SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1995 COMMISSION FILE NUMBER 0-17832
Allstate Financial Corporation
- --------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
Virginia 54-1208450
- ------------------------------ --------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
2700 South Quincy Street, Suite 540, Arlington, VA 22206
- --------------------------------------------------------------------------------
(address of principal executive offices) (zip code)
Registrant's Telephone Number, Including Area Code: (703) 931-2274
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 and 15 of the Securities and Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
2,655,128 Common Shares were outstanding as of September 30, 1995.
<PAGE>
ALLSTATE FINANCIAL CORPORATION
FORM 10-QSB
INDEX
Page
Number
Part I. Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets at September 30, 1995
(Unaudited) and December 31, 1994 1-2
Consolidated Statements of Income Three and Nine Months
Ended September 30, 1995 and 1994 (Unaudited) 3
Consolidated Statements of Shareholders' Equity Nine
Months Ended September 30, 1995 (Unaudited) and Year
Ended December 31, 1994 4
Consolidated Statements of Cash Flows Nine Months Ended
September 30, 1995 and 1994 (Unaudited) 5-6
Notes to Consolidated Financial Statements 7-8
Item 2 - Management's Discussion and Analysis of Results of
Operations and Financial Conditions 9-17
Part II.
Item 1 - Legal Proceedings 18-19
Item 4 - Submission of Matters To a Vote of Security Holders 19
Item 5 - Other Information 19
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 20
<PAGE>
PART I - FINANCIAL INFORMATION
<PAGE 1>
<TABLE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 1,797,020 $ 1,763,930
Receivables:
Finance, net 22,603,649 27,502,806
Purchased life insurance contracts 4,506,532 4,533,952
Other 3,201,672 3,388,638
Prepaid expenses 272,911 198,091
Prepaid income taxes 445,881 628,123
Deferred income taxes 909,000 909,000
----------- -----------
TOTAL CURRENT ASSETS 33,736,665 38,924,540
PROPERTY AND EQUIPMENT, Net 513,619 479,034
OTHER ASSETS 2,488,065 2,447,083
----------- -----------
$36,738,349 $41,850,657
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 389,817 $ 303,838
Notes payable 5,449,019 11,591,718
Note payable-related party 103,000 103,000
Credit balances of factoring clients 1,596,886 1,665,038
----------- -----------
TOTAL CURRENT LIABILITIES 7,538,722 13,663,594
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE 2>
<TABLE>
ALLSTATE FINANCIAL CORPORATON AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(CONTINUED)
<S> <C> <C>
NONCURRENT PORTION OF NOTES PAYABLE:
Convertible Subordinated Notes 2,838,000 -
Related parties 58,788 58,788
Other 7,110 7,110
----------- -----------
TOTAL LIABILITIES 10,442,620 13,729,492
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, authorized 2,000,000
shares with no par value; no shares
issued or outstanding - -
Common stock, authorized 10,000,000 shares
with no par value; 3,102,328 issued;
2,655,128 outstanding at September 30, 1995;
3,102,328 outstanding at December 31, 1994 40,000 40,000
Additional paid-in-capital 18,852,312 18,852,312
Treasury Stock, 447,200 shares (2,839,726) -
Retained Earnings 10,243,143 9,228,853
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 26,295,729 28,121,165
----------- -----------
$36,738,349 $41,850,657
=========== ===========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE 3>
<TABLE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Income:
Earned discounts $2,578,345 $2,412,890 $7,876,644 $6,663,248
Fees and other income 600,245 689,119 1,656,397 1,422,877
---------- ---------- ---------- ----------
3,178,590 3,102,009 9,533,041 8,086,125
---------- ---------- ---------- ----------
Expenses:
Compensation and fringe benefits 785,161 754,546 2,345,710 2,146,661
General and administrative expenses 642,766 650,442 1,981,763 1,718,092
Interest Expense 205,307 141,546 629,833 306,538
Provision for Credit Losses 859,000 613,515 2,770,600 1,485,641
Commission 64,298 31,403 199,645 80,229
---------- ---------- ---------- ----------
Total Expenses 2,557,162 2,191,452 7,927,551 5,737,161
---------- ---------- ---------- ----------
Income Before Income Taxes 621,428 910,557 1,605,490 2,348,964
Income Taxes 228,700 335,400 591,200 865,400
---------- ---------- ---------- ---------
Net Income $ 392,728 $ 575,157 $1,014,290 $1,483,564
========== ========== ========== ==========
Net Income Per Share $ .13 $ .19 $ .33 $ .48
========== ========== ========== ==========
Average Number of Shares Outstanding 3,009,971 3,102,328 3,071,204 3,102,328
========= ========= ========== ==========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE 4>
<TABLE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1995 (Unaudited)
AND YEAR ENDED DECEMBER 31, 1994
Common Paid In Treasury Retained
Stock Capital Stock Earnings
------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
BALANCE - January 1, 1994 $40,000 $18,852,312 $ - $9,081,313
Net Income - - - 147,540
------- ----------- -------------- ----------
BALANCE - December 31, 1994 40,000 18,852,312 - 9,228,853
Purchase of 447,200 shares of
Allstate Financial Corporation Stock - - (2,839,726) -
------- ----------- ----------- -----------
Net Income - - - 1,014,290
------- ----------- ------------ -----------
BALANCE - September 30, 1995 $40,000 $18,852,312 $(2,839,726) $10,243,143
======= =========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE 5>
<TABLE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,014,290 $ 1,483,564
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation - net 106,104 109,944
Provision for credit losses 2,770,600 1,485,641
Changes in operating assets and liabilities:
Decrease/(Increase) in other receivables 186,966 (2,132)
(Increase) in prepaid expenses (74,820) ( 73,190)
(Increase)/Decrease in other assets (40,982) 103,895
Increase in accounts payable and accrued expenses 85,979 58,358
Decrease in prepaid income taxes 182,242 197,627
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,230,379 3,363,707
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of finance receivables, including repurchases and
life insurance contracts (121,242,831) (127,261,690)
Collections of finance receivables, including repurchases
and life insurance contracts 123,398,808 119,926,578
Decrease in credit balances of factoring clients (68,152) (449,520)
Purchase of property and equipment (140,689) (146,892)
------------ ------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 1,947,136 (7,931,524)
------------- ------------
<FN>
See Notes to Consolidate Financial Statements
</FN>
<PAGE 6>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
Nine Months Ended September 30,
-------------------------------
1995 1994
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and borrowings 51,228,768 46,618,138
Principal payments on line of credit and borrowings (57,371,467) (44,026,428)
Partial Cost of Treasury Stock Acquisition (1,726) -
------------ -------------
NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES (6,144,425) 2,591,710
------------ -------------
INCREASE/(DECREASE) IN CASH 33,090 (1,976,107)
CASH, Beginning of period 1,763,930 2,785,219
------------ -------------
CASH, End of period $ 1,797,020 $ 809,112
============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 615,643 $ 298,925
=========== =============
Taxes paid $ 408,958 $ 666,544
=========== =============
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Issuance of Convertible Subordinated Notes
In Exchange for Common Stock $ 2,838,000 -
=========== ============
Transfer of Finance and Other Receivables to
Other Assets $ 125,000 -
=========== ============
<FN>
See Notes to Consolidate Financial Statements
</FN>
</TABLE>
<PAGE 7>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General. The consolidated financial statements of Allstate Financial
Corporation (the "Company") included herein are unaudited for all periods
ended September 30, 1995 and 1994; however, they reflect all adjustments
which, in the opinion of management, are necessary to present fairly the
financial condition and results of operations for the periods presented.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Allstate Financial
Corporation believes that the disclosures are adequate to make the
information presented not misleading. The results of operations for the three
and nine months ended September 30, 1995 are not necessarily indicative of
the results of operations to be expected for the remainder of the year.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in Allstate Financial Corporation's Annual Report for the year ended
December 31, 1994.
2. Net income per share. Net income per share of common stock has been
computed by dividing net income by the weighted average number of
common shares outstanding during the periods presented. At December 31,
1994 there were 94,437 stock options outstanding, at exercise prices ranging
from $5.75 to $14.00 per share. During the year ended December 31, 1994,
1,134 options and 3,000 warrants were forfeited. There were no warrants
or options exercised for the three and nine months ended September 30,
1995.
3. Line of credit. As of September 30, 1995 the Company had
approximately $20.6 million available under a $25.0 million secured
revolving line of credit. Borrowings under the credit facility bear interest at
the bank's base rate plus .75%. The current maturity date of this credit
facility is May 13, 1997. The Company is subject to covenants which are
typical in revolving credit facilities of this type.
As of September 30, 1995 Lifetime Options, Inc., a Viatical Settlement
Company, a wholly owned subsidiary of the Company, had approximately
$1.0 million available under a $2.0 million line of credit and an additional
$1.2 million available under a $4.0 million availability from the Company.
Lifetime Options' revolving line of credit: (i) is payable on demand and, if
no demand is made, on December 31, 1995; (ii) bears interest at the prime
rate of interest plus 1%; and (iii) is collateralized by specific purchased life
insurance contracts.
<PAGE 8>
4. Convertible Subordinated Notes Payable. On September 11, 1995 the
Company issued $2,838,000 in aggregate principal amount of its Convertible
Subordinated Notes in exchange for 447,200 shares of the Company's
Common Stock (currently held by the Company as treasury stock). The
Convertible Subordinated Notes (i) are due September 30, 2000, (ii) currently
bear interest at a rate of 10% per annum, which rate of interest may fluctuate
from time to time but may not exceed 10% nor be less than 8% per annum
(iii) are subordinated in right of payment to the Company's obligations under
its secured revolving credit facility and (iv) were issued pursuant to an
indenture which contains certain covenants which are less restrictive than
those contained in the Company's secured revolving credit facility.
<PAGE 9>
Management's Discussion and Analysis of Financial Condition an Results
of Operations
General
The Company's principal business is the discounted purchase of
accounts receivable, usually on a full recourse, full notification basis. In
addition, the Company also makes advances collateralized by inventory,
equipment, and real estate (collectively, "Collateralized Advances"). The
Company has elected to more aggressively pursue the making of
Collateralized Advances, as it perceives the need by its targeted customers
for such funding and such funding is not readily available from many of the
Company's competitors. As of September 30, 1995, Collateralized Advances
constituted approximately 31% of the Company's portfolio of finance
receivables. The Company also provides its clients with letters of guaranty,
arranges for the issuance of letters of credit for its clients and provides
other related financial services.
The Company's clients are small- to medium-sized businesses with
annual revenues typically ranging between $600 thousand and $50 million.
