paragraph, the fair market value of shares of Common Stock
shall be determined by the Company and shall be equal to 95% of the average of
the Closing Prices Per Share for the five consecutive Trading Days ending on and
including the third Trading Day immediately preceding the Repurchase Date.
Whenever in this Security there is a reference, in any context, to the principal
of any Security as of any time, such reference shall be deemed to include
reference to the Repurchase Price payable in respect of such Security to the
extent that such Repurchase Price is, was or would be so payable at such time,
and express mention of the Repurchase Price in any provision of this Security
shall not be construed as excluding the Repurchase Price in those provisions of
this Security when such express mention is not made.
The indebtedness evidenced by this Security is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all amounts then or thereafter to become due on all
Senior Debt of the Company, and this Security is issued subject to such
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on its behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee its attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared due and payable to the extent, in the manner and
with the effect provided in the Indenture. Upon payment (i) of the amount of
principal so declared due and payable and (ii) of interest on any overdue
principal and overdue interest, all of the Company's obligations in respect of
the payment of the principal of and interest on the Securities shall terminate.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee either (a) with the written consent of
the Holders of a majority in principal amount of the Securities at the time
outstanding, or (b) by the adoption of a resolution, at a meeting of Holders of
the Outstanding Securities at which a quorum is present by the Holders of 66-
2/3% in aggregate principal amount of the Outstanding Securities represented at
such meeting. The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
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defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Security shall be conclusive and binding upon such Holder
and upon all future Holders of this Security and of any Security issued in
exchange herefor or in lieu hereof, whether or not notation of such consent or
waiver is made upon this Security or such other Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default, the Holders of not less
than 25% in aggregate principal amount of the Outstanding Securities shall have
made written request to the Trustee to institute proceedings in respect of such
Event of Default and offered the Trustee indemnity satisfactory to it and the
Trustee shall not have received from the Holders of a majority in principal
amount of the Securities Outstanding a direction inconsistent with such request
and shall have failed to institute any such proceedings for 60 days after
receipt of such notice, request and offer of indemnity. The foregoing shall not
apply to any suit instituted by the Holder of this Security for the enforcement
of any payment of principal hereof or interest hereon (including any Liquidated
Damages) on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligations of the Company, which are
absolute and unconditional, to pay the principal of, premium, if any, and
interest (including Liquidated Damages) on this Security at the times, places
and rate, and in the coin or currency, herein prescribed or to convert this
Security as provided in the Indenture.
As provided in the Indenture and subject to certain limitations and
satisfaction of certain requirements therein set forth, the transfer of this
Security is registrable on the Security Register upon surrender of this Security
for registration of transfer at the office or agency of the Company as may be
designated by it for such purpose in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees. No
service charge shall be made to a Holder for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to recover
any tax or other governmental charge payable in connection therewith.
Prior to due presentation of this Security for registration of transfer the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered, as the owner thereof for all
purposes, whether or not such Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
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THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA
WITHOUT REGARD TO PRINCIPLES REGARDING CONFLICTS OF LAWS.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
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ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 15.1 of the Indenture, the undersigned hereby
elects to have this Security repurchased by the Company.
2. The undersigned hereby directs the Trustee or the Company to pay it or
________________________________________________________________ an amount in
cash or, at the Company's election, Common Stock valued as set forth in the
Indenture, equal to 100% of the principal amount hereof, plus interest accrued
to the Repurchase Date, as provided in the Indenture.
Dated: _________________________________
_________________________________
Signature
_________________________________
Signature Guaranteed
Principal amount to be repurchased: ______________________________
Remaining principal amount following such repurchase: _________________________
NOTICES: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
If payment is to be made to a person other than the signatory above, the
signature must be guaranteed by an "Eligible Institution" (banks, stock brokers,
savings and loan associations and credit unions) with membership in an approved
signature guarantee medallion program pursuant to Commission Rule 17Ad-15.
SECTION 2.4 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned
Indenture.
DATED: STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A., as Trustee
By:_______________________________
Authorized Signatory
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ARTICLE III
THE SECURITIES
SECTION 3.1 TITLE AND TERMS.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is limited to $115,000,000, except for Securities
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities pursuant to Sections 3.4, 3.5, 3.6, 9.5, or
13.2.
The Securities shall be known and designated as the "5 1/4% Convertible
Subordinated Notes due November 1, 2004" of the Company. Their Stated Maturity
shall be November 1, 2004 and they shall bear interest at the rate of 5 1/4% per
annum from November 17, 1997 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, as the case may be, payable
semi-annually in arrears on May 1 and November 1 of each year, commencing May 1,
1998, and at Maturity, until the principal thereof is paid or made available for
payment, provided that any amount of such principal or interest that is overdue
--------
shall bear interest at the rate of 5 1/4% per annum (to the extent that payment
of such interest shall be legally enforceable), from the date such amount is due
until it is paid or made available for payment, and such interest on any overdue
amount shall be payable on demand.
The principal of, premium, if any and interest on the Securities (including
Liquidated Damages), shall be payable in immediately available funds and in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts, at the office of State
Street Bank and Trust Company, N.A. (located at 61 Broadway, Concourse Level,
New York, NY 10006) in the Borough of Manhattan, The City of New York or, at the
option of the Holder and subject to any fiscal or other laws and regulations
applicable thereto, at any other office or agency of the Company or any Paying
Agent outside The City of New York; provided, however, that payment of interest
-------- -------
may, at the option of the Company, be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.
The Securities shall be redeemable at the Company's option, in whole or in
part, at any time on or after November 1, 2000 as provided in the form of
Securities set forth in Sections 2.2 and 2.3 and Article XII.
The Securities shall be convertible as provided in Article XIII.
The Securities shall be subordinated in right of payment to Senior Debt of
the Company as provided in Article XIV.
The Securities shall be subject to repurchase by the Company at the option
of the Holders as provided in Article XV.
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SECTION 3.2 DENOMINATIONS.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple of $1,000 in
excess thereof.
SECTION 3.3 EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by any one of its
Chairman of the Board, its Chief Executive Officer, its President, or any one of
its Vice Presidents, under a facsimile of its corporate seal reproduced thereon
attested by its Secretary or one of its Assistant Secretaries. Any such
signature may be manual or facsimile.
Securities bearing the manual or facsimile signature of individuals who
were at any time the proper Officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities, and the Trustee in accordance with such Company
Order shall authenticate and make available for delivery such Securities as in
this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee or the Authenticating Agent by manual signature of an
authorized signatory, and such certificate upon such Security shall be
conclusive evidence, and the only evidence, that such Security has been duly
authenticated and delivered hereunder.
SECTION 3.4 TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and make available for
delivery, temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the Officers executing such Securities may determine, as
evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the
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temporary Securities shall be exchangeable for definitive Securities upon
surrender of the temporary Securities at any office or agency of the Company
designated pursuant to Section 11.2, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Securities the Company
shall execute and the Trustee shall authenticate and make available for delivery
in exchange therefor a like principal amount of definitive Securities of
authorized denominations. Until so exchanged the temporary Securities shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities.
For purposes of this Section 3.4, each Global Security shall be considered
a definitive Security.
SECTION 3.5 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE;
RESTRICTIONS ON TRANSFER.
(a) The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 11.2 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is
hereby appointed "Security Registrar" for the purpose of registering Securities
and transfers of Securities as herein provided. Upon surrender for registration
of transfer of any Security at an office or agency of the Company designated
pursuant to Section 11.2 for such purpose, and subject to the other provisions
of this Section 3.5, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, in the name of the designated
transferee or transferees, one or more new Securities of any authorized
denominations and of a like aggregate principal amount.
At the option of the Holder, and subject to the other provisions of this
Section 3.5, Securities may be exchanged for other Securities of any authorized
denominations and of a like aggregate principal amount, upon surrender of the
Securities to be exchanged at such office or agency. Whenever any Securities
are so surrendered for exchange, and subject to the other provisions of this
Section 3.5, the Company shall execute, and the Trustee shall authenticate and
make available for delivery, the Securities which the Holder making the exchange
is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and subject to the other provisions of this Section 3.5, entitled to the
same benefits under this Indenture, as the Securities surrendered upon such
registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Security Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.
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No service charge shall be made to a Holder for any registration of
transfer or exchange of securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 3.4, 13.2 or 15.3(f) not involving any
transfer and subject to Section 13.9.
(b) Notwithstanding any other provisions of this Indenture or the
Securities (but subject to Section 2.1), transfers of a Global Security, in
whole or in part, transfers and exchanges of interests therein of the kinds
described in clauses (2), (3), (4) and (5) below and exchanges of interests in
Global Securities, and transfers or exchanges of other Securities as described
in clause (4) below, shall be made only in accordance with this Section 3.5(b).
Transfers and exchanges subject to this Section 3.5 shall also be subject to the
other provisions of this Indenture that are not inconsistent with this Section
3.5.
(1) Limitation on Transfers of a Global Security. A Global Security
---------------------------------------------
may not be transferred, in whole or in part, to any Person other than the
Depositary or a nominee thereof, and no such transfer to any such other
Person may be registered; provided that this clause (1) shall not prohibit
--------
any transfer of a Security that is issued in exchange for a Global Security
but is not itself a Global Security. No transfer of a Security to any
Person shall be effective under this Indenture or the Securities unless and
until such Security has been registered in the name of such Person.
Nothing in this Section 3.5(b)(1) shall prohibit or render ineffective any
transfer of a beneficial interest in a Global Security effected in
accordance with the other provisions of this Section 3.5(b).
(2) Restricted Global Security to Regulation S Global Security. If
----------------------------------------------------------
the holder of a beneficial interest in the Restricted Global Security
wishes at any time to transfer such interest to a Person who wishes to take
delivery thereof in the form of a beneficial interest in the Regulation S
Global Security, such transfer may be effected, subject to the Applicable
Procedures only in accordance with this Section 3.5(b)(2) and Section
3.5(b)(5). Upon receipt by the Trustee, as Security Registrar, of (A)
written instructions given in accordance with the Applicable Procedures
from any member of, or participants in, the Depositary ("Agent Member")
directing the Trustee to credit or cause to be credited to a specified
Agent Member's account a beneficial interest in the Regulation S Global
Security in a principal amount equal to that of the beneficial interest in
the Restricted Global Security to be so transferred, (B) a written order
given in accordance with the Applicable Procedures containing information
regarding the account of the Agent Member (and, if applicable, the
Euroclear or CEDEL account, as the case may be) to be credited with, and
the account of the Agent Member to be debited for, such beneficial interest
and (C) a certificate in substantially the form set forth in Annex B given
by the holder of such beneficial interest, the Trustee, as Security
Registrar, shall instruct the Depositary to reduce the principal amount of
the Restricted Global Security, and to increase the principal amount of the
Regulation S Global Security, by the principal amount of the beneficial
interest in the Restricted
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Global Security to be so transferred, and to credit or cause to be credited
to the account of the Person specified in such instructions (which during
the Restricted Period shall be the Agent Member for Euroclear or CEDEL or
both, as the case may be) a beneficial interest in the Regulation S Global
Security having a principal amount equal to the amount by which the
principal amount of the Restricted Global Security was reduced upon such
transfer.
(3) Regulation S Global Security to Restricted Global Security. If
----------------------------------------------------------
during the Restricted Period the holder of a beneficial interest in the
Regulation S Global Security wishes to transfer such interest to a Person
who wishes to take delivery thereof in the form of a beneficial interest in
the Restricted Global Security, such transfer may be effected, subject to
the Applicable Procedures, only in accordance with this Section 3.5(b)(3).
Upon receipt by the Trustee, as Security Registrar, of (A) written
instructions given in accordance with the Applicable Procedures from an
Agent Member directing the Trustee to credit or cause to be credited to a
specified Agent Member's account a beneficial interest in the Restricted
Global Security in a principal amount equal to that of the beneficial
interest in the Regulation S Global Security to be so transferred, (B) a
written order given in accordance with the Applicable Procedures containing
information regarding the account of the Agent Member to be credited with,
and the account of the Agent Member (and, if applicable, the Euroclear or
CEDEL account, as the case may be) to be debited for, such beneficial
interest and (C) if the transfer is requested prior to the expiration of
the Restricted Period, a certificate in substantially the form set forth in
Annex C given by the holder of such beneficial interest, the Trustee, as
Security Registrar, shall instruct the Depositary to reduce the principal
amount of the Regulation S Global Security and to increase the principal
amount of the Restricted Global Security, by the principal amount of the
beneficial interest in the Regulation S Global Security to be so
transferred, and to credit or cause to be credited to the account of the
Person specified in such instructions a beneficial interest in the
Restricted Global Security having a principal amount equal to the amount by
which the principal amount of the Regulation S Global Security, as the case
may be, was reduced upon such transfer.
(4) Exchanges. In the event that a Restricted Global Security or any
---------
portion thereof is exchanged for a Regulation S Global Security or
Securities other than Global Securities, such other Securities may in turn
be exchanged (on transfer or otherwise) for Securities that are not Global
Securities or for beneficial interests in a Global Security (if any is then
outstanding) only in accordance with such procedures, which shall be
substantially consistent with the provisions of clauses (1) through (3)
above and (5) below (including the certification requirements intended to
insure that transfers and exchanges of beneficial interests in a Global
Security comply with Rule 144A, Rule 144 or Regulation S, as the case may
be) and any Applicable Procedures, as may be from time to time adopted by
the Company and the Trustee.
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(5) Interests in Regulation S Global Security to be Held Through
------------------------------------------------------------
Euroclear or CEDEL. Until the termination of the Restricted Period,
------------------
interests in the Regulation S Global Security may be held only through
Agent Members acting for and on behalf of Euroclear and CEDEL, provided
--------
that this Clause (5) shall not prohibit any transfer in accordance with
Section 3.5(b)(3) hereof.
(c) Each Restricted Security and Global Security issued hereunder shall,
upon issuance, bear the legends required by Section 2.2 to be applied to such a
Security and such required legends shall not be removed from such Security
except as provided in the next sentence or paragraph (d) of this Section 3.5.
The legend required for a Restricted Security may be removed from a Security if
there is delivered to the Company such satisfactory evidence, which may include
an opinion of independent counsel licensed to practice law in the State of New
York, as may be reasonably required by the Company that neither such legend nor
the restrictions on transfer set forth therein are required to ensure that
transfers of such Security will not violate the registration requirements of the
Securities Act. Upon provision of such satisfactory evidence, the Trustee, at
the written direction of the Company, shall authenticate and deliver in exchange
for such Security another Security or Securities having an equal aggregate
principal amount that does not bear such legend. If such a legend required for
a Restricted Security has been removed from a Security as provided above, no
other Security issued in exchange for all or any part of such Security shall
bear such legend, unless the Company has reasonable cause to believe that such
other Security is a "restricted security" within the meaning of Rule 144 and
instructs the Trustee in writing to cause a legend to appear thereon.
(d) The provisions of clauses (1), (2), (3) and (4) below shall apply only
to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary or a nominee thereof and delivered
to such Depositary or a nominee thereof or custodian therefor, and each
such Global Security shall constitute a single Security for all purposes of
this Indenture.
(2) Notwithstanding any other provision in this Indenture or the
Securities, no Global Security may be exchanged in whole or in part for
Securities registered, and no transfer of a Global Security in whole or in
part may be registered, in the name of any Person other than the Depositary
or a nominee thereof unless (A) the Depositary (i) has notified the Company
that it is unwilling or unable to continue as Depositary for such Global
Security or (ii) has ceased to be a clearing agency registered under the
Exchange Act, (B) in the case of a Global Security held for an account of
Euroclear or CEDEL, Euroclear or CEDEL, as the case may be, (i) is closed
for business for a continuous period of 14 days (other than by reason of
statutory or other holidays) or (ii) announces an intention permanently to
cease business or does in fact do so, (C) there shall have occurred and be
continuing an Event of Default with respect to such Global Security or (D)
a request for certificates has been made upon 60 days' prior
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written notice given to the Trustee in accordance with the Depositary's
customary procedures and a copy of such notice has been received by the
Company from the Trustee. Any Global Security exchanged pursuant to clause
(A) or (B) above shall be so exchanged in whole and not in part and any
Global Security exchanged pursuant to clause (C) or (D) above may be
exchanged in whole or from time to time in part as directed by the
Depositary. Any Security issued in exchange for a Global Security or any
portion thereof shall be a Global Security, provided that any such Security
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so issued that is registered in the name of a Person other than the
Depositary or a nominee thereof shall not be a Global Security.
(3) Securities issued in exchange for a Global Security or any
portion thereof pursuant to clause (2) above shall be issued in definitive,
fully registered form, without interest coupons, shall have an aggregate
principal amount equal to that of such Global Security or portion thereof
to be so exchanged, shall be registered in such names and be in such
authorized denominations as the Depositary shall designate and shall bear
any legends required hereunder. Any Global Security to be exchanged in
whole shall be surrendered by the Depositary to the Trustee, as Security
Registrar. With regard to any Global Security to be exchanged in part,
either such Global Security shall be so surrendered for exchange or, if the
Trustee is acting as custodian for the Depositary or its nominee with
respect to such Global Security, the principal amount thereof shall be
reduced, by an amount equal to the portion thereof to be so exchanged, by
means of an appropriate adjustment made on the records of the Trustee.
Upon any such surrender or adjustment, the Trustee shall authenticate and
make available for delivery the Security issuable on such exchange to or
upon the written order of the Depositary or an authorized representative
thereof.
(4) In the event of the occurrence of any of the events specified in
clause (2) above, the Company will promptly make available to the Trustee a
reasonable supply of certificated Securities in definitive, fully
registered form, without interest coupons.
(5) Neither any Agent Members nor any other Persons on whose behalf
Agent Members may act (including Euroclear and CEDEL and account holders
and participants therein) shall have any rights under this Indenture with
respect to any Global Security, or under any Global Security, and the
Depositary or such nominee, as the case may be, may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner and holder of such Global Security for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee from
giving effect to any written certification, proxy or other authorization
furnished by the Depositary or such nominee, as the case may be, or impair,
as between the Depositary, its Agent Members and any other person on whose
behalf an Agent Member may act, the operation of customary practices of
such Persons governing the exercise of the rights of a holder of any
Security.
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SECTION 3.6 MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and make available for delivery in
exchange therefor a new Security of like tenor and principal amount and bearing
a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and make
available for delivery, in lieu of any such destroyed, lost or stolen Security,
a new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
A Holder shall bear the cost to the Company of replacing a mutilated,
destroyed, stolen or lost Security. Upon the issuance of any new Security under
this Section, the Company also may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Trustee)
connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.7 PAYMENT OF INTEREST, INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest.
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Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder of Securities at such Holder's
address as it appears in the Security Register, not less than 10 days prior
to such Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons in whose names
the Securities (or their respective Predecessor Securities) are registered
at the close of business on such Special Record Date and shall no longer be
payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and Section 3.5, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
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Any Security surrendered for conversion during a Record Date Period (except
Securities called for redemption on a Redemption Date or to be repurchased on a
Repurchase Date during, in each case, such period) must be accompanied by
payment of an amount equal to the interest payable on the Interest Payment Date
relating to such Record Date Period on the principal amount of such Securities
being surrendered for conversion, and the interest payable in respect of such
Security on such Interest Payment Date shall be paid to the Holder of such
Security as of the Regular Record Date relating to such Record Date Period. The
interest payable on such Interest Payment Date with respect to any Security
which has been called for redemption on a Redemption Date, or is repurchaseable
on a Repurchase Date, occurring, in either case, during such Record Date Period,
which Security is surrendered for conversion during such Record Date Period,
shall be paid to the Holder of such Security being converted in an amount equal
to the interest that would have been payable on such Security if such Security
had been converted as of the close of business on such Interest Payment Date.
Interest payable in respect of any Security surrendered for conversion on or
after an Interest Payment Date shall be paid to the Holder of such Security as
of the next preceding Regular Record Date, notwithstanding the exercise of the
right of conversion.
SECTION 3.8 PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee shall treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of and (subject to Sections
3.5 and 3.7) interest on such Security and for all other purposes whatsoever,
whether or not such Security be overdue, and neither the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to the
contrary.
SECTION 3.9 CANCELLATION.
All Securities surrendered for payment, redemption, repurchase,
registration of transfer or exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee. All Securities so
delivered shall be canceled promptly by the Trustee. The Company may at any
time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section 3.9 except as expressly
permitted by this Indenture. All canceled Securities and any certificates in
connection therewith shall be held by the Trustee in accordance with its
customary practices until destroyed by the Trustee; provided, however, that the
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Trustee shall not be required to destroy such Securities. The Company may not
issue new Securities to replace Securities it has paid in full or delivered to
the Trustee for cancellation.
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SECTION 3.10 COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a 360-day year
of twelve 30-day months.
SECTION 3.11 CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP" and "CINS" numbers
(if then generally in use), and the Trustee shall use CUSIP numbers or CINS
numbers, as the case may be, in notices of redemption, repurchase or exchange as
a convenience to the Holders; provided that any such notice may state that no
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representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of redemption, repurchase or
exchange and that reliance may be placed only on the other identification
numbers printed on the Securities.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of conversion, or replacement of Securities
herein expressly provided for and any right to receive the payment of principal
of, premium, if any, or interest on, such Securities or Liquidated Damages under
the ninth and tenth paragraphs on the reverse of the form of Securities set
forth in Section 2.3), and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 3.6 and
(ii) 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, as provided in
Section 11.3) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee
for cancellation (other than Securities referred to in clauses (i) and
(ii) of clause (1)(A) above)
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(i) have become due and payable, or
(ii) will have become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of clause (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds
(immediately available to the Holders in the case of clause (i)) in trust
for the purpose an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee
for cancellation, for principal, premium, if any, and interest (including
any Liquidated Damages), to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with, and that any consents required under any
document evidencing and/or securing Senior Debt have been obtained and are
in full force and effect.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7 and, if money shall
have been deposited with the Trustee pursuant to clause (1)(B) of this Section
4.1, the obligations of the Trustee under Section 4.2 and the last paragraph of
Section 11.3 shall survive. Funds held in trust pursuant to this Section are
not subject to the provisions of Article XIV.
SECTION 4.2 APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 11.3, all money
deposited with the Trustee pursuant to Section 4.1 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such money has been deposited with the Trustee.
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All moneys deposited with the Trustee pursuant to Section 4.1 (and held by
it or any Paying Agent) for the payment of Securities subsequently converted
shall be returned to the Company upon Company Request.
ARTICLE V
REMEDIES
SECTION 5.1 EVENTS OF DEFAULT.
"Event of Default," whenever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article XIV or be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(1) failure to pay the principal or Redemption Price of any Security
at its Maturity, whether or not such payment is prohibited pursuant to
Article XIV hereof; or
(2) failure to pay any interest (including any Liquidated Damages)
upon any Security when it becomes due and payable, whether or not such
payment is prohibited pursuant to Article XIV hereof, and continuance of
such default for a period of 30 days; or
(3) failure to provide a Company Notice in the event of a Change in
Control as provided by Section 15.3; or
(4) failure to perform any other covenant or warranty of the Company
in this Indenture (other than a covenant a default in whose performance or
whose breach is elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Securities a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(5) Any indebtedness for borrowed money by the Company in an
outstanding principal amount in excess of $5,000,000, whether such
Indebtedness now exists or shall hereafter be created, is not paid at final
maturity or the payment thereof is accelerated and such default in payment
or acceleration has not been cured or rescinded or annulled within a period
of 30 days after there shall have been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 25% in principal amount of the Outstanding
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Securities a written notice specifying such default and requiring the
Company to cause such indebtedness to be discharged or cause such
acceleration to be rescinded or annulled and stating that such notice is a
"Notice of Default" hereunder; provided, however, that the Trustee shall
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have no obligation, either express or implied, to give any notice, make any
demand, make any collection, initiate any judicial proceeding, file any
proofs of claim or take any action as a result of an Event of Default
described in this clause (5), unless and until the Trustee has received
written notice of such Event of Default from the Company, a Holder of a
Security or a holder of Indebtedness of the Company;
(6) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under any applicable Federal or State law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any substantial
part of its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60
consecutive days; or
(7) the commencement by the Company of a voluntary case or proceeding
under the applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement of
any bankruptcy or insolvency case or proceeding against it, or the filing
by it of a petition or answer or consent seeking reorganization or relief
under any applicable Federal or State law, or the consent by it to the
filing of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as
they become due.
SECTION 5.2 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified in Section
5.1(1), (2), (6) and (7)) occurs and is continuing, then and in every such case
the Trustee shall, at the written request of the Holders of not less than 25% in
aggregate principal amount of the Outstanding Securities, or the Holders of not
less than 25% in aggregate principal amount of the Outstanding Securities shall
directly, by notice in writing to the Company, declare the principal of all the
Securities to be due and payable immediately, and upon any such
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declaration such principal and any accrued interest and any unpaid Liquidated
Damages thereon shall become immediately due and payable (provided that if any
amounts are outstanding under the Senior Bank Facility, the Securities shall
become immediately due and payable no earlier than five business days after
notice is given in writing to the agent under the Senior Bank Facility). If an
Event of Default specified in Section 5.1(1) or (2) occurs and is continuing,
the Holder of any Outstanding Security may, by notice in writing to the Company
(with a copy to the Trustee), declare the principal of such Security to be due
and payable immediately, and upon any such declaration such principal and
(subject to Section 3.7) any accrued interest and Liquidated Damages thereon
shall become immediately due and payable (provided that if any amounts are
outstanding under the Senior Bank Facility, the Securities shall become
immediately due and payable no earlier than five business days after notice is
given in writing to the agent under the Senior Bank Facility). If an Event of
Default specified in Sections 5.1(6) and (7) occurs and is continuing, the
principal of, premium, if any, and any accrued interest (including any
Liquidated Damages) on, all of the Securities then Outstanding shall ipso facto
become due and payable immediately without any declaration or other Act on the
part of the Trustee or any Holder.
At any time after such declaration of acceleration has been made and before
a judgment or decree for payment of the money due has been obtained by the
Trustee as hereinafter in this Article V provided, the Holders of a majority in
principal amount of the Outstanding Securities, by written notice to the Company
and the Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest (including any Liquidated Damages) on
all Securities,
(B) the principal of any Securities which have become due
otherwise than by such declaration of acceleration and any interest
thereon at the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at a rate of 5 1/4% per annum, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default, other than the non-payment of the
principal of, premium, if any, and any interest (including Liquidated
Damages) on, Securities which
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have become due solely by such declaration of acceleration, have been cured
or waived as provided in Section 5.13.
No such rescission or annulment shall affect any subsequent default or impair
any right consequent thereon.
SECTION 5.3 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days,
or
(2) default is made in the payment of the principal of any Security
at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and interest and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue principal and on
any overdue interest, at a rate of 5 1/4% per annum, and in addition thereto,
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders of Securities by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 5.4 TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to
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the Company or any other obligor upon the Securities or the property of the
Company or of such other obligor or either of their creditors, the Trustee
(irrespective of whether the principal of, and any interest on, the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of principal,
premium, if any and interest (including Liquidated Damages) owing and
unpaid in respect of the Securities and take such other actions, including
participating as a member, voting or otherwise, of any official committee
of creditors appointed in such matter, and to file such other papers or
documents as may be necessary or advisable in order to have the claims of
the Trustee (including any claim for the reasonable compensation, expenses,
disbursements, advances and other amounts due under Section 6.7 of the
Trustee and each predecessor Trustee, its agents and counsel) and of the
Holders of Securities allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claim and to distribute the same,
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized
by each Holder of Securities by his acceptance thereof 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 of Securities, to pay
to the Trustee any amount due to it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, and each predecessor
Trustee, its agents and counsel and any other amounts due the Trustee under
Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a
Security 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 of a
Security in any such proceeding; provided, however, that the Trustee may,
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on behalf of such Holders, vote for the election of a trustee in bankruptcy
or similar official and be a member of a creditors' or other similar
committee.
SECTION 5.5 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment
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shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, and each predecessor Trustee, its
agents and counsel, be for the ratable benefit of the Holders of the Securities
in respect of which judgment has been recovered.
SECTION 5.6 APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article V shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest,
upon presentation of the Securities and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 6.7;
SECOND: To the payment of the amounts then due and unpaid for principal
of, premium, if any, and interest (including any Liquidated Damages) on the
Securities in respect of which or for the benefit of which such money has
been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for principal,
premium, if any, and interest (including any Liquidated Damages),
respectively; and
THIRD: Subject to Article XIV, any remaining amounts shall be repaid to
the Company.
SECTION 5.7 LIMITATION ON SUITS.
No Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to it against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
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(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in aggregate principal amount of the Outstanding Securities;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all such
Holders.
In the event the Trustee shall receive conflicting or inconsistent requests
and indemnity from two or more groups of the Holders, each representing less
than a majority in aggregate principal amount of the Outstanding Securities, the
Trustee in its sole discretion may determine what action, if any, shall be
taken, notwithstanding any other provisions of this Indenture, and shall have no
liability to any person for such action or inaction.
SECTION 5.8 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND INTEREST
AND TO CONVERT.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of, premium, if any, and (subject to Section 3.7)
interest (including any Liquidated Damages) on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption or
repurchase, on the Redemption Date or Repurchase Date, as the case may be), and
to convert such Security in accordance with Article XIII, and to institute suit
for the enforcement of any such payment and right to convert, and such rights
shall not be impaired without the consent of such Holder.