The Company's clients do not typically qualify for traditional bank or asset-
based financing because they are either too new, too small, undercapitalized
(or over-leveraged), unprofitable or otherwise unable to satisfy the
requirements of a bank or traditional, asset-based lender. Accordingly, there
is a significant risk of default and client failure inherent in the Company's
business. The Company addresses these risks in various ways, including: (i)
the Company thoroughly evaluates the collateral to be made available by each
client; (ii) the Company collects its clients' accounts receivable directly from
its clients' account debtors, which are frequently (though not always) large,
creditworthy companies or governmental entities; (iii) the Company
purchases, or takes a first priority security interest in, all accounts
receivable of each client; (iv) the Company takes, whenever available, blanket
liens on all of its clients' assets and, when making Collateralized Advances,
the Company employs what management believes to be conservative loan-to-
value ratios based on auction or liquidation value appraisals performed by
independent appraisers; (v) the Company requires personal guaranties (either
unlimited guaranties or validity guaranties) from its clients' principals; (vi)
the Company actively monitors its portfolio of purchased accounts receivable,
including the creditworthiness of account debtors and periodically evaluates
the value of other collateral and (vii) the Company maintains loss reserves
which management believes are adequate and appropriate for its business.
Notwithstanding the foregoing, clients (and account debtors) may fail and the
collateral available to the Company (together with personal guaranties) may
prove insufficient to enable the Company to recover all amounts due in full.
<PAGE 10>
Lifetime Options, a wholly-owned subsidiary of the Company,
provides financial assistance to individuals facing life-threatening illness by
purchasing their life insurance policies at a discount from face value. The
amount of the discount is determined by Lifetime Options based on the size
of the policy being purchased, the maximum life expectancy of the insured,
the amount of the anticipated premiums payable with respect to the policy
being purchased and the anticipated financing cost associated with purchasing
and carrying the policy. In general, the purchase price for a policy is
between 55% and 85% of the benefits payable under the policy. Because
most of the life insurance policies purchased by Lifetime Options are
underwritten by highly rated insurance companies (and, in many cases,
backed by state guaranty funds), management of Lifetime Options believes
that credit risk is not material to its business.
Before purchasing each policy, Lifetime Options has each insured's
medical records reviewed by at least one (and typically three) independent
physician(s) who provide(s) Lifetime Options with an opinion(s) of the
insured's life expectancy. To date, the physicians engaged by Lifetime
Options have provided life expectancies which, on average, fairly
approximate actual lifespans. However, there is no assurance that the
physicians engaged by Lifetime Options will in the future be able to perform
as they have in the past. If the physicians engaged by Lifetime Options were
to systematically underestimate life expectancies or if life extending
treatments (or a cure) were found for AIDS (almost all of the life insurance
policies purchased by Lifetime Options to date have been purchased from
individuals with AIDS), there would be a material adverse effect on the
earnings of Lifetime Options.
Other than Lifetime Options, none of the Company's subsidiaries is
currently engaged in business which could have a material effect on the
Company.
Competition
Continuing competition within the marketplace from banks and asset-
based lenders and newly created finance companies have encroached upon the
Company's potential client base and have negatively affected earned
discounts. Additionally, the Company continues to attract larger clients
which often increases the amount of time needed to negotiate and fund new
business. Also, Collateralized Advances require more in-depth and diverse
due diligence which can further delay the funding of new business.
Nonetheless, the Company believes that its ability to respond quickly and to
provide specialized, flexible financing structures to its clients enables it to
compete effectively. In order to remain competitive, however, the Company
has, where necessary and appropriate, offered lower rates than it has
historically. The Company believes that increased competition will continue
for the foreseeable future and will continue to exert downward pressure on
pricing, especially in the Company's core factoring business. To counter the
downward pressure on pricing, the Company intends to continue to diversify
its sources of income, primarily by continuing its emphasis on funding
relationships which include (in addition to the factoring of accounts
receivable) the making of Collateralized Advances.
<PAGE 11>
Historically, the Company did not expect to maintain a funding
relationship with a client for more than two years; the Company expected
that its clients would ultimately qualify for more competitively priced bank
or asset based financing. Therefore, the Company's major clients have
tended to change significantly over time. Today, however, because the
Company is, where necessary and appropriate, offering lower rates and
providing Collateralized Advances, it is possible that the duration of the
Company's funding relationships with its clients may be extended. Although
the Company has historically been successful in replacing major clients, the
loss of one or more major clients and an inability to replace those clients
could have a material adverse effect on the Company.
<PAGE 12>
Results of Operations
The following table sets forth certain items of income and expense
for the periods indicated and the percentage relationship of each item to total
income.
<TABLE>
For the Three Months Ended September 30,
----------------------------------------
1995 1994
------------------ -----------------
(Unaudited)
<S> <C> <C> <C> <C>
INCOME
Earned discounts $2,578,345 81.1% $2,412,890 77.8%
Fees and other income 600,245 18.9 689,119 22.2
---------- ----- ---------- -----
TOTAL INCOME 3,178,590 100.0 3,102,009 100.0
EXPENSE
Compensation and fringe benefits 785,161 24.7 754,546 24.3
General and administrative expense 642,766 20.2 650,442 21.0
Interest expense 205,307 6.5 141,546 4.5
Provision for credit losses 859,000 27.0 613,515 19.8
Commissions 64,928 2.0 31,403 1.0
---------- ----- ---------- -----
TOTAL EXPENSES 2,557,162 80.4 2,191,452 70.6
---------- ----- ---------- -----
INCOME BEFORE INCOME TAXES 621,428 19.6 910,557 29.3
INCOME TAXES 228,700 7.2 335,400 10.8
---------- ----- ---------- -----
NET INCOME $ 392,728 12.4% $ 575,157 18.5%
========== ===== ========== =====
NET INCOME PER SHARE $ .13 $ .19
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 3,009,971 3,102,328
========= =========
</TABLE>
<TABLE>
For the Nine Months Ended September 30,
---------------------------------------
1995 1994
------------------ ----------------
(Unaudited)
<S> <C> <C> <C> <C>
INCOME
Earned discounts $7,876,644 82.6% $6,663,248 82.4%
Fees and other income 1,656,397 17.4 1,422,877 17.6
---------- ----- ---------- -----
TOTAL INCOME 9,533,041 100.0 8,086,125 100.0
---------- ----- ---------- -----
EXPENSE
Compensation and fringe benefits 2,345,710 24.6 2,146,661 26.6
General and administrative expense 1,981,763 20.8 1,718,092 21.2
Interest expense 629,833 6.6 306,538 3.8
Provision for credit losses 2,770,600 29.1 1,485,641 18.4
Commissions 199,645 2.1 80,229 1.0
---------- ----- ---------- -----
TOTAL EXPENSES 7,927,551 83.2 5,737,161 71.0
---------- ----- ---------- -----
INCOME BEFORE INCOME TAXES 1,605,490 16.8 2,348,964 29.0
INCOME TAXES 591,200 6.2 865,400 10.7
---------- ----- ---------- -----
NET INCOME $1,014,290 10.6% $1,483,564 18.3%
========== ===== ========== =====
NET INCOME PER SHARE $ .33 $ .48
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 3,071,204 3,102,328
========== ==========
</TABLE>
Total Income. Total income consists of (i) earned discounts and
(ii) fees and other income. "Earned discounts" consist primarily of income from
the purchase of accounts receivable and life insurance policies and income
from Collateralized Advances. "Fees and other income" consist primarily of
closing fees, commitment fees, other related financing fees and supplemental
discounts paid by clients who do not sell the minimum volume of accounts
receivable required by their contracts with the Company.
<PAGE 13>
The following table breaks down total income by type of transaction
for the periods indicated and the percentage relationship of each type of
transaction to total income.
<TABLE>
For the Three Months Ended September 30,
------------------------------------------------------
1995 1994
(Unaudited) (Unaudited)
----------------------- ----------------------
Earned % of Total Earned % of Total
Type of Transaction Discounts Income Discounts Income
------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Purchase of Accounts
Receivable $1,707,513 53.7% $1,768,182 57.0%
Purchase of Life
Insurance Policies 191,581 6.0 182,597 5.9
Collateralized Advances 517,578 16.3 295,491 9.5
Other 161,673 5.1 166,620 5.4
---------- ----- ---------- -----
Total Earned Discount 2,578,345 81.1 2,412,890 77.8
Fees and Other Income 600,245 18.9 689,119 22.2
---------- ----- ---------- -----
Total Income $3,178,590 100.0% $3,102,009 100.0%
========== ===== ========== =====
</TABLE>
<TABLE>
For the Nine Months Ended September 30,
------------------------------------------------------
1995 1994
(Unaudited) (Unaudited)
-------------------------- ------------------------
Earned % of Total Earned % of Total
Type of Transaction Discounts Income Discounts Income
------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Purchase of Accounts
Receivable $4,455,384 46.7 $5,015,254 62.0
Purchase of Life
Insurance Policies 702,408 7.4 441,690 5.5
Collateralized Advances 2,111,793 22.1 742,856 9.2
Other 607,059 6.4 463,448 5.7
---------- ----- ---------- -----
Total Earned Discount 7,876,644 82.6 6,663,248 82.4
Fees and Other Income 1,656,397 17.4 1,422,877 17.6
---------- ----- ---------- -----
Total Income $9,533,041 100.0 $8,086,125 100.0
========== ===== ========== =====
</TABLE>
Total income increased 17.9% in the first nine months of 1995 over
the same period in 1994, from $8.1 million to $9.5 million, and increased
2.5% in the third quarter of 1995 over the same quarter in 1994. Earned
discounts from the purchase of accounts receivable and life insurance policies
decreased 5.5% in the first nine months of 1995 as compared to the same
period in 1994, from $5.5 million to $5.2 million. Earned discounts from the
purchase of accounts receivable and life insurance policies remained relatively
flat, $1.9 million, in the third quarters of 1995 and 1994. In the first nine
months of 1995 and 1994, earned discounts from the purchase of accounts
receivable and life insurance policies comprised 54.1% and 67.5%,
respectively, of total income. In the third quarters of 1995 and 1994, earned
discounts from the purchase of accounts receivable and life insurance policies
comprised 59.7% and 62.9%, respectively, of total income. These percentages
reflect management's decision to pursue the making of Collateralized
Advances, in addition to the Company's core factoring business.
<PAGE 14>
Earned discounts from Collateralized Advances increased 184.3% in
the first nine months of 1995 from the same period in 1994, from $743
thousand to $2.1 million. In the third quarter of 1995, earned discounts from
Collateralized Advances increased 75.2% over the same quarter in 1994, from
$295 thousand to $518 thousand. In the first nine months of 1995 and 1994,
earned discounts from Collateralized Advances comprised 22.1% and 9.2%,
respectively, of total income. In the third quarters of 1995 and 1994, earned
discounts from Collateralized Advances comprised 16.3% and 9.5%,
respectively, of total income. These changes again reflect management's
decision to pursue the making of Collateralized Advances, in addition to the
Company's core factoring business. Collateralized Advances currently bear
interest at a rate, on average, of approximately 2% per month calculated on
the amount of the Collateralized Advance. Earned discounts from
Collateralized Advances are required to be paid in cash monthly in arrears.
Fees and other income increased 16.4% in the first nine months of
1995 over the comparable period in 1994, from $1.4 million to $1.7 million.
In the third quarter of 1995, fees and other income decreased 12.9% from the
comparable quarter of 1994, from $689 thousand to $600 thousand. The
increase for the first nine months of 1995 is largely attributable to growth in
closing fees and supplemental discounts partially offset by reductions in
related financing fees. The decrease in fees and other income in the third
quarter of 1995 from the third quarter of 1994 is primarily attributable to a
decrease in related financing fees and the absence of a one-time finders ($50
thousand) fee partially offset by increased supplemental discounts.
As of September 30, 1995 and 1994, purchased accounts receivable
included on the Company's balance sheet were $15.1 million (55.1%) and
$22.4 million (71.9%), respectively, of gross finance receivables. As of
September 30, 1995 and 1994, Collateralized Advances included on the
Company's balance sheet were $8.6 million (31.3%) and $4.5 million
(15.9%), respectively, of gross finance receivables. The relative increase from
the end of the first nine months of 1994 to the end of the first nine months
of 1995 in the percentage of gross finance receivables comprised of
Collateralized Advance reflects management's decision to pursue the making
of Collateralized Advances, in addition to the Company's core factoring
business. The relative decrease at the same points in time in the percentage
of gross finance receivables comprised of purchased accounts receivable is a
further reflection of management's decision to pursue the making of
Collateralized Advances, in addition to the Company's core factoring business.
Compensation and Fringe Benefits. Compensation and fringe benefits
were $2.3 million (24.6% of total income) and $2.1 million (26.6% of total
income) in the first nine months of 1995 and 1994, respectively. In the third
quarters of 1995 and 1994, compensation and fringe benefits were $785
thousand (24.7% of total income) and $755 thousand (24.3% of total income),
respectively. The absolute dollar increase is chiefly the result of increases
in sales personnel and compensation. Executive compensation in the first nine
months of 1995 was $749 thousand (7.9% of total income) versus $759
thousand (9.4% of total income) in the first nine months of 1994. In the third
quarter of 1995 executive compensation increased slightly as compared to the
same period in 1994, from $264 thousand (8.5% of total income) to $275
thousand (8.6% of total income).
<PAGE 15>
General and Administrative Expense. In the first nine months of 1995
and 1994 general and administrative expense was $2.0 million (20.8% of total
income) as compared to $1.7 million (21.2% of total income), respectively.
General and administrative expense for the third quarters of 1995 and 1994,
was $643 thousand (20.2% of total income) and $650 thousand (21.0% of
total income), respectively. The increase for the nine months ended
September 30, 1995 was primarily attributable to a rise in professional fees,
licenses and taxes and duplicating expense. In the first nine months of 1995
professional fees rose to $653 thousand (6.9% of total income) as compared
to $396 thousand (4.9% of total income) for the comparable period in 1994
and increased to $234 thousand (7.4% of total income) in the third quarter of
1995 versus $131 thousand (4.2% of total income) in the third quarter of
1994. Professional fees have increased, in part, due to on-going litigation
and, in part, to the final resolution of legal proceedings instituted in prior
years. Also contributing to the increase in general and administrative expense
were additional rent expense incurred in connection with the opening of two
off-site marketing offices as well as additional license and tax expenditures
incurred in connection with maintaining certain assets acquired in settlement
of finance and other receivables. Other charges increasing general and
administrative expense were insurance, postage, telephone, stockholder related
expenses and travel and entertainment which were offset, in part, by decreases
in loan amortization, office supplies and credit and filing costs.
Interest Expense. Interest expense was $630 thousand (6.6% of total
income) versus $307 thousand (3.8% of total income) in the first nine months
of 1995 and 1994, respectively, and $205 thousand (6.5% of total income)
versus $142 thousand (4.5% of total income) for the third quarters of 1995
and 1994, respectively. The rise in interest expense is attributable to an
increase in the average daily balance outstanding on the Company's revolving
lines of credit and the rise in the prime rate of interest from 1994 to 1995.
The average daily outstanding balance on the Company's revolving lines of
credit was $7.9 million and $4.0 million for the first nine months of 1995 and
1994, respectively, and $6.6 million and $6.1 million for the three months
ended September 30, 1995 and 1994, respectively. The average interest rate
paid on the Company's revolving lines of credit rose to 9.48% during the first
nine months of 1995 as compared to 7.8% during the first nine months of
1994 and to 9.28% during the third quarter of 1995 as compared to 8.3%
during the third quarter of 1994.
Provision for Credit Losses. Credit loss experience, the adequacy of
underlying collateral, changes in the character and size of the Company's
receivables portfolio and management's judgement are factors used in
determining the provision for credit losses and the adequacy of the allowance
for credit losses. Other factors given consideration in determining the
adequacy of the allowance are the level of related credit balances of factoring
clients and the current and anticipated impact of economic conditions on the
creditworthiness of the Company's clients and account debtors. To mitigate
the risk of credit loss, the Company, among other things: (i) thoroughly
evaluates the collateral to be made available by each client; (ii) collects its
factored accounts receivable directly from account debtors, which are
frequently (though not always) large, creditworthy companies or governmental
entities; (iii) purchases, or takes a first priority security interest in, all
accounts receivable of each client; (iv) takes, whenever available, blanket
liens on all of its clients' assets and, when making Collateralized Advances, it
employs what management believes to be conservative loan-to-value ratios
based on auction or liquidation value appraisals performed by independent
appraisers; (v) requires personal guaranties (either unlimited guaranties or
validity guaranties) from its clients' principals, and (vi) actively monitors
its portfolio of factored accounts receivable, including the creditworthiness of
account debtors and periodically evaluates the value of other collateral.
<PAGE 16>
The provision for credit losses was $2.8 million (29.1% of total
income) for the first nine months of 1995 as compared to $1.5 million (18.4%
of total income) for the same period in 1994 and $859 thousand (27.0% of
total income) for the third quarter of 1995 as compared to $614 thousand
(19.8% of total income) for the third quarter of 1994. The increase in the
Company's provision for credit losses in the first nine months of 1995 as
compared to the first nine months of 1994 was principally attributable to the
settlement reached by the Company early in the second quarter of 1995 with
the Trustee in the bankruptcy of Premium Sales Corporation. The settlement
remains subject to Bankruptcy Court approval.
At September 30, 1995 the allowance for credit losses was 8.0% ($2.2
million) and 7.5% ($2.5 million) of gross finance receivables and December
31, 1994, respectively.
At September 30, 1995 the accrual of earnings was suspended on
$2,725,929 of gross finance receivables as compared to $3,608,164 of gross
finance receivables at December 31, 1994.
Although the Company maintains an allowance for credit losses in an
amount deemed by management to be adequate to cover potential losses, no
assurance can be given that the allowance will in fact be adequate or that an
inadequacy, if any, in the allowance could not have a material adverse effect
on the Company's earnings in future periods. In addition, management
recognizes that Collateralized Advances may entail greater risk to the
Company than the factoring of accounts receivable. Although management
believes that the Company has (or third parties acting on behalf of the
Company have) the requisite skill to evaluate, monitor and manage such risks,
there can be no assurance that the Company will in fact be successful in doing
so.
Commissions. Commission expense was $200 thousand (2.1% of total
income) in the first nine months of 1995 as compared to $80 thousand (1.0%
of total income) in the first nine of 1994. In the third quarter of 1995
commission expense increased to $65 thousand (2.0% of total income) from
$31 thousand (1.0% of total income) in the third quarter of 1994. The
increase was the result of a larger portion of gross receivables purchased in
1995 being generated by commissioned brokers and other professionals to
whom the Company paid referral fees.
Impact of Inflation
Management believes that inflation has not had a material effect on
the Company's income, expenses or liquidity during the past three years.
Changes in interest rate levels do not generally affect the income
earned by the Company in the form of discounts. Rising interest rates would,
however, increase the Company's cost of borrowed money based on its
current borrowing arrangements which are prime or base rate adjusted credit
facilities.
<PAGE 17>
Changes in Financial Condition
The Company's total assets decreased 12.2% to $36.7 million at
September 30, 1995 from $41.9 million at December 31, 1994. The decrease
is primarily the result of a decrease in net finance receivables.
Liquidity and Capital Resources. The Company's principal funding
sources are the collection of purchased receivables, retained cash flow and
external borrowings.
As of September 30, 1995 the Company had approximately $20.6
million available under a $25.0 million secured revolving line of credit.
Borrowings under the credit facility bear interest at the bank's base rate plus
.75%. The current maturity date of this credit facility is May 13, 1997. The
Company is subject to covenants which are typical in revolving credit
facilities of this type.
As of September 30, 1995 Lifetime Options had approximately $1.0
million available under a $2.0 million line of credit and an additional $1.2
million available under a $4 million availability from the Company. Lifetime
Options' revolving line of credit: (i) is payable on demand and, if no demand
is made, on December 31, 1995; (ii) bears interest at the prime rate of interest
plus 1% and (iii) is collateralized by specific purchased life insurance
contracts.
At September 30, 1995 the Company had working capital of $26.2
million and a ratio of current assets to current liabilities of 4.48 to 1 as
compared to December 31, 1994 working capital of $25.3 million and a ratio
of current assets to current liabilities of 2.85 to 1.
The Company believes that internally generated funds and borrowings
under its current or a replacement credit facility will be sufficient to finance
the Company's future funding requirements for the near term. Under certain
circumstances, however, this may not be the case. Borrowings under the
Company's existing revolving credit facility are predicated on a borrowing
base comprised primarily of accounts receivable acquired by the Company
from its clients and, to a lesser extent, equipment securing Collateralized
Advances. If in the near term an unexpectedly high portion of the Company's
potential new business includes Collateralized Advances, internally generated
funds and borrowings under the Company's existing credit facility may not
be sufficient to fund such new business. Under such circumstances the
Company would attempt to negotiate the borrowing base in its existing credit
facility to allow the Company to borrow greater amounts from its primary
lender(s) and thereby support the growth in Collateralized Advances. If those
negotiations were unsuccessful there is no assurance that the Company could
attract sufficient capital to enable the Company to pursue its strategy of
making additional Collateralized Advances.
<PAGE 18>
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
The Company is a defendant in White, Trustee v. Allstate Financial
Corporation pending in the U.S. Bankruptcy Court for the Western District
of Pennsylvania. The Company provided receivables financing and advances
for Lyons Transportation Lines, Inc. ("Lyons"). Lyons was the subject of a
leveraged buy-out and has since filed a bankruptcy petition. The Company
had agreed to a settlement with the Lyons trustee, subject to approval by the
bankruptcy court, which would have released the Company from all claims
upon the payment of $300,000. In connection with the settlement, the
Company added $300,000 to the provision for credit losses in 1994 and then
charged off the full settlement amount. A creditor in the bankruptcy
proceeding, Sherwin-Williams Company, objected to the proposed settlement
and, in March 1995, the objection was sustained by the bankruptcy court.