SECTION 5.9 RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder of a Security has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders of
Securities shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
such Holders shall continue as though no such proceeding had been instituted.
SECTION 5.10 RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
3.6, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders of Securities is intended to
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be exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 5.11 DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or any
acquiescence therein. Every right and remedy given by this Article V or by law
to the Trustee or to the Holders of Securities may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders
of Securities, as the case may be.
SECTION 5.12 CONTROL BY HOLDERS OF SECURITIES.
The Holders of a majority in principal amount of the Outstanding Securities
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction or this Indenture.
SECTION 5.13 WAIVER OF PAST DEFAULTS.
The Holders, either (a) through the written consent of not less than a
majority in principal amount of the Outstanding Securities, or (b) by the
adoption of a resolution, at a meeting of Holders of the Outstanding Securities
at which a quorum is present, by the Holders of at least 66-2/3% in aggregate
principal amount of the Outstanding Securities represented at such meeting, may
on behalf of the Holders of all the Securities waive any past default hereunder
and its consequences, except a default (1) in the payment of the principal of,
premium, if any, or interest (including any Liquidated Damages) on any Security,
or (2) in respect of a covenant or provision hereof which under Article IX
cannot be modified or amended without the consent of the Holders of each
Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
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SECTION 5.14 UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, 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,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
the provisions of this Section 5.14 shall not apply to any suit instituted by
the Company, to any suit instituted by the Trustee, to any suit instituted by
any Holder, or group of Holders, holding in the aggregate more than 10% in
aggregate principal amount of the Outstanding Securities, or to any suit
instituted by any Holder of any Security for the enforcement of the payment of
the principal of or interest on any Security on or after the respective Stated
Maturity or Maturities expressed in such Security (or, in the case of redemption
or repurchase, on or after the Redemption Date or the Repurchase Date, as the
case may be) or for the enforcement of the right to convert any Security in
accordance with Article XIII.
SECTION 5.15 WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
SECTION 6.1 CERTAIN DUTIES AND RESPONSIBILITIES.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this Indenture
and use the same degree of care and skill in their exercise as a prudent
person would exercise or use under the circumstances in the conduct of such
person's own affairs.
(b) Except during the continuance of an Event of Default,
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(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture; but 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 be under a duty to examine
the same to determine whether or not they conform to the requirements
of this Indenture.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent
failure to act, or its own wilful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the
effect of paragraph (b) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of a majority in principal amount of the
Outstanding Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not assured to
it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section.
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SECTION 6.2 NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any default hereunder, the Trustee
shall give to all Holders of Securities, in the manner provided in Section 1.5,
notice of such default hereunder actually known to a Responsible Officer of the
Trustee, unless such default shall have been cured or waived; provided, however,
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that in the case of any default of the character specified in Section 5.1(4), no
such notice to Holders of Securities shall be given until at least 30 days after
the occurrence of such default. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default.
SECTION 6.3 CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 6.1:
(a) the Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any resolution, Officers'
Certificate, other certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or
parties;
(b) 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 of the Company shall be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, conclusively rely upon an Officers' Certificate or
an Opinion of Counsel;
(d) the Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders of Securities pursuant to this Indenture, unless such
Holders shall have offered to the Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which might
be incurred by it in compliance with such request or direction;
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(f) 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; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents,
attorneys, custodians or nominees and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent, attorney,
custodian or nominee appointed with due care by it hereunder.
SECTION 6.4 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities (except the Trustee's
certificates of authentication) shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Securities. The Trustee shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 6.5 MAY HOLD SECURITIES, ACT AS TRUSTEE UNDER OTHER INDENTURES.
The Trustee, any Authenticating Agent, any Paying Agent, any Conversion
Agent or any other agent of the Company or the Trustee, in its individual or any
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Conversion Agent or such other agent.
The Trustee may become and act as trustee under other indentures under
which other securities, or certificates of interest or participation in other
Securities, of the Company are outstanding in the same manner as if it were not
Trustee hereunder.
SECTION 6.6 MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company in writing.
SECTION 6.7 COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS PRIOR CLAIMS.
The Company agrees
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(1) to pay to the Trustee from time to time such compensation as the
Company and the Trustee shall from time to time agree in writing for all
services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an
express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee (and its directors, officers, employees
and agents) for, and to hold it harmless against, any and all loss, damage,
claim, liability or expense, including taxes (other than taxes based on the
income of the Trustee), incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration
of this trust, including the reasonable costs, expenses and reasonable
attorneys' fees of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder.
When the Trustee incurs expenses or renders services in connection with an
Event or Default specified in Section 5.1(6) or Section 5.1(7), the expenses
(including the reasonable charges of its counsel) and the compensation for the
services are intended to constitute expenses of the administration under any
applicable Federal or State bankruptcy, insolvency or other similar law.
The Trustee shall have a lien prior to the Securities as to all property
and funds held by it hereunder for any amount owing it or any predecessor
Trustee pursuant to this Section 6.7, except with respect to funds held in trust
for the benefit of the Holders of particular Securities.
The provisions of this Section shall survive the termination of this
Indenture or the earlier resignation or removal of the Trustee.
SECTION 6.8 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof, or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having (or if the Trustee is a
subsidiary of a bank holding company, its parent company shall have (and such
parent company shall guarantee the obligations of the Trustee hereunder)) a
combined capital and surplus of at least $50,000,000, subject to supervision or
examination by Federal or State authority, in good standing and having an office
or agency in The City of New York. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of
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this Section, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 6.9 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.10.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor
Trustee required by this Section 6.9 shall not have been delivered to the
Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed at any time by an Act of the Holders
of a majority in principal amount of the Outstanding Securities, delivered
to the Trustee and the Company.
(d) If at any time:
(1) the Trustee shall cease to be eligible under Section 6.8 and
shall fail to resign after written request therefor by the Company or
by any Holder of a Security who has been a bona fide Holder of a
Security for at least six months, or
(2) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 5.14, any Holder of a Security who has
been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment
of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause,
the Company, by a
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Board Resolution, shall promptly appoint a successor Trustee and shall
comply with the applicable requirements of this Section 6.9 and Section
6.10. If, within one year after such resignation, removal or incapability,
or the occurrence of such vacancy, a successor Trustee shall be appointed
by Act of the Holders of a majority in principal amount of the Outstanding
Securities delivered to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such
appointment in accordance with the applicable requirements of Section 6.10,
become the successor Trustee and supersede the successor Trustee appointed
by the Company. If no successor Trustee shall have been so appointed by
the Company or the Holders of Securities and accepted appointment in the
manner required by this Section 6.9 and Section 6.10, any Holder of a
Security who has been a bona fide Holder of a Security for at least six
months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to all
Holders of Securities in the manner provided in Section 1.5. Each notice
shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Notwithstanding the replacement of the Trustee pursuant to this Section
6.9, the Company's obligations under Section 6.7 shall continue for the benefit
of the retiring Trustee.
The retiring Trustee shall not be liable for the acts or omissions of any
successor Trustee hereunder.
SECTION 6.10 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on the request of the Company or the
Successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be eligible under this Article.
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SECTION 6.11 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise eligible under this Article,
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without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 6.12 AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents acceptable to the
Company with respect to the Securities which shall be authorized to act on
behalf of the Trustee to authenticate Securities issued upon exchange or
substitution pursuant to this Indenture. Securities so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder, and every reference
in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall at all
times be a corporation organized and doing business under the laws of the United
States of America or any State thereof and authorized under such laws to act as
Authenticating Agent, having (or if such Authenticating Agent is a subsidiary of
a bank holding company, its parent company shall have (and such parent company
shall guarantee the obligations of such Authenticating Agent hereunder)) a
combined capital and surplus of not less than $50,000,000 or its equivalent in
another currency or composite currencies and subject to supervision or
examination by government authority. If such Authenticating Agent publishes
reports of condition at least annually, pursuant to law or to the requirements
of said supervising or examining authority, then for the purposes of this
Section 6.12, the combined capital and surplus of such Authenticating Agent
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section
6.12, such Authenticating Agent shall resign immediately in the manner and with
the effect specified in this Section 6.12.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise
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eligible under this Section 6.12, without the execution or filing of any paper
or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.12, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section 6.12.
If an Authenticating Agent is appointed with respect to the Securities
pursuant to this Section 6.12, the Securities may have endorsed thereon, in
addition to or in lieu of the Trustee's certification of authentication, an
alternative certificate of authentication in the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
DATED: STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A., as Trustee
By __________________________,
as Authenticating Agent
By __________________________
Authorized Signatory
SECTION 6.13 DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
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ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 7.1 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after the Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders of Securities as of such Regular Record
Date, and
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than 15
days prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
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capacity as Security Registrar.
SECTION 7.2 PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it pursuant to Section
7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act for holders of securities issued under an indenture
qualified pursuant to the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act or the Code.
SECTION 7.3 REPORTS BY THE COMPANY.
(a) The Company shall file with the Trustee, within 15 days after the
Company is required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing
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as the Commission may by rules and regulations prescribe) which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. In the event the Company is not subject to Section 13 or 15(d) of
the Exchange Act, it shall file with the Trustee upon request the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
(b) The Company shall file with the Trustee such additional information,
documents and reports with respect to compliance by the Company with the
conditions and covenants provided for in this Indenture as may be requested from
time to time by the Trustee.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1 COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other Person or,
directly or indirectly, convey, transfer, sell or lease or otherwise dispose of
all or substantially all of its properties and assets to any Person (other than
a wholly owned Subsidiary), and the Company shall not permit any Person (other
than a wholly owned Subsidiary of the Company) to consolidate with or merge into
the Company or convey, transfer, sell or lease all or substantially all of its
properties and assets to the Company, unless:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer, sell or lease all or substantially all of its
properties and assets to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which
acquires by conveyance, transfer or sale, or which leases, all or
substantially all of the properties and assets of the Company shall be a
corporation, limited liability company, partnership or trust, shall be
organized and validly existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, the due and punctual payment of the principal of, premium, if any,
and interest (including Liquidated Damages payable, if any, pursuant to
Section 11.12) on all of the Securities, as applicable, and the performance
or observance of every covenant of this Indenture on the part of the
Company to be performed or observed and shall have provided for conversion
rights in accordance with Article XIII;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing; and
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(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer, sale or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture
comply with this Article and that all conditions precedent herein provided
for relating to such transaction have been complied with.
SECTION 8.2 SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer, sale or lease of all or the
properties and assets of the Company in accordance with Section 8.1, the
successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor Person had been
named as the Company herein, and thereafter the predecessor Person shall be
relieved of all obligations and covenants under this Indenture and the
Securities.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS OF SECURITIES.
Without the consent of any Holders of Securities, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, for any of the
following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants and obligations of
the Company herein and in the Securities as permitted by this Indenture; or
(2) to add to the covenants of the Company for the benefit of the
Holders of Securities, or to surrender any right or power herein conferred
upon the Company; or
(3) to secure the Securities; or
(4) to modify the restrictions on, and procedures for, resale and
other transfers of the Securities to the extent required by any change in
applicable law or regulation (or the interpretation thereof) or in practice
relating to the resale or transfer of restricted securities generally; or
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(5) to make provision with respect to the conversion rights of Holders
of Securities pursuant to Section 13.12; or
(6) to accommodate the issuance, if any, of Securities in book-entry
or definitive form and matters related thereto which do not adversely
affect the interest of the Holders of Securities; or
(7) to comply with any requirements of the Commission in order to
effect and maintain the qualification of this Indenture under the Trust
Indenture Act; or
(8) to cure any ambiguity, to correct or supplement any provision
herein, which may be inconsistent with any other provision herein or which
is otherwise defective, or to make any other provisions with respect to
matters or questions arising under this Indenture as the Company and the
Trustee may deem necessary or desirable, provided, such action pursuant to
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this clause (8) shall not adversely affect the interests of the Holders of
Securities in any material respect.
Upon Company Request, accompanied by a Board Resolution authorizing the
execution of any such supplemental indenture, and subject to and upon receipt by
the Trustee of the documents described in Section 9.3 hereof, the Trustee shall
join with the Company in the execution of any supplemental indenture authorized
or permitted by the terms of this Indenture and any further appropriate
agreements and stipulations which may be therein contained.
SECTION 9.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS OF SECURITIES.
With either (a) the written consent of the Holders of not less than a
majority in aggregate principal amount of the Outstanding Securities, by the Act
of said Holders delivered to the Company and the Trustee, or (b) by the adoption
of a resolution, at a meeting of Holders of the Outstanding Securities at which
a quorum is present, by the Holders of 66-2/3% in aggregate principal amount of
the Outstanding Securities represented at such meeting, the Company, when
authorized by a Board Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders of Securities under this
Indenture; provided, however, that no such supplemental indenture shall, without
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the consent or affirmative vote of the Holder of each Outstanding Security
affected thereby,
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Security, or reduce the principal amount thereof or the
rate of interest payable thereon or any premium payable upon redemption or
mandatory repurchase thereof or change the obligation of the Company to pay
Liquidated Damages pursuant to Section 11.12, or change the place or
currency in which any Security or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof (or, in the case of redemption or
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repurchase, on or after the Redemption Date or Repurchase Date, as the case
may be), or
(2) reduce the requirements of Section 10.4 for quorum or voting, or
reduce the percentage in aggregate principal amount of the Outstanding
Securities the consent of whose Holders is required for any such
supplemental indenture or the consent of whose Holders is required for any
waiver provided for in this Indenture, or
(3) modify the obligation of the Company to maintain an office or
agency in The City of New York pursuant to Section 11.2, or
(4) modify any of the provisions of this Section, Section 5.13 or
Section 11.11, except to increase any percentage contained herein or
therein or to provide that certain other provisions of this Indenture
cannot be modified or waived without the consent of the Holder of each
Outstanding Security affected thereby, or
(5) modify any of the provisions of Sections 11.8, 11.10 or 11.12, or
(6) modify any provisions of Article XIII, XIV or XV in a manner
adverse to the Holders.
It shall not be necessary for any Act of Holders of Securities under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 9.3 EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture and an Officers' Certificate to the
effect that all conditions precedent have been satisfied. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
SECTION 9.4 EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
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SECTION 9.5 REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Company and the
Trustee, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 9.6 NOTICE OF SUPPLEMENTAL INDENTURES.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 9.2, the Company
shall give notice to all Holders of Securities, in the manner provided in
Section 1.5, of such fact, setting forth in general terms the substance of such
supplemental indenture. Any failure of the Company to give such notice, or any
defect therein, shall not in any way impair or affect the validity of any such
supplemental indenture.
ARTICLE X
MEETINGS OF HOLDERS OF SECURITIES
SECTION 10.1 PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Holders of Securities may be called at any time and from time
to time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities.
SECTION 10.2 CALL, NOTICE AND PLACE OF MEETINGS.
(a) The Trustee may at any time call a meeting of Holders of Securities for
any purpose specified in Section 10.1, to be held at such time and at such place
in The City of New York as the Trustee shall determine. Notice of every meeting
of Holders of Securities, setting forth the time and the place of such meeting
and in general terms the action proposed to be taken at such meeting, shall be
given, in the manner provided in Section 1.5, not less than 21 nor more than 180
days prior to the date fixed for the meeting.
(b) In case at any time the Company, pursuant to a Board Resolution, or the
Holders of at least 10% in aggregate principal amount of the Outstanding
Securities shall have requested the Trustee to call a meeting of the Holders of
Securities for any purpose specified in Section 10.1, by written request setting
forth in reasonable detail the action proposed to be
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taken at the meeting, and the Trustee shall not have made the first publication
of the notice of such meeting within 21 days after receipt of such request or
shall not thereafter proceed to cause the meeting to be held as provided herein,
then the Company or the Holders of Securities in the amount specified, as the
case may be, may determine the time and the place in The City of New York for
such meeting and may call such meeting for such purposes by giving notice
thereof as provided in paragraph (a) of this Section.
SECTION 10.3 PERSONS ENTITLED TO VOTE AT MEETINGS.
To be entitled to vote at any meeting of Holders of Securities, a Person
shall be (a) a Holder of one or more Outstanding Securities, or (b) a Person
appointed by an instrument in writing as proxy for a Holder or Holders of one or
more Outstanding Securities by such Holder or Holders. The only Persons who
shall be entitled to be present or to speak at any meeting of Holders shall be
the Persons entitled to vote at such meeting and their counsel, any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
SECTION 10.4 QUORUM; ACTION.
The Persons entitled to vote a majority in principal amount of the
Outstanding Securities shall constitute a quorum. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting shall,
if convened at the request of Holders of Securities, be dissolved. In any other
case, the meeting may be adjourned for a period of not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for a period not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
adjourned meeting (subject to repeated applications of this sentence). Notice of
the reconvening of any adjourned meeting shall be given as provided in Section
10.2(a), except that such notice need be given only once not less than five days
prior to the date on which the meeting is scheduled to be reconvened. Notice of
the reconvening of an adjourned meeting shall state expressly the percentage of
the principal amount of the Outstanding Securities which shall constitute a
quorum.
Subject to the foregoing, at the reconvening of any meeting adjourned for a
lack of a quorum, the persons entitled to vote 25% in aggregate principal amount
of the Outstanding Securities at the time shall constitute a quorum for the
taking of any action set forth in the notice of the original meeting.
At a meeting or an adjourned meeting duly reconvened and at which a quorum
is present as aforesaid, any resolution and all matters (except as limited by
the proviso to Section 9.2) shall be effectively passed and decided if passed or
decided by the Persons entitled to vote not less than 66 2/3% in aggregate
principal amount of Outstanding Securities represented and voting at such
meeting.
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Any resolution passed or decisions taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities, whether or not present or represented at the meeting.
SECTION 10.5 DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF
MEETINGS.
(a) Notwithstanding any other provisions of this Indenture, the Trustee may
make such reasonable regulations as it may deem advisable for any meeting of
Holders of Securities in regard to proof of the holding of Securities and of the
appointment of proxies and in regard to the appointment and duties of inspectors
of votes, the submission and examination of proxies, certificates and other
evidence of the right to vote, and such other matters concerning the conduct of
the meeting as it shall deem appropriate. Except as otherwise permitted or
required by any such regulations, the holding of Securities shall be proved in
the manner specified in Section 1.3 and the appointment of any proxy shall be
proved in the manner specified in Section 1.3. Such regulations may provide
that written instruments appointing proxies, regular on their face, may be
presumed valid and genuine without the proof specified in Section 10.3 or other
proof.
(b) The Trustee shall, by an instrument in writing, appoint a temporary
chairman (which may be the Trustee) of the meeting, unless the meeting shall
have been called by the Company or by Holders of Securities as provided in
Section 10.2(b), in which case the Company or the Holders of Securities calling
the meeting, as the case may be, shall in like manner appoint a temporary
chairman. A permanent chairman and a permanent secretary of the meeting shall
be elected by vote of the Persons entitled to vote a majority in principal
amount of the Outstanding Securities represented at the meeting.
(c) At any meeting, each Holder of a Security or proxy shall be entitled to
one vote for each $1,000 principal amount of Securities held or represented by
him; provided, however, that no vote shall be cast or counted at any meeting in
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respect of any Security challenged as not Outstanding and ruled by the chairman
of the meeting to be not Outstanding. The chairman of the meeting shall have no
right to vote, except as a Holder of a Security or proxy.
(d) Any meeting of Holders of Securities duly called pursuant to Section
10.2 at which a quorum is present may be adjourned from time to time by Persons
entitled to vote a majority in principal amount of the Outstanding Securities
represented at the meeting, and the meeting may be held as so adjourned without
further notice.
SECTION 10.6 COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
The vote upon any resolution submitted to any meeting of Holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities or of their representatives by proxy and
the principal amounts and serial numbers of the Outstanding Securities held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolu-
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tion and who shall make and file with the secretary of the meeting their
verified written reports in duplicate of all votes cast at the meeting. A
record, at least in duplicate, of the proceedings of each meeting of Holders of
Securities shall be prepared by the secretary of the meeting and there shall be
attached to said record the original reports of the inspectors of votes on any
vote by ballot taken thereat and affidavits by one or more Persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 10.2 and, if
applicable, Section 10.4. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
ARTICLE XI
COVENANTS
SECTION 11.1 PAYMENT OF PRINCIPAL AND INTEREST.
The Company will duly and punctually pay the principal of and interest on
the Securities in accordance with the terms of the Securities and this
Indenture.
SECTION 11.2 MAINTENANCE OF OFFICES OR AGENCIES.
The Company hereby appoints State Street Bank and Trust Company, N.A., an
Affiliate of the Trustee, as its agent in The City of New York where Securities
may be presented or surrendered for payment, where Securities may be surrendered
for registration of transfer or exchange, where conversion notices, certificates
and other items required to be delivered to effect conversion may be delivered
and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served.
The Company hereby appoints State Street Bank and Trust Company, N.A., an
Affiliate of the Trustee, as Paying Agent for the payment of principal of and
interest on the Securities and as Conversion Agent for the Conversion of any of
the Securities in accordance with Article XIII, and appoints the office of the
Trustee as transfer agent where Securities may be surrendered for registration
of transfer or exchange.
The Company may at any time and from time to time vary or terminate the
appointment of any such agent or appoint any additional agents with or without
cause for any or all of such purposes; provided, however, that until all of the
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Securities have been delivered to the Trustee for cancellation, or moneys
sufficient to pay the principal of and interest on the Securities have been made
available for payment and either paid or returned to the Company pursuant to the
provisions of Section 11.3, the Company will maintain in the Borough of
Manhattan, The City of New York, an office or agency where Securities may be
presented or
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surrendered for payment, where Securities may be surrendered for registration of
transfer or exchange, where Securities may be surrendered for conversion and
where notices and demands to or upon the Company, in respect of the Securities
and this Indenture may be served. The Company will give prompt written notice to
the Trustee, and will give notice to Holders of Securities in the manner
specified in Section 1.5, of the appointment or termination of any such agents
and of the location and any change in the location of any such office or agency.
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,
presentations and surrenders may be made and notices and demands may be served
on and Securities may be surrendered for conversion to the Corporate Trust
Office of the Trustee, and the Company hereby appoints the same as its agent to
receive such respective presentations, surrenders, notices and demands.
SECTION 11.3 MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company at any time shall act as its own Paying Agent, it will, on
or before each due date of the principal of or interest on any of 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 the Company will promptly notify the Trustee of its action or
failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior
to or on each due date of the principal of or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay the principal, premium, if
any, or interest so becoming due, such sum to be held in trust for the benefit
of the Persons entitled to such principal, premium, if any, or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of any failure so to act. An installment of principal of, premium if
any, interest or Liquidated Damages with respect to the Securities shall be
considered paid on the date it is due if the Trustee or a Paying Agent holds
such amount for the benefit of Holders on or before 10:00 a.m., New York City
time, on such date.
The Company will cause each Paying Agent other than the Trustee or
affiliate of the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of or
interest on Securities in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided;
(2) give the Trustee written notice of any default by the Company (or
any other obligor upon the securities) in the making of any payment of
principal or interest; and
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(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Subject to the provisions of any applicable escheat law, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of, premium, if any, or interest
(together with any Liquidated Damages in respect thereof) on any Security and
remaining unclaimed for two years after such principal or interest (together
with any Liquidated Damages in respect thereof) has become due and payable shall
be paid to the Company on Company Request, or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as a general unsecured creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
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Paying Agent, before making any such repayment, may at the expense of the
Company cause to be published once, in an Authorized Newspaper in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 11.4 CORPORATE EXISTENCE.
Subject to Article VIII, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights (charter and statutory) and franchises; provided, however, that the
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Company shall not be required to preserve any such right or franchise 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 that
the loss thereof is not disadvantageous in any material respect to the Holders.
SECTION 11.5 MAINTENANCE OF PROPERTIES.
The Company will cause all material properties used or useful in the
conduct of its business or the business of any Subsidiary to be maintained and
kept in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
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therewith may be properly and advantageously conducted at all times; provided,
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however, that nothing in this Section 11.5 shall prevent the Company from
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discontinuing the operation or maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its business or the business of any Subsidiary and not disadvantageous in any
material respect to the Holders.
SECTION 11.6 COMPLIANCE WITH LAWS.
The Company will comply, and cause each Subsidiary to comply, with the
requirements of all applicable laws, ordinances, rules, regulations, and
requirements of any governmental authority (including, without limitation, ERISA
and the rules and regulations thereunder), except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings or
where the failure to comply would not have a material adverse effect upon the
Company and its Subsidiaries taken as a whole.
SECTION 11.7 PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon the Company or any Subsidiary or upon the income,
profits or property of the Company or any Subsidiary, and (2) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a lien
upon the property of the Company or any Subsidiary; provided, however, that the
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Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings and for
which disputed amounts adequate reserves in accordance with generally accepted
accounting principals have been made.
SECTION 11.8 DELIVERY OF CERTAIN INFORMATION.
At any time when the Company is not subject to Section 13 or 15(d) of the
Exchange Act, upon the request of a Holder of a Restricted Security or the
holder of shares of Common Stock issued upon conversion thereof, the Company
will promptly furnish or cause to be furnished Rule 144A Information (as defined
below) to such Holder of Restricted Securities or such holder of Common Stock
issued upon conversion of Restricted Securities, or to a prospective purchaser
of such security designated by any such Holder or holder, as the case may be, to
the extent required to permit compliance by such holder with Rule 144A under the
Securities Act (or any successor provision thereto) in connection with the
resale of such Security by such Holder; provided, however, that the Company
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shall not be required to furnish such information in connection with any request
made on or after the date which is two years from the later of (i) the date such
a security (or any predecessor security) was acquired from the Company or (ii)
the date such a security (or any predecessor security) was last acquired from
the Company or an "affiliate" of the Company within the meaning of Rule 144
under the Securities Act (or any successor provision thereto); and provided,
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further, that the
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Company shall not be required to furnish such information at any time to a
prospective purchaser located outside the United States who is not a "U.S.
Person" within the meaning of Regulation S under the Securities Act if such
Security may then be sold to such prospective purchaser in accordance with Rule
903 or Rule 904 under the Securities Act (or any successor provision thereto).
"Rule 144A Information" shall be such information as is specified pursuant to
Rule 144A(d)(4) under the Securities Act (or any successor provision thereto).
SECTION 11.9 STATEMENT BY OFFICERS AS TO DEFAULT.
The Company shall deliver to the Trustee within 120 days after the end of
each fiscal year of the Company an Officers' Certificate stating whether or not
to the best knowledge of the signers thereof the Company is in default in the
performance and observance of any of the terms, provisions and conditions of
this Indenture (without regard to any period of grace or requirement of notice
provided hereunder) and, if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge.
The Company will also deliver to the Trustee, forthwith upon any Officer
becoming aware of any Event of Default, an Officers' Certificate specifying with
particularity such default or Event of Default and further stating what action
the Company has taken, is taking or proposes to take with respect thereto.
Any notice required to be given under this Section 11.9 shall be delivered
to the Trustee at its Corporate Trust Office and need not comply with Section
1.4.
SECTION 11.10 RESALE OF CERTAIN SECURITIES.
During the period beginning on the last date of original issuance of the
Securities and ending on the date that is two years from such date, the Company
will not, and will not permit any of its "affiliates" (as defined under Rule 144
under the Securities Act or any successor provision thereto) to, resell (x) any
Securities which constitute "restricted securities" under Rule 144 or (y) any
securities into which such Securities have been converted under this Indenture,
which constitute "restricted securities" under Rule 144 that in either case have
been reacquired by any of them. The Trustee shall have no responsibility in
respect of the Company's performance of its agreement in the preceding sentence.
SECTION 11.11 WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any covenant
or condition set forth in Sections 11.5 or 11.6 if before the time for such
compliance the Holders of at least a majority in principal amount of the
Outstanding Securities (or such lesser amount as shall have acted at a meeting
pursuant to the provisions of this Indenture) shall either waive such compliance
in such instance or generally waive compliance with such covenant or condition,
but no such waiver shall extend to or affect such covenant or condition except
to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of
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the Company and the duties of the Trustee in respect of any such covenant or
condition shall remain in full force and effect.
SECTION 11.12 REGISTRATION RIGHTS.
The holders of the Securities and the Common Stock issuable upon conversion
thereof are entitled to the benefits of a Registration Rights Agreement, dated
as of November 10, 1997, between the Company and the Initial Purchaser (the
"Registration Rights Agreement"). Pursuant to the Registration Rights
Agreement, the Company has agreed for the benefit of the holders from time to
time of the Securities and the Common Stock issuable upon conversion thereof
that it will, at its expense, (i) within 90 days after the first date of
original issuance of the Securities, file a shelf registration statement (the
"Shelf Registration Statement") with the Commission with respect to resales of
the Securities and the Common Stock issuable upon conversion thereof, (ii) use
its best efforts to cause such Shelf Registration Statement to be declared
effective by the Commission as promptly as practicable but no later than 180
days after the first date of original issuance of the Securities (the
"Settlement Date") and (iii) use its best efforts to maintain such Shelf
Registration Statement continuously effective under the Securities Act until the
second annual anniversary of the date of the effectiveness of the Shelf
Registration Statement or such earlier date as is provided in the Registration
Rights Agreement.