The Company has appealed the order sustaining the objection. The appeal is
currently pending. Management does not believe the Company has a material
exposure in excess of the previously agreed upon settlement amount.
In connection with the same transaction, the Company has also been
named as a defendant in Sherwin-Williams Company v. Robert Castello et. al.
pending in the United States District Court for the Northern District of Ohio.
Sherwin-Williams is suing all parties with any involvement in the transaction
to recover damages allegedly incurred by Sherwin-Williams in connection
with the leveraged buy-out and the bankruptcy litigation arising therefrom.
Sherwin-Williams asserts that it has or will incur pension fund liabilities and
other liabilities as a result of the transaction in the approximate amount of
$11 million and has asserted claims against the Company in that amount.
Management does not believe the litigation will have a material effect on the
financial position or results of operations of the Company because, in
management's opinion, the claims are without merit. The Company has filed
a motion to dismiss the claims and a motion to stay discovery pending a
ruling on the motion to dismiss. The motion to stay discovery has been
granted and the motion to dismiss is currently pending. A hearing date on the
motion to dismiss has not yet been set.
The Company is a defendant in Harold B. Murphy, Chapter 7 Trustee
v. Allstate Financial Corporation, et al. pending in the U.S. Bankruptcy Court
in the District of Massachusetts. The Company factored the accounts
receivable of Clearpoint Research Corporation ("CRC") from late 1992
through early 1993. In July 1993 CRC filed a petition in bankruptcy, after
the Company had collected all amounts owed to it. The bankruptcy trustee
has sued the Company seeking recovery of alleged preferential transfers made
during the course of the factoring relationship. The bankruptcy trustee alleges
that the Company did not properly perfect its security interest in the accounts
receivable. No specific damage amount is specified in the complaint but it
is assumed the bankruptcy trustee is seeking recovery of the full amount of
accounts receivables collected (approximately $4 million). The Company has
filed an answer denying the substantive allegations asserted by the bankruptcy
trustee. The Company believes it has a number of strong defenses to the
complaint and intends to vigorously defend all claims.
<PAGE 19>
As previously disclosed in the Company's Form 10-QSB for the
quarter ended March 31, 1995, the Company has reached a settlement with
the Trustee in the bankruptcy of Premium Sales Corporation, a former client
of one of the Company's wholly-owned subsidiaries. On July 21, 1995, the
Company placed the full cash settlement amount of $1.4 million in escrow in
accordance with the terms of the settlement. The settlement is intended to be
a full release of any and all claims between the Company and the Trustee.
The settlement remains subject to court approval. The impact of this
settlement has been reflected in the Company's financial statements.
From time to time, the Company is required to initiate litigation to
collect amounts owed by former clients, guarantors or obligors. In connection
with such litigation, the Company periodically encounters counterclaims by
defendant(s) for material amounts. Such counterclaims are typically without
any factual basis and, management believes, are usually asserted for defensive
purposes by the litigant.
Except as described above, the Company is not party to any litigation
other than routine proceedings incidental to its business, and the Company
does not expect that these proceedings will have a material effect on the
Company.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. - OTHER INFORMATION
None.
ITEM 6(a). - Exhibit 4. INSTRUMENTS DEFINING THE RIGHTS OF SHAREHOLDERS
Exhibit 4.2 - Stock Purchase Agreement dated September 11, 1995
between Allstate Financial Corporation and Scoggin Capital
Management, LP and Selig Partners, LP.
Exhibit 4.3 - Indenture of Trust dated September 11, 1995
between Allstate Financial Corporation and Shawmut Bank
Connecticut, National Association as Trustee.
Exhibit 4.4 - Letter of Agreement dated September 11, 1995
between Allstate Financial Corporation and Leon Fishman and
Eugene Haskin.
ITEM 6(b). - EXHIBITS AND REPORTS ON FORM 8-K
None.
<PAGE 20 >
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
and Exchange Act of 1934, The Company has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
ALLSTATE FINANCIAL CORPORATION
Date Nov 14, 1995 Lawrence M. Winkler
Lawrence M. Winkler
Secretary/Treasurer
Chief Financial Officer
Exhibit 4.2
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of September 11, 1995
between ALLSTATE FINANCIAL CORPORATION, a Virginia corporation
(the "Company"), and SCOGGIN CAPITAL MANAGEMENT, LP, a Delaware
limited partnership, and SELIG PARTNERS, LP, a Delaware limited
partnership (collectively with Scoggin Capital Management, LP and
their respective successors and assigns (which shall not include
Transferees, as hereinafter defined) the "Stockholders").
The parties hereto agree as follows:
SECTION 1. EXCHANGE OF COMMON STOCK; CLOSING.
1.1 Exchange of Common Stock. Subject to the terms
and conditions of this Agreement, the Company agrees to accept
for exchange at the Closing, and each of the Stockholders agrees
to tender to the Company for exchange at the Closing, the number
of shares (the "Shares") of common stock of the Company, no par
value per share (the "Common Stock"), set forth opposite such
Stockholder's name below. In exchange for the Shares, the
Company shall issue and each of the Stockholders shall accept
$1,000 in principal amount of the Company's Convertible
Subordinated Notes (the "Notes") for each 157.48 Shares owned by
it. The Notes shall be issued pursuant to an Indenture, dated as
of September 11, 1995, between the Company and Shawmut Bank
Connecticut, National Association, as Trustee (the "Trustee"), in
the form attached hereto as Exhibit A (the "Indenture"). Each
Stockholder shall receive Notes in such permitted denominations
as it shall direct. The Company shall only issue Notes in
denominations of $1,000 and multiples thereof, and will purchase
any Shares not therefor exchanged for Notes hereunder at and for
a price of $6.35 per Share.
Scoggin Capital Management, LP
405,500 shares
Selig Partners, LP 41,700
shares
1.2 Closing.
The consummation of the transactions contemplated
by Section 1.1 of this Agreement (the "Closing") shall take place
on September 11, 1995 at the offices of Robinson & Cole, 780
Third Avenue, 29th Floor, New York, New York, at 9:00 A.M. (local
time) or at such other time, date or place as the Company and the
Stockholders shall agree. At the Closing, the Company shall
deliver to each Stockholder (x) the Notes acquired by it, duly
registered in such Stockholder's name and (y) a check in the
amount of the purchase price of any Shares not exchanged for
Notes hereunder against (i) duly registered certificates
representing the Shares of Common Stock purchased hereunder and
(ii) duly executed stock powers in form and substance sufficient
to convey the Shares of Common Stock purchased hereunder.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents, warrants and covenants to the
Stockholders that, as of the date hereof:
2.1 Organization and Corporate Power. The Company is
a corporation duly organized, validly existing and in good
standing under the laws of the State of Virginia, and is duly
qualified to do business as a foreign corporation in all other
jurisdictions in which such qualification is required. The
Company has all required corporate power and authority to own its
property, carry on its business as now conducted, and to enter
into and carry out all of its obligations under this Agreement,
the Indenture and the Notes, and to issue, sell and, with the
Trustee, deliver the Notes, and to carry out the transactions
contemplated hereby and thereby.
2.2 Authorization. This Agreement, the Indenture and
the Notes each constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms (except as such
enforcement may be limited by equitable principles and subject to
laws of general application relating to bankruptcy, insolvency
and the relief and rehabilitation of debtors), and the execution,
delivery and performance of this Agreement, the Indenture and the
Notes, and the issuance of the Notes and the shares of Common
Stock to be issued upon conversion of the Notes, have been duly
authorized by all necessary corporate action on the part of the
Company and no consent of any third party (other than consents
obtained on or prior to the date hereof and which remain in full
force and effect) is required to be obtained for the consummation
of the transactions contemplated hereby or thereby.
2.3 Effect of Transactions. The execution, delivery
and performance of this Agreement, the Indenture and the Notes,
and the issuance, sale and delivery by or on behalf of the
Company of the Notes, and the performance by the Company of the
transactions contemplated hereby and thereby do not, after giving
effect to waivers or consents obtained on or prior to the date
hereof and which remain in full force and effect, (a) conflict
with or result in a breach of the terms, conditions or provisions
of, (b) constitute a default under, (c) result in the creation of
any lien, security interest, charge or encumbrance upon the
capital stock (other than the reservation of shares of Common
Stock for issuance upon conversion of the Notes) or assets of the
Company or any of its subsidiaries pursuant to, (d) give any
third party the right to accelerate any obligation under, (e)
result in a violation of, or (f) require any authorization,
consent, approval, exemption or other action by or notice to any
court or administrative or governmental body pursuant to (i) the
Certificate of Incorporation or by-laws of the Company, (ii) any
agreement to which the Company or any of its subsidiaries is a
party or is bound or to which its assets are subject, or (iii)
any law, statute, rule, regulation, judgment, injunction, order
or decree to which the Company or any of its subsidiaries is
subject.
2.4 Capitalization; Reservation of Conversion Shares.
(a) Immediately prior to the Closing, the total authorized
capital stock of the Company shall consist of (i) 10,000,000
shares of Common Stock, 3,102,328 shares of which shall be issued
and outstanding, and 2,000,000 shares of Preferred Stock, none of
which shall be outstanding. All of the issued and outstanding
shares of the Company's capital stock have been duly authorized,
validly issued and are fully paid and non-assessable.
(b) The Company has reserved, and at all times shall
keep available, free from any preemptive rights, out of its
authorized but unissued Common Stock, enough shares of Common
Stock to permit the conversion of the Notes. All shares of
Common Stock which may be issued upon conversion of the Notes
shall be validly issued, fully paid and non-assessable. The
Company shall comply with all applicable securities laws
regulating the offer, sale and delivery of shares of Common Stock
upon conversion of the Notes.
2.5 No Material Adverse Change. Each document filed
by the Company since January 1, 1995 pursuant to the Securities
Exchange Act of 1934, as amended, does not contain a material
misstatement or omit to make a material statement required to be
made therein, in each case as of its date. Except for the
transactions contemplated by this Agreement, the Indenture and
the Exchange Offer contemplated in Section 5.2 hereof, (i) since
June 30, 1995, there has been no material adverse change in the
financial condition, assets, operations or capitalization of the
Company, (ii) since December 31, 1994, the Company has not formed
or acquired any new subsidiaries, (iii) since December 31, 1994,
the Company has not issued any options or warrants to buy capital
stock of the Company (except for options to purchase fewer than
1,100 shares of Common Stock granted to employees) and (iv) since
June 30, 1995, other than in the ordinary course of its business,
the Company has not entered into any material agreements or
understandings pursuant to which the Company, or any of its
subsidiaries, would be liable, directly or indirectly, for any
Indebtedness (as such term is defined in the Indenture).