If (i) on or prior to 90 days following the first date of original issuance
of the Securities, a Shelf Registration Statement has not been filed with the
Commission, or (ii) on or prior to the 180 days following the Settlement Date,
such Shelf Registration Statement is not declared effective (each, a
"Registration Default"), additional interest ("Liquidated Damages") will accrue
on the Securities from and including the day following such Registration Default
to but excluding the day on which such Registration Default has been cured.
Liquidated Damages will be paid semi-annually in arrears, with the first semi-
annual payment due on the first Interest Payment Date in respect of the
Securities following the date on which such Liquidated Damages begin to accrue,
and will accrue at a rate per annum equal to an additional one-quarter of one
percent (0.25%) of the principal amount of the Securities to and including the
90th day following such Registration Default and at a rate per annum equal to
one-half of one percent (0.50%) thereof from and after the 91st day following
such Registration Default. In the event that the Shelf Registration Statement
ceases to be effective prior to the second annual anniversary of the initial
effective date of the Shelf Registration Statement or such earlier date as is
provided in the Registration Rights Agreement for a period in excess of 60 days,
whether or not consecutive, during any 12-month period, then the interest rate
borne by the Securities shall increase by an additional one-half of one percent
(0.50%) per annum on the 61st day of the applicable 12-month period such Shelf
Registration Statement ceases to be effective to but excluding the day on which
the Shelf Registration Statement again becomes effective.
Whenever in this Indenture there is mentioned, in any context, the payment
of the principal of, premium, if any, or interest on, or in respect of, any
Security, such mention shall be deemed to include mention of the payment of
Liquidated Damages provided for in this
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Section to the extent that, in such context, Liquidated Damages are, were or
would be payable in respect thereof pursuant to the provisions of this Section
and express mention of the payment of Liquidated Damages (if applicable) in any
provisions hereof shall not be construed as excluding Liquidated Damages in
those provisions hereof where such express mention is not made.
SECTION 11.13 BOOK-ENTRY SYSTEM.
If the Securities cease to trade in the Depositary's book-entry settlement
system, the Company covenants and agrees that it shall use reasonable efforts to
make such other book-entry arrangements that it determines are reasonable for
the Securities.
ARTICLE XII
REDEMPTION OF SECURITIES
SECTION 12.1 RIGHT OF REDEMPTION.
The Securities shall be redeemable at the Company's option, in whole or in
part, under the circumstances and at the Redemption Prices specified in the form
of Securities set forth in Sections 2.2 and 2.3.
SECTION 12.2 APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company, as permitted or
required by any provision of the Securities or this Indenture, shall be made in
accordance with such provision and this Article XII.
SECTION 12.3 ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution. In the case of any redemption at the election of the
Company of all of the Securities, the Company shall, at least 40 but not more
than 60 days prior to the Redemption Date fixed by the Company (unless a shorter
notice shall be satisfactory to the Trustee), notify the Trustee in writing of
such Redemption Date. If the Securities are to be redeemed pursuant to an
election of the Company which is subject to a condition specified in the forms
of Securities set forth in Section 2.2, the Company shall furnish the Trustee
with (a) an Officers' Certificate stating that the Company is entitled to effect
such redemption and setting forth a statement of facts demonstrating the same,
including a statement that there is no default or event of default in respect of
Senior Debt that would prohibit such redemption under Section 14.3, and (b) an
Opinion of Counsel as contemplated by Section 1.2.
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SECTION 12.4 SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected by the Trustee within three Business
Days after it receives the notice described in 11.3, from the Outstanding
Securities not previously called for redemption, by such method as the Trustee
may deem fair and appropriate.
If any Registered Security selected for partial redemption is converted in
part before termination of the conversion right with respect to the portion of
the Security so selected, the converted portion of such Security shall be deemed
(so far as may be) to be the portion selected for redemption. Securities which
have been converted during a selection of Securities to be redeemed may be
treated by the Trustee as Outstanding for the purpose of such selection.
The Trustee shall promptly notify the Company and each Security Registrar
in writing of the securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount and certificate
numbers thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 12.5 NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided in Section 1.5
to the Holders of Securities to be redeemed. Notice shall be given at least
once not less than 30 nor more than 60 days prior to the Redemption Date.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price, and the amount of accrued interest, if any,
(3) if less than all Outstanding Securities are to be redeemed, the
aggregate principal amount of the Securities to be redeemed;
(4) that on the Redemption Date, the Redemption Price, and accrued
interest, if any, will become due and payable upon each Security to be
redeemed, and that interest thereon shall cease to accrue on and after said
date,
(5) the Conversion Rate, the date on which the right to convert the
Securities will terminate and the places where the Securities may be
surrendered for conversion, and
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(6) the place or places where the Securities are to be surrendered for
payment of the Redemption Price and accrued interest, if any.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name of and at the expense of the Company, and such notice, when
given to the Holders, shall be irrevocable.
SECTION 12.6 DEPOSIT OF REDEMPTION PRICE.
Not less than one Business Day prior to any Redemption Date, the Company
shall deposit with the Trustee or with a Paying Agent (or, if the Company is
acting as Paying Agent, segregate and hold in trust as provided in Section 11.3)
an amount of money sufficient to pay the Redemption Price of, and (except if the
Redemption Date shall be an Interest Payment Date) accrued interest on, all the
Securities which are to be redeemed on that date other than any Securities
called for redemption on that date which have been converted prior to the date
of such deposit.
If any Security called for redemption is converted, any money deposited
with the Trustee or with a Paying Agent or so segregated and held in trust for
the redemption of such Security shall (subject to any right of the Holder of
such Security or any Predecessor Security to receive interest as provided in the
last paragraph of Section 3.7) be paid to the Company on Company Request or, if
then held by the Company, shall be discharged from such trust.
SECTION 12.7 SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price herein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, the Holder of such
Security shall be paid the Redemption Price, together with accrued interest to
the Redemption Date; provided, however, that installments of interest whose
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Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 3.7.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal of, premium, if any, and, to the extent
permitted by applicable law, accrued interest on such Security shall, until
paid, bear interest from the Redemption Date at the rate of interest borne by
the Security and such Security shall remain convertible until the principal of
such Security (or portion thereof, as the case may be) shall have been paid or
duly provided for.
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ARTICLE XIII
CONVERSION OF SECURITIES
SECTION 13.1 CONVERSION PRIVILEGE AND CONVERSION RATE.
Subject to and upon compliance with the provisions of this Article, at the
option of the Holder thereof, any Security or any portion of the principal
amount thereof which is $1,000 or any integral multiple of $1,000 in excess
thereof, may be converted at any time after the Non-Conversion Period at the
principal amount thereof, or of such portion thereof, into fully paid and
nonassessable Common Stock of the Company (calculated as to each conversion to
the nearest 1/100 of a share) at the Conversion Rate, determined as hereinafter
provided, in effect at the time of conversion. Such conversion right shall
expire at the close of business on November 1, 2004; subject, in the case of
conversion of a Global Security, to any applicable book-entry procedures of the
Depositary for such conversion. In case a Security or portion thereof is called
for redemption at the election of the Company or is delivered for repurchase at
the option of the Holder, such conversion right in respect of the Security or
portion thereof so called shall expire at the close of business on the
Redemption Date or the Repurchase Date, unless the Company defaults in making
the payment due upon redemption or the repurchase, as the case may be (subject
as aforesaid to any applicable book-entry procedures).
The rate at which shares of Common Stock shall be delivered upon conversion
(herein called the "Conversion Rate") shall be initially 97.8713 shares of
Common Stock for each $1,000 principal amount of Securities. The Conversion
Rate shall be adjusted in certain instances as provided in this Article 13. The
price at which shares of Common Stock shall be delivered upon conversion (herein
called the "Conversion Price") shall at any time be equal to $1,000 divided by
the then applicable Conversion Rate (and rounded to the nearest cent).
SECTION 13.2 EXERCISE OF CONVERSION PRIVILEGE.
In order to exercise the conversion privilege with respect to any Security
or portion thereof, the Holder of any Security to be converted or any other
person acting on its behalf shall surrender such Security, duly endorsed or
assigned to the Company or in blank at any office or agency of the Company
maintained for that purpose pursuant to Section 11.2, accompanied by a duly
signed conversion notice substantially in the form set forth in Annex A stating
that the Holder elects to convert such Security or, if less than the entire
principal amount thereof is to be converted, the portion thereof to be
converted. Alternatively, if such security is represented by a Global Security,
conversion may be effected by written order given to the Trustee in accordance
with the applicable procedures of the Depositary then in effect. Each Security
surrendered for conversion (in whole or in part) during a Record Date Period
shall (except in the case of any Security or portion thereof which has been
called for redemption on a Redemption Date or repurchase on a Repurchase Date
occurring within such period) be accompanied by payment in New York Clearing
House funds or other funds acceptable to the Company of an amount equal to the
interest payable on the Interest Payment
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Date relating to such Record Date Period on the principal amount of such
Security being surrendered for conversion, and the interest payable in respect
of such Security on such Interest Payment Date shall be paid to the Holder of
the such Security as of the Regular Record Date relating to such Record Date
Period. The interest payable on such Interest Payment Date with respect to any
Security which has been called for redemption on a Redemption Date, or is
repurchaseable on a Repurchase Date, occurring, in either case, during a Record
Date Period, which Security is surrendered for conversion during such Record
Date Period, shall be paid to the Holder of such Security being converted in an
amount equal to the interest that would have been payable on such Security if
such Security had been converted as of the close of business on such Interest
Payment Date. Interest payable in respect of any Security surrendered for
conversion on or after an Interest Payment Date shall be paid to the Holder of
such Security as of the next preceding Regular Record Date, notwithstanding the
exercise of the right of conversion.
Holders that surrender Securities for conversion on a date that is not an
Interest Payment Date will not receive any interest for the period from the
Interest Payment Date next preceding the date of conversion to the date of
conversion or for any later period, even if the Securities are surrendered after
a notice of redemption (except for the payment of interest on Securities called
for redemption on a Redemption Date or to be repurchased on a Repurchase Date
between a Regular Record Date and the Interest Payment Date to which it
relates). No other payment or adjustment for interest, or for any dividends in
respect of Common Stock, will be made upon conversion. Holders of shares of
Common Stock issued upon conversion will not be entitled to receive any
dividends payable to holders of shares of Common Stock as of any record time
before the close of business on the conversion date.
Securities shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Securities for conversion in
accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock at such
time. As promptly as practicable on or after the conversion date, the Company
shall issue and deliver, out of its authorized but previously unissued shares of
Common Stock, at the office of such Conversion Agent a certificate or
certificates for the number of full shares of newly issued Common Stock issuable
upon conversion, together with payment in lieu of any fraction of a share, as
provided in Section 13.3.
All shares of Common Stock delivered upon such conversion of Restricted
Securities shall bear a restrictive legend substantially in the form of the
legend required to be set forth on the Restricted Securities pursuant to Section
2.2 and shall be subject to the restrictions on transfer provided in such
legend. Neither the Trustee nor any agent maintained for the purpose of such
conversion shall have any responsibility for the inclusion or content of any
such restrictive legend on such Common Stock; provided, however, that the
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Trustee or any agent maintained for the purpose of such conversion shall have
provided, to the Company or to the Company's transfer agent for such Common
Stock, prior to or concurrently with a
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request to the Company to deliver to such agent maintained for the purpose of
such conversion certificates for such Common Stock, written notice that the
Securities delivered for conversion are Restricted Securities.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in an aggregate principal amount equal to
the unconverted portion of the principal amount of such Security. A Security
may be converted in part, but only if the principal amount of such Security to
be converted is any integral multiple of $1,000 and the principal amount of such
security to remain outstanding after such conversion is equal to $1,000 or any
integral multiple of $1,000 in excess thereof.
If shares of Common Stock to be issued upon conversion of a Security, or
Securities to be issued upon conversion of a Security in part only, are to be
registered in a name other than that of the Holder of such Security, the
Security Registrar shall, prior to the conversion of such Security, record in
the Security Register the transfer of that portion of the Security to be so
converted in the name of the person in whose name such Common Stock or
Securities are to be registered.
SECTION 13.3 FRACTIONS OF SHARES OF COMMON STOCK.
No fractional shares of Common Stock or scrip certificates in respect
thereof shall be issued upon conversion of any Security or Securities. If more
than one Security shall be surrendered for conversion at one time by the same
Holder, the number of full shares which shall be issuable upon conversion
thereof shall be computed on the basis of the aggregate principal amount of the
Securities so surrendered. Instead of any fractional shares of Common Stock
which would otherwise be issuable upon conversion of any Security or Securities,
the Company shall pay a cash adjustment in respect of such fraction (calculated
to the nearest 1/100 of a share) in an amount in Dollars equal to the same
fraction of the current market price per Common Share (calculated in accordance
with Section 13.4(8) below) at the close of business on the day of conversion,
or at the Company's option, the Company shall round up the conversion
transaction to the next higher whole share.
SECTION 13.4 ADJUSTMENT OF CONVERSION RATE.
The Conversion Rate shall be subject to adjustments from time to time as
follows:
(1) In case at any time after the date hereof, the Company shall pay
or make a dividend or other distribution on any class of capital stock of
the Company payable in shares of Common Stock, the Conversion Rate in
effect at the opening of business on the day following the date fixed for
the determination of shareholders entitled to receive such dividend or
other distribution shall be increased by dividing such Conversion Rate by a
fraction of which the numerator shall be the number of shares of
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Common Stock outstanding at the close of business on the date fixed for
such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such increase to become effective immediately after the
opening of business on the day following the date fixed for such
determination. If, after any such date fixed for determination, any
dividend or distribution is not in fact paid, the Conversion Rate shall be
immediately readjusted, effective as of the date the Board of Directors
determines not to pay such dividend or distribution, to the Conversion Rate
that would have been in effect if such determination date had not been
fixed. For the purposes of this paragraph (1), the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of
scrip certificates, if any, issued in lieu of fractions of shares of Common
Stock. The Company will not pay any dividend or make any distribution on
shares of Common Stock held in the treasury of the Company.
(2) In case at any time after the date hereof, the Company shall issue
rights, warrants or options to all holders of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock at a price per
share less than the current market price per share (determined as provided
in paragraph (8) of this Section 13.4) of the Common Stock on the date
fixed for the determination of shareholders entitled to receive such
rights, warrants or options, the Conversion Rate in effect at the opening
of business on the day following the date fixed for such determination
shall be increased by dividing such Conversion Rate by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding at
the close of business on the date fixed for such determination plus the
number of shares of Common Stock which the aggregate of the offering price
of the total number of shares of Common Stock so offered for subscription
or purchase would purchase at such current market price and the denominator
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of shares
of Common Stock so offered for subscription or purchase, such increase to
become effective immediately after the opening of business on the day
following the date fixed for such determination. For the purposes of this
paragraph (2), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company but will
include shares issuable in respect of scrip certificates, if any, issued in
lieu of fractions of shares of Common Stock. The Company will not issue
any rights or warrants in respect of shares of Common Stock held in the
treasury of the Company.
(3) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Rate in
effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately increased, and,
conversely in case outstanding shares of Common Stock shall each be
combined into a smaller number of shares of Common Stock, the Conversion
Rate in effect at the opening of business on the day following the
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day upon which such combination becomes effective shall be proportionately
reduced, such increase or reduction, as the case may be, to become
effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(4) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock evidences of its indebtedness, shares of
capital stock, or assets (including securities, but excluding any rights,
warrants or options referred to in paragraph (2) of this Section 13.4, any
dividend or distribution paid exclusively in cash, any dividend or
distribution referred to in paragraph (1) of this Section 13.4 and any
merger or consolidation to which Section 13.11 applies), the Conversion
Rate shall be adjusted so that the same shall equal the rate determined by
dividing the Conversion Rate in effect immediately prior to the close of
business on the date fixed for the determination of shareholders entitled
to receive such distribution by a fraction of which the numerator shall be
the current market price per share (determined as provided in paragraph (8)
of this Section 13.4) of the Common Stock on the date fixed for such
determination less the then fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and described in a
Board Resolution filed with the Trustee) of the portion of the assets,
shares or evidences of indebtedness so distributed applicable to one share
of Common Stock and the denominator shall be such current market price per
share of Common Stock, such adjustment to become effective immediately
prior to the opening of business on the day following the date fixed for
the determination of shareholders entitled to receive such distribution.
(5) In case the Company shall, by dividend or otherwise, make a
distribution to all holders of its Common Stock consisting exclusively of
cash (excluding any cash that is distributed upon a merger or consolidation
or a sale or transfer of all or substantially all of the assets of the
Company to which Section 13.11 applies or as part of a distribution
referred to in paragraph (4) of this Section 13.4) in an aggregate amount
that, combined together with (I) the aggregate amount of any other
distributions to all holders of its Common Stock made exclusively in cash
within the 12 months preceding the date of payment of such distribution and
in respect of which no adjustment pursuant to this paragraph (5) has been
made and (II) the aggregate of any cash plus the fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution filed with the Trustee) of
consideration payable in respect of any tender offer by the Company or any
of its Subsidiaries for all or any portion of the Common Stock concluded
within the 12 months preceding the date of payment of such distribution and
in respect of which no adjustment pursuant to paragraph (6) of this Section
13.4 has been made, exceeds 10% of the product of the current market price
per share of the Common Stock on the date for the determination of holders
of shares of Common Stock entitled to receive such distribution times the
number of shares of Common Stock outstanding on such date (the "aggregate
current market price"), then, and in each such case, immediately after the
close of business on such date for determination, the
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Conversion Rate shall be increased so that the same shall equal the rate
determined by dividing the Conversion Rate in effect immediately prior to
the close of business on the date fixed for determination of the
shareholders entitled to receive such distribution by a fraction (i) the
numerator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section 13.4) of the
Common Stock on the date fixed for such determination less an amount equal
to the quotient of (x) the excess of such combined cash tender amount over
such aggregate current market price divided by (y) the number of shares of
Common Stock outstanding on such date for determination and (ii) the
denominator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section 13.4) of the
Common Stock on such date for determination.
(6) In case a tender or exchange offer made by the Company or any
Subsidiary for all or any portion of the Common Stock shall expire and such
tender or exchange offer (as amended upon the expiration thereof) shall
require the payment to shareholders (based on the acceptance (up to any
maximum specified in the terms of the tender offer) of Purchased Shares (as
defined below)) of an aggregate consideration having a fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution filed with the Trustee) that
combined together with (I) the aggregate of the cash plus the fair market
value (as determined by the Board of Directors, whose determination shall
be conclusive and described in a Board Resolution), as of the expiration of
such tender or exchange offer, of consideration payable in respect of any
other tender or exchange offer, by the Company or any Subsidiary for all or
any portion of the Common Stock expiring within the 12 months preceding the
expiration of such tender or exchange offer and in respect of which no
adjustment, pursuant to this paragraph (6) has been made and (II) the
aggregate amount of any distributions to all holders of the Company's
Common Stock within 12 months preceding the expiration of such tender or
exchange offer and in respect of which no adjustment pursuant to paragraph
(5) of this Section 13.4 has been made (the "combined tender and cash
amount") exceeds 10% of the product of the current market price per share
of the Common Stock (determined as provided in paragraph (8) of this
Section 13.4) as of the last time (the "Expiration Time") tenders or
exchanges could have been made pursuant to such tender or exchange offer
(as it may be amended) times the number of shares of Common Stock
outstanding (including any tendered or exchanged shares) on the Expiration
Time, then, and in each such case, immediately prior to the opening of
business on the day after the date of the Expiration Time, the Conversion
Rate shall be adjusted so that the same shall equal the rate determined by
dividing the Conversion Rate immediately prior to the close of business on
the date of the Expiration Time by a fraction (i) the numerator of which
shall be equal to (A) the product of (I) the current market price per share
of Common Stock (determined as provided in paragraph (8) of this Section
13.4) on the date of the Expiration Time multiplied by (II) the number of
shares of Common Stock outstanding (including any tendered or exchanged
shares) on the date of the Expiration Time less (B) the combined tender and
cash amount, and (ii) the denominator of which
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shall be equal to the product of (A) the current market price per share of
the Common Stock (determined as provided in paragraph (8) of this Section
13.4) as of the Expiration Time multiplied by (B) the number of shares of
Common Stock outstanding (including any tendered or exchanged shares) as of
the Expiration Time less the number of all shares validly tendered or
exchanged and not withdrawn as of the Expiration Time (the shares deemed so
accepted up to any such maximum, being referred to as the "Purchased
Shares").
(7) The reclassification of Common Stock into securities other than
Common Stock (other than any reclassification upon a consolidation or
merger to which Section 13.11 applies) shall be deemed to involve (a) a
distribution of such securities other than Common Stock to all holders of
Common Stock (and the effective date of such reclassification shall be
deemed to be "the date fixed for the determination of shareholders entitled
to receive such distribution" and "the date fixed for such determination"
within the meaning of paragraph (4) of this Section 13.4), and (b) a
subdivision or combination, as the case may be, of the number of shares of
Common Stock outstanding immediately prior to such reclassification into
the number of shares of Common Stock outstanding immediately thereafter
(and the effective date of such reclassification shall be deemed to be "the
day upon which such subdivision becomes effective" or "the day upon which
such combination becomes effective," as the case may be, and "the day upon
which such subdivision or combination becomes effective" within the meaning
of paragraph (3) of this Section 13.4).
(8) For the purpose of any computation under paragraphs (2), (4), (5)
or (6) of this Section 13.4, the current market price per share of Common
Stock on any date shall be deemed to be the average of the daily Closing
Prices Per Share for the five consecutive Trading Days selected by the
Company commencing not more than 10 Trading Days before, and ending not
later than, the earlier of the day in question and the day before the "ex"
date with respect to the issuance or distribution requiring such
computation. For purposes of this paragraph, the term "'ex' date," when
used with respect to any issuance or distribution, means the first date on
which the Common Stock trades regular way on the applicable securities
exchange or in the applicable securities market without the right to
receive such issuance or distribution.
(9) No adjustment in the Conversion Rate shall be required unless such
adjustment (plus any adjustments not previously made by reason of this
paragraph (9)) would require an increase or decrease of at least one
percent in such rate; provided, however, that any adjustments which by
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reason of this paragraph (9) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Article shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be.
(10) The Company may make such increases in the Conversion Rate, for
the remaining term of the Securities or any shorter term, in addition to
those required by
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paragraphs (1), (2), (3), (4), (5) and (6) of this Section 13.4, as it
considers to be advisable in order to avoid or diminish any income tax to
any holders of shares of Common Stock resulting from any dividend or
distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for United States
federal income tax purposes or for any other reasons. The Company shall
have the power to resolve any ambiguity or correct any error in this
paragraph (10) and its actions in so doing, absent manifest error, shall be
final and conclusive.
(11) To the extent permitted by applicable law, the Company from time
to time may increase the Conversion Rate by any amount for any period of
time if the period is at least twenty (20) days, the increase is
irrevocable during such period, and the Board of Directors shall have made
a determination that such increase would be in the best interests of the
Company, which determination shall be conclusive; provided, however, that
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no such increase shall be taken into account for purposes of determining
whether the Closing Price Per Share of the Common Stock exceeds the
Conversion Price by 105% in connection with an event which would otherwise
be a Change of Control pursuant to Section 15.3. Whenever the Conversion
Rate is increased pursuant to the preceding sentence, the Company shall
give notice of the increased to the Holders in the manner provided in
Section 1.5 at least fifteen (15) days prior to the date the increased
Conversion Rate takes effect, and such notice shall state the increased
Conversion Rate and the period during which it will be in effect.
SECTION 13.5 NOTICE OF ADJUSTMENTS OF CONVERSION RATE.
Whenever the Conversion Rate is adjusted as herein provided:
(1) the Company shall compute the adjusted Conversion Rate in
accordance with Section 13.4 and shall prepare a certificate signed by the
Chief Financial Officer of the Company setting forth the adjusted
Conversion Rate and showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall forthwith promptly be filed
with the Trustee and with each Conversion Agent; and
(2) a notice stating that the Conversion Rate has been adjusted and
setting forth the adjusted Conversion Rate shall forthwith be prepared, and
as soon as practicable after it is prepared, such notice shall be provided
by the Company to all Holders in accordance with Section 1.5.
Neither the Trustee nor any Conversion Agent shall be under any duty or
responsibility with respect to any such certificate or the information and
calculations contained therein, except to exhibit the same to any Holder of
Securities desiring inspection thereof at its office during normal business
hours. Unless and until a Responsible Officer of the Trustee shall have
received such certificate, the Trustee shall not be deemed to have knowledge of
any adjustment
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of the Conversion Rate and may assume without inquiry that the last Conversion
Rate of which it has knowledge remains in effect.
SECTION 13.6 NOTICE OF CERTAIN CORPORATE ACTION.
In case:
(1) the Company shall declare a dividend (or any other distribution)
on its Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require an adjustment pursuant
to Section 13.4; or
(2) the Company shall authorize the granting to the holders of its
Common Stock of rights, options or warrants to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or
(3) of any reclassification of the Common Stock of the Company, or of
any consolidation, merger or share exchange to which the Company is a party
and for which approval of any shareholders of the Company is required, or
of the conveyance, transfer, sale or lease of all or substantially all of
the assets of the Company; or
(4) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Securities pursuant to Section 11.2, and shall
cause to be provided to all Holders in accordance with Section 1.5, at least 20
days (or 10 days in any case specified in clause (1) or (2) above) prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, rights, options or warrants, or, if a record is not to be taken,
the effective date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights, options or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, share exchange, conveyance, transfer, sale, lease, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, share exchange, conveyance,
transfer, sale, lease, dissolution, liquidation or winding up. Neither the
failure to give such notice or the notice referred to in the following paragraph
nor any defect therein shall affect the legality or validity of the proceedings
described in clauses (1) through (4) of this Section 13.6. If at the time the
Trustee shall not be the Conversion Agent, a copy of such notice and any notice
referred to in the following paragraph shall also forthwith be filed by the
Company with the Trustee.
The Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Securities pursuant to Section 11.2, and shall
cause to be provided to
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all Holders in accordance with Section 1.5, notice of any tender offer by the
Company or any Subsidiary for all or any portion of the Common Stock at or about
the time that such notice of tender offer is provided to the public generally.
SECTION 13.7 COMPANY TO RESERVE COMMON STOCK.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but previously unissued Common Stock,
for the purpose of effecting the conversion of Securities, the full number of
shares of Common Stock then issuable upon the conversion of all such Outstanding
Securities.
SECTION 13.8 TAXES ON CONVERSIONS.
Except as provided in the next sentence, the Company will pay any and all
transfer, stamp, documentary and other similar taxes and duties that may be
payable in respect of the issue or delivery of shares of Common Stock on
conversion of Securities pursuant hereto. A Holder delivering a Security for
conversion will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue and delivery of shares of Common
Stock in a name other than that of the Holder of the Security or Securities to
be converted, and no such issue or delivery shall be made unless and until the
Person requesting such issue has paid to the Company the amount of any such tax
or duty or has established to the satisfaction of the Company that such tax or
duty has been paid.
SECTION 13.9 COVENANT AS TO COMMON STOCK.
The Company covenants that all shares of Common Stock which may be
delivered upon conversion of Securities will be newly issued shares, upon such
delivery, will have been duly authorized and validly issued and will be fully
paid and nonassessable and, except as provided in Section 13.8, the Company will
pay all taxes, liens and charges with respect to the issue thereof.
SECTION 13.10 CANCELLATION OF CONVERTED SECURITIES.
All Securities delivered for conversion shall be delivered to the Trustee
to be canceled by or at the direction of the Trustee, which shall dispose of the
same as provided in Section 3.9.
SECTION 13.11 PROVISION IN CASE OF CONSOLIDATION, MERGER OR CONVEYANCE OF
ASSETS.
In case of any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company (other
than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock of the Company)
or any conveyance, sale, transfer or lease of all or substantially all of the
assets of the Company, the Person formed by such consolidation or
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resulting from such merger or which acquires such assets, as the case may be,
shall execute and deliver to the Trustee a supplemental indenture executed in
accordance with Article IX providing that the Holder of such Security then
Outstanding shall have the right thereafter, during the period such Security
shall be convertible as specified in Section 13.1, to convert such Security only
into the kind and amount of securities, cash and other property receivable upon
such consolidation, merger, sale, transfer or lease by a holder of the number of
shares of Common Stock of the Company into which such Security might have been
converted immediately prior to such consolidation, merger, sale or transfer,
assuming such holder of Common Stock of the Company (i) is not a Person with
which the Company consolidated or merged with or which merged into or with the
Company or to which such conveyance, sale, transfer or lease was made, as the
case may be ("Constituent Person"), or an Affiliate of a Constituent Person and
(ii) failed to exercise his rights of election, if any, as to the kind or amount
of securities, cash and other property receivable upon such consolidation,
merger, conveyance, sale, transfer or lease (provided that if the kind or amount
of securities, cash and other property receivable upon such consolidation,
merger, conveyance, sale, transfer or lease is not the same for each share of
Common Stock of the Company held immediately prior to such consolidation,
merger, conveyance, sale, transfer or lease by other than a Constituent Person
or an Affiliate thereof and in respect of which such rights of election shall
not have been exercised ("Non-Electing Share"), then for the purpose of this
Section 13.11 the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by the holders of
each Non-Electing Share shall be deemed to be the kind and amount so receivable
per share by a plurality of the Non-Electing Shares). Such supplemental
indenture shall provide for adjustments which, for events subsequent to the
effective date of such supplemental indenture, shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article. The above
provisions of this Section 13.11 shall similarly apply to successive
consolidations, mergers, conveyances, sales, transfers or leases. Notice of the
execution of such a supplemental indenture shall be given by the Company to the
Holder of each Security as provided in Section 1.5 promptly upon such execution.
Neither the Trustee, any Paying Agent nor any Conversion Agent shall be
under any responsibility to determine the correctness of any provisions
contained in any such supplemental indenture relating either to the kind or
amount of shares of stock or other securities or property or cash receivable by
Holders of Securities upon the conversion of their Securities after any such
consolidation, merger, conveyance, sale, transfer or lease or to any such
adjustment, but may accept as conclusive evidence of the correctness of any such
provisions, and shall be protected in relying upon, an Opinion of Counsel with
respect thereto, which the Company shall cause to be furnished to the Trustee
upon request.
SECTION 13.12 RESPONSIBILITY OF TRUSTEE FOR CONVERSION PROVISIONS.
The Trustee, subject to the provisions of Section 6.1, and any Conversion
Agent shall not at any time be under any duty or responsibility to any Holder of
Securities to determine whether any facts exist which may require any adjustment
of the Conversion Rate, or with respect to the nature, extent or amount of any
such adjustment when made, or with respect to
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the method employed, or herein or in any supplemental indenture provided to be
employed, in making the same, or whether a supplemental indenture need be
entered into. Neither the Trustee, subject to the provisions of Section 6.1, nor
any Conversion Agent shall be accountable with respect to the validity or value
(or the kind or amount) of any shares of Common Stock, or of any other
securities or property or cash, which may at any time be issued or delivered
upon the conversion of any Security; and it or they do not make any
representation with respect thereto. Neither the Trustee, subject to the
provisions of Section 6.1, nor any Conversion Agent shall be responsible for any
failure of the Company to make any cash payment or to issue, transfer or deliver
any shares of Common Stock or share certificates or other securities or property
or cash upon the surrender of any Security for the purpose of conversion; and
the Trustee, subject to the provisions of Section 6.1, and any Conversion Agent
shall not be responsible for any failure of the Company to comply with any of
the covenants of the Company contained in this Article.
ARTICLE XIV
SUBORDINATION
SECTION 14.1 SECURITIES SUBORDINATE TO SENIOR DEBT.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article (subject to the provisions of
Article IV), the indebtedness represented by the Securities, and the payment of
the principal of, interest on and all other amounts, if any, owing with respect
to each and all of the Securities are hereby expressly made subordinate and
subject in right of payment to the prior payment in full in cash or other
immediately available funds of all Senior Debt of the Company.
SECTION 14.2 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Company or to its creditors, as such, or
to its assets, or (b) any liquidation, dissolution or other winding up of the
Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshaling of assets and liabilities of the Company, then and in any
such event specified in (a), (b) or (c) above (each such event, if any, herein
sometimes referred to as a "Proceeding") the holders of Senior Debt shall be
entitled to receive payment in full of all amounts due or to become due on or in
respect of all Senior Debt, in cash before the Holders of the Securities are
entitled to receive any payment on account of principal of, premium, if any, or
interest (including Liquidated Damages) on the Securities or on account of the
purchase, redemption or other acquisition of Securities by the Company or any
Subsidiary of the Company, and to that end the holders of all Senior Debt shall
be entitled to receive, for
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application to the payment thereof, any payment or distribution of any kind or
character, whether in cash, property or securities, which may be payable or
deliverable in respect of the Securities in any such Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, securities or other property, before all Senior Debt is paid in
full, and if such fact shall, at or prior to the time of such payment or
distribution, have been made known to a Responsible Officer of the Trustee or,
as the case may be, such Holder, then and in such event such payment or
distribution shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
Person making payment or distribution of assets of the Company for application
to the payment of all Senior Debt, to the extent necessary to pay all Senior
Debt in full, after giving effect to any concurrent payment or distribution to
or for the holders of Senior Debt.
For purposes of this Article only, the words "any payment or distribution
of any kind or character, whether in cash, property or securities" shall not be
deemed to include a payment or distribution of stock or securities of the
Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment which
shares of stock or securities are subordinated in right of payment to all then
outstanding Senior Debt to substantially the same extent as, or to a greater
extent then, the Securities are so subordinated as provided in this Article.
The consolidation of the Company with, or the merger of the Company into,
another Person or the liquidation or dissolution of the Company following the
conveyance, transfer, sale or lease of all or substantially all of its
properties and assets to another Person upon the terms and conditions set forth
in Article VIII shall not be deemed a Proceeding for the purposes of this
Section if the Person formed by such consolidation or into which the Company is
merged or the Person which acquires by conveyance, transfer, sale or lease such
properties and assets, as the case may be, shall, as a part of such
consolidation, merger, conveyance, transfer, sale or lease comply with the
conditions set forth in Article VIII.
SECTION 14.3 NO PAYMENT WHEN SENIOR DEBT IN DEFAULT.
In the event that any Securities are declared or otherwise shall become due
and payable before their Stated Maturity, then and in such event the holders of
the Senior Debt outstanding at the time such Securities so become due and
payable shall be entitled to receive payment in full of all amounts due or to
become due on or in respect of all Senior Debt in cash or other immediately
available funds or otherwise in a manner satisfactory to the holders of such
Senior Debt, before the Holders of the Securities are entitled to receive any
payment by the Company on account of the principal of, premium, if any, or
interest (including Liquidated Damages) on the Securities or on account of the
purchase or other acquisition of the Securities.
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In the event and during the continuation of any default in the payment of
any amount owing in respect of any Senior Debt beyond any applicable grace
period with respect thereto, or in the event that any event of default with
respect to any Senior Debt shall have occurred and be continuing permitting the
holders of such Senior Debt (or a trustee or other representative on behalf of
the holders thereof) to declare such Senior Debt due and payable prior to the
date on which it would otherwise have become due and payable, unless and until
such event of default shall have been cured or waived or shall have ceased to
exist and such acceleration shall have been rescinded or annulled, or in the
event any judicial proceeding shall be pending with respect to any such default
in payment or event of default, then no payment shall be made by the Company on
account of principal of, premium, if any, or interest (including Liquidated
Damages) on the Securities, or on account of the purchase, redemption or other
acquisition of the Securities.
In the event that, notwithstanding the foregoing provisions of this
Section, the Company shall make any payment prohibited by the foregoing
provisions of this Section, and if such fact shall, at or prior to the time of
such payment, have been made known to a Responsible Officer of the Trustee or,
as the case may be, such Holder, then and in such event such payment or
distribution shall be paid over and delivered forthwith to the Company, in the
case of the Trustee, or the Trustee, in the case of such Holder.
The provisions of this Section shall not apply to any payment with respect
to which Section 14.2 would be applicable.
SECTION 14.4 PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article or elsewhere in this Indenture or in any
of the Securities shall prevent (a) the Company, at any time except during the
pendency of any proceeding referred to in Section 14.2 or under the conditions
described in Section 14.3, from making payments at any time of principal of,
premium, if any, or interest (including Liquidated Damages) on the Securities,
or (b) the application by the Trustee of any money deposited with it hereunder
to the payment of or on account of the principal of, premium, if any, or
interest (including Liquidated Damages) on the Securities or the retention of
such payment by the Holders, if, at the time of such application by the Trustee,
it did not have knowledge that such payment would have been prohibited by the
provisions of this Article.
SECTION 14.5 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR DEBT.
Subject to the payment in full of all Senior Debt, the Holders of the
Securities shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Debt pursuant to the provisions of this
Article, to the rights of the holders of such Senior Debt to receive payments
and distributions of cash, property and securities applicable to the Senior Debt
until the principal of, premium, if any, and interest (including Liquidated
Damages) on the Securities shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the Senior Debt of
any cash, property or securities to which the
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Holders of the Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Debt by Holders of the Securities or the
Trustee, shall, as among the Company, its creditors other than holders of Senior
Debt and the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior Debt.
SECTION 14.6 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Debt on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Securities is intended to or
shall (a) impair, as among the Company, the creditors of the Company other than
holders of Senior Debt and the Holders of the Securities, the obligation of the
Company, which is absolute and unconditional to pay to the Holders of the
Securities the principal of, premium, if any, and interest (including Liquidated
Damages) on the Securities as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against the
Company of the Holders of the Securities and creditors of the Company other than
the holders of Senior Debt; or (c) prevent the Trustee or the Holder of any
Security from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
of the holders of Senior Debt to receive cash, property and securities otherwise
payable or deliverable to the Trustee or such Holder.
SECTION 14.7 TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of a Security by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article and appoints the
Trustee his attorney-in-fact for any and all such purposes.
SECTION 14.8 NO WAIVER OF SUBORDINATION PROVISIONS.
No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance by
the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the Trustee or the Holders of the Securities, without
incurring responsibility to the Holders of the Securities and without impairing
or releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Securities to the holders of Senior Debt, do any
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one or more of the following: (i) change the manner, place or terms of payment
or the time of payment of, or renew or alter, Senior Debt, or otherwise amend or
supplement in any manner Senior Debt or any instrument evidencing the same or
any agreement under which Senior Debt is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Debt; (iii) release any Person liable in any manner for the
collection of Senior Debt; and (iv) exercise or refrain from exercising any
rights against the Company and any other Person.
SECTION 14.9 NOTICE TO TRUSTEE.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Debt or from any trustee therefor or
representative thereof; and, prior to the receipt of any such written notice,
the Trustee shall be entitled in all respects to assume that no such facts
exist; provided, however, that if the Trustee shall not have received the notice
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provided for in this Section at least one Business Day prior to the date upon
which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of, the principal of or interest on
any Security), then, anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such money and to
apply the same to the purpose for which such money was received and shall not be
affected by any notice to the contrary which may be received by it within one
Business Day prior to such date.
Subject to the provisions of Section 6.1, the Trustee shall be entitled to
rely on the delivery to it of a written notice, by a Person representing himself
to be a holder of Senior Debt (or a trustee therefor or representative thereof)
to establish that such notice has been given by a holder of Senior Debt (or a
trustee therefor or representative thereof). In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Senior Debt to participate in any payment or
distribution pursuant to this Article, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Debt held by such Person, the extent to which such Person is entitled
to participate in such payment or distribution and any other facts pertinent to
the rights of such Person under this Article, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 14.10 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Section 6.1, and the
Holders of the Securities shall be
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entitled to rely upon any order or decree entered by any court of competent
jurisdiction in which such Proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, agent or other Person making such payment or
distribution, delivered to the Trustee or to the Holders of Securities, for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Debt and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article.
SECTION 14.11 TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR DEBT.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Debt and shall not be liable to any such holders if it shall in good
faith, mistakenly pay over or distribute to Holders of Securities or to the
Company or to any other Person cash, property or securities to which any holders
of Senior Debt shall be entitled by virtue of this Article or otherwise.
SECTION 14.12 RIGHTS OF TRUSTEE AS HOLDER OF SENIOR DEBT;
PRESERVATION OF TRUSTEE'S RIGHTS.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Debt which may at any time
be held by it, to the same extent as any other holder of Senior Debt, and
nothing in this Indenture shall deprive the Trustee of any of its rights as such
holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 6.7.
SECTION 14.13 ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, (i) the term "Trustee" as
used in this Article shall in such case (unless the context otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee and (ii) any notice given to
the Trustee under this Article XIV shall be deemed to have been given to any
such Paying Agent; provided, however, that Section 14.12 shall not apply to the
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Company or any Affiliate of the Company if it or such Affiliate acts as Paying
Agent.
SECTION 14.14 PAYMENT.
For the purposes of this Article only, (1) the issuance and delivery of
junior securities upon conversion of Securities in accordance with Article XIII
or upon the repurchase of Securities in accordance with Article XV shall not be
deemed to constitute a payment or
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distribution on account of the principal of, premium, if any, or interest on
Securities or on account of the purchase or other acquisition of Securities, and
(2) the payment, issuance or delivery of cash, property or securities (other
than junior securities) upon conversion of a Security shall be deemed to
constitute payment on account of the principal of, premium, if any, or interest
on such Security. For the purposes of this Section, the term "junior securities"
means (a) shares of any stock of any class of the Company and any cash, property
or securities into which the Securities are convertible pursuant to Article XIII
and (b) securities of the Company which are subordinated in right of payment to
all Senior Debt which may be outstanding at the time of issuance or delivery of
such securities to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall impair, as among the Company, its creditors other than
holders of Senior Debt and the Holders of the Securities, the right, which is
absolute and unconditional, of the Holder of any Security to convert such
Security in accordance with Article XIII or to exchange such Security for Common
Stock in accordance with Article XV if the Company elects to satisfy the
obligations under Article XV by the delivery of Common Stock.
ARTICLE XV
REPURCHASE OF SECURITIES AT THE OPTION OF THE
HOLDER UPON A CHANGE IN CONTROL
SECTION 15.1 RIGHT TO REQUIRE REPURCHASE.
In the event that a Change in Control (as hereinafter defined) shall occur,
then each Holder shall have the right, at the Holder's option, but subject to
the provisions of Section 15.3, to require the Company to repurchase, and upon
the exercise of such right the Company shall repurchase, all of such Holder's
Securities, or any portion of the principal amount thereof that is equal to
$1,000 or any integral multiple of $1,000 in excess thereof, on the date (the
"Repurchase Date") that is 45 days after the date of the Company Notice (as
defined in Section 15.3) at a purchase price equal to 100% of the principal
amount of the Securities to be repurchased plus interest accrued to the
Repurchase Date (the "Repurchase Price"); provided, however, that installments
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of interest on Securities whose Stated Maturity is on or prior to the Repurchase
Date shall be payable, in cash, to the Holders of such Securities, or one or
more Predecessor Securities, registered as such on the relevant Record Date
according to their terms and the provisions of Section 3.7. Such right to
require the repurchase of the Securities shall not continue after a discharge of
the Company from its obligations with respect to the Securities in accordance
with Article IV, unless a Change in Control shall have occurred prior to such
discharge. At the option of the Company, the Repurchase Price may be paid in
cash or, subject to the fulfillment by the Company of the conditions set forth
in Section 15.2, by delivery of shares of Common Stock having a fair
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market value equal to the Repurchase Price. Whenever in this Indenture there is
a reference, in any context, to the principal of any Security as of any time,
such reference shall be deemed to include reference to the Repurchase Price
payable in respect of such Security to the extent that such Repurchase Price is,
was or would be so payable at such time, and express mention of the Repurchase
Price in any provision of this Indenture shall not be construed as excluding the
Repurchase Price in those provisions of this Indenture when such express mention
is not made; provided that for purposes of Article XIV, such reference shall be
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deemed to include reference to the Repurchase Price only to the extent the
Repurchase Price is payable in cash.
SECTION 15.2 CONDITIONS TO THE COMPANY'S ELECTION TO PAY THE REPURCHASE PRICE
IN COMMON STOCK.
The Company may elect to pay the Repurchase Price by delivery of shares of
Common Stock pursuant to Section 15.1 if and only if the following conditions
shall have been satisfied:
(a) The shares of Common Stock deliverable in payment of the
Repurchase Price shall have a fair market value as of the Repurchase Date
of not less than the Repurchase Price. For purposes of Section 15.1 and
this Section 15.2, the fair market value of shares of Common Stock shall be
determined by the Company and shall be equal to 95% of the average of the
Closing Prices Per Share for the five consecutive Trading Days immediately
preceding the second Trading Day prior to the Repurchase Date;
(b) The Repurchase Price shall be paid only in cash in the event any
shares of Common Stock to be issued upon repurchase of Securities hereunder
(i) require registration under any federal securities law before such
shares may be freely transferrable without being subject to the transfer
restrictions under the Securities Act upon repurchase and if such
registration is not completed or does not become effective prior to the
Repurchase Date, and/or (ii) require registration with or approval of any
governmental authority under any state law or any other federal law before
such shares may be validly issued or delivered upon repurchase and if such
registration is not completed or does not become effective or such approval
is not obtained prior to the Repurchase Date;
(c) Payment of the Repurchase Price may not be made in shares of
Common Stock unless such stock is, or shall have been, approved for listing
on the New York Stock Exchange or listed or quoted on a national securities
exchange or quotation system, in either case, prior to the Repurchase Date;
and
(d) All shares of Common Stock which may be issued upon repurchase of
Securities will be issued out of the Company's authorized but unissued
Common Stock and, will upon issuance, be duly and validly issued and fully
paid and non-assessable and free of any preemptive rights.
-93-
<PAGE>
If all of the conditions set forth in this Section 15.2 are not satisfied
in accordance with the terms thereof, the Repurchase Price shall be paid by the
Company only in cash.
SECTION 15.3 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC.
(a) Unless the Company shall have theretofore called for redemption
all of the Outstanding Securities, on or before the 30th day after the
occurrence of a Change in Control, the Company or, at the request and
expense of the Company on or before the 15th day after such occurrence, the
Trustee, shall give to all Holders of Securities, in the manner provided in
Section 1.5, notice (the "Company Notice") of the occurrence of the Change
in Control and of the repurchase right set forth herein arising as a result
thereof. The Company shall also deliver a copy of such notice of a
repurchase right to the Trustee.
Each notice of a repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be exercised,
(3) the Repurchase Price,
(4) a description of the procedure which a Holder must follow to
exercise a repurchase right, and the place or places where such
Securities are to be surrendered for payment of the Repurchase Price
and accrued interest, if any,
(5) that on the Repurchase Date the Repurchase Price, and accrued
interest, if any, will become due and payable upon each such Security
designated by the Holder to be repurchased, and that interest thereon
shall cease to accrue on and after said date,
(6) the Conversion Rate then in effect, the date on which the
right to convert the principal amount of the Securities to be
repurchased will terminate and the place or places where such
Securities may be surrendered for conversion, and
(7) the place or places that the certificate required by Section
2.3 shall be delivered, and the form of such certificate.
In addition, at least two Business Days preceding the Repurchase Date,
the Company shall publish in an Authorized Newspaper, in the manner
provided in Section 1.5, notice specifying whether the Repurchase Price
will be payable in cash or shares of Common Stock and shall deliver a copy
of such notice to the Trustee.
-94-
<PAGE>
No failure of the Company to give the foregoing notices or defect
therein shall limit any Holder's right to exercise a repurchase right or
affect the validity of the proceedings for the repurchase of Securities.
If any of the foregoing provisions or other provisions of this Article
are inconsistent with applicable law, such law shall govern.
(b) To exercise a repurchase right, a Holder shall deliver to the
Trustee or any Paying Agent on or before the 30th day after the date of the
Company Notice (i) written notice of the Holder's exercise of such right,
which notice shall set forth the name of the Holder, the principal amount
of the Securities to be repurchased (and, if any Security is to repurchased
in part, the serial number thereof, the portion of the principal amount
thereof to be repurchased and the name of the Person in which the portion
thereof to remain Outstanding after such repurchase is to be registered)
and a statement that an election to exercise the repurchase right is being
made thereby, and, in the event that the Repurchase Price shall be paid in
shares of Common Stock, the name or names (with addresses) in which the
certificate or certificates for shares of Common Stock shall be issued, and
(ii) the Securities with respect to which the repurchase right is being
exercised. Such written notice shall be irrevocable, except that the right
of the Holder to convert the Securities with respect to which the
repurchase right is being exercised shall continue until the close of
business on the Repurchase Date.
(c) In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid to the
Trustee or the Paying Agent the Repurchase Price in cash or shares of
Common Stock, as provided above, for payment to the Holder on the
Repurchase Date or, if shares of Common Stock are to be paid, as promptly
after the Repurchase Date as practicable, together with accrued and unpaid
interest to the Repurchase Date payable with respect to the Securities as
to which the purchase right has been exercised; provided, however, that
-------- -------
installments of interest that mature on or prior to the Repurchase Date
shall be payable in cash, in the case of Securities, to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Regular Record Date, in each case
according to the terms and provisions of Article Three.
(d) If any Security (or portion thereof) surrendered for repurchase
shall not be so paid on the Repurchase Date, the principal amount of such
Security (or portion thereof, as the case may be) shall, until paid, bear
interest to the extent permitted by applicable law from the Repurchase Date
at the rate of 53% per annum, and each Security shall remain convertible
into shares of Common Stock until the principal of such Security (or
portion thereof, as the case may be) shall have been paid or duly provided
for.
-95-
<PAGE>
(e) Any Security which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and make available for delivery
to the Holder of such Security without service charge, a new Security or
Securities, containing identical terms and conditions, each in an
authorized denomination in aggregate principal amount equal to and in
exchange for the unrepurchased portion of the principal of the Security so
surrendered.
(f) Any issuance of shares of Common Stock in respect of the
Repurchase Price shall be deemed to have been effected immediately prior to
the close of business on the Repurchase Date and the Person or Persons in
whose name or names any certificate or certificates for shares of Common
Stock shall be issuable upon such repurchase shall be deemed to have become
on the Repurchase Date the holder or holders of record of the shares
represented thereby; provided, however, that any surrender for repurchase
-------- -------
on a date when the stock transfer books of the Company shall be closed
shall constitute the Person or Persons in whose name or names the
certificate or certificates for such shares are to be issued as the
recordholder or holders thereof for all purposes at the opening of business
on the next succeeding day on which such stock transfer books are open. No
payment or adjustment shall be made for dividends or distributions on any
shares of Common Stock issued upon repurchase of any Security declared
prior to the Repurchase Date.
(g) No fractions of shares shall be issued upon repurchase of
Securities. If more than one Security shall be repurchased from the same
Holder and the Repurchase Price shall be payable in shares of Common Stock,
the number of full shares which shall be issuable upon such repurchase
shall be computed on the basis of the aggregate principal amount of the
Securities so repurchased. Instead of any fractional shares of Common
Stock which would otherwise be issuable on the repurchase of any Security
or Securities, the Company will deliver to the applicable Holder its check
for the current market value of such fractional share. The current market
value of a fraction of a share is determined by multiplying the current
market price of a full share by the fraction, and rounding the result to
the nearest cent. For purposes of this Section, the current market price
of a Common Stock is the Closing Price Per Share of the Common Stock on the
last Trading Day prior to the Repurchase Date.
(h) Any issuance and delivery of certificates for shares of Common
Stock on repurchase of Securities shall be made without charge to the
Holder of Securities being repurchased for such certificates or for any tax
or duty in respect of the issuance or delivery of such certificates or the
securities represented thereby; provided, however, that the Company shall
-------- -------
not be required to pay any tax or duty which may be payable in respect of
(i) income of the Holder or (ii) any transfer involved in the issuance or
delivery of certificates for shares of Common Stock in a name other than
that of the
-96-
<PAGE>
Holder of the Securities being repurchased, and no such issuance or
delivery shall be made unless and until the Person requesting such issuance
or delivery has paid to the Company the amount of any such tax or duty or
has established, to the satisfaction of the Company, that such tax or duty
has been paid.
(i) All Securities delivered for repurchase shall be delivered to the
Trustee, the Paying Agent or any other agents (as shall be set forth in the
Company Notice) to be canceled by or at the direction of the Trustee, which
shall dispose of the same as provided in Section 3.9.
SECTION 15.4 CERTAIN DEFINITIONS.
For purposes of this Article XV,
(a) the term "beneficial owner" shall be determined in accordance with
Rule 13d-3, as in effect on the date of the original execution of this
Indenture, promulgated by the Commission pursuant to the Exchange Act;
(b) a "Change in Control" shall be deemed to have occurred at the
time, after the original issuance of the Securities, of:
(i) the acquisition by any Person of beneficial ownership,
directly or indirectly, through a purchase, merger or other
acquisition transaction or series of transactions, of shares of
capital stock of the Company entitling such Person to exercise 50% or
more of the total voting power of all shares of capital stock of the
Company entitled to vote generally in the elections of directors (any
shares of voting stock of which such person or group is the beneficial
owner that are not then outstanding being deemed outstanding for
purposes of calculating such percentage) other than any such
acquisition by the Company, any Subsidiary of the Company or any
employee benefit plan of the Company; or
(ii) any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the
Company, or any conveyance, sale, transfer or lease of all or
substantially all of the assets of the Company to another Person
(other than (a) any such transaction (x) which does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock or capital stock of the Company and (y)
pursuant to which the holders of Common Stock immediately prior to
such transaction are entitled to exercise, directly or indirectly, 50%
or more of the total voting power of all shares of capital stock
entitled to vote generally in the election of directors of the
continuing or surviving corporation immediately after such transaction
and (b) any merger which is effected solely to change the jurisdiction
of incorporation of the Company and results in a
-97-
<PAGE>
reclassification, conversion or exchange of outstanding shares of
Common Stock into solely shares of common stock);
provided, however, that a Change in Control shall not be deemed to have
-------- -------
occurred if the Closing Price Per Share of the Common Stock for any five
Trading Days within the period of 10 consecutive Trading Days ending
immediately after the later of the date of the Change in Control or the
date of the public announcement of the Change in Control (in the case of a
Change in Control under Clause (i) above) or the period of 10 consecutive
Trading Days ending immediately prior to the date of the Change in Control
(in the case of a Change in Control under Clause (ii) above) shall equal or
exceed 105% of the Conversion Price in effect on such Trading Day; and
(c) the term "Person" shall include any syndicate or group which would
be deemed to be a "person" under Section 13(d)(3) of the Exchange Act, as
in effect on the date of the original execution of this Indenture.
______________________
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
-98-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
HOMEBASE, INC.
[SEAL] By /s/ Allan Sherman
-----------------------------
Name: Allan Sherman
Title: President and CEO
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.
[SEAL] By /s/ Scott C. Emmons
-----------------------------
Name: Scott C. Emmons
Title: Assistant Vice President
STATE STREET BANK AND TRUST
COMPANY,
as guarantor of the Trustee's obligations
hereunder as contemplated by
Section 6.8 and 6.12
[SEAL] By /s/ Michael J. D'Angelico
-----------------------------
Michael J. D'Angelico
Vice President
-99-
<PAGE>
STATE OF California )
----------
: ss.:
COUNTY OF Orange )
---------------
On the 10th day of November, 1997, before me personally came Allan Sherman,
to me known, who, being by me duly sworn, did depose and say that he/she is
President and CEO of HomeBase, Inc., one of the corporations described in and
which executed the foregoing instrument; that he/she knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation; and that he/she signed his name thereto by like authority.
/s/
---------------------------------
Notary Public
STATE OF CALIFORNIA )
: ss.:
COUNTY OF LOS ANGELES )
On the 12th day of November, 1997, before me personally came Scott C.
Emmons, to me known, who, being by me duly sworn, did depose and say that he is
Assistant Vice President of State Street Bank and Trust Company of California,
N.A., a national banking association described in and which executed the
foregoing instrument; that he knows the seal of said association; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said association; and that he signed his
name thereto by like authority.
/s/ Joni Frederick
---------------------------------
Notary Public
COMMONWEALTH OF MASS ) [SEAL]
-------------
: ss.:
COUNTY OF Suffolk )
---------------
On the 13th day of November, 1997, before me personally came Michael J.
D'Angelico, to me known, who, being by me duly sworn, did depose and say that he
is Vice President of State Street Bank and Trust Company, a Massachusetts
banking association described in and which executed the foregoing instrument;
that he knows the seal of said association; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by authority of the
Board of Directors of said association; and that he signed his name thereto by
like authority.
/s/ Scott Knox
---------------------------------
Notary Public
[SEAL]
-100-
<PAGE>
ANNEX A
FORM OF CONVERSION NOTICE
[Notice pursuant to Section 13.2 of the Indenture]
State Street Bank and Trust
Company of California N.A.,
as Conversion Agent
725 South Figueroa Street
Suite 3100
Los Angeles, CA 90017
Re: HOMEBASE, INC.
5 1/4% Convertible Subordinated Notes
due November 1, 2004 (the "Securities")
----------------------------------------
Reference is hereby made to the Indenture, dated as of November 10, 1997
(the "Indenture"), between HomeBase, Inc., as Issuer, and State Street Bank and
Trust Company of California, N.A., as Trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This letter relates to the Securities specified below, which are registered
in the name of the undersigned (the "Holder"). The Holder hereby irrevocably
exercises its right to convert such Securities, or the portion thereof, if any,
specified below, into shares of Common Stock and, except to the extent specified
or required as described below, directs that certificates representing such
Shares of Common Shares, together with any check in payment for a fractional
share and any Security representing any unconverted principal amount, be issued
and delivered through the facilities of the Depositary, for credit to the
account(s) of the Person(s) indicated below.
The Holder acknowledges and agrees that no shares of Common Stock will be
delivered upon conversion of the specified Securities during the Non-Conversion
Period and no shares of Common Stock will be delivered on conversion until any
amount payable by the Holder on account of interest is paid, any certificates
evidencing specified Securities not held in book-entry form are duly endorsed or
assigned to the Company or in blank and surrendered
(Continued on next page)
A-1
<PAGE>
and any taxes or other charges or documents required in connection with a
transfer on conversion, and any other required items, are delivered to the
Conversion Agent.