2.6 No Default. Were the Indenture in effect as of
the Closing, after giving effect to the transactions contemplated
by this Agreement, the Indenture and the Notes, there would be no
Event of Default thereunder as of such date.
2.7 Exemption from Registration Requirements. The
exchange of Notes for shares of Common Stock contemplated by this
Agreement, when consummated pursuant to the terms hereof, will be
exempt from the registration requirements of the Securities Act
of 1933, as amended (the "1933 Act") pursuant to Section 3(a)(9)
thereof ("Section 3(a)(9)"), and the Company has neither taken
any action nor allowed any condition to exist that would prevent
the application of such exemption to such exchange.
2.8 Registered Holders. As of the date hereof, the
Company does not have more that 250 shareholders of record.
2.9 Exemption from Trust Indenture Act. The Notes are
exempt from the requirements of the Trust Indenture Act of 1939,
as amended, and it is not necessary to qualify the Indenture
thereunder.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE
STOCKHOLDERS.
Each of the Stockholders represents, warrants and
covenants, severally but not jointly, to the Company that:
3.1 Organization and Power. Each of the Stockholders
is a limited partnership duly organized, validly existing and in
good standing under the laws of the State of Delaware, and is
duly qualified to do business as a foreign limited partnership in
all other jurisdictions in which such qualification is required.
Each of the Stockholders has all required power and authority to
own its property, carry on its business as now conducted and to
carry out the transactions contemplated hereby.
3.2 Authorization. This Agreement constitutes a valid
and binding obligation of each of the Stockholders, enforceable
in accordance with its terms (except as such enforcement may be
limited by equitable principles and subject to laws of general
application relating to bankruptcy, insolvency and the relief and
rehabilitation of debtors), and the execution, delivery, and
performance of this Agreement has been duly authorized by all
necessary action and no consent of any third party is required to
be obtained for the consummation of the transactions contemplated
hereby.
3.3 Effect of Transactions. The execution, delivery
and performance of this Agreement and the transactions
contemplated hereby do not (a) conflict with or result in a
breach of the terms, conditions or provision of, (b) constitute a
default under, (c) result in the creation of any lien, security
interest, charge or encumbrance upon either of the Stockholder's
assets pursuant to, (d) give any third party the right to
accelerate any obligation under, (e) result in violation of, or
(f) require any authorization, consent, approval, exemption or
other action by or notice to any court or administrative or
governmental body pursuant to (i) the limited partnership
agreement of either Stockholder, (ii) any agreement to which
either Stockholder is a party or is bound or to which its assets
are subject, (iii) any law, statute, rule, regulation, judgement,
injunction, order or decree to which either Stockholder is
subject.
3.4 Title. Neither Stockholder nor any of its
affiliates owns any shares of capital stock of the Company,
either directly or indirectly and of record or beneficially,
other than the Shares. Each of the Stockholders is the owner,
beneficially and of record, and has good title to the Shares
owned by it, free and clear of all liens, encumbrances, security
agreements, equities, options, adverse claims and interests and
restrictions whatsoever. The Company will acquire good,
marketable and indefeasible title thereto, free of any liens,
encumbrances, security agreements, equities, options, adverse
claims and interests and restrictions arising from or caused by
any act or omission of either of the Stockholders.
<PAGE>
SECTION 4. COVENANTS OF THE STOCKHOLDERS.
From and after the execution and delivery of this
Agreement, each of the Stockholders (for itself and any entity
which it may at any time directly or indirectly control),
severally but not jointly, covenants and agrees with the Company
that:
(a) it will, for a period of five years from the date
hereof, refrain from purchasing or acquiring, either directly or
indirectly and of record or beneficially, any shares of Common
Stock or any other security of the Company convertible into or
exercisable for Common Stock, provided, however, that this
covenant shall not prevent either of the Stockholders from
converting the Notes, or any portion thereof, into Common Stock
upon the terms and pursuant to the conditions set forth herein
and in the Notes and the Indenture;
(b) it will not convert the Notes or any portion
thereof into Common Stock before the earlier of (i) March 1,
1997, or (ii) the date immediately preceding the date upon which
the Company consummates a transaction pursuant to which, pursuant
to the Indenture, the Stockholders would receive property or
assets other than the Company's Common Stock upon such
conversion; provided, however, that, subject to Section 4(c)
hereof, the Stockholders shall be allowed to convert the Notes or
any portion thereof into Common Stock at any time pursuant to the
terms of the Indenture, provided that all such Common Stock is
immediately sold to an unaffiliated third party;
(c) prior to December 31, 1996, it will not transfer,
convey or assign, (i) to any purchaser or transferee (which shall
include any Affiliate (as defined in the Rules and Regulations
promulgated pursuant to the 1933 Act) of such purchaser or
transferee), in any transaction or series of transactions, more
than 10% of the Registrable Securities (as hereinafter defined)
it holds without the prior written consent of the Company in its
sole discretion, or (ii) any of the Registrable Securities it
holds to any Affiliate of either of the Stockholders, unless such
Affiliate enters into an agreement restricting its subsequent
transfer, conveyance or assignment pursuant to the terms of this
Section 4 in form and substance reasonably satisfactory to the
Company; and
(d) all Notes issued to either of the Stockholders
shall contain a legend with respect to the restrictions set forth
in subsections (b) and (c) of this Section 4.
SECTION 5. COVENANTS OF THE COMPANY.
5.1 Board of Directors. The Company covenants and
agrees that (i) it shall, within ten days after the Stockholders
designate persons to serve as directors of the Company and the
Company has had sufficient opportunity to satisfy itself as to
the qualifications and suitability of such designees, take all
corporate action necessary to increase the number of directors of
the Company by two, if necessary, and appoint two persons
designated by the Stockholders to fill the vacancies thus created
until the Company's 1995 annual meeting of stockholders; (ii), so
long as the Stockholders own Notes or shares of Common Stock
having a combined value equal to at least $700,000 in aggregate
principal amount of Notes, where each share of Common Stock is
valued at $7.50 in principal amount of Notes, at each meeting of
the Company's shareholders, the Stockholders shall be allowed to
designate one person for nomination as a candidate for election
to the Board of Directors of the Company, which candidate shall
be supported for election by the management and Board of
Directors of the Company; (iii), so long as the Stockholders own
Notes or shares of common Stock having a combined value equal to
at least $1,415,000 in aggregate principal amount of Notes, where
each share of Common Stock is valued at $7.50 in principal amount
of Notes, at each meeting of the Company's shareholders, the
Stockholders shall be allowed to designate an additional person
for nomination as a candidate for election to the Board of
Directors of the Company, which candidate shall also be supported
for election by the management and Board of Directors of the
Company; provided, however, that at such time as the Stockholders
own less than $700,000 in aggregate principal amount of Notes,
any rights of the Stockholders pursuant to this Section 5.1 shall
terminate after the annual meeting of Company shareholders next
following such date; and provided further, however, that with
respect to any designee referred to in clauses (i), (ii) and
(iii) herein, (a) no event has occurred which would be required
to be disclosed pursuant to item 401(f) of Regulation S-K as
promulgated by the Securities and Exchange Commission (the
"SEC"), and (b) any such designee is approved by the Board of
Directors of the Company, which approval shall not be
unreasonably withheld. One of the Stockholders' designees shall
be appointed to the compensation committee and the other
designee, if any, shall be appointed to the audit committee of
the Board of Directors of the Company.
5.2 Exchange Offer to Other Shareholders. The Company
covenants and agrees that, within ninety days after the Closing,
it shall file with the SEC all preliminary documents necessary to
make, and shall use its best efforts to consummate, an offer to
the holders of the Company's Common Stock other than the
Stockholders (the "Other Stockholders") to issue up to $2,162,000
in aggregate principal amount of Notes to such Other Stockholders
in exchange for some or all of the shares of Common Stock held by
such Other Stockholders at the rate of $1,000 in principal amount
of Notes for each 157.48 shares tendered for exchange, which
exchange shall be exempt from the registration requirements of
the 1933 Act pursuant to Section 3(a)(9) thereof. If the Company
is not eligible to make the offer to Other Stockholders pursuant
to Section 3(a)(9) of the 1933 Act, the Company shall make, as
soon as practicable, an equivalent offer to Other Stockholders,
registered pursuant to the 1933 Act.
SECTION 6. REGISTRATION.
6.1 Registrable Securities. The term "Registrable
Securities" means (i) any Notes acquired by the Stockholders
pursuant hereto, and (ii) any Common Stock issued or issuable
with respect to the Notes owned by any Stockholder. Registrable
Securities will cease to be Registrable Securities when (i) a
registration statement with respect to such securities shall have
been declared effective under the 1933 Act, and such securities
shall have been sold or distributed pursuant to such registration
statement, or (ii) such securities have been sold or distributed
pursuant to Rule 144 under the 1933 Act.
6.2 Demand Registration Rights. The Company covenants
and agrees with the Stockholders (and any person or entity to
whom they have made a permitted transfer of Registrable
Securities (a "Transferee"), collectively, the "Holders") that
after receipt of a written request (a "Demand Request") from
Holders representing not less than 50% of the Registrable
Securities not previously registered but only if such Registrable
Securities consist of Notes or shares of Common Stock having a
combined value equal to at least $750,000 in aggregate principal
amount of Notes, where each share of Common Stock is valued at
$7.50 in principal amount of Notes, that such Holders desire and
intend to transfer all or a portion of the Registrable Securities
held by them under such circumstances that a public offering,
within the meaning of the 1933 Act will be involved (which Demand
Request shall specify the Registrable Securities so requested to
be registered, the proposed amounts thereof (including whether or
not the proposed offering is to be underwritten, in which case
the Demand Request shall specify the identity of the proposed
underwriter, which shall be subject to the approval of the
Company, which approval shall not be unreasonably denied)), the
Company shall promptly (but in any event within five (5) days)
give written notice (the "Registration Notice") of such requested
registration to all Holders, and thereupon the Company shall, as
expeditiously as possible (but in any event within forty-five
(45) days after receipt of the Demand Request by the Company)
file a registration statement (which may be pursuant to Rule 415
under the 1933 Act if so requested in the Demand Request) and use
its best efforts to cause such registration statement to become
effective under the 1933 Act with respect to the offering and
sale or other disposition of (i) the Registrable Securities set
forth in the Demand Request, for disposition in accordance with
the intended method or methods of disposition stated in the
Demand Request, and (ii) all other Registrable Securities which
the Holders thereof shall have requested in writing that the
Company register (which written request shall specify such
Registrable Securities and the proposed amounts thereof) within
twenty-five (25) days after receipt of the Registration Notice.
The Stockholders shall, within ten days of making a transfer of
Registrable Securities to a Transferee, notify the Company in
writing of the identity of such Transferee.
The Company shall be required (i) to maintain the
effectiveness of any such registration statement until the
earlier to occur of 270 days after the effective date of such
registration statement or consummation of the distribution by the
Holders of the securities covered by such registration statement
(but in any event, at least until the expiration of the 90-day
period referred to in Section 4(3) of the 1933 Act and Rule 174
thereunder, if applicable) (the "Termination Date"), provided,
however, that if at the Termination Date the Registrable
Securities are covered by a registration statement which also
covers other securities and which is required to remain in effect
beyond the Termination Date, the Company shall maintain in effect
such registration statement as it relates to Registrable
Securities for so long as it (or any substitute registration
statement) remains or is required to remain in effect for any of
such other securities, (ii) to comply with a Demand Request for
registration only if made prior to the date five (5) years from
the date hereof, and (iii) to comply with only one Demand Request
for registration pursuant to this Section 6.2. A registration
will not count as a Demand Request until the registration
statement relating thereto has become effective and remained
effective as set forth in the preceding sentence. In any
registration initiated under this Section 6.2, if the Company
complies with each requirement of the 1933 Act or the Commission
(as hereafter defined) within its power or ability to comply
with, the Holders of the Registrable Securities to be registered
pursuant to such Registration Statement shall pay (pro rata based
on the value of the Registrable Securities held by such Holder
being registered thereon) all Registration Expenses (as defined
in Section 6.5 hereof) in connection therewith, whether or not it
becomes effective. The Company shall not register any securities
other than Registrable Securities pursuant to any Demand Request.
6.3 Piggyback Registration Rights. The Company
covenants and agrees with the Stockholders that in the event the
Company at any time prior to September 11, 2000, proposes to file
a registration statement under the 1933 Act, including, without
limitation, a registration statement with respect to any class of
security (other than in connection with an exchange offer or a
registration statement on Forms S-4 or S-8 or any successor forms
thereto or other unsuitable registration statements), then the
Company shall in each case promptly give written notice of such
proposed filing to the Stockholders and such notice shall offer
to the Stockholders the opportunity to include their Registrable
Securities in such registration statement.
The Company shall permit, or shall cause the managing
underwriter of a proposed offering to permit, the Stockholders of
Registrable Securities with respect to which the Company has
received, within 30 days after the Company gives such notice, a
written request for inclusion in such registration statement to
include such securities in the proposed offering on the same
terms and conditions as applicable to the securities of the
Company included in such registration. Notwithstanding the
foregoing, if any such managing underwriter shall advise the
Company and such Stockholders in writing that, in its opinion,
the distribution of all or a portion of the Registrable
Securities requested to be included in the registration
concurrently with the securities being registered by the Company
could materially adversely affect the distribution of securities
by the Company for its own account, then the amount of
Registrable Securities of the Stockholders to be included in such
offering shall be reduced to the required level. All
Registration Expenses (as defined in Section 6.5) of such
registration under this Section 6.3 shall be borne by the
Company, whether or not such registration becomes effective
provided, however, that the Stockholders shall bear and be
responsible for all Registration Expenses attributable to the
inclusion of their Registrable Shares in the offering.
6.4 Registration Procedures. As used in Sections 6.4,
6.5, 6.6, 6.7, 6.8 and 6.9 hereof in reference to a registration
statement initiated pursuant to Section 6.3 hereof, the term
"Holder" shall refer only to the Stockholder. In connection with
any registration statement (the "Registration Statement") filed
pursuant to Section 6.2 or 6.3, the Company shall, as
expeditiously as possible:
(a) prepare and file the Registration Statement
with the Securities and Exchange Commission (the "Commission") on
any form for which the Company then qualifies or which counsel
for the Company deems appropriate and which is available for the
sale of the Registrable Securities in accordance with the
intended method of distribution thereof;
(b) before filing the Registration Statement or
prospectus or any amendments or supplements thereto, (i) furnish
to such counsel as is acceptable to the Holders of a majority of
the Registrable Securities being so registered ("Holders'
Counsel") copies of all documents proposed to be filed, which
documents will be subject to the review of such counsel, and (ii)
notify each Holder of any stop order issued or threatened by the
Commission and take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered;
(c) prepare and file with the Commission such
amendments and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as
may be necessary to keep the Registration Statement effective for
the periods required by this Section 6 and comply with the
provisions of the 1933 Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement
during such period in accordance with the intended methods of
disposition by the Holders set forth in the Registration
Statement;
(d) furnish to each Holder such number of copies
of the Registration Statement and of each amendment and
supplement thereto (in each case including all exhibits), such
number of copies of the prospectus contained in the Registration
Statement (including each preliminary prospectus) and such other
documents as any Holder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by
the Holder;
(e) use its best efforts to cause the Registrable
Securities to be qualified for sale under the securities or blue
sky laws of such jurisdictions as any Holder reasonably requests
and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Holder to consummate the
disposition in such jurisdictions of the Registrable Securities
owned by such Holder; provided, however, that the Company shall
not be required under this Section 6.4(e) to qualify generally to
do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 6.4(e);
(f) use its best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered
with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and
operations of the Company to enable the Holders to consummate the
disposition of such Registrable Securities;
(g) notify each Holder at any time when a
prospectus relating thereto is required to be delivered under the
1933 Act of the happening of any event as a result of which the
prospectus included in the Registration Statement contains an
untrue statement of material fact or omits to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company will prepare
and file with the Commission and deliver to each Holder a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of the Registrable Securities, such
prospectus will not contain an untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(h) make available for inspection by Holders'
Counsel, any Holder of Registrable Securities to be included in
such a registration, and any attorney, accountant or other agent
retained by Holders' Counsel (collectively, the "Inspectors"),
copies of all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the
"Records") as are reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with
such Registration Statement, provided that Records that the
Company determines, in good faith, to be confidential and which
it notifies the Inspectors are confidential shall not be
disclosed to the Inspectors, unless: (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or
omission in the Registration Statement; or (ii) the release of
such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction. Each Holder agrees that
such Holder will, upon learning that disclosure of such Records
is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company, at the Company's expense, to
undertake appropriate action to prevent disclosure of the Records
deemed confidential;
(i) use its best efforts to obtain a letter from
the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by
"cold comfort" letters as the holders of the Registrable
Securities reasonably request;
(j) use its best efforts to cause all such
Registrable Securities to be listed or quoted on each securities
exchange or interdealer quotation system on which similar
securities issued by the Company are then listed or quoted, if
any;
(k) provide a transfer agent for such Registrable
Securities not later than the effective date of such Registration
Statement;
(l) enter into a cross-indemnity agreement and a
contribution agreement, each on customary terms, with each
underwriter, if any, and such other customary agreements
(including underwriting agreements on customary terms) and take
all such other actions as the Holders of a majority of the
Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities; and
(m) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission.
The Company may require each Holder to furnish to
the Company such information as may be necessary to be included
in the Registration Statement, including information regarding
the distribution of the Registrable Securities, as the Company
may from time to time reasonably request in writing.
Each Holder agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind
described in Section 6.4(g) hereof, such Holder will forthwith
discontinue disposition of Registrable Securities pursuant to the
Registration Statement until such Holder receives the copies of
the supplemented or amended prospectus contemplated by Section
6.4(g), and, if so directed by the Company, will deliver to the
Company all copies, other than permanent file copies then in the
Holder's possession, of the prospectus covering the Registrable
Securities current at the time of receipt of such notice. If the
Company gives any such notice, the period mentioned in Section
6.4(c) shall be extended by the number of days during the period
from and including the date of the giving of such notice pursuant
to Section 6.4(g) to and including the date when each Holder
received the copies of the supplemented or amended prospectus
contemplated by Section 6.4(g).
6.5 Registration Expenses. All registration and
filing fees, fees and expenses of compliance with securities or
blue sky laws, and reasonable fees and disbursements of counsel
for the Company and all independent certified public accountants
(including the reasonable expenses of any audit, special auditor
or "cold comfort" letter required by or incident to such
performance), printing costs and expenses, the reasonable fees
and expenses of any special experts retained in connection with
such registration, the reasonable fees and expenses of other
persons retained by the Company incurred in connection with the
registration hereunder are herein called "Registration Expenses."
Registration Expenses shall not include underwriting discounts,
commissions or fees attributable to the sale of the Registrable
Securities, which shall be paid by the Holders. All fees and
expenses of Holders' Counsel shall be borne by the Holders.
6.6. Indemnification by the Company. The Company also
agrees to indemnify, to the fullest extent permitted by law, each
Holder, its officers, directors and agents and each person who
controls each Holder (within the meaning of Section 15 of the
1933 Act), and any investment adviser thereof against all losses,
claims, damages, liabilities and expenses resulting from any
untrue statement of material fact or any omission of a material
fact required to be stated in the Registration Statement or
preliminary, final or summary prospectus included therein or
necessary to make the statements therein (in the case of a
preliminary, final or summary prospectus, in light of the
circumstances under which they were made) not misleading, except
insofar as the same are caused by or contained in any written
information with respect to such Holder furnished to the Company
by such Holder expressly for use therein or by such Holder's
failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto required by
Section 6.4(g) after the Company has furnished such Holder with a
sufficient number of copies of the same.
6.7 Indemnification by Holders. In connection with
any Registration Statement in which a Holder is participating,
each such Holder will furnish to the Company in writing such
information and affidavits with respect to such Holder as the
Company reasonably requests for use in connection with any such
Registration Statement or prospectus and agrees to indemnify, to
the fullest extent permitted by law, the Company and its
directors, officers and agents and each person who controls the
Company (within the meaning of Section 15 of the 1933 Act)
against any losses, claims, damages, liabilities and expenses
resulting from any untrue statement of a material fact or any
omission of a material fact required to be stated in the
Registration Statement or preliminary, final or summary
prospectus or any amendment thereof or supplement thereto or
necessary to make the statements therein (in the case of a
preliminary, final or summary prospectus, in light of the
circumstances under which they were made) not misleading, to the
extent, but only to the extent, that such untrue statement or
omission is contained in any written information or affidavit
with respect to such Holder so furnished by such Holder.
6.8 Conduct of Indemnification Proceedings. Any
person entitled to indemnification hereunder (an "indemnified
party") agrees to give prompt written notice to the party from
whom indemnification is sought (the "indemnifying party") after
the receipt by such person of any written notice of the
commencement of any action, suit, proceeding or investigation or
threat thereof (collectively, a "Claim") made in writing for
which such person will claim indemnification or contribution
pursuant to this Agreement. The failure of any indemnified party
so to notify an indemnifying party of any Claim shall relieve the
indemnifying party from any liability in respect of such Claim
that it may have to such indemnified party on account of the
indemnification agreement contained in this Section 6, unless
such indemnified party can establish that the indemnifying party
has not been prejudiced in its ability to defend against or
settle such Claim by such failure. In addition, any failure to
give such notice shall not relieve the indemnifying party from
any other liability that it may have to such indemnified party.