The Holder acknowledges and agrees that, notwithstanding this request for
conversion, the Company may require that the shares of Common Stock delivered on
conversion of the specified Securities be delivered in certificated form subject
to a restrictive legend, or that additional certifications be delivered on
behalf of the relevant beneficial owner(s), if it determines that doing so is
necessary to comply with the requirements of the Securities Act or otherwise, as
provided in the Indenture.
Conversion of the specified Securities is subject to the requirements
established by the Company as well as to the procedures of the Depositary, all
as in effect from time to time. The specified Securities will be deemed to have
been converted as of the close of business on the first day on which this
conversion notice and all other required items have been delivered to the
Conversion Agent as provided above and, upon such conversion, shall cease to
accrue interest or be Outstanding (subject to the Holder's right to receive the
Conversion Securities as provided in the Indenture). Prior to such conversion,
the Holder will have no rights in the Conversion Securities.
Please provide the information requested below, as applicable.
(Continued on next page)
A-2
<PAGE>
1. PLEASE SPECIFY THE SECURITIES HELD AND THE PORTION THEREOF TO BE CONVERTED:
Principal amount held: $
CUSIP number(s):
Depositary (DTC) account where held:
Principal amount being converted (if less than all):$ ____________
----
2. UNLESS AND TO THE EXTENT OTHERWISE SPECIFIED BELOW, all Securities
(together with any unconverted Securities) will be delivered in book-entry
form to the DTC account specified in Item 1 above.
3. IF OTHER ARRANGEMENTS ARE DESIRED, please specify the type, number and form
of securities to be delivered on conversion and the names(s) of the account
holder(s) or registered owner(s), by checking the appropriate boxes and
providing the information requested:
[ ] Common Shares
[ ] Book-Entry
Number of shares of Common Stock:
DTC Account:
[ ] Certificates
Number of shares of Common Stock:
Registered Owner:
(Continued on next page)
A-3
<PAGE>
[ ] Unconverted Securities
[ ] Certificates
Principal Amount: $
Registered Owner:
[ ] Book-Entry
Principal Amount: $
DTC Account:
Please sign and date this notice in the space provided below.
DATE:
Name of Holder: _______________________
Signature(s) of Holder:___________________
Title(s):
(If the Holder is a corporation, partnership or
fiduciary, the title of the Person signing on behalf of
the Holder must be stated.)
- ---------------------
* Aggregate principal amount of each certificate must equal $1,000 or any
amount in excess thereof in integral multiples of $1,000.
(Continued on next page)
A-4
<PAGE>
If shares of Common Stock or unconverted Securities are to be delivered other
than to and in the name of the registered owner, any signature must be
guaranteed by an "Eligible Institution" (banks, stock brokers, savings and loan
associations and credit unions) with membership in an approved signature
guarantee medallion program pursuant to Securities and Exchange Commission Rule
17Ad-15.
- -----------------------------------
Signature Guarantee
A-5
<PAGE>
ANNEX B
FORMS OF TRANSFER CERTIFICATES
------------------------------
FORM OF TRANSFER CERTIFICATE --
RESTRICTED GLOBAL SECURITY TO
REGULATION S GLOBAL SECURITY
(Transfers pursuant to Section 3.5(b)(2)
of the Indenture)
State Street Bank and Trust
Company of California, N.A.,
as Trustee
725 South Figueroa Street
Suite 3100
Los, Angeles, CA 90017
Re: HOMEBASE, INC.
5 1/4% Convertible Subordinated Notes
Due November 1, 2004 (the "Securities")
---------------------------------------
Reference is hereby made to the Indenture, dated as of November 10, 1997
(the "Indenture"), between HomeBase, Inc., as Issuer, and State Street Bank and
Trust Company of California, N.A., as Trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This letter relates to $_____________ aggregate principal amount of
Securities which are evidenced by the Restricted Global Security (CUSIP No.
43738E AA 6) and held with the Depositary in the name of [insert name of
transferor] (the "Transferor"). The Transferor has requested a transfer of such
beneficial interest in the Securities to a Person who will take delivery thereof
in the form of an equal aggregate principal amount of Securities evidenced by
the Regulation S Global Security (CUSIP No. U4368W AA 2), which amount, in the
case of transfers during the Restricted Period, immediately after such transfer,
is to be held with the Depositary through Euroclear or CEDEL or both.
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such transfer has been effected pursuant to
and in accordance with the transfer restrictions applicable to the Global
Securities and pursuant to and in accordance with Rule 903, Rule 904 or Rule
144 under the United States Securities Act of 1933, as amended (the "Securities
Act"), and accordingly the Transferor does hereby further certify that:
(A) If the transfer has been effected pursuant to Rule 903 or Rule 904:
(1) the offer of the Securities was not made to a person in the United
States;
B-1
<PAGE>
(2) either:
(A) at the time the buy order was originated, the transferee
was outside the United States or the Transferor and any
person acting on its 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 offshore securities market and
neither the Transferor nor any person acting on its behalf
knows that the transaction was prearranged with a buyer in
the United States;
(3) no directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or 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) if the transfer is being requested on or prior to ________, 199_,
upon completion of the transaction, the beneficial interest being
transferred as described above was held with the Depositary through
Euroclear or CEDEL or both, and
(B) If the transfer has been effected pursuant to Rule 144, the Securities
have been transferred in a transaction permitted by Rule 144 under the
Securities Act.
Upon giving effect to this request to exchange a beneficial interest in
such Restricted Global Security for a beneficial interest in a Regulation S
Global Security, the resulting beneficial interest shall be subject to the
restrictions on transfer applicable to Regulation S Global Securities pursuant
to the Indenture and the Securities.
This certificate and the statements contained herein are made for the
benefit of the Company and the Initial Purchaser. Terms used in this
certificate and not otherwise defined in the Indenture have the meanings set
forth in Regulation S under the Securities Act.
Dated:
[Insert Name of Transferor]
By:_________________________
Name:
Title:
B-2
<PAGE>
(If the registered owner is a corporation, partnership or
fiduciary, the title of the Person signing on behalf of such
registered owner must be stated.)
B-3
<PAGE>
ANNEX C
FORM OF TRANSFER CERTIFICATE --
REGULATION S GLOBAL SECURITY TO
RESTRICTED GLOBAL SECURITY DURING THE
RESTRICTED PERIOD
(Transfers pursuant to Section 3.5(b)(3)
of the Indenture)
State Street Bank and Trust
Company of California, N.A.,
as Trustee
725 South Figueroa Street
Suite 3100
Los, Angeles, CA 90017
Re: HOMEBASE, INC.
5 1/4% Convertible Subordinated Notes
Due November 1, 2004 (the "Securities")
---------------------------------------
Reference is hereby made to the Indenture, dated as of November 10, 1997
(the "Indenture"), between HomeBase, Inc., as Issuer, and State Street Bank and
Trust Company of California, N.A., as Trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This letter relates to $_________________ aggregate principal amount of
Securities which are evidenced by the Regulation S Global Security (CUSIP No.
U4368W AA 2) and held with the Depositary through Euroclear or CEDEL or both in
the name of [insert name of transferor] (the "Transferor") during the Restricted
Period. The Transferor has requested a transfer of such beneficial interest in
the Securities to a Person that will take delivery thereof in the form of an
equal principal amount of Securities evidenced by the Restricted Global Security
(CUSIP No. 43738E AA 6) to be held with the Depositary.
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such transfer has been effected pursuant to
and in accordance with Rule 144A under the United States Securities Act of 1933,
as amended, and accordingly the Transferor does hereby further certify that the
Securities are being transferred to a person that the Transferor reasonably
believes is purchasing the Securities for its own account, or for one or more
accounts with respect to which such Person exercises sole investment discretion,
and such Person and each such account is a "qualified institutional buyer"
within the meaning of Rule 144A, in each case in a transaction meeting the
requirements of Rule 144A and such Securities are being transferred in
compliance with any applicable blue sky securities laws of any State of the
United States.
C-1
<PAGE>
Upon giving effect to this request to exchange a beneficial interest in
Regulation S Global Securities for a beneficial interest in Restricted Global
Security, the resulting beneficial interest shall be subject to the restrictions
on transfer applicable to the Restricted Global Securities pursuant to the
Indenture and Securities Act.
This certificate and the statements contained herein are made for the
benefit of the Company and the Initial Purchaser. Terms used in this
Certificate and not otherwise defined in the Indenture have the meanings set
forth in Regulation S under the Securities Act.
Dated:
[Insert Name of Transferor]
By:__________________________
Name:
Title:
(If the registered owner is a corporation, partnership or
fiduciary, the title of the Person signing on behalf of such
registered owner must be stated.)
<PAGE>
EXHIBIT 4.5
HOMEBASE, INC.
53% CONVERTIBLE SUBORDINATED NOTES DUE NOVEMBER 1, 2004
REGISTRATION RIGHTS AGREEMENT
November 10, 1997
Prudential Securities Incorporated
One New York Plaza, 16th Floor
New York, New York 10292
Ladies and Gentlemen:
HomeBase, Inc., a Delaware corporation (the "Company"), proposes to issue
and sell to the Purchaser (as defined herein), upon the terms set forth in a
purchase agreement dated November 10, 1997 (the "Purchase Agreement") between
the Purchaser and the Company, its ___% Convertible Subordinated Notes Due
November 1, 2004 (the "Securities"). As an inducement to the Purchaser to enter
into the Purchase Agreement and in satisfaction of a condition to the
obligations of the Purchaser thereunder, the Company agrees with the Purchaser,
(i) for the benefit of the Purchaser and (ii) for the benefit of the holders (as
defined herein) from time to time of the Securities and the Common Stock, par
value $1.00 per share (the "Common Stock"), of the Company issuable upon
conversion of the Securities (collectively, the "Registrable Securities"),
including the Purchaser, as follows:
1. Definitions. (a) Capitalized terms used herein without definition
shall have their respective meanings set forth in or pursuant to the Purchase
Agreement or the Offering Circular, dated November 10, 1997, in respect of the
Securities. As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Act" or "Securities Act" means the United States Securities Act of 1933,
as amended.
"Affiliate" of any specified person means any other person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with such specified person. For purposes of this definition, control of a
person means the power, direct or indirect, to direct or cause the direction of
the management and policies of such person whether by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
<PAGE>
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
"DTC" means The Depository Trust Company.
"Effectiveness Period" has the meaning set forth in Section 2(b) hereof.
"Effective Time" means the date on which the Commission declares the Shelf
Registration Statement effective or on which the Shelf Registration Statement
otherwise becomes effective.
"Electing Holder" has the meaning set forth in Section 3(a)(3) hereof.
"Exchange Act" means the United States Securities and Exchange Act of 1934,
as amended.
The term "holder" means, when used with respect to any Security, the holder
(as defined in the Indenture) and, with respect to any Common Stock, the record
holder of such Common Stock.
"Indenture" means the Indenture, dated as of November 10, 1997, between the
Company and State Street Bank and Trust Company of California, N.A., as amended
and supplemented from time to time in accordance with its terms.
"Managing Underwriters" means the investment banker or investment bankers
and manager or managers that shall administer an underwritten offering, if any,
as set forth in Section 6 hereof.
"NASD" means the National Association of Securities Dealers, Inc.
"NASD Rules" means the Rules of the NASD, as amended from time to time.
"Notice and Questionnaire" means a Notice of Registration Statement and
Selling Securityholder Questionnaire substantially in the form of Exhibit A
hereto.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Prospectus" means the prospectus included in any Shelf Registration
Statement (including, without limitation, any preliminary prospectus, any
final prospectus and any
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prospectus that discloses information previously omitted from a prospectus filed
as part of an effective registration statement in reliance upon Rule 430A under
the Act), as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by the Shelf Registration Statement and by all other amendments and
supplements to such prospectus, including all material incorporated by reference
in such prospectus and all documents filed after the date of such prospectus by
the Company under the Exchange Act and incorporated by reference therein.
"Purchaser" means Prudential Securities Incorporated.
"Purchase Agreement" means the Purchase Agreement, dated November 10, 1997,
between the Purchaser and the Company.
"Registrable Securities" means all or any portion of the Securities issued
from time to time under the Indenture in registered form and the shares of
Common Stock issuable upon conversion of such Securities, including any
Securities initially issued in bearer form and constituting the unsold allotment
of a distributor (within the meaning of Regulation S under the Securities Act)
of such Securities and later exchanged for Securities in registered form;
provided, however, that a security ceases to be a Registrable Security when it
is no longer a Restricted Security.
"Restricted Security" means any Security or share of Common Stock issuable
upon conversion thereof except any such Security or share of Common Stock which
(i) has been effectively registered under the Securities Act and sold in a
manner contemplated by the Shelf Registration Statement, (ii) has been
transferred in compliance with Rule 144 under the Securities Act (or any
successor provision thereto) or is transferable pursuant to paragraph (k) of
such Rule 144 (or any successor provision thereto), (iii) has been sold in
compliance with Regulation S under the Securities Act (or any successor thereto)
and does not constitute the unsold allotment of a distributor within the meaning
of Regulation S under the Securities Act, or (iv) has otherwise been transferred
and a new Security or share of Common Stock not subject to transfer restrictions
under the Securities Act has been delivered by or on behalf of the Company in
accordance with Section 3.5 of the Indenture.
"Shelf Registration" means a registration effected pursuant to Section 2
hereof.
"Shelf Registration Statement" means a shelf registration statement of the
Company pursuant to the provisions of Section 2 hereof filed with the Commission
which covers some or all of the Registrable Securities, as applicable, on an
appropriate form under Rule 415 under the Act, or any similar rule that may be
adopted by the Commission, amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
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"Suspension Event" shall have the meaning set forth in Section 3(j).
"Trust Indenture Act" means the Trust Indenture Act of 1939, or any
successor thereto, and the rules, regulations and forms promulgated thereunder,
as the same shall be amended from time to time.
"underwriter" means any underwriter of Registrable Securities in connection
with an offering thereof under a Shelf Registration Statement.
(b) Wherever there is a reference in this Agreement to a percentage of
the "principal amount" of Registrable Securities or to a percentage of
Registrable Securities, Common Stock shall be treated as representing the
principal amount of Securities which was surrendered for conversion or exchange
in order to receive such number of shares of Common Stock.
2. Shelf Registration. (a) The Company shall, within 90 calendar days
following the Firm Closing Date (as defined in the Purchase Agreement ), file
with the Commission a Shelf Registration Statement relating to the offer and
sale of the Registrable Securities by the holders from time to time in
accordance with the methods of distribution elected by such holders and set
forth in such Shelf Registration Statement and, thereafter, shall use its best
efforts to cause such Shelf Registration Statement to be declared effective
under the Act by the Commission as promptly as practicable but no later than 180
calendar days after the Firm Closing Date; provided, however, that no holder
shall be entitled to have the Registrable Securities held by it covered by such
Shelf Registration unless such holder is an Electing Holder.
(b) The Company shall use its best efforts:
(i) To keep the Shelf Registration Statement continuously effective in
order to permit the Prospectus forming part thereof to be usable by holders
for a period of two years from the Effective Time of the Shelf Registration
Statement or, if shorter, the period that will terminate when there are no
Registrable Securities outstanding (in either case, such period being
referred to herein as the "Effectiveness Period");
(ii) After the Effective Time of the Shelf Registration Statement,
promptly upon the request of any holder of Registrable Securities that is
not then an Electing Holder, to take any action reasonably necessary to
enable such holder to use the Prospectus forming a part thereof for resales
of Registrable Securities, including, without limitation, any action
necessary to identify such holder as a selling securityholder in the Shelf
Registration Statement; provided, however, that nothing in this
subparagraph shall relieve such holder of the obligation to return a
completed and signed Notice and Questionnaire to the Company in accordance
with Section 3(a)(2) hereof; and
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(iii) If at any time the Securities, pursuant to Article XIII of the
Indenture, are convertible into securities other than Common Stock, to
cause such securities to be included in the Shelf Registration Statement no
later than the date on which the Securities may then be convertible into
such securities.
The Company shall be deemed not to have used its best efforts (within the
meaning of Section 11.12 of the Indenture) to keep the Shelf Registration
Statement effective during the Effectiveness Period if the Company voluntarily
takes any action that would result in any Electing Holders not being able to
offer and sell any such Registrable Securities during such period unless such
(i) action is required by applicable law or (ii) a Suspension Event occurs and
the Company complies with Section 3(j).
3. Registration Procedures. In connection with any Shelf Registration
Statement, the following provisions shall apply:
(a) (1) Not less than 30 calendar days prior to the Effective Time of
the Shelf Registration Statement, the Company shall mail the Notice and
Questionnaire to the holders of Registrable Securities. No holder shall be
entitled to be named as a selling securityholder in the Shelf Registration
Statement as of the Effective Time, and no holder shall be entitled to use
the Prospectus forming a part thereof for resales of Registrable Securities
at any time, unless such holder has returned a completed and signed Notice
and Questionnaire to the Company by the deadline for response set forth
therein; provided, however, holders of Registrable Securities shall have at
least 28 calendar days from the date on which the Notice and Questionnaire
is first mailed to such holders to return a completed and signed Notice and
Questionnaire to the Company.
(2) After the Effective Time of the Shelf Registration Statement, the
Company shall, upon the request of any holder of Registrable Securities
that is not then an Electing Holder, promptly send a Notice and
Questionnaire to such holder. The Company shall not be required to take
any action to name such holder as a selling securityholder in the Shelf
Registration Statement or to enable such holder to use the Prospectus
forming a part thereof for resales of Registrable Securities until such
holder has returned a completed and signed Notice and Questionnaire to the
Company.
(3) The term "Electing Holder" shall mean any holder of Registrable
Securities that has returned a completed and signed Notice and
Questionnaire to the Company in accordance with Section 3(a)(1) or 3(a)(2)
hereof.
(b) The Company shall furnish to each Electing Holder, prior to the
Effective Time, a copy of any Shelf Registration Statement initially filed
with the Commission, and shall furnish to such holders, prior to the filing
thereof with the Commission,
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<PAGE>
copies of each amendment thereto and each amendment or supplement, if any,
to the Prospectus included therein and shall use its best efforts to
reflect in each such document, when so filed with the Commission, such
comments as the holders and their respective counsel reasonably may propose
(which comments shall be delivered to the Company within three Business
Days after receipt of any Shelf Registration Statement, each amendment
thereto or any amendment or supplement to the Prospectus).
(c) Subject to Section 3(j), the Company shall promptly take such action
as may be necessary so that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any amendment
or supplement thereto (and each report or other document incorporated
therein by reference in each case) complies in all material respects with
the Securities Act and the Exchange Act and the respective rules and
regulations thereunder, (ii) any Shelf Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading and (iii) any Prospectus forming part of any Shelf Registration
Statement, and any amendment or supplement to such Prospectus, does not at
any time during the Effectiveness Period include an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements, in the light of the circumstances under which they were
made, not misleading.
(d) The Company shall promptly advise each Electing Holder and shall
confirm such advice in writing if so requested by any such holder:
(i) when a Shelf Registration Statement and any amendment thereto
has been filed with the Commission and when the Shelf Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) of any request by the Commission for amendments or supplements
to the Shelf Registration Statement or the Prospectus included therein
or for additional information;
(iii) the issuance by the Commission of any stop order suspending
effectiveness of the Shelf Registration Statement or the initiation of
any proceedings for such purpose;
(iv) the receipt by the Company of any notification with respect to
the suspension of the qualification of the securities included in the
Shelf Registration Statement for sale in any jurisdiction or the
initiation of any proceeding for such purpose; and
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<PAGE>
(v) the happening of any event or the existence of any state of
facts that requires the making of any changes in the Shelf
Registration Statement or the Prospectus so that, as of such date, the
Shelf Registration Statement and the Prospectus do not contain an
untrue statement of a material fact and do not omit to state a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading (which advice
shall be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made).
(e) The Company shall use its best efforts to prevent the issuance, and
if issued to obtain the withdrawal, of any order suspending the
effectiveness of any Shelf Registration Statement at the earliest possible
time.
(f) The Company shall furnish to each Electing Holder, without charge,
at least one copy of such Shelf Registration Statement and any post-
effective amendment thereto, including financial statements and schedules,
and, if such holder so requests in writing, all reports and exhibits
(including those incorporated by reference).
(g) The Company shall, during the Effectiveness Period, deliver to each
Electing Holder, 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 (except during the continuance
of any event described in Section 3(d)(v)) to the use of the Prospectus or
any amendment or supplement thereto by each of the selling Electing Holders
in connection with the offering and sale of the Registrable Securities
covered by the Prospectus or any amendment or supplement thereto during the
Effectiveness Period.
(h) Prior to any offering of Registrable Securities pursuant to any
Shelf Registration Statement, the Company shall (i) register or qualify or
cooperate with the Electing Holders and their respective counsel in
connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions within the United States as any Electing Holder may
reasonably request, (ii) keep such registrations or qualifications in
effect and comply with such laws so as to permit the continuance of offers
and sales in such jurisdictions for so long as may be necessary to enable
any Electing Holder or underwriter, if any, to complete its distribution of
Registrable Securities pursuant to the Shelf Registration Statement and
(iii) take any and all other actions necessary or advisable to enable the
offer and sale in such jurisdictions of the Registrable Securities covered
by such Shelf Registration Statement; provided, however, that in no event
shall the Company be obligated to (i) qualify as a foreign corporation or
as a dealer in securities in any
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<PAGE>
jurisdiction where it would not otherwise be required to so qualify but for
this Section 3(h) or (ii) file any general consent to service of process in
any jurisdiction where it is not as of the date hereof then so subject.
(i) Unless any Registrable Securities shall be in book-entry only form,
the Company shall cooperate with the Electing Holders to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold pursuant to any Shelf Registration Statement which
certificates, if so required by any securities exchange upon which any
Registrable Securities are listed, shall be penned, lithographed or
engraved, or produced by any combination of such methods, on steel engraved
borders, and which certificates shall be free of any restrictive legends
and in such permitted denominations and registered in such names as holders
may request in connection with the sale of Registrable Securities pursuant
to such Shelf Registration Statement.
(j) Upon the occurrence of any event contemplated by Section 3(d)(v)
above, the Company shall promptly prepare a post-effective amendment to any
Shelf Registration Statement or an amendment or supplement to the related
Prospectus or file any other required document so that, as thereafter
delivered to Purchaser of the Registrable Securities included therein, the
Prospectus will not include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, the Company may postpone, for a period not
to exceed 30 days, supplementing or amending the Shelf Registration
Statement if (i) the Company is in possession of material non-public
information related to a proposed financing, recapitalization, acquisition,
business combination or other material transaction and the Board of
Directors of the Company determines (in good faith in a written resolution)
that disclosure of such information would have a material adverse effect on
the business or operations of the Company and its subsidiaries and
disclosure of such information is not otherwise required by law and (ii)
the Company delivers notice (which shall include a copy of the resolution
of the Board of Directors with respect to such determination) to the
Electing Holders and any placement agent or underwriter as contemplated by
Section 3(d)(v) to the effect that Electing Holders may not make offers or
sales under the Shelf Registration Statement (a "Suspension Event");
provided, however, that the Company may deliver only two such notices
within any 12-month period. Promptly upon the earlier of (x) public
disclosure of such material non-public information, (y) the date on which
such non-public information is no longer material and (z) 30 days after the
date notice is given by the Company pursuant to clause (ii) above, the
Company shall supplement or amend the Shelf Registration Statement as
required by the immediately preceding sentence and give notice to the
Electing Holders that offers and sales under the Shelf Registration
Statement may be resumed. If the Company notifies the Electing Holders of
the
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<PAGE>
occurrence of any event contemplated by paragraph 3(d)(v) above, each
Electing Holder agrees, as a consequence of the inclusion of any of such
holder's Registrable Securities in the Shelf Registration Statement, to
suspend the use of the Prospectus until the requisite changes to the
Prospectus have been made.
(k) Not later than the Effective Time of any Shelf Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Securities registered under such Shelf Registration Statement.
(l) The Company shall use its best efforts to comply with all applicable
rules and regulations of the Commission and shall make generally available
to their securityholders or otherwise provide in accordance with Section
11(a) of the Securities Act as soon as practicable, but in any event not
later than eighteen months after (i) the effective date of the applicable
Shelf Registration Statement, (ii) the effective date (as defined in Rule
158(c) under the Securities Act of each post-effective amendment to the
Shelf Registration Statement, and (iii) the date of each filing by the
Company with the Commission of an Annual Report on Form 10-K that is
incorporated by reference in the Shelf Registration Statement, an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act
and the rules and regulations of the Commission thereunder (including, at
the option of the Company, Rule 158).
(m) Not later than the Effective Time of the Shelf Registration
Statement, the Company shall cause the Indenture and the Securities to be
qualified under the Trust Indenture Act in a timely manner and, in
connection with such qualification, the Company shall cooperate with the
Trustee under the Indenture and the Holders (as defined in the Indenture)
to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the Trust
Indenture Act; and the Company shall execute, and shall use all reasonable
efforts to cause the Trustee to execute, all documents that may be required
to effect such changes and all other forms and documents required to be
filed with the Commission to enable such Indenture to be so qualified in a
timely manner. In the event that any such amendment or modification
referred to in this Section 3(m) involves the appointment of a new trustee
under the Indenture, the Company shall appoint a new trustee thereunder
pursuant to the applicable provisions of the Indenture.
(n) The Company may require each holder of Registrable Securities to be
sold pursuant to any Shelf Registration Statement to furnish to the Company
such information regarding the holder and the distribution of such
Registrable Securities as may be required by applicable law or regulation
for inclusion in such Shelf Registration Statement and the Company may
exclude from such registration the Registrable Securities of any holder
that fails to furnish such information within a reasonable time after
receiving such request.
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<PAGE>
(o) The Company shall, if requested, promptly include or incorporate in
a Prospectus supplement or post-effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters reasonably agree
should be included therein and to which the Company does not reasonably
object and shall make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after they are notified of
the matters to be included or incorporated in such Prospectus supplement or
post-effective amendment.
(p) The Company shall enter into such customary agreements (including
underwriting agreements in customary form) and take all other appropriate
actions in order to expedite or facilitate the registration or the
disposition of the Registrable Securities, and in connection therewith, if
an underwriting agreement is entered into, cause the same to contain
indemnification provisions and procedures substantially identical to those
set forth in Section 5 (or such other provisions and procedures acceptable
to the Managing Underwriters, if any) with respect to all parties to be
indemnified pursuant to Section 5.
(q) The Company shall:
(i) make reasonably available for inspection by the Electing
Holders, any underwriter participating in any disposition pursuant to
such Shelf Registration Statement, and any attorney, accountant or
other agent retained by such holders or any such underwriter all
relevant financial and other records, pertinent corporate documents
and properties of the Company and its subsidiaries;
(ii) in connection with any underwritten offering conducted pursuant
to Section 6 hereof, cause the Company's officers, directors and
employees to supply all information reasonably requested by such
holders or any such underwriter, attorney, accountant or agent in
connection with any such Shelf Registration Statement, in each case,
as is customary for similar due diligence examinations; provided,
however, that any information that is designated in writing by the
Company, in good faith, as confidential at the time of delivery of
such information shall be kept confidential by such holders or any
such underwriter, attorney, accountant or agent, unless such
disclosure is made in connection with a court proceeding or required
by law, or such information becomes available to the public generally
or through a third party without an accompanying obligation of
confidentiality; and provided further that, if the foregoing
inspection and information gathering would otherwise disrupt the
Company's conduct of business, such inspection and information
gathering shall, to the greatest extent possible, be coordinated on
behalf of the Electing Holders and the other parties entitled thereto
by one counsel designated by and on behalf of such Electing Holders
and other parties;
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(iii) in connection with any underwritten offering conducted
pursuant to Section 6 hereof, make such representations and warranties
to the Electing Holders registered thereunder and to the Managing
Underwriters, in form, substance and scope as are customarily made by
the Company to underwriters in primary underwritten offerings and
covering matters including, but not limited to, those set forth in the
Purchase Agreement;
(iv) in connection with any underwritten offering conducted pursuant
to Section 6 hereof, obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the Managing
Underwriters) addressed to each selling holder and the underwriters
covering such matters as are customarily covered in opinions requested
in primary underwritten offerings of equity and convertible debt
securities and such other matters as may be reasonably requested by
such holders and underwriters (it being agreed that the matters to be
covered by such opinion or written statement by such counsel delivered
in connection with such opinions shall include, without limitation, as
of the date of the opinion and as of the effective date of the Shelf
Registration Statement or most recent post-effective amendment
thereto, as the case may be, the absence from such Shelf Registration
Statement and the Prospectus included therein, as then amended or
supplemented, including the documents incorporated by reference
therein, of an untrue statement of a material fact or the omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading);
(v) in connection with any underwritten offering conducted pursuant
to Section 6 hereof, obtain "cold comfort" letters and updates thereof
from the independent public accountants of the Company (and, if
necessary, any other independent public accountants of any subsidiary
of the Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be,
included in the Shelf Registration Statement), addressed to each
selling holder and the underwriters in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with primary underwritten offerings;
(vi) in connection with any underwritten offering conducted pursuant
to Section 6 hereof, deliver such documents and certificates as may be
reasonably requested by any such holders participating in such
underwritten offering and the Managing Underwriters, including those
to evidence compliance with Section 3(i) and with any customary
conditions contained in the underwriting agreement or other agreement
entered into by the Company.