Notice given within 20 days of commencement of the Claim shall be
conclusively presumed not to affect adversely the indemnifying
party's ability to defend or settle the Claim. Unless in the
reasonable judgment of such indemnified party a conflict of
interest may exist between such indemnified party and the
indemnifying party with respect to a Claim, the indemnified party
shall permit the indemnifying party to participate in and assume
the defense of such Claim with counsel reasonably satisfactory to
such indemnified party. If such indemnified party has a
reasonable basis to believe, and does believe, that its interests
in such action conflict with those of the indemnifying party, the
indemnified party may so notify such indemnifying party and the
indemnifying party will remain liable to such indemnified party
for all legal or other expenses incurred by such indemnified
party in connection with the defense of such Claim. If the
indemnifying party is not entitled to, or elects not to, assume
the defense of a Claim, it will not be obligated to pay the fees
and expenses of more than one counsel with respect to such Claim,
unless in the reasonable judgment of such indemnified party a
conflict of interest may exist between such indemnified party and
any other of such indemnified parties with respect to such Claim,
in which event the indemnifying party shall be obligated to pay
the fees and expenses of such additional counsel or counsels.
The indemnifying party will not be subject to any liability for
any settlement made without its consent, which consent shall not
be unreasonably withheld or delayed. If the indemnifying party
assumes the defense of a Claim, the indemnifying party shall not,
in such defense, consent to the entry of any judgment without the
prior written consent of the indemnified party (which shall not
be unreasonably withheld or delayed), or consent to the entry of
any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or
plaintiff to the indemnified party of a release from all
liability in respect of such claim or litigation.
6.9 Contribution. If the indemnification provided for
in this Section 6 from the indemnifying party is unavailable to
an indemnified party hereunder in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and
indemnified parties in connection with the Claims which resulted
in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative
fault of such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any
Claims in question, including any untrue or alleged untrue
statement of a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified
parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall
be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 6.9 were
determined by pro rata allocation or by any other method or
allocation which does not take account of the equitable
considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person.
6.10 Information by Holders. Each Holder of
Registrable Securities, holding securities included in any
registration under this Section 6, shall furnish to the Company
such information regarding such Holder and the distribution
proposed by such Holder as the Company may reasonably request in
writing.
6.11 "Market Stand-Off" Agreements. The Stockholders
agree, if requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, not to sell or
otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by the Stockholders during the
120 day period following the effective date of a registration
statement filed under the 1933 Act covering such Common Stock (or
other securities) if such Stockholders have elected not to
participate in such registration or to register only a portion of
their Registrable Securities, without the prior written consent
of the Company or such underwriter, as the case may be. Such
agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-
transfer instructions with respect to the securities subject to
the foregoing restriction until the end of said 120 day period.
SECTION 7. INDEMNIFICATION.
7.1 Indemnification of Stockholders. The Company
agrees to indemnify and hold harmless, to the extent permitted by
law, each of the Stockholders, its partners and employees and
each person who controls such partner or such Stockholder (within
the meaning of the 1933 Act) against all losses, claims, damages,
liabilities and expenses caused by any breach of the
representations, warranties, covenants and agreements of the
Company contained in this Agreement.
7.2 Indemnification of Company. The Stockholders
agree, severally but not jointly, to indemnify and hold harmless,
to the extent permitted by law, the Company, its officers and
directors and each person who controls the Company (within the
meaning of the 1933 Act) against all losses, claims, damages,
liabilities and expenses caused by any breach of the
representations, warranties, covenants and agreements of the
Stockholders contained in this Agreement.
7.3 Indemnification in General. The indemnification
rights called for by this Section 7 are (i) in addition to any
indemnification provided in Section 6 hereof, and (ii) not
subject to any limitations or procedures set forth in Section 6
hereof.
SECTION 8. RELEASES.
8.1 Release by the Stockholders. Each of the
Stockholders, in consideration of the transactions contemplated
in this Agreement, the receipt and sufficiency of which is hereby
acknowledged, for itself, its legal representatives and assigns,
hereby releases and discharges the Company and each of its
Affiliates from any and all actions, causes of action, suits,
debts, dues, sums of money, accounts, reckonings, bonds, bills,
covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, liabilities,
obligations, proceedings, executions, claims and demands
whatsoever, in law, admiralty or equity, known or unknown, in its
own right or derivatively (collectively, "Existing Claims", which
term shall exclude any claim arising from or pursuant to (i) this
Agreement, (ii) the Notes or (iii) the Indenture) which each of
the Stockholders and their respective predecessors, affiliates,
successors, and assigns, individually or collectively, ever had
or now has or hereafter can, shall or may have against the
Company and its current or former Affiliates (or any of them)
for, upon, or by reason of any matter, cause or thing whatsoever
from the beginning of time to the date of this Agreement.
8.2 Release by the Company. The Company, in
consideration of the transactions contemplated in this Agreement,
the receipt and sufficiency of which is hereby acknowledged, for
itself and its legal representatives, successors and assigns,
hereby releases and discharges each of the Stockholders and each
of its current or former Affiliates from any and all Existing
Claims which the Company and its predecessors, successors and
assigns, individually or collectively, ever had, now has or
hereafter can, shall or may have against either of the
Stockholders or any of their current or former Affiliates (or any
of them) for, upon, or by reason of any matter, cause or thing
whatsoever from the beginning of time to the date of this
Agreement.
<PAGE>
SECTION 9. CONDITIONS OF CLOSING.
The obligations of the Stockholders under Section
1 of this Agreement shall be conditioned upon receipt by the
Stockholders of a copy of a written agreement with the Company,
in form and substance reasonably satisfactory to the
Stockholders, from Mr. Leon Fishman and Mr. Eugene Haskin,
pursuant to which Mr. Fishman and Mr. Haskin, solely in their
capacity as shareholders, shall agree that (i) they shall not
exchange any shares of Common Stock they own for Notes pursuant
to the Exchange Offer for Other Shareholders described in Section
5.2 hereof, and (ii) they shall vote all voting securities owned
by them in favor of the election of the persons designated by the
Stockholders pursuant to Section 5.1 hereof for nomination as
directors of the Company at any annual meeting of the
shareholders of the Company referred to in such Section 5.1.
SECTION 10. MISCELLANEOUS.
10.1 Payment of Expenses. Each of the parties hereto
shall pay all of their own expenses relating to the transactions
contemplated by this Agreement including, without limitation, the
fees and expenses of their respective counsel.
10.2 Survival of Representations. The representations,
warranties, covenants, and agreements made herein shall survive
until the fifth anniversary of the execution hereof; provided,
however, that the agreements set forth in Sections 2.4(b), 5,
6.6, 6.7, 6.8, 6.9, 7 and 8 hereof shall survive indefinitely.
10.3 Brokerage.
(a) The Company represents and warrants that
there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions
contemplated by this Agreement, based on any arrangement or
agreement made by or on behalf of the Company. The Company shall
indemnify and hold the Stockholders harmless against any claim
for such compensation.
(b) The Stockholders represent and warrant that
there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions
contemplated by this Agreement, based on any arrangement or
agreement made by or on behalf of the Stockholders. The
Stockholders shall indemnify and hold the Company harmless
against any claim for such compensation.
10.4 Incorporation by Reference. All schedules and
exhibits to this Agreement and all documents delivered pursuant
to or referred to in this Agreement are incorporated herein by
reference and made a part hereof.
10.5 Parties in Interest. All covenants, agreements,
representations, warranties and undertakings in this Agreement
made by and on behalf of any of the parties hereto shall bind and
inure to the benefit of their respective successors and assigns
and the terms "Stockholders" and "Stockholder" herein shall apply
to the successors and assigns (which shall not include
Transferees) of any Stockholder.
10.6 Governing Law, Severability. This Agreement,
together with the rights and obligations of the parties
hereunder, shall be governed by, construed and enforced in
accordance with the laws of the State of New York without giving
effect to the conflict of laws provisions thereof. In the event
any provision of this Agreement or the application of any
provision to any party shall be held by a court of competent
jurisdiction to be contrary to law, the remaining provisions of
this Agreement shall remain in full force and effect.
10.7 Notices. All notices, requests, consents and
demands shall be in writing and shall be deemed to have been
sufficiently given if sent, postage prepaid, by registered or
certified mail, return receipt requested:
To the Company: Allstate Financial Corporation
2700 South Quincy Street
Arlington, VA
Attn: Craig Fishman, General Counsel
Copy to: Robinson & Cole
695 East Main Street
P.O. Box 10305
Stamford, CT 06904
Attn: Richard A. Krantz, Esq.
To either Stockholder:
Scoggin Capital Management, L.P.
660 Madison Avenue, 20th Floor
New York, New York 10021
Attn: Craig Effron
Copy to: Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel
919 Third Avenue
New York, New York 10022
Attn: David P. Levin, Esq.
with or to such other address as may from time to time be
furnished in writing to the other parties hereto.
10.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
10.9. Captions. The captions and headings of this
Agreement are for convenience only and are not to be construed as
defining or limiting the scope or intent of any of the provisions
hereof.
10.10 Complete Agreement. This document embodies
the complete agreement and understanding between and among the
parties hereto with respect to the subject matter hereof, and
supersedes and preempts any prior understandings, agreements, or
representations by or among the parties, written or oral, which
may have related to the subject matter hereof.
10.11 Arbitration. Any and all disputes arising
out of, under, in connection with, or relating to this Agreement
shall be finally settled by arbitration in the City of New York,
or in such other place as the parties hereto agree, in accordance
with the rules then in effect of the American Arbitration
Association. The board of arbitrators shall be composed of three
arbitrators, each being qualified to make evaluations of the kind
under dispute. Each of the two parties to such arbitration shall
appoint one arbitrator and the two arbitrators so appointed shall
appoint the third arbitrator within thirty days after their
appointment. If either party fails to appoint its arbitrator
within fifteen days after written request by the other party,
either party may request the President of the American
Arbitration Association to make such appointment within fifteen
days after such request to the President. The arbitration award
shall be final and binding on the parties and may include costs,
including attorneys' fees. Any arbitration award may be enforced
in any court having jurisdiction over the party against which
enforcement is sought.
<PAGE>
SECTION 11. TERMINATION OF OBLIGATIONS.