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The foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of
this Section 3(q) shall be performed at each closing under any underwritten
offering to the extent required thereunder.
(r) The Company will use its best efforts to cause the Common Stock
issuable upon conversion of the Securities to be listed on the New York
Stock Exchange or other stock exchange or trading system on which the
Common Stock primarily trades on or prior to the Effective Time of any
Shelf Registration Statement hereunder.
(s) In the event that any broker-dealer registered under the Exchange
Act shall be an "affiliate " (as defined in Rule 2720(b)(1) of the NASD
Rules (or any successor provision thereto)) of the Company or has a
"conflict of interest" ( as defined in Rule 2720(b)(7) of the NASD Rules
(or any successor provision thereto)) and such broker-dealer shall
underwrite any Registrable Securities or participate as a member of an
underwriting syndicate or selling group or assist in the distribution
thereof, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in
complying with the requirements of the NASD Rules, including, without
limitation, by (A) engaging a "qualified independent underwriter" (as
defined in Rule 2720(b)(15) of the NASD Rules (or any successor provision
thereto)) to participate in the preparation of the Shelf Registration
Statement relating to such Registrable Securities, to exercise usual
standards of due diligence in respect thereto, and to recommend the public
offering price of such Registrable Securities, (B) indemnifying any such
qualified independent underwriter to the extent of the indemnification of
underwriters provided in Section 5 hereof and (C) providing such
information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
(t) The Company shall use its best efforts to take all other steps
necessary to effect the registration, offering and sale of the Registrable
Securities covered by the Shelf Registration Statement contemplated hereby.
4. Registration Expenses. The Company shall bear all fees and expenses
incurred in connection with the performance of its obligations under Sections 2,
3 and 6 hereof. In addition, in the event of an underwritten offering of
Registrable Securities conducted pursuant to Section 6 hereof, or if in any
other event the Company requires that inspection and information gathering be
coordinated by counsel for the Electing Holders as provided in Section 3(q)(i)
hereof, the Company shall pay the fees and expenses of a single counsel selected
by the Electing Holders of not less than 25% of the Registrable Securities
covered by the Shelf Registration Statement to act as counsel therefor in
connection therewith. The Electing Holders participating in such offering (or,
in any such other event, participating in such inspection and information
gathering) shall be responsible, on a pro rata basis based on
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the respective amount of their Registrable Securities included in such offering,
for all fees and expenses of such counsel in excess of $50,000.
5. Indemnification and Contribution.
(a) Indemnification by the Company. Upon the registration of the
------------------------------
Registrable Securities pursuant to Section 2 hereof, the Company shall indemnify
and hold harmless each Electing Holder and each underwriter, selling agent or
other securities professional, if any, which facilitates the disposition of
Registrable Securities, and each of their respective officers and directors and
each person who controls such Electing Holder, underwriter, selling agent or
other securities professional within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act (each such person being sometimes referred
to as an "Indemnified Person") against any losses, claims, damages or
liabilities, joint or several, to which such Indemnified Person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Shelf Registration Statement under which such Registrable
Securities are to be registered under the Securities Act, or any Prospectus
contained therein or furnished by the Company to any Indemnified Person, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Company hereby agrees to reimburse such Indemnified Person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
--------
however, that the Company shall not be liable to any such Indemnified Person in
- -------
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such Shelf Registration Statement or
Prospectus, or amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by such Indemnified Person
expressly for use therein.
(b) Indemnification by the Holders and any Agents and Underwriters. Each
--------------------------------------------------------------
Electing Holder agrees, as a consequence of the inclusion of any of such
holder's Registrable Securities in such Shelf Registration Statement, and each
underwriter, selling agent or other securities professional, if any, which
facilitates the disposition of Registrable Securities shall agree (or the
Electing Holder shall cause to agree), as a consequence of facilitating such
disposition of Registrable Securities, severally and not jointly, to (i)
indemnify and hold harmless the Company, its directors, officers who sign any
Shelf Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, against any losses, claims, damages or liabilities to which
the Company or such other persons may become subject, under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material
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<PAGE>
fact contained in such Shelf Registration Statement or Prospectus, or any
amendment or supplement, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such holder,
underwriter, selling agent or other securities professional expressly for use
therein, and (ii) reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified party
----------------------
under subsection (a) or (b) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party under this Section 5, notify such indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 5. In case any such
action shall be brought against any indemnified party and it shall notify an
indemnifying party of the commencement thereof, such indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided however,
-------- -------
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it and/or other
indemnified parties with are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or parties
and such indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 5 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
representing the indemnified parties under such paragraph (a) who are parties
to such action or actions) or (ii) the indemnifying party does not promptly
retain counsel satisfactory to the indemnified party or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the indemnifying
party to such indemnified party, the indemnifying party will not be liable for
the costs and expenses of any
14
<PAGE>
settlement of such action effected by such indemnified party without the consent
of the indemnifying party. No indemnifying party shall, without the written
consent of the indemnified party, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act, by
or on behalf of any indemnified party.
(d) Contribution. If the indemnification provided for in this Section 5 is
------------
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or by such indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 5(d) were determined by
pro rata allocation (even if the Electing Holders or any underwriters, selling
agents or other securities professionals or all of them were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 5(d).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. 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. The obligations of the Electing Holders and any
underwriters, selling agents or other securities professionals in this Section
5(d) to contribute shall be several in proportion to the percentage of principal
amount of Registrable Securities registered or underwritten, as the case may be,
by them and not joint.
(e) Notwithstanding any other provision of this Section 5, in no event will
any (i) Electing Holder be required to undertake liability to any person under
this Section 5 for any
15
<PAGE>
amounts in excess of the dollar amount of the proceeds to be received by such
holder from the sale of such holder's Registrable Securities (after deducting
any fees, discounts and commissions applicable thereto) pursuant to any Shelf
Registration Statement under which such Registrable Securities are to be
registered under the Securities Act and (ii) underwriter, selling agent or other
securities professional be required to undertake liability to any person
hereunder for any amounts in excess of the discount, commission or other
compensation payable to such underwriter, selling agent or other securities
professional with respect to the Registrable Securities underwritten by it and
distributed to the public.
(f) The obligations of the Company under this Section 5 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 5 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 5 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
6. Underwritten Offering. Any holder of Registrable Securities covered by
the Shelf Registration Statement who desires to do so may sell such Registrable
Securities in an underwritten offering. In any such underwritten offering, the
investment banker or bankers and manager or managers that will administer the
offering will be selected by, and the underwriting arrangements with respect
thereto will be approved by the holders of a majority of the Registrable
Securities to be included in such offering; provided, however, that (i) such
investment bankers and managers and underwriting arrangements must be reasonably
satisfactory to the Company and (ii) the Company shall not be obligated to
arrange for more than one underwritten offering during the Effectiveness Period.
No holder may participate in any underwritten offering contemplated hereby
unless such holder (a) agrees to sell such holder's Registrable Securities in
accordance with any approved underwriting arrangements, (b) completes and
executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such approved underwriting arrangements and (c) at least 20% of the
outstanding Registrable Securities are included in such underwritten offering.
The holders participating in any underwritten offering shall be responsible for
any expenses customarily borne by selling securityholders, including
underwriting discounts and commissions and fees and expenses of counsel to the
selling securityholders and shall reimburse the Company for the fees and
disbursements of their counsel, their independent public accountants and any
printing expenses incurred in connection with such underwritten offerings.
7. Miscellaneous.
(a) Other Registration Rights. The Company may grant registration rights
that would permit any Person that is a third party the right to piggy-back on
any Shelf Registration Statement, provided that if the Managing Underwriter, if
any, of such offering delivers an
16
<PAGE>
opinion to the Electing Holders that the total amount of securities which they
and the holders of such piggy-back rights intend to include in any Shelf
Registration Statement is so large as to materially adversely affect the success
of such offering (including the price at which such securities can be sold),
then only the amount, the number or kind of securities to be offered for the
account of holders of such piggy-back rights will be reduced to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount, number or kind recommended by the Managing Underwriter
prior to any reduction in the amount of Registrable Securities to be included.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, qualified, 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 the
holders of a majority in aggregate principal amount of Registrable Securities
then outstanding. Each holder of Registrable Securities outstanding at the time
of any such amendment, waiver or consent or thereafter shall be bound by any
amendment, waiver or consent effected pursuant to this Section 7(b), whether or
not any notice, writing or marking indicating such amendment, waiver or consent
appears on the Registrable Securities or is deliverable to such holder.
(c) Notices. All notices and other communications provided for or permitted
hereunder shall be given as provided for in the Indenture.
The Purchaser or the Company by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) Parties in Interest; Successors and Assigns. The parties to this
Agreement intend that all holders of Registrable Securities shall be entitled to
receive the benefits of this Agreement by reason of such election with respect
to the Registrable Securities which are included in a Shelf Registration
Statement. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties and the holders, including,
without the need for an express assignment or any consent by the Company
thereto, subsequent holders of Registrable Securities. The Company hereby
agrees to extend the benefits of this Agreement to any holder of Registrable
Securities and any such holder may specifically enforce the provisions of this
Agreement as if an original party hereto.
(e) Counterparts. This agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
17
<PAGE>
(g) Governing Law. This agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to any
provisions relating to conflicts of laws.
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges of the parties
shall be enforceable to the fullest extent permitted by law.
(i) Survival. The respective indemnities, agreements, representations,
warranties and other provisions set forth in this Agreement or made pursuant
hereto shall remain in full force and effect, regardless of any investigation
(or any statement as to the results thereof) made by or on behalf of any
Electing Holder, any director, officer or partner of such holder, any agent or
underwriter, any director, officer or partner of such agent or underwriter, or
any controlling person of any of the foregoing, and shall survive the transfer
and registration of the Registrable Securities of such holder.
18
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
HOMEBASE, INC.
By: /s/ Allan Sherman
-------------------------------
Name:
Title:
The foregoing Registration Rights Agreement is hereby confirmed and accepted as
of the date first above written.
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ Jean-Claude Canfin
-------------------------------
Name: JEAN-CALUDE CANFIN
Title: MANAGING DIRECTOR
19
<PAGE>
Exhibit A
HOMEBASE, INC.
INSTRUCTION TO DTC PARTICIPANTS
-------------------------------
____________ __, 199_
URGENT - IMMEDIATE ATTENTION REQUESTED
DEADLINE FOR RESPONSE: ___________ _, 199_
-----------------------
The Depository Trust Company ("DTC") has identified you as a DTC
Participant through which beneficial interests in HomeBase, Inc. (the "Company")
53% Convertible Subordinated Notes due November 1, 2004 (the "Securities") are
held.
The Company is in the process of registering the Securities under the
Securities Act of 1933 for resale by the beneficial owners thereof. In order to
have their Securities included in the registration statement, beneficial owners
must complete and return the enclosed Notice of Registration Statement and
Selling Securityholder Questionnaire.
It is important that beneficial owners of the Securities receive a copy
-----------------------------------------------------------------------
of the enclosed materials as soon as possible as their rights to have the
- ---------------------------------------------
Securities included in the registration statement depend upon their returning
the Notice and Questionnaire by ________ __, 199_. Please forward a copy of the
enclosed documents to each beneficial owner that holds interests in the
Securities through you. If you require more copies of the enclosed materials or
have any questions pertaining to this matter, please contact HomeBase, Inc.,
3345 Michelson Drive, Irvine, CA 92612, Telephone: 714.442.5293.
<PAGE>
HOMEBASE, INC.
Notice of Registration Statement
and
Selling Securityholder Questionnaire
------------------------------------
________ __, 199_
Reference is hereby made to the Registration Rights Agreement (the
"Registration Rights Agreement") between HomeBase, Inc. (the "Company") and the
Purchaser named therein. Pursuant to the Registration Rights Agreement, the
Company has filed with the United States Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (the "Shelf Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities Act"), of the Company's 53% Convertible
Subordinated Notes due November 1, 2004 (the "Securities") and the shares of
common stock, par value $1.00 per share (the "Common Stock"), issuable upon
conversion thereof. A copy of the Registration Rights Agreement is attached
hereto. All capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Registration Rights Agreement.
Each beneficial owner of Registrable Securities (as defined below) is
entitled to have the Registrable Securities beneficially owned by it included in
the Shelf Registration Statement. In order to have Registrable Securities
included in the Shelf Registration Statement, this Notice of Registration
Statement and Selling Securityholder Questionnaire ("Notice and Questionnaire")
must be completed, executed and delivered to the Company's counsel at the
address set forth herein for receipt on or before ________ __, 199_. Beneficial
owners of Registrable Securities who do not complete, execute and return this
Notice and Questionnaire by such date (i) will not be named as selling
securityholders in the Shelf Registration Statement and (ii) may not use the
Prospectus forming a part thereof for resales of Registrable Securities.
Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and related Prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Shelf Registration
Statement and related Prospectus.
A-2
<PAGE>
The term "Registrable Securities" is defined in the Registration Rights
----------------------
Agreement to mean all or any portion of the Securities issued from time to time
under the Indenture in registered form and the shares of Common Stock issuable
upon conversion of such Securities, including any Securities initially issued in
bearer form and constituting the unsold allotment of a distributor (within the
meaning of Regulation S under the Securities Act) of such Securities and later
exchanged for Securities in registered form; provided, however, that a security
ceases to be a Registrable Security when it is no longer a Restricted Security.
The term "Restricted Security" is defined in the Registration Rights
-------------------
Agreement to mean any Security or share of Common Stock issuable upon conversion
thereof except any such Security or share of Common Stock which (i) has been
effectively registered under the Securities Act and sold in a manner
contemplated by the Shelf Registration Statement, (ii) has been transferred in
compliance with Rule 144 under the Securities Act (or any successor provision
thereto) or is transferable pursuant to paragraph (k) of such Rule 144 (or any
successor provision thereto), (iii) has been sold in compliance with Regulation
S under the Securities Act (or any successor thereto) and does not constitute
the unsold allotment of a distributor within the meaning of Regulation S under
the Securities Act, or (iv) has otherwise been transferred and a new Security or
share of Common Stock not subject to transfer restrictions under the Securities
Act has been delivered by or on behalf of the Company in accordance with Section
3.5 of the Indenture.
ELECTION
The undersigned holder (the "Selling Securityholder") of Registrable
Securities hereby elects to include in the Shelf Registration Statement the
Registrable Securities beneficially owned by it and listed below in Item (3).
The undersigned, by signing and returning this Notice and Questionnaire, agrees
to be bound with respect to such Registrable Securities by the terms and
conditions of this Notice and Questionnaire and the Registration Rights
Agreement, including, without limitation, Section 5 of the Registration Rights
Agreement, as if the undersigned Selling Securityholder were an original party
thereto.(1)
Upon any sale of Registrable Securities pursuant to the Shelf
Registration Statement, the Selling Securityholder will be required to deliver
to the Company and Trustee the Notice of Transfer set forth in Appendix A to the
Prospectus. This Notice of Transfer is set forth as Exhibit A to the
Prospectus.
The Selling Securityholder hereby provides the following information to
the Company and represents and warrants that such information is accurate and
complete:
A-3
<PAGE>
QUESTIONNAIRE
(i) (i) Full Legal Name of Selling Securityholder:
----------------------------------------------------------------------
(ii) Full Legal Name of Registered Holder (if not the same as in (a) above)
of Registrable Securities Listed in (3) below:
----------------------------------------------------------------------
(iii) Full Legal Name of DTC Participant (if applicable and if not the same
as (b) above) Through Which Registrable Securities Listed in (3) below
are Held:
----------------------------------------------------------------------
A-4
<PAGE>
(j) Address for Notices to Selling Securityholder:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Telephone:
----------------------
Fax:
----------------------
Contact Person:
----------------------
(k) Beneficial Ownership of Securities and shares of Common Stock issued upon
conversion of Securities:
Except as set forth below in this Item (3), the undersigned does not
beneficially own any Securities or shares of Common Stock issued upon conversion
of any Securities.
(i) Principal amount of Registrable Securities (as defined in the
Registration Rights Agreement) beneficially owned: _________________
CUSIP No(s). of such Registrable Securities:________________________
Number of shares of Common Stock (if any) issued upon conversion of
such Registrable Securities:________________________________________
(ii) Principal amount of Securities other than Registrable Securities
beneficially owned:
CUSIP No(s). of such other Securities:______________________________
Number of shares of Common Stock (if any) issued upon conversion of
such other Securities:______________________________________________
(iii) Principal amount of Registrable Securities which the undersigned
wishes to be included in the Shelf Registration Statement:__________
CUSIP No(s). of such Registrable Securities to be included in the
Shelf Registration Statement:_______________________________________
A-5
<PAGE>
Number of shares of Common Stock (if any) issued upon conversion of
Registrable Securities which are to be included in the Shelf
Registration Statement:_____________________________________________
(l) Beneficial Ownership of Other Securities of the Company:
Except as set forth below in this Item (4), the undersigned Selling
Securityholder is not the beneficial or registered owner of any shares of Common
Stock or any other securities of the Company, other than the Securities and
shares of Common Stock listed above in Item (3).
State any exceptions here:
(m) Relationships with the Company:
Except as set forth below, neither the Selling Securityholder nor any of
its affiliates, officers, directors or principal equity holders (5% or more) has
held any position or office or has had any other material relationship with the
Company (or its predecessors or affiliates) during the past three years.
State any exceptions here:
(n) Plan of Distribution:
Except as set forth below, the undersigned Selling Securityholder
intends to distribute the Registrable Securities listed above in Item (3) only
as follows (if at all): Such Registrable Securities may be sold from time to
time directly by the undersigned Selling Securityholder or, alternatively,
through underwriters, broker-dealers or agents. Such Registrable Securities may
be sold in one or more transactions at fixed prices, at prevailing market prices
at the time of sale, at varying prices determined at the time of sale, or at
negotiated prices. Such sales may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Registered Securities may be listed or quoted
at the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or services or in the over-the-counter market,
or (iv) through the writing of options. In connection with sales of the
A-6
<PAGE>
Registrable Securities or otherwise, the Selling Securityholder may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the Registrable Securities in the course of hedging the positions they
assume. The Selling Securityholder may also sell Registrable Securities short
and deliver Registrable Securities to close out such short positions, or loan or
pledge Registrable Securities to broker-dealers that in turn may sell such
securities.
State any exceptions here:
Note: In no event may such method(s) of distribution take the form of an
underwritten offering of the Registrable Securities without the prior agreement
of the Company.
By signing below, the Selling Securityholder acknowledges that it
understands its obligation to comply, and agrees that it will comply, with the
provisions of the Exchange Act and the rules and regulations thereunder.
In the event that the Selling Securityholder transfers all or any portion
of the Registrable Securities listed in Item (3) above after the date on which
such information is provided to the Company, the Selling Securityholder agrees
to notify the transferee(s) at the time of the transfer of its rights and
obligations under this Notice and Questionnaire and the Registration Rights
Agreement.
By signing below, the Selling Securityholder consents to the disclosure of
the information contained herein in its answers to Items (1) through (6) above
and the inclusion of such information in the Shelf Registration Statement and
related Prospectus. The Selling Securityholder understands that such
information will be relied upon by the Company in connection with the
preparation of the Shelf Registration Statement and related Prospectus.
In accordance with the Selling Securityholder's obligation under Section
3(a) of the Registration Rights Agreement to provide such information as may be
required by law for inclusion in the Shelf Registration Statement, the Selling
Securityholder agrees to promptly notify the Company of any inaccuracies or
changes in the information provided herein which
A-7
<PAGE>
may occur subsequent to the date hereof at any time while the Shelf Registration
Statement remains in effect. All notices hereunder and pursuant to the
Registration Rights Agreement shall be made in writing, by hand-delivery, first-
class mail, or air courier guaranteeing overnight delivery as follows:
(i) To the Company:
HomeBase, Inc.
3345 Michelson Drive
Irvine, CA 92612
Attn: Chief Financial Officer
(ii) With a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071-3197
Attn: Jonathan K. Layne
Once this Notice and Questionnaire is executed by the Selling
Securityholder and received by the Company's counsel, the terms of this Notice
and Questionnaire, and the representations and warranties contained herein,
shall be binding on, shall inure to the benefit of and shall be enforceable by
the respective successors, heirs, personal representatives, and assigns of the
Company and the Selling Securityholder (with respect to the Registrable
Securities beneficially owned by such Selling Securityholder and listed in Item
(3) above. This Agreement shall be governed in all respects by the laws of the
State of New York.
A-8
<PAGE>
IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: ________________
_____________________________________________________
Selling Securityholder
(Print/type full legal name of beneficial
owner of Registrable Securities)
By:__________________________________________________
Name:
Title:
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON
OR BEFORE ___________ __, 199_ TO THE COMPANY'S COUNSEL AT:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071-3197
Attn: Jonathan K. Layne
A-9
<PAGE>
Exhibit B
NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT
[Name of Trustee]
HomeBase, Inc.
[Address of Trustee]
Attention: [Corporate Trust Services]
Re: HomeBase, Inc. (the "Company")
53% Convertible Subordinated Notes due November 1, 2004 (the
------------------------------------------------------------
"Notes")
--------
Dear Sirs:
Please be advised that _____________________ has transferred
$___________ aggregate principal amount of the above-referenced Notes pursuant
to an effective Registration Statement on Form S-3 (File No. 333-____) filed by
the Company.
We hereby certify that the prospectus delivery requirements, if any, of
the Securities Act of 1933, as amended, have been satisfied and that the above-
named beneficial owner of the Notes is named as a "Selling Holder" in the
Prospectus dated ___________, 199_ or in supplements thereto, and that the
aggregate principal amount of the Notes transferred are the Notes listed in such
Prospectus opposite such owner's name.
Dated:
Very truly yours,
________________________
(Name)
By:________________________
(Authorized Signature)
A-10
<PAGE>
EXHIBIT 4.6
$100,000,000
HOMEBASE, INC.
5.25% Convertible Subordinated Notes Due 2004/1/
PURCHASE AGREEMENT
------------------
November 10, 1997
PRUDENTIAL SECURITIES INCORPORATED
As the Initial Purchaser
One New York Plaza
New York, New York 10292
Dear Sirs:
HomeBase, Inc., a Delaware corporation (the "Company"), confirms its
agreement with you (the "Initial Purchaser"), with respect to the issue and sale
by the Company and the purchase by the Initial Purchaser, subject to the terms
and conditions contained in this Agreement, of an aggregate of $100,000,000
principal amount of 5.25% Convertible Subordinated Notes Due 2004, convertible
into common stock, par value $.01 per share ("Common Stock"), of the Company
(the "Firm Securities") and, if requested by the Initial Purchaser, up to an
aggregate of $15,000,000 additional principal amount (the "Option Securities").
The Firm Securities and the Option Securities are herein collectively referred
to as the "Securities."
1. Securities. The Securities will be offered and sold without being
----------
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance on exemptions therefrom. The Company understands that the Initial
Purchaser will resell a portion of the Securities (the "Rule 144A Securities")
inside the United States to qualified institutional buyers ("QIBs") in reliance
on Rule 144A ("Rule 144A") under the Securities Act and the remaining Securities
(the "Regulation S Securities") outside the United States to persons other than
U.S. persons in reliance on Regulation S under the Securities Act ("Regulation
S"). The Rule 144A Securities will initially be issued in the
- ----------------------
/1/ Plus an option to purchase from the Company up to an aggregate of
$15,000,000 additional aggregate principal amount to cover over-allotments.
<PAGE>
form of a single, permanent global certificate (the "Rule 144A Global
Security"). The Regulation S Securities will initially be issued in the form of
a single, permanent global certificate (the "Regulation S Global Security," and
together with the Rule 144A Global Securities, the "Global Securities").
It is also understood and acknowledged that holders (including subsequent
transferees) of the Securities and, if such Securities are subsequently
converted into shares of Common Stock that are restricted for purposes of Rule
144 under the Securities Act ("Restricted Securities"), the holders of
Restricted Securities will have the registration rights set forth in the
Registration Agreement to be dated the date hereof, reflecting the terms set
forth in the Offering Memorandum (as hereinafter defined) and other customary
matters (the "Registration Agreement"), for so long as the Securities or any
Restricted Securities constitute "Transfer Restricted Securities" (as defined in
the Registration Agreement). Pursuant to the Registration Agreement, the
Company will agree, subject to the terms and conditions set forth therein (i) to
file with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-1 or Form S-3 under the Securities Act relating
to the resale of the Securities and the Transfer Restricted Securities by
certain holders thereof from time to time in accordance with the methods of
distribution set forth in such registration statement and Rule 415 under the
Securities Act (the "Shelf Registration Statement") and (ii) to use its
reasonable best efforts to cause such Shelf Registration Statement to be
declared and to remain effective.
2. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to, and agrees with, the Initial Purchaser that:
(a) a preliminary offering memorandum dated November 3, 1997 and an
offering memorandum dated November 10, 1997 have been prepared by the
Company in connection with the offering of the Securities (the preliminary
offering memorandum being hereinafter referred to as the "Preliminary
Offering Memorandum" and the offering memorandum being hereinafter referred
to as the "Offering Memorandum"; any reference to the Preliminary Offering
Memorandum or the Offering Memorandum shall be deemed to refer to and
include the Additional Company Information (as defined in Section 5(c)), if
any). The Preliminary Offering Memorandum and the Offering Memorandum and
any amendments or supplements thereto did not and will not, as of their
respective dates, contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The foregoing provisions of this paragraph (a) do not apply to statements
or omissions made in the Preliminary Offering Memorandum or the Offering
Memorandum in reliance upon and in conformity with written information
furnished to the Company by the Initial Purchaser specifically for use
therein.
(b) When the Securities are issued and delivered pursuant to this
Agreement, (i) such Securities will not be of the same class (within the
meaning of Rule 144A) as securities of the Company which are listed on a
national securities exchange registered under Section 6 of the
2
<PAGE>
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or quoted
in a U.S. automated inter-dealer quotation system; (ii) the Company will be
subject to Section 13 or 15(d) of the Exchange Act; (iii) the Company is
not 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"); (iv) neither the Company nor any
affiliate (as defined in Rule 501(b) under the Securities Act) of the
Company has, directly or through any agent, sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any security
(as defined in the Securities Act) which is or will be integrated with the
sale of the Securities in a manner that would require the registration of
the Securities or the Common Stock issuable upon conversion of the
Securities (the "Conversion Securities") under the Securities Act; and (v)
neither the Company nor any person acting on its behalf (other than the
Initial Purchaser) has engaged or will engage, 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
in any manner involving a public offering within the meaning of Section
4(2) of the Securities Act, or, with respect to Securities sold in reliance
on Rule 903 ("Rule 903") under the Securities Act, in any directed selling
efforts within the meaning of Rule 903 with respect to the Securities and
each of them has complied and will comply with the offering restrictions
requirement of Regulation S.
(c) Based on the Initial Purchaser's representations and
warranties in Section 4 and compliance by the Initial Purchaser with their
covenants in Section 4, it is not necessary in connection with (i) the
offer, sale and delivery of the Securities in the manner contemplated by
this Agreement or (ii) the issuance and delivery of the Common Stock, to
register the Securities or any Conversion Securities under the Securities
Act. The Indenture, dated as of November 10, 1997 (the "Indenture"),
between the Company and State Street Bank and Trust Company of California,
N.A. (the "Trustee") meets the requirements for an indenture to be
qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act").
(d) The Company is a corporation duly organized and validly existing
as a corporation in good standing under the laws of the State of Delaware.
Each of the Company's subsidiaries has been duly organized and is validly
existing as a corporation in good standing under the laws of their
respective jurisdictions. The Company and each of its subsidiaries are
duly qualified to transact business as foreign corporations and are in good
standing under the laws of all other jurisdictions where the ownership or
leasing of their respective properties or the conduct of their respective
businesses requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the
Company and its subsidiaries, taken as a whole.
(e) The Company and each of the subsidiaries have full power
(corporate or partnership, as applicable, and other) to own or lease their
respective properties and conduct their respective businesses as described
in the Offering Memorandum; and the Company has full power (corporate and
other) to execute and deliver this Agreement and the Registration
3
<PAGE>
Agreement and the Indenture (the "Other Company Agreements") and to carry
out all the terms and provisions hereof and thereof to be carried out by
it.
(f) The issued shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and are owned of record and beneficially by the Company,
directly or indirectly through one or more of the subsidiaries, free and
clear of any security interests, liens, encumbrances, equities or claims;
except as described in the Offering Memorandum there are not any
outstanding rights, warrants or options to acquire any shares of capital
stock of the Company or any subsidiary, other than employee stock options
granted since January 25, 1997 in accordance with ordinary Company
practice; and none of the shares of the Company or any subsidiary was
issued in violation of the rights or other rights to subscribe for or
purchase securities, including preemptive rights or other rights to
subscribe for or purchase securities, of any stockholders of the Company or
any subsidiary.
(g) The Company has an authorized, issued and outstanding
capitalization as set forth in the Offering Memorandum under the caption
"Capitalization." The outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable; the
issuance of all outstanding shares of Common Stock is not and may not be
void or voidable, including being voidable by virtue of any statutory right
of preemption or other rights to subscribe for or purchase securities; the
holders of the outstanding shares of Common Stock are not entitled to
preemptive or other rights to acquire any Securities or Conversion
Securities or other securities as a result of the transactions contemplated
hereunder (which shall include the issuance and sale of the Securities and
the Conversion Securities); the Conversion Securities are freely issuable
by the Company upon conversion of the Securities and, other than as
described in the Offering Memorandum, there are no restrictions on the
ownership or subsequent transfers of the Conversion Securities. Conversion
Securities have been duly authorized and reserved for issuance upon such
conversion of the Securities and, when they are issued and delivered upon
conversion of the Securities in accordance with the terms thereof and the
Indenture, will be validly issued, fully paid and not subject to calls for
additional payments of any kind; the Common Stock conforms to the
description thereof contained in the Offering Memorandum.
(h) The Indenture has been duly authorized by the Company and, when
executed and delivered by the Company, the Indenture will constitute the
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforcement thereof may be
limited by the effect of any applicable bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws affecting
the rights and remedies of creditors generally and to general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
(i) The execution and delivery of this Agreement and the Registration
Agreement have been duly authorized by the Company; this Agreement has been
duly executed and delivered
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<PAGE>
by the Company, and this Agreement is, and upon execution and delivery of
the Registration Agreement such agreement will be, the valid and binding
agreements of the Company, enforceable against the Company in accordance
with their terms, except as enforcement thereof may be limited by the
effect of any applicable bankruptcy, insolvency, reorganization,
receivership, moratorium or other similar laws affecting the rights and
remedies of creditors generally and to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law).
(j) The Securities have been duly authorized by the Company and when
duly executed by the Company and authenticated by the Trustee and issued
and delivered by the Company in accordance with the Indenture, will have
been duly and validly executed, authenticated, issued and delivered and
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms except as enforcement
thereof may be limited by the effect of any applicable bankruptcy,
insolvency, reorganization, receivership, moratorium or other similar laws
affecting the rights and remedies of creditors generally and to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law); and the Securities are entitled to the
benefits provided by the Indenture.
(k) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included or incorporated by
reference in the Offering Memorandum fairly present the financial position
of the Company and its consolidated subsidiaries and the results of
operations and changes in financial condition as of the dates and for the
periods therein specified. Such financial statements and schedules have
been prepared in accordance with United States generally accepted
accounting principles consistently applied throughout the periods involved
(except as otherwise noted therein). The selected financial data set forth
under the caption "Selected Consolidated Financial and Operating Data" in
the Offering Memorandum fairly present, on the basis stated in the Offering
Memorandum, the information included therein.
(l) Coopers & Lybrand, LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered
their report with respect to the audited consolidated financial statements
and schedules included in the Offering Memorandum, are independent public
accountants within the meaning of the Securities Act, the Exchange Act and
the applicable rules and regulations thereunder.
(m) No legal or governmental proceedings are pending to which the
Company or any of its subsidiaries is a party or to which the property of
the Company or any of its subsidiaries is subject that (i) would affect the
offering, issuance sale or marketability of the Securities or the
Conversion Securities or in any manner draw into question the validity of
this Agreement or any Other Company Agreement or any of the transactions
contemplated herein or therein, or (ii) is of a character that would be
required to be disclosed in a registration statement on Form S-1 or the
related prospectus relating to the offer and sale of the Securities and
which
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<PAGE>
is not described in the Offering Memorandum, and no such proceedings
have been threatened against the Company or any of its subsidiaries or with
respect to any of their respective properties.
(n) There are no contracts or other documents of a character that
would be required to be described in a registration statement on Form S-1
or the related prospectus relating to the offer and sale of the Securities
which are not described in the Offering Memorandum; except as otherwise
described in the Offering Memorandum, all contracts and other documents
described in the Offering Memorandum are in full force and effect; there
are no statutes that would be required to be described in a registration
statement on Form S-1 or the related prospectus relating to the offer and
sale of the Securities that are not described as would be so required; and
no relationship, direct or indirect, exists between the Company or any
affiliate of the Company, on the one hand, and any director, officer,
stockholder, customer or supplier of any of them, on the other hand, which
would be required by the Securities Act, the Trust Indenture Act or the
rules and regulations of the Commission under the Securities Act or the
Trust Indenture Act to be described in a registration statement on Form S-1
or the related prospectus relating to the offer and sale of the Securities
which is not so described or is not adequately described in the Offering
Memorandum.
(o) The offering, sale, issuance and delivery of the Securities to
the Initial Purchaser by the Company pursuant to this Agreement, compliance
by the Company with the provisions of this Agreement and the Other Company
Agreements, and the consummation of the transactions herein and therein
contemplated (including the issuance and delivery of the Conversion
Securities) do not (i) require any authorization, approval, consent, order
of, license of, registration, filing or qualification of or with any
governmental authority of the United States, except (x) such as have been
obtained, (y) such as may be required under state securities or blue sky
laws and (z) such as may be required in connection with the Shelf
Registration Statement, or (ii) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, (w) any indenture, mortgage, deed of trust, lease or other 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 or any of their respective
properties are bound, or (y) the charter documents or bylaws of the Company
or any of its subsidiaries, or (z) any statute or other provision of law or
any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator applicable to the Company or any
of its subsidiaries.
(p) The Company has not, directly or indirectly, (i) taken any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company or to facilitate the sale or
resale of the Securities or the Common Stock or (ii) since the date of the
Preliminary Offering Memorandum (A) sold, bid for, purchased, or paid
anyone any compensation for soliciting purchases of, the Securities or the
Common Stock, or (B) paid or agreed to pay to
6
<PAGE>
any person any compensation for soliciting another to purchase any other
securities of the Company.
(q) Subsequent to the date as of which information is given in the
Offering Memorandum, (i) neither the Company nor any of its subsidiaries
has incurred any material liability or obligation, direct or contingent, or
entered into any material transaction not in the ordinary course of
business; (ii) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of
any kind on its capital stock; and (iii) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company and its consolidated subsidiaries, except in each case as described
in or contemplated by the Offering Memorandum.
(r) Each of the Company and each of its subsidiaries has good and
marketable title in fee simple to all items of real property and title to
all personal property described in the Offering Memorandum as being owned
by each of them, in each case free and clear of any security interests,
liens, encumbrances, equities, claims and other defects, except such as do
not materially and adversely affect the value of any such property and do
not interfere with the use made or proposed to be made of such property by
the Company or such subsidiary and any real property and buildings held
under lease by the Company or such subsidiary are held under valid,
subsisting and enforceable leases, with such exceptions as are not material
and do not interfere with the use made or proposed to be made of such
property and buildings by the Company or such subsidiary in each case,
other than those arising pursuant to loan agreements and other obligations
described in the Offering Memorandum.
(s) No labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the knowledge of the Company, is threatened
against any of them that could result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries.
(t) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all material patents, patent applications, trademarks,
service marks, trade names, licenses, copyrights and proprietary or other
confidential information currently employed by them in connection with
their respective businesses, and neither the Company, nor any such
subsidiary has received any notice of infringement of or conflict with
asserted rights of any third party with respect to any of the foregoing
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a material adverse change in
the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries.
(u) The Company and each of its subsidiaries maintain reasonably
adequate insurance against such losses and risks and in such amounts as are
prudent and customary in the businesses in which they are engaged; and
neither the Company nor any such subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and
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<PAGE>
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would
not materially and adversely affect the condition (financial or otherwise),
business prospects, net worth, or results of operations of the Company and
its subsidiaries.
(v) No subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or
any other subsidiary of the Company, except for customary lease assignment
provisions and as generally referred to in or contemplated by the Offering
Memorandum.
(w) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received
any notice of proceedings relating to the revocation or modification of any
such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a material adverse change in the condition (financial or
otherwise), business prospects, net worth or results of operations of the
Company and its subsidiaries, except as described in or contemplated by the
Offering Memorandum.
(x) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole) and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of
the foregoing is due and payable, except for any such assessment, fine or
penalty that is currently being contested in good faith.
(y) Neither the Company nor any of its subsidiaries is in violation of
any federal, state or foreign law or regulation relating to occupational
safety and health or to the storage, handling or transportation of
hazardous or toxic material and the Company and its subsidiaries have
received all permits, licenses or other approvals required of them under
applicable federal, state and foreign occupational safety and health and
environmental laws and regulations to conduct their respective businesses,
and the Company and each such subsidiary is in compliance with all terms
and conditions of any such permit, license or approval, except any such
violation of law or regulation, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals which would not, singly
or in the aggregate, result in a material adverse change in the condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, taken as a whole.
8
<PAGE>
(z) Each certificate signed by any officer of the Company and
delivered to the Initial Purchaser or counsel for the Initial Purchaser
shall be deemed to be a representation and warranty by the Company to the
Initial Purchaser as to the matters covered thereby.
(aa) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries or as otherwise
described in the Offering Memorandum neither the Company nor any such
subsidiary owns any shares of stock or any other equity securities of any
corporation or has any equity interest in any firm, partnership,
association or other entity.
(bb) There are no holders of securities of the Company, who, by reason
of the filing of the Shelf Registration Statement contemplated under the
Registration Agreement, will have the right to request the Company to
register under the Securities Act, or to include in the Shelf Registration
Statement, any securities held by them.
(cc) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(dd) No default exists, and no event has occurred which, with notice
or lapse or time or both, would constitute a default in the due performance
and observance of any term, covenant or condition of any indenture,
mortgage, deed of trust, lease or other 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 or any of their respective properties is bound
or may be affected in any material adverse respect with regard to property,
business or operations of the Company and its subsidiaries, taken as a
whole.
3. Purchase Sale and Delivery of the Securities.
--------------------------------------------
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein
set forth, the Company agrees to issue and sell to the Initial Purchaser,
and the Initial Purchaser agrees to purchase from the Company, at a
purchase price of 97.0% of the principal amount thereof, plus accrued
interest from November 17, 1997, if any, to the Firm Closing Date (as
defined), the Firm Securities. The Firm Securities to be delivered shall
be delivered by the Company in the form of one or more Global Securities
delivered on behalf of the Company to the Depositary Trust Company ("DTC"),
and registered in the name of Cede & Co., as DTC's nominee, for the account
of the Initial Purchaser, against payment by wire transfer on the Firm
Closing Date to the
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<PAGE>
Company by or on behalf of the Initial Purchaser of the purchase price
therefor in immediately available funds. Such payment for the Firm
Securities shall be made at the offices of King & Spalding, 1185 Avenue of
the Americas, New York, New York 10036 at 9:30 A.M., New York time, on
November 17, 1997, or at such other place, time or date as the Initial
Purchaser and the Company may agree upon or as the Initial Purchaser may
determine pursuant to Section 9 hereof, such time and date of delivery
against payment being herein referred to as the "Firm Closing Date." The
Company will make such certificate or certificates for the Firm Securities
available for checking and packaging by the Initial Purchaser at the
offices in New York, New York of the Trustee at least 24 hours prior to the
Firm Closing Date.
(b) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Securities as contemplated by
the Offering Memorandum, the Company hereby grants to the Initial Purchaser
an option to purchase, up to $15,000,000 aggregate principal amount of
Option Securities. The purchase price to be paid for any Option Securities
shall be 97.0% of the principal amount thereof, plus accrued interest from
November 17, 1997, if any, to the Option Closing Date (as defined). The
option granted hereby may be exercised as to all or any part of the Option
Securities from time to time within 30 days after the date of the Offering
Memorandum (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock
Exchange is open for trading). The Initial Purchaser shall not be under
any obligation to purchase any of the Option Securities prior to the
exercise of such option. The Initial Purchaser may from time to time
exercise the option granted hereby by giving notice in writing or by
telephone (confirmed in writing) to the Company setting forth the aggregate
principal amount of Option Securities as to which the Initial Purchaser is
then exercising the option and the date and time for delivery of and
payment for such Option Securities. Any such date of delivery shall be
determined by the Initial Purchaser, but shall not be earlier than two
business days or later than seven business days after such exercise of the
option and, in any event, shall not be earlier than the Firm Closing Date.
The time and date set forth in such notice, or such other time on such
other date as the Initial Purchaser and the Company may agree upon or as
the Initial Purchaser may determine pursuant to Section 9 hereof, is herein
called the "Option Closing Date" with respect to such Option Securities.
Upon exercise of the option as provided herein, the Company shall become
obligated to sell to the Initial Purchaser, and, subject to the terms and
conditions herein set forth, the Initial Purchaser shall become obligated
to purchase from the Company, the principal amount of the Option Securities
as to which the Initial Purchaser is then exercising the option. If the
option is exercised as to all or any portion of the Option Securities, one
or more Global Securities representing such Option Securities shall be
delivered by the Company on behalf of the Initial Purchaser to DTC and
registered in the name of Cede & Co., as DTC's nominee, against payment for
such Option Securities, on the related Option Closing Date in the manner,
and upon the terms and conditions set forth in paragraph (a) of this
Section 3, except that reference therein to the Firm Securities and the
Firm Closing Date shall be deemed, for purposes of this paragraph (b), to
refer to such Option Securities and Option Closing Date, respectively.
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<PAGE>
(c) It is understood and acknowledged that upon original issuance
thereof, and until such time as the same is no longer required under the
applicable requirements of the Securities Act, the Securities (and all
securities in exchange therefor, in substitution thereof or upon conversion
thereof), shall bear a legend to the following effect:
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT (A)(1) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT ("RULE
144A") ACQUIRING FOR ITS OWN ACCOUNT OF FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE
904 OF REGULATIONS UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER
(IF AVAILABLE), (4) TO AN INSTITUTION THAT IS AN ACCREDITED INVESTOR WITHIN
THE MEANING OF RULE 501 (A) (1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH
ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES.
CONVERSION OF THIS SECURITY IS SUBJECT TO CERTIFICATION AND OTHER
REQUIREMENTS, AND ANY COMMON STOCK ISSUED ON SUCH CONVERSION WILL BE
SUBJECT TO THE TRANSFER RESTRICTIONS REFERRED TO ABOVE.
4. Offering by the Initial Purchaser.
---------------------------------
(a) The Initial Purchaser represents and warrants that it is a
"qualified institutional buyer" within the meaning of Rule 144A.
(b) The Initial Purchaser acknowledges that 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 benefit of, United States
persons except pursuant to an exemption from, or a transaction not subject
to, the registration requirements of the Securities Act or pursuant to an
effective registration statement under the Securities Act. The Initial
Purchaser represents, warrants and agrees that it has offered the
Securities, and will offer and sell the Securities, only: (i) inside the
United States to persons whom it reasonably believes are "qualified
institutional buyers" in accordance with Rule 144A or (ii) to non-U.S.
persons pursuant to offers and sales that occur outside the United States
in accordance with Regulation S under the Securities Act. The
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<PAGE>
Initial Purchaser represents, warrants and agrees that, with respect to
Securities offered or sold in reliance on Regulation S, (i) neither it nor
its affiliates nor any person acting on its behalf has engaged or will
engage in any directed selling efforts in the United States within the
meaning of Regulation S with respect to the Securities, (ii) the Initial
Purchaser, its affiliates and all persons acting on its or their behalf
have complied and will comply with the offering restrictions requirements
of Regulation S in connection with the offering of the Securities outside
of the United States and (iii) with respect to resales by the Initial
Purchaser made in reliance on Regulation S, to deliver either with the
confirmation of such resale by such Initial Purchaser or otherwise prior to
settlement of such resale a notice substantially to the following effect:
"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 and sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of the distribution thereof at
any time or (ii) otherwise until 40 days after the later of the date
of the commencement of the offering and the latest closing date,
except in either case in accordance with Regulation S under the
Securities Act. Terms used above have the meaning given them by
Regulation S."
(c) The Initial Purchaser represents and agrees that (i) it has not
offered or sold and, prior to the date six months after the latest Closing
Date, will not offer or sell, directly or indirectly, any Securities in the
United Kingdom by means of any document other than to persons whose
ordinary business it is to buy or sell shares or notes, whether as
principal or agent, for the purposes of their business or otherwise in
circumstances which have not resulted in or will not result in an offer to
the public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Securities in, from or otherwise
involving the United Kingdom, including any stabilization activities as
referred to in the Offering Memorandum, and (iii) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Securities to a person
who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 or to a person to
whom the document may otherwise lawfully be issued or passed on.
(d) The Initial Purchaser agrees that it will not offer or sell the
Securities purchased from the Company hereunder by means of any form of
general solicitation or general advertising. (It is understood, however,
that such limitation shall not preclude the Initial Purchaser from placing
any tombstone announcement with respect to the resale by the Initial
Purchaser of the Securities outside the United States, provided that such
announcement does not constitute directed selling efforts within the
meaning of Regulation S, or, following 40 days after the later of the
commencement of the offering and the latest Closing Date, inside the United
States.) The Initial Purchaser agrees, with respect to resales made in
reliance on
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<PAGE>
Rule 144A, other than through the National Association of Securities
Dealers, Inc. Private Offerings, Resales and Trading through Automated
Linkages ("PORTAL") Market, of any of the Securities purchased from the
Company hereunder, to deliver either with the confirmation of such resale
or otherwise prior to settlement of such resale a notice to the effect that
the resale of such Securities has been made in reliance upon the exemption
from the registration requirements of the Securities Act provided by Rule
144A.
(e) The Initial Purchaser agrees that, during the "40-day restricted
period" (within the meaning of Regulation S), it will hold the Regulation S
Global Security as provided in the Offering Memorandum and, in connection
therewith, it will not (i) effect transfers of interests in the Regulation
S Global Security unless such transfers are made to QIBs or (ii) effect
transfers of interests in the Regulation S Global Security (x) by any
"dealer" or person "receiving a selling concession, fee or other
remuneration" (within the meaning of Regulation S) (y) within the United
States (within the meaning of Regulation S) or (z) to a U.S. person or for
the account or benefit of a U.S. person (within the meaning of Rule 902(o)
under the Securities Act).
(f) The Initial Purchaser understands that the Securities have not
been and will not be registered under the Securities and Exchange Law of
Japan, and represents that it has not offered or sold, and agrees not to
offer or sell, directly or indirectly, any Securities in Japan or for the
account of any resident thereof except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law of Japan and
otherwise in compliance with applicable provisions of Japanese law.
5. Covenants of the Company. The Company covenants and agrees with the
-------------------------
Initial Purchaser that:
(a) If, when the Offering Memorandum is required to be used in
connection with the offer and sale in the United States of the Securities
by the Initial Purchaser as contemplated hereunder, any event occurs as a
result of which the Offering Memorandum as then amended or supplemented
would include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
if it is necessary at such time to amend or supplement the Offering
Memorandum to comply with any applicable law, the Company will promptly
prepare an amendment or supplement which will correct such statement or
omission or effect such compliance (except that in case the Initial
Purchaser is required to deliver an offering memorandum under applicable
law in connection with the offer or sale of Securities at any time more
than nine months after the Firm Closing Date, the cost of such preparation
and furnishing of such amended or supplemented offering memorandum shall be
borne by the Initial Purchaser), and the Company will not effect any
amendment or supplement to the Offering Memorandum of which the Initial
Purchaser shall not have previously been advised or to which it shall have
previously objected without the consent of the Initial Purchaser, which
consent will not be unreasonably withheld. Neither your consent
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to, nor the delivery by the Initial Purchaser of, any such amendment or
supplement shall constitute a waiver of any of the conditions set forth in
Section 7.
(b) The Company will arrange for the qualification of the Securities
and the Conversion Securities for offering and sale under the securities or
blue sky laws of such jurisdictions as the Initial Purchaser may designate
and will continue such qualifications in effect for as long as may be
necessary to complete the distribution of the Securities, provided that in
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connection therewith the Company shall not be required to qualify to
conduct business as a foreign corporation or to execute a general consent
to service of process in any jurisdiction. The Company will promptly
advise the Initial Purchaser of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose.
(c) The Company will, without charge, provide to the Initial
Purchaser as many copies of each Preliminary Offering Memorandum or the
Offering Memorandum or any amendment or supplement thereto as the Initial
Purchaser and its counsel may reasonably request; without limiting the
application of this sentence, the Company, not later than (1) 6:00 PM, New
York City time, on the date of determination of the offering price, if such
determination occurred at or prior to 10:00 AM, New York City time, on such
date or (2) 2:00 PM, New York City time, on the business day following the
date of determination of the offering price; if such determination occurred
after 10:00 AM, New York City time, on such date, will deliver to the
Initial Purchaser, without charge, as many copies of the Offering
Memorandum and any amendment or supplement thereto as the Initial Purchaser
may reasonably request for purposes of confirming orders that are expected
to settle on the Firm Closing Date. In addition, the Company will furnish
to the Initial Purchaser, on the date hereof, five copies of the
independent auditors' report included in the Offering Memorandum signed by
the auditors rendering such report. If, at any time prior to three years
after the later of the Firm Closing Date and the Option Closing Date and at
a time when any of the Securities, the Global Securities or the Conversion
Securities are "restricted securities" within the meaning of Rule 144(a)(3)
under the Securities Act, the Company is not subject to Section 13 or 15(d)
of the Exchange Act and is not exempt from reporting pursuant to Rule 12g3-
2(b) thereunder, the Company will furnish, as soon as available, to the
Initial Purchaser or to any holder of the Securities, or the Conversion
Securities, copies of the information required to be delivered to holders
and prospective purchasers of the Securities, the Global Securities or the
Conversion Securities pursuant to Rule 144A(d)(4) to permit compliance with
Rule 144A in connection with resales of the Securities, the Global
Securities or the Conversion Securities (the "Additional Company
Information").
(d) During the period of three years after the later of the Firm
Closing Date and the Option Closing Date or until the effectiveness of the
Shelf Registration Statement to be filed by the Company with the Commission
pursuant to the Registration Agreement, the Company will, upon request,
furnish to the Initial Purchaser and any holder of Securities or Conversion
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Securities a copy of the restrictions on transfer applicable to such
Securities or Conversion Securities.
(e) The Company will not, and will not permit any of its subsidiaries
to, resell any Securities or Conversion Securities which have been acquired
by any of them during the period of three years after the later of the Firm
Closing Date and the Option Closing Date and which constitute "restricted
securities" under Rule 144, otherwise than pursuant to an effective
registration statement under the Securities Act.
(f) The Company will apply the net proceeds from the sale of the
Securities substantially as set forth under "Use of Proceeds" in the
Offering Memorandum.
(g) The Company will not, directly or indirectly, without the prior
written consent of the Initial Purchaser, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of any option to purchase or other sale or disposition) of
any shares of Common Stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock, for a period until
90 days after the date hereof (the "Lock-Up Period"), except (i) pursuant
to this Agreement, (ii) upon the conversion of the Securities or (iii)
grants of employee stock options in accordance with ordinary Company
practice and issuances pursuant to the exercise of employee stock options
outstanding on the date hereof.
(h) Except following the effectiveness of the Shelf Registration
Statement, neither the Company nor any subsidiary of the Company will
solicit any offer to buy or offer or sell the Securities by means of any
form of general solicitation or general advertising (within the meaning of
Rule 502(c) under the Securities Act) in a manner which would result in the
proposed sale of the Securities in accordance with this Agreement and the
Offering Memorandum failing to be exempt from the registration requirements
of the Securities Act or take any other action that would have required the
registration of the resale by the Initial Purchaser of the Securities under
the Securities Act.
(i) The Company will not, and will not permit any of its affiliates
(as defined in Rule 501(b) under the Securities Act) to, sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) the offering of which security
could be integrated with sale of the Securities or Conversion Securities in
a manner which would require the registration of the Securities or
Conversion Securities under the Securities Act.
(j) The Company shall use its best efforts in cooperation with the
Initial Purchaser to permit the Securities to be eligible for clearance and
settlement through DTC, Cedel and Euroclear.
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(k) So long as any of the Securities are outstanding, the Company
will furnish to the Initial Purchaser, as soon as practicable after the end
of the fiscal year, a copy of its annual report to stockholders for such
year; and the Company will furnish to the Initial Purchaser (i) as soon as
available, a copy of each report or definitive proxy statement of the
Company filed with the Commission under the Exchange Act or mailed to
stockholders and (ii) from time to time, such other information concerning
the Company as the Initial Purchaser may reasonably request.
(l) The Company will at all times reserve and keep available, free of
preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligations to issue shares of its Common Stock upon
conversion of the Securities.
(m) The Company will use its best efforts to list, subject to notice
of issuance, the shares of Common Stock issuable upon conversion of the
Securities on the New York Stock Exchange.
6. Expenses. The Company will pay all costs and expenses incident to the
--------
performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 10 hereof, including all costs and expenses (i) incident to
the preparation and delivery of the Securities in global and definitive forms,
the preparation and printing of the Preliminary Offering Memorandum and the
Offering Memorandum and all other amendments and supplements thereto and the
mailing and delivering of copies thereof to the Initial Purchaser, but not
including the fees and disbursements of counsel to the Initial Purchaser except
with respect to any Preliminary and Supplemental Blue Sky Memoranda, as provided
in (iv) below; (ii) of the Company's counsel and accountants and listing agents
in connection with the issuing and listing of the Securities, (iii) incurred in
connection with the approval of the Securities for trading in the PORTAL market
and the registration or qualification and determination of eligibility for
investment of the Securities under the laws of such jurisdictions as the Initial
Purchaser may designate (including all counsel fees), (iv) in connection with
the preparation, printing (including word processing and duplication costs) and
delivery of this Agreement, the Other Company Agreements and any Preliminary and
Supplemental Blue Sky Memoranda, including mailing and shipping, (v) payable to
rating agencies in connection with the rating of the Securities; (vi) the
reasonable fees and expenses of the Trustee, any successor Trustee and any agent
of any Trustee; and (vii) any "road show" meetings with prospective investors in
the Securities (other than as shall have been specifically approved by the
Initial Purchaser to be paid for by the Initial Purchaser). If the sale of the
Securities provided for herein is not consummated because this Agreement is
terminated pursuant to Section 10 hereof or because of any failure, refusal or
inability on the part of the Company to perform and satisfy any of the
conditions set forth in Sections 7(a)(iii), 7(b), 7(e), 7(f) (as a result of an
inability to make the statement in clause (ii) thereof), 7(g), 7(j) or 7(k),
other than by reason of a default by the Initial Purchaser, the Company will
reimburse the Initial Purchaser upon demand for all out-of-pocket expenses
(including counsel fees and disbursements) that shall have been incurred by it
in connection with the proposed purchase and sale of the Securities. The
Company
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<PAGE>
shall not in any event be liable to the Initial Purchaser for the loss
of anticipated profits from the transactions covered by this Agreement.
7. Conditions of the Obligations of the Initial Purchaser. The obligation
------------------------------------------------------
of the Initial Purchaser to purchase and pay for the Firm Securities shall be
subject, in the sole discretion of the Initial Purchaser, to the accuracy of the
representations and warranties of the Company contained herein as of the date
hereof and as of the Firm Closing Date, as if made on and as of the Firm Closing
Date, to the accuracy of the certifications, representations and warranties of
the Company's officers made pursuant to the provisions hereof, to the
performance by the Company of its respective covenants and agreements hereunder
and to the following additional conditions:
(a) Subsequent to the execution and delivery of this Agreement, (i)
there shall not have occurred any downgrading in the rating of the
Securities or of any debt securities of the Company by any "nationally
recognized statistical rating organization" (as defined for purposes of
Rule 436(g) under the Securities Act), or any public announcement that any
such organization has under surveillance or review its rating of the
Securities or of any debt securities of the Company other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating; (ii) no order or
decree preventing the use of the Offering Memorandum or any amendment or
supplement thereto, or any order asserting that the transactions
contemplated by this Agreement are subject to the registration requirements
of the Securities Act, shall have been issued and no proceedings for that
purpose shall have been commenced or shall be pending or, to the knowledge
of the Company, be contemplated and no stop order suspending the sale of
the Securities in any jurisdiction designated by the Initial Purchaser
shall have been issued and no proceedings for that purpose shall have been
commenced or shall be pending or, to the knowledge of the Company, shall be
contemplated; (iii) the Initial Purchaser shall not have discovered or
disclosed to the Company that the Offering Memorandum or any amendment or
supplement thereto contains an untrue statement of fact which, in the
Initial Purchaser's opinion, is material or fails to state a fact which is
material or is necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading; or (iv) there
shall not have occurred any invalidation of Rule 144A or Regulation S 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 Purchaser would materially impair its
ability to purchase, hold or effect resales of the Securities as
contemplated hereby.
(b) The Initial Purchaser shall have received an opinion, dated the
Firm Closing Date, of Gibson, Dunn & Crutcher LLP, counsel for the Company,
substantially to the effect that:
(i) The Company is a corporation duly organized and validly existing
as a corporation in good standing under the laws of the State of
Delaware. Each of HomeClub, Inc., a Nevada corporation, HomeClub,
Inc. of Texas, a Delaware
17
<PAGE>
corporation, and Fullerton Corporation, a Delaware corporation
(collectively, the "Subsidiaries"), has been duly organized and is
validly existing as a corporation in good standing under the laws of
its respective jurisdiction of incorporation; no subsidiary of the
Company other than the Subsidiaries may be deemed to be a "significant
subsidiary" as defined in Rule 1-02(w) of Regulation S-X; the Company
and each of the Subsidiaries are duly qualified to transact business
as foreign corporations and are in good standing under the laws of all
United States jurisdictions where the ownership or leasing of their
respective properties or the conduct of their respective businesses
requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the
Company and the Subsidiaries, taken as a whole;
(ii) The Company and each of the Subsidiaries has full corporate
power, to own or lease its properties and conduct its business as
described in the Offering Memorandum;
(iii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Offering Memorandum under the caption
"Capitalization," the Common Stock conforms to the description thereof
contained in the Offering Memorandum and such description is a fair
summary of the rights and privileges of a holder of such Common Stock;
(iv) The issued shares of capital stock of each of the Subsidiaries
have been duly authorized and validly issued, are fully paid and
nonassessable and are owned of record by the Company, directly or
through one or more of the Subsidiaries; the issued shares of capital
stock of each of the Subsidiaries are, to the knowledge of such
counsel, free and clear of any perfected security interests or any
other security interests, liens, encumbrances, equities or claims;
and, to the knowledge of such counsel, except for the Securities and
as described in the Offering Memorandum under the caption
"Capitalization," there are no outstanding rights, warrants or options
to acquire any capital stock of the Company or any subsidiary, other
than stock options granted to officers, employees, directors,
consultants and advisors under the Company's stock incentive plans;
(v) To the knowledge of such counsel, all of the outstanding shares
of capital stock of the Company issued after July 26, 1997 have been
issued in compliance with all applicable federal and state securities
laws and regulations of the United States, and, other than rights
pursuant to the Registration Agreement, no holders of securities of
the Company are entitled to have such securities registered under the
Securities Act as a result of the issuance and sale of the Securities
hereunder or as a result of the Company filing the Shelf Registration
Statement pursuant to the terms of the Registration Agreement;
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<PAGE>
(vi) The Indenture has been duly authorized, executed and delivered
by the Company; assuming the due authorization, execution and delivery
of the Indenture by the Trustee, the Indenture constitutes a valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforcement thereof may be
limited by the effect of any applicable bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws
affecting the rights and remedies of creditors generally and to
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law); the Indenture
complies as to form in all material respects with the requirements of
the Trust Indenture Act of 1939, as amended (the "TIA"), and the rules
and regulations of the Commission applicable to an indenture which is
qualified thereunder; and it is not necessary in connection with the
offer, sale and delivery of the Securities to the Initial Purchaser or
in connection with the initial resales of the Securities delivered on
the Closing Date by the Company to the Initial Purchaser, in each case
in the manner contemplated by this Agreement and the Offering
Memorandum, to qualify the Indenture under the TIA;
(vii) The Securities have been duly authorized, executed and
delivered by the Company and, assuming they have been duly
authenticated by the Trustee in accordance with the terms of the
Indenture, upon delivery of the Securities in accordance with the
Indenture, the Securities will constitute legal, valid and binding
obligations of the Company, enforceable against the Company in
accordance with their terms, except as enforcement thereof may be
limited by the effect of any applicable bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws
affecting the rights and remedies of creditors generally and to
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law); and the Securities
conform in all material respects to the descriptions thereof contained
in the Offering Memorandum and are entitled to the benefits provided
by the Indenture;
(viii) The shares of Common Stock to be issued upon conversion of
the Securities have been duly authorized and reserved for issuance
upon such conversion of the Securities and, when they are issued and
delivered upon conversion of the Securities in accordance with the
terms of the Indenture, will be validly issued, fully paid and
nonassessable and not subject to any preemptive rights;
(ix) The statements under the captions "Senior Bank Facility,"
"Description of Notes", "Description of Capital Stock" "Certain
Federal Income Tax Considerations" and "Notice to Investors" in the
Offering Memorandum insofar as such statements constitute a general
summary of matters of United States law or of documents referred to
therein are true and accurate in all material respects and fairly
summarize the matters referred to therein;
(x) This Agreement and the Registration Agreement have been duly
authorized, executed and delivered by the Company and each such
agreement constitutes a valid and
19
<PAGE>
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforcement thereof may be
limited by the effect of any applicable bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws
affecting the rights and remedies of creditors generally and to
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law) and except that any
rights to indemnity and contribution may be limited by federal and
state securities laws and public policy considerations;
(xi) To the knowledge of such counsel, no legal or governmental
proceedings are pending to which the Company or any of the
Subsidiaries is a party or to which the property of the Company or any
of the Subsidiaries is subject, that (i) would affect the subject
matter of this Agreement or any Other Company Agreement or any of the
transactions contemplated herein or therein, or (ii) is of a character
that would be required to be disclosed in a registration statement on
Form S-1 or the related prospectus relating to the offer and sale of
the Securities, and no such proceedings have been threatened against
the Company or any of the Subsidiaries or with respect to any of their
respective properties;
(xii) To the knowledge of such counsel, there are no contracts or
other documents of a character that would be required to be described
in Part I of a registration statement on Form S-1 or the related
prospectus relating to the offer and sale of the Securities which are
not described in the Offering Memorandum;
(xiii) The offering, sale, issuance and delivery of the Securities
to the Initial Purchaser by the Company pursuant to this Agreement,
compliance by the Company with the provisions of this Agreement and of
the Other Company Agreements, and the consummation of the transactions
herein and therein contemplated (including the issuance and delivery
of the Conversion Securities) do not (A) require any authorization,
approval, consent, order of, license of, registration, filing or
qualification of or with any governmental authority of the United
States, except such as may be required under state securities or blue
sky laws (and, in the case of compliance with the Registration
Agreement, the filing of the Shelf Registration Statement (as defined
therein) and the registration thereunder of the Securities and the
Common Stock to be issued upon conversion of the Securities under the
Securities Act), or (B) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, (i) any indenture, mortgage, deed or other agreement or
instrument or any material lease filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended January 25, 1997
or otherwise identified in an officer's certificate of the Company
identifying the material agreements and instruments of the Company and
the Subsidiaries, to which the Company or any of the Subsidiaries is a
party or by which the Company or any of the Subsidiaries or any of
their respective properties are bound, or (ii) the charter documents
or bylaws of any of the Company or any of the Subsidiaries, or (iii)
any statute or regulation of United States, California or New York law
or the
20
<PAGE>
General Corporation law of the State of Delaware or any judgment,
decree or order of any court or other governmental authority or any
arbitrator known to such counsel and applicable to the Company or any
of the Subsidiaries, except, with respect to clauses (i) and (iii),
for such conflicts, breaches, violations or defaults that would not,
individually or in the aggregate, have a material adverse effect on
the condition (financial or other), business, properties, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole, and would not adversely affect the ability of the Company to
perform its obligations under this Agreement and the Other Company
Agreements;
(xiv) Neither the Company nor any Subsidiary is an "investment
company", or a company "controlled" by an investment company within
the meaning of the Investment Company Act; and
(xv) Assuming the accuracy of the representations and warranties and
compliance with the agreements of the Company and the Initial
Purchaser herein and referred to under the captions "Plan of
Distribution" and "Notice to Investors" in the Offering Memorandum, in
connection with (A) the offer, sale and delivery of the Securities on
the Closing Date by the Company to the Initial Purchaser pursuant to
this Agreement, (B) the initial resale of the Securities delivered on
the Closing Date by the Initial Purchaser as contemplated by this
Agreement and the Offering Memorandum, or (C) the issuance and
delivery of the Conversion Securities in the manner contemplated by
the Indenture, it is not necessary to register the Securities or any
Conversion Securities under the Securities Act, it being understood
that no opinion is expressed as to any subsequent resale of any
Securities or Conversion Securities.
Such counsel shall state that they have participated in conferences
with representatives of the Company, some of which have been attended by
the Initial Purchaser and their counsel, at which conferences the contents
of the Offering Memorandum, each amendment thereof (if any) and supplement
thereto (if any) and related matters were discussed, and, although such
counsel assumes no responsibility for the accuracy, fairness or
completeness of the Offering Memorandum, any amendment thereof or
supplement thereto (except as expressly provided above), nothing has come
to the attention of such counsel to cause such counsel to believe that the
Offering Memorandum or any amendment thereof, if any, or supplement
thereto, if any (other than the financial statements and related notes and
schedules and other financial and statistical data included therein, as to
which such counsel need express no belief) contains, as of the date thereof
and as of the Firm Closing Date or the Option Closing Date, as the case may
be, any untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials.
(c) The Initial Purchaser shall have received the opinion, dated the
Firm Closing Date, of Shipman & Goodwin LLP, counsel for the Trustee under
the Indenture, with respect to such matters as the Initial Purchaser may
reasonably require.
(d) The Initial Purchaser shall have received an opinion, dated the
Firm Closing Date, of King & Spalding, counsel for the Initial Purchaser,
with respect to the issuance and sale of the Firm Securities, the Offering
Memorandum, and such other related matters as the Initial Purchaser may
reasonably require, and the Company shall have furnished to such counsel
such documents as they may reasonably request for the purpose of enabling
them to pass upon such matters.
(e) The Initial Purchaser shall have received from Coopers & Lybrand,
LLP a letter or letters dated, respectively, the date hereof and the Firm
Closing Date, in form and substance satisfactory to the Initial Purchaser
that:
(i) they are independent accountants with respect to the Company
within the meaning of the Act and the applicable rules and regulations
thereunder;
(ii) in their opinion, the audited financial statements and
schedules of the Company included in the Offering Memorandum comply in
form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations;
(iii) on the basis of their limited review in accordance with
standards established by the American Institute of Certified Public
Accountants of any interim unaudited financial statements of the
Company included or incorporated by reference in the Offering
Memorandum, carrying out certain specified procedures (which do not
constitute an examination made in accordance with generally accepted
auditing standards) that would not necessarily reveal matters of
significance with respect to the comments set forth in this paragraph
(iii), a reading of the minute books of the stockholders, the board of
directors and any committees thereof of the Company, officials of the
Company, and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters, nothing came to
their attention that caused them to believe that:
(1) the unaudited financial statements of the Company
included or incorporated by reference in the Offering Memorandum
do not comply in form in all material respects with the
applicable accounting requirements of the Act and the related
published rules and regulations thereunder or are not in
conformity with
22
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generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included or incorporated by reference in the Offering
Memorandum;
(2) at a specific date not more than five business days
prior to the date of such letter, there was any change in long-
term debt of the Company or any decreases in net current assets
or stockholders' equity of the Company, in each case compared
with amounts shown on the July 27, 1997 consolidated balance
sheet included in the Offering Memorandum, or for the period from
July 27, 1997 to such specified date there were any decreases, as
compared with the prior comparable period, in the net sales,
income before income taxes or net income of the Company, except
in all instances for changes, decreases or increases set forth in
such letter; and
(iv) they have carried out certain specified procedures (as
requested by the Initial Purchaser), not constituting an audit, with
respect to certain amounts, percentages and financial information that
are derived from the general accounting records of the Company and are
included in the Offering Memorandum, and have compared such amounts,
percentages and financial information with such records of the Company
or with information derived from such records and have found them to
be in agreement, excluding any questions of legal interpretation.
Reference to the Offering Memorandum in this paragraph (e) with
respect to the letter referred to above shall include any amendment or
supplement thereto at the date of such letter.
In the event that the letter referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligation of the Initial Purchaser that (A) such letters shall be
accompanied by a written explanation of the Company as to the significance
thereof, unless the Initial Purchaser deems such explanation unnecessary,
and (B) such changes, decreases or increases do not, in the sole judgment
of the Initial Purchaser, make it impractical or inadvisable to proceed
with the purchase and delivery of the Securities as contemplated by the
Offering Memorandum, as amended as of the date hereof.
(f) The Initial Purchaser shall have received a certificate, dated
the Firm Closing Date, of the Chief Executive Officer and the Chief
Financial Officer of the Company, on behalf of the Company, to the effect
that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm
Closing Date; the Offering Memorandum, as amended as of the Firm
Closing Date, does not include any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
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and the Company has performed all covenants and agreements and
satisfied all conditions on its part to be performed or satisfied at
or prior to the Firm Closing Date; and
(ii) subsequent to the respective dates as of which information is
given in the Offering Memorandum, neither the Company nor any of its
subsidiaries has sustained any material loss or interference with
their respective businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding, and
there has not been any material adverse change, or any development
involving a prospective material adverse change, in the condition
(financial or otherwise), management, business prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole, except in each case as described in or contemplated by the
Offering Memorandum (exclusive of any amendment or supplement
thereto).
(g) The Initial Purchaser shall have received from each person who is
a director or executive officer of the Company an agreement to the effect
that such person will not, directly or indirectly, without the prior
written consent of the Initial Purchaser, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of any option to purchase or other sale or disposition) of
any Common Stock or any securities convertible into, or exchangeable or
exercisable for, Common Stock for a period of 90 days after the date of
this Agreement.
(h) On or before the Firm Closing Date, the Initial Purchaser and
counsel for the Initial Purchaser shall have received such further
certificates, documents or other information as they may have reasonably
requested from the Company.
(i) The Securities shall have been approved by the National
Association of Securities Dealers, Inc. for trading in the PORTAL market,
subject to the issuance of the Securities.
(j) The Indenture shall have been duly executed and delivered by the
Company and the Trustee, and the Securities shall have been executed and
delivered by the Company and duly authenticated by the Trustee.
(k) The Registration Agreement shall have been executed and delivered
by the Company.
All opinions, certificates, letters and documents delivered pursuant
to this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Initial Purchaser
and counsel for the Initial Purchaser. The Company shall furnish to the
Initial Purchaser such conformed copies of such opinions, certificates,
letters
24
<PAGE>
and documents in such quantities as the Initial Purchaser and counsel for
the Initial Purchaser shall reasonably request.
The obligation of the Initial Purchaser to purchase and pay for any
Option Securities shall be subject, in its discretion, to each of the
foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed
to refer to such Option Securities and the related Option Closing Date,
respectively.
8. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless the Initial
Purchaser 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, against any losses, claims, damages or liabilities, joint or
several, to which they or any of them may become subject under the
Securities Act or the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon:
(i) any untrue statement or alleged untrue statement made by the
Company in Section 2 of this Agreement,
(ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Offering Memorandum or the
Preliminary Offering Memorandum or any amendment or supplement
thereto, (B) any application or other document, or any amendment or
supplement thereto, executed by the Company or based upon written
information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Securities under the securities
or blue sky laws thereof or filed with or any securities association
or securities exchange (each an "Application"), or (C) any Additional
Company Information provided by the Company to any holder or
prospective purchaser of Securities pursuant to Section 5(c), or
(iii) the omission or alleged omission to state in the Offering
Memorandum or the Preliminary Offering Memorandum or any amendment or
supplement thereto, any Application or any Additional Company
Information provided by the Company to any holder or prospective
purchaser of Securities pursuant to Section 5(c), a material fact
required to be stated therein or necessary to make the statements
therein not misleading
and will reimburse, as incurred, each indemnified person for any legal or
other expenses reasonably incurred by each indemnified person in connection
with investigating, defending against or appearing as a third-party witness
in connection with any such loss, claim, damage, liability or action;
provided that the Company will not be liable in any such case to the extent
--------
that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such Offering
25
<PAGE>
Memorandum or Preliminary Offering Memorandum or any Application in
reliance upon and in conformity with written information furnished to the
Company by the Initial Purchaser specifically for use therein. This
indemnity agreement will be in addition to any liability which the Company
may otherwise have. The Company will not, without the prior written consent
of the Initial Purchaser, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification may be sought hereunder (whether or not
the Initial Purchaser or any person who controls the Initial Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding), unless
such settlement, compromise or consent includes an unconditional release of
the Initial Purchaser and such directors, officers, employees, agents or
controlling persons from all liability arising out of such claim, action,
suit or proceeding.
(b) The Initial Purchaser, severally and not jointly, will indemnify
and hold harmless the Company, each of its directors, officers, employees
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 against any losses, claims, damages or liabilities to which the Company
or any such director, officer, employee or agent or controlling person may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Offering Memorandum or the
Preliminary Offering Memorandum or any amendment or supplement thereto, or
any Application or (ii) the omission or the alleged omission to state
therein a material fact required to be stated in the Offering Memorandum or
the Preliminary Offering Memorandum or any amendment or supplement thereto,
or any Application or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to the Company by the Initial Purchaser specifically
for use therein; and, subject to the limitation set forth immediately
preceding this clause, will reimburse, as incurred, any legal or other
expenses reasonably incurred by the Company or any such director, officer,
employee or agent or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or any action in respect
thereof. This indemnity agreement will be in addition to any liability
which the Initial Purchaser may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any
other
26
<PAGE>
indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party; provided, however,
-------- -------
that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnifying
party shall not have the right to direct the defense of such action on
behalf of such indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel to defend such
action on behalf of such indemnified party or parties. After notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof and approval by such indemnified party of
counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 8 for any legal or
other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying
party shall not be liable for the expenses of more than one separate
counsel (in addition to local counsel) in any one action or separate but
substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated by the Initial
Purchaser in the case of paragraph (a) of this Section 8, representing the
indemnified parties under such paragraph (a) who are parties to such action
or actions) or (ii) the indemnifying party does not promptly retain counsel
satisfactory to the indemnified party or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the indemnifying
party to such indemnified party, the indemnifying party will not be liable
for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient,
for any reason, to hold harmless an indemnified party in respect of any
losses, claims, damages or liabilities (or actions in respect thereof) that
by the terms of the preceding paragraphs of this Section 8 could otherwise
be the subject of an indemnity claim, each indemnifying party, in order to
provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the relative benefits received
by the indemnifying party or parties on the one hand and the indemnified
party on the other from the offering of the Securities or (ii) if the
allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault
of the indemnifying party or parties on the one hand and the indemnified
party on the other in connection with the statements or omissions or
alleged statements or omissions that resulted in such losses, claims,
damages or liabilities (or actions in respect thereof) that by the terms of
the preceding paragraphs of this Section 8 could otherwise be the subject
of an indemnity claim, as well as any other relevant equitable
considerations. The relative benefits received
27
<PAGE>
by the Company on the one hand and the Initial Purchaser on the other shall
be deemed to be in the same proportion as the total proceeds from the
offering (before deducting expenses) received by the Company bear to the
total discounts and commissions received by the Initial Purchaser. The
relative fault of the parties 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 information supplied by the Company or the Initial Purchaser, the
parties' relative intents, knowledge, access to information and opportunity
to correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances. The Company and the
Initial Purchaser agree that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocation or
by any other method of allocation that does not take into account the
equitable considerations referred to above in this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Initial
Purchaser shall not be obligated to make contributions hereunder that in
the aggregate exceed the total offering price of the Securities purchased
by the Initial Purchaser under this Agreement, less the aggregate amount of
any damages that the Initial Purchaser has otherwise been required to pay
in respect of the same or any substantially similar claim, and 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. For purposes of
this paragraph (d), each person, if any, who controls the Initial Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act shall have the same rights to contribution as the Initial
Purchaser, and each director of the Company 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, shall have the same rights to
contribution as the Company.
9. Survival. The respective representations, warranties, agreements,
--------
covenants, indemnities and other statements of the Company and the Initial
Purchaser set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company, any of
its officers or directors, the Initial Purchaser or any controlling person
referred to in Section 8 hereof and (ii) delivery of and payment for the
Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 5 and 8 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement.
10. Termination.
-----------
(a) This Agreement may be terminated with respect to the Firm
Securities or any Option Securities in the sole discretion of the Initial
Purchaser by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the
Company shall have failed, refused or been unable to perform all
obligations and satisfy all conditions on its part to be performed or
satisfied hereunder at or prior thereto or, if at or prior to the Firm
Closing Date or such Option Closing Date, respectively,
28
<PAGE>
(i) the Company or any of its subsidiaries shall have, in the sole
judgment of the Initial Purchaser, sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any material adverse change, or
any development involving a prospective material adverse change
(including without limitation a change in management or control of the
Company), in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, except in each case as described in
or contemplated by the Offering Memorandum (exclusive of any amendment
or supplement thereto);
(ii) trading in the Common Stock shall have been suspended by the
New York Stock Exchange, or securities trading generally on the New
York Stock Exchange or the Nasdaq Stock Market's National Market shall
have been suspended or minimum or maximum prices shall have been
established on any such exchange or market system on the date of
pricing or the business day immediately preceeding the date of
pricing;
(iii) a banking moratorium shall have been declared by New York
authorities on the date of pricing or the business day immediately
preceeding the date of pricing; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political or financial
conditions having an effect on the United States financial markets
that, in the reasonable judgment of the Initial Purchaser, makes it
impractical or inadvisable to proceed with the offering or the
delivery of the Securities as contemplated by the Offering Memorandum,
as amended as of the date hereof.
(b) Termination of this Agreement pursuant to this Section 10 shall be
without liability of any party to any other party except as provided in
Section 9 hereof.
11. Information Supplied by Initial Purchaser. The statements set forth in
-----------------------------------------
the last paragraph on the front cover page and under the heading "Plan of
Distribution" in any Preliminary Offering Memorandum or the Offering Memorandum
(to the extent such statements relate to the Initial Purchaser) constitute the
only information furnished by the Initial Purchaser to the Company for the
purposes of Sections 1(a) and 8 hereof. The Initial Purchaser confirms that
such statements (to such extent) are correct.
12. Notices. All communications hereunder shall be in writing and, if sent
-------
to any of the Initial Purchaser, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Prudential Securities
Incorporated, One New York Plaza, New York, New York 10292, Attention: Equity
Transactions Group; and if sent to the Company, shall be delivered or sent by
29
<PAGE>
mail, telex or facsimile transmission and confirmed in writing to the Company at
HomeBase, Inc., 3345 Michelson Drive, Irvine, California 92612, Attention: John
L. Price, Vice President and Secretary (or, in each case, to such other address
as may be hereafter notified by the respective parties hereto in accordance
herewith).
13. Successors. This Agreement shall inure to the benefit of and shall be
----------
binding upon the Initial Purchaser, the Company and their respective successors
and legal representatives, and nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any other person any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person except that (i) the indemnities
of the Company contained in Section 8 of this Agreement shall also be for the
benefit of any person or persons who control the Initial Purchaser within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
and (ii) the indemnities of the Initial Purchaser contained in Section 8 of this
Agreement shall also be for the benefit of the directors of the Company and any
person or persons who control the Company within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act. No purchaser of
Securities from the Initial Purchaser shall be deemed a successor because of
such purchase.
14. Applicable Law. The validity and interpretation of this Agreement, and
--------------
the terms and conditions set forth herein, shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to any
provisions relating to conflicts of laws.
15. Consent to Jurisdiction and Service of Process. All judicial
----------------------------------------------
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of New York, and
by execution and delivery of this Agreement, the Company accepts for itself and
in connection with its properties, generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non convenience and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement. The Company designates and
appoints CT Corporation, and such other persons as may hereafter by selected by
the Company and the Company irrevocably agreeing in writing to so serve, as its
agent to receive on its behalf service of all process in any such proceedings in
any such court, such service being hereby acknowledged by the Company to be
effective and binding service in every respect. A copy of any such process so
served shall be mailed by registered mail to the Company at the address provided
in Section 12 hereof; provided, however, that, unless otherwise provided by
-------- -------
applicable law, any failure to mail such copy shall not affect the validity of
service of such process. If any agent appointed by the Company refuses to
accept service, the Company hereby agrees that service of process sufficient for
personal jurisdiction in any action against the Company in the State of New York
may be made by registered or certified mail, return receipt requested, to the
Company at its address provided in Section 12 hereof, and the Company hereby
acknowledges that such service shall be effective and binding in every respect.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of the Initial Purchaser to bring
proceedings against the Company in the courts of any other jurisdiction.
30
<PAGE>
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
31
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company and the Initial
Purchaser.
Very truly yours,
HOMEBASE, INC.
By ______________________________________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
/s/ Jean-Claude Canfin
By: _____________________________________________________
Jean-Claude Canfin
Managing Director
32
<PAGE>
EXHIBIT 12.1
HOMEBASE, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
39 WEEKS ENDED FISCAL YEAR ENDED
----------------------- --------------------------------------------------------------
OCTOBER 25, OCTOBER 26, JANUARY 25, JANUARY 27, JANUARY 28, JANUARY 29, JANUARY 30,
1997 1996 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations............. $5,322 $29,943 $27,352 $39,871 $43,333 $(74,178) $34,149
====== ======= ======= ======= ======= ======== =======
Fixed charges
Interest expense........ $4,528 $ 7,660 $10,506 $ 8,790 $ 9,125 $ 7,661 $ 5,158
Capitalized interest.... 18 885 900 1,600 1,100 1,391 1,660
------ ------- ------- ------- ------- -------- -------
Total fixed charges..... $4,546 $ 8,545 $11,406 $10,390 $10,225 $ 9,052 $ 6,818
====== ======= ======= ======= ======= ======== =======
Income from continuing
operations and fixed
charges................ $9,868 $38,488 $38,758 $50,261 $53,558 $(65,126) $40,967
====== ======= ======= ======= ======= ======== =======
Ratio of earnings to
fixed charges(1)....... 2.17 4.50 3.40 4.84 5.24 -- (2) 6.01
====== ======= ======= ======= ======= ======== =======
</TABLE>
- --------
(1) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include pre-tax income from
continuing operations plus fixed charges. "Fixed charges" include
interest, whether expensed or capitalized, and amortization of debt
expense.
(2) Earnings were insufficient to cover fixed charges in fiscal 1993 by $74.2
million.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3 of
our report dated July 28, 1997 except as to the information presented in Notes
4 and 12, for which the date is October 28, 1997, and Note 14, for which the
date is November 17, 1997, on our audits of the financial statements of
HomeBase, Inc. We also consent to the references of our firm under the
captions "Experts" and "Selected Financial Data."
/s/ Coopers & Lybrand L.L.P.
Los Angeles, California
January 5, 1998
<PAGE>
EXHIBIT 25.1
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Statement of Eligibility Under the Trust Indenture Act of 1939 of a
Corporation Designated to Act as Trustee
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [X]
State Street Bank and Trust Company of California, N.A.
- --------------------------------------------------------------------------------
(Exact name of trustee as specified in its charter)
United States
- --------------------------------------------------------------------------------
(Jurisdiction of incorporation or organization if not a U.S. national bank)
06-1143380
- --------------------------------------------------------------------------------
(IRS Employer Identification No.)
725 South Figueroa Street, Suite 3100, Los Angeles, California
- --------------------------------------------------------------------------------
(Address of principal executive officers)
90017
- --------------------------------------------------------------------------------
(Zip code)
State Street Bank and Trust Company of California, N.A.
725 South Figueroa Street, Suite 3100, Los Angeles, California, 90017
213-362-7338
- --------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
HOMEBASE, INC.
- --------------------------------------------------------------------------------
(Exact Name of Obligor as specified in its charter)
Delaware
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
33-0109661
- --------------------------------------------------------------------------------
(IRS Employer Identification No.)
3345 Michelson Drive
Irvine, California
- --------------------------------------------------------------------------------
(Address of principal executive offices)
92612
- --------------------------------------------------------------------------------
(Zip code)
5.25% Convertible Subordinated Notes due 2004
(proposed maximum aggregate offering price: $100,000,000)
- --------------------------------------------------------------------------------
(Title of the indenture securities)
<PAGE>
Item 1. General Information.
(a) The trustee is subject to the supervision of the Comptroller of the
Currency, Western District Office, 50 Fremont Street, Suite 3900, San
Francisco, CA 94105-2292.
(b) The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with the obligor.
The Trustee is not affiliated with the obligor.
No responses are included for Items 3-15 of this form T-1 because the obligor is
not in default on securities issued under indentures under which State Street
Bank and Trust Company of California, N.A. is trustee.
Item 16. List of Exhibits.
1. Articles of Association of State Street Bank and Trust Company of
California, N.A.*
2. Certificate of Corporate Existence (with fiduciary powers) from the
Comptroller of the Currency, Administrator of National Banks.*
3. Authorization of the Trustee to exercise fiduciary powers (included in
Exhibits 1 and 2; no separate instrument).
4. By-laws of State Street Bank and Trust Company of California, N.A.*
5. Consent of State Street Bank and Trust Company of California, N.A.
required by Section 321(b) of the Act.*
6. Consolidated Report of Income at the close of business March 31, 1997,
Federal Financial Institutions Examination Council, Consolidated Reports
of Condition and Income for A Bank With Domestic Offices Only and Total
Assets of Less Than $100 Million - FEI 034.**
* The indicated documents have been filed as exhibits with corresponding
exhibit numbers to the Form T-1 of Oasis Residential, Inc., filed
pursuant to Section 305(b)(2) of the Act, filed with the Securities and
Exchange Commission on November 18, 1996 (Registration No. 033-90488),
and are incorporated herein by reference.
** The indicated document was filed as an exhibit with a corresponding
exhibit number to the Form T-1 filed as Exhibit 25 to a Registration
Statement on Form S-4 of Silicon Graphics, Inc., filed with the
Securities and Exchange Commission on July 30, 1997 (Registration No.
333-32379), and is incorporated herein by reference.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the trustee,
State Street Bank and Trust company of California, N.A., organized and existing
under the laws of the United States of America, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Los Angeles, and State of California, on the 31st
day of December, 1997.
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A.
By: /s/ Scott Emmons
------------------
Scott C. Emmons
Assistant Vice President
-3-