The obligations of the Stockholders set forth in
Section 4 and in Section 6.11 shall terminate at such time as the
Company has (i) failed to make three consecutive interest
payments on the Notes, which payments shall not have been
subsequently made, or (ii) failed to redeem or repurchase or
otherwise make any payment of principal when due or required on
the Notes pursuant to the Indenture (, including for purposes of
clause (i) and (ii), any failure to pay interest or principal on,
or to redeem or repurchase, the Notes that results from the
application of the provisions of Article VIII of the Indenture or
the Required Lenders not having given any requisite consent);
provided, however that any termination pursuant to this Section
11 shall not occur earlier than the earlier of (x) the 1996
annual meeting of the Company's shareholders, or (y) August 15,
1996.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first set forth above.
ALLSTATE FINANCIAL CORPORATION
By Lawrence M. Winkler
Its Secretary and Treasurer
SCOGGIN CAPITAL MANAGEMENT,
L.P.
By: S&E PARTNERS, L.P.,
Its General Partner
By: SCOGGIN, INC.,
Its General Partner
By: Craig Effron
SELIG PARTNERS, L.P.
By Timothy S. Mullen
Timothy S. Mullen
Its Sole General Partner
Exhibit 4.3
_________________________________________________________________
_________________________________________________________________
ALLSTATE FINANCIAL CORPORATION
and
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION
as Trustee
__________________
INDENTURE OF TRUST
Dated as of September 11, 1995
Convertible Subordinated Notes
_________________________________________________________________
_________________________________________________________________
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND INTERPRETATION. . . . . . . . . . . . . . 2
Section 1.1. Definitions. . . . . . . . . . . . . . . . 2
Section 1.2. Interpretation . . . . . . . . . . . . . . 9
ARTICLE II
AUTHORIZATION, TERMS AND ISSUANCE OF NOTES. . . . . . . . 10
Section 2.1. Authorization and Obligation of Notes. . . 10
Section 2.2. Issuance of the Notes. . . . . . . . . . . 11
Section 2.3. Terms of the Notes.. . . . . . . . . . . . 11
Section 2.4. Redemption of Notes. . . . . . . . . . . . 12
Section 2.5. Conversion of the Notes. . . . . . . . . . 13
Section 2.6. Subordination. . . . . . . . . . . . . . . 13
Section 2.7. Execution and Authentication of Notes. . . 14
Section 2.8. Delivery of Notes. . . . . . . . . . . . . 14
ARTICLE III
GENERAL TERMS AND PROVISIONS OF NOTE. . . . . . . . . . . 15
Section 3.1. Date of Notes; Indenture . . . . . . . . . 15
Section 3.2. Form and Denominations . . . . . . . . . . 15
Section 3.3. Medium of Payment. . . . . . . . . . . . . 15
Section 3.4. Note Details . . . . . . . . . . . . . . . 16
Section 3.5. Exchange, Transfer and Registry. . . . . . 16
Section 3.6. Notes Mutilated, Destroyed, Stolen or
Lost . . . . . . . . . . . . . . . . . . . 16
Section 3.7. Cancellation and Destruction of Notes. . . 17
Section 3.8. Requirements With Respect to Transfers . . 17
Section 3.9. Registrar. . . . . . . . . . . . . . . . . 17
ARTICLE IV
PARTICULAR COVENANTS OF THE COMPANY . . . . . . . . . . . 18
Section 4.1. Prompt Payment of Principal and
Interest; Deposit in Trust . . . . . . . . 18
Section 4.2. To Fill Vacancy in Trustee's Office. . . . 18
Section 4.3. Corporate Existence, etc.. . . . . . . . . 18
Section 4.4. Compliance with Laws, etc. . . . . . . . . 18
Section 4.5. Maintenance of Properties; Insurance . . . 19
Section 4.6. Issuance of Common Stock on Conversion . . 19
Section 4.7. Reports to be Filed by the Company with
the Trustee. . . . . . . . . . . . . . . . 19
Section 4.8. Limitation on Payment Restrictions
Affecting Subsidiaries . . . . . . . . . . 20
Section 4.9. Limitation on Incurrence of Additional
Indebtedness . . . . . . . . . . . . . . . 20
Section 4.10. Limitation on Transactions With Related
Persons. . . . . . . . . . . . . . . . . . 21
Section 4.11. Limitation on Restricted Payments. . . . . 22
Section 4.12. Performance of Covenants . . . . . . . . . 23
ARTICLE V
REDEMPTION OF NOTES . . . . . . . . . . . . . . . . . . . 23
Section 5.1. Privilege of Redemption and Redemption
Price. . . . . . . . . . . . . . . . . . . 24
Section 5.2. Notice of Redemption . . . . . . . . . . . 23
Section 5.3. Selection of Notes to be Redeemed. . . . . 24
Section 5.4. Payment of Redeemed Notes. . . . . . . . . 24
Section 5.5. Cancellation of Redeemed Notes . . . . . . 25
ARTICLE VI
CONVERSION OF NOTES . . . . . . . . . . . . . . . . . . . 25
Section 6.1. Notice of Conversion . . . . . . . . . . . 25
Section 6.2. Issuance of Common Stock . . . . . . . . . 25
Section 6.3. Cancellation of Converted Notes. . . . . . 26
Section 6.4. Adjustment for Change in Capital Stock . . 26
Section 6.5. Adjustment for Rights Issue. . . . . . . . 27
Section 6.6. Adjustment for Other Distribution. . . . . 28
Section 6.7. Current Market Price . . . . . . . . . . . 29
Section 6.8. When Adjustment May Be Deferred. . . . . . 29
Section 6.9. When No Adjustment Required. . . . . . . . 29
Section 6.10. Notice of Adjustment . . . . . . . . . . . 30
Section 6.11. Notice of Certain Transactions . . . . . . 30
Section 6.12. Consolidation, Merger of the Company or
Transfer or Lease. . . . . . . . . . . . . 30
ARTICLE VII
REPURCHASE OF SECURITIES AT THE OPTION OF THE
HOLDERS UPON A FUNDAMENTAL CHANGE . . . . . . . . . . . . 31
Section 7.1. Repurchase upon a Fundamental Change. . . . 31
Section 7.2. Notices, Etc. . . . . . . . . . . . . . . . 32
Section 7.3. Exercising Repurchase Right . . . . . . . . 32
Section 7.4. Certain Definitions . . . . . . . . . . . . 33
ARTICLE VIII
SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.1. Subordination Provisions . . . . . . . . . 35
Section 8.2 Payments . . . . . . . . . . . . . . . . . 35
Section 8.3. Limitation on Acceleration . . . . . . . . 35
Section 8.4. Prior Payment of Senior Indebtedness in
Bankruptcy, etc. . . . . . . . . . . . . . 36
Section 8.5. Trustee to Effect Subordination. . . . . . 36
Section 8.6. Subrogation. . . . . . . . . . . . . . . . 37
Section 8.7. Notice to the Trustee. . . . . . . . . . . 37
Section 8.8. Reliance on Judicial Order or
Certificate of Liquidating Agent . . . . . 38
Section 8.9. Trustee's Relation to Senior
Indebtedness . . . . . . . . . . . . . . . 39
Section 8.10. Miscellaneous. . . . . . . . . . . . . . . 39
ARTICLE IX
REMEDIES OF TRUSTEE AND NOTEHOLDER. . . . . . . . . . . . 41
Section 9.1. Events of Default; Acceleration of Due
Dates. . . . . . . . . . . . . . . . . . . 41
Section 9.2. Enforcement of Remedies. . . . . . . . . . 43
Section 9.3. Application of Money After Default . . . . 44
Section 9.4. Actions by Trustee . . . . . . . . . . . . 45
Section 9.5. Majority Noteholders Control
Proceedings. . . . . . . . . . . . . . . . 45
Section 9.6. Individual Noteholder Action Restricted. . 46
Section 9.7. Effect of Discontinuance of Proceedings. . 46
Section 9.8. Remedies Not Exclusive . . . . . . . . . . 46
Section 9.9. Delay or Omission Upon Default . . . . . . 46
Section 9.10. Notice of Default. . . . . . . . . . . . . 47
Section 9.11. Waivers of Default . . . . . . . . . . . . 47
Section 9.12. Collection Suit by Trustee . . . . . . . . 47
Section 9.13. Trustee May File Proofs of Claim . . . . . 47
ARTICLE X
TRUSTEE AND PAYING AGENT. . . . . . . . . . . . . . . . . 48
Section 10.1. Appointment and Acceptance of Duties . . . 48
Section 10.2. Indemnity. . . . . . . . . . . . . . . . . 48
Section 10.3. Responsibilities of Trustee. . . . . . . . 48
Section 10.4. Compensation . . . . . . . . . . . . . . . 49
Section 10.5. Evidence on which Trustee May Act. . . . . 50
Section 10.6. Evidence of Signatures of Noteholders
and Ownership of Notes . . . . . . . . . . 50
Section 10.7. Trustee and Paying Agent May Deal in
Notes and With Company . . . . . . . . . . 51
Section 10.8. Non-presentment of Notes . . . . . . . . . 51
Section 10.9. Moneys to be Held in Trust . . . . . . . . 52
Section 10.10. Resignation or Removal of Trustee. . . . . 52
Section 10.11. Successor Trustee. . . . . . . . . . . . . 52
Section 10.12. Resignation or Removal of Paying Agent;
Successors . . . . . . . . . . . . . . . . 53
ARTICLE XI
DISCHARGE OF INDENTURE. . . . . . . . . . . . . . . . . . 54
Section 11.1. Termination of Company's Obligation. . . . 54
Section 11.2. Application of Trust Money . . . . . . . . 54
Section 11.3. Repayment to Company . . . . . . . . . . . 54
ARTICLE XII
AMENDMENTS OF INDENTURE . . . . . . . . . . . . . . . . . 55
Section 12.1. Limitation on Modifications. . . . . . . . 55
Section 12.2. Supplemental Indentures Without
Noteholders' Consent . . . . . . . . . . . 55
Section 12.3. Supplemental Indentures With
Noteholders' Consent . . . . . . . . . . . 55
Section 12.4. Supplemental Indenture Part of the
Indenture. . . . . . . . . . . . . . . . . 57
ARTICLE XIII
GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . 57
Section 13.1. Notices. . . . . . . . . . . . . . . . . . 57
Section 13.2. Effective Date; Counterparts . . . . . . . 57
Section 13.3. Date for Identification Purposes Only. . . 57
Section 13.4. No Pecuniary Liability of Company
Officers . . . . . . . . . . . . . . . . 57-A
Section 13.5. Governing Law; Severability. . . . . . . . 58
APPENDIX A
Form of Convertible Subordinated Note
<PAGE>
THIS INDENTURE OF TRUST, made and dated as of September
11, 1995, by and between Allstate Financial Corporation, a Virginia
corporation (the "Company"), and Shawmut Bank Connecticut, National
Association, a national banking association organized, existing and
authorized to accept and execute trusts of the character herein set
out under and by virtue of the laws of the United States of
America, with its principal office located at 777 Main Street,
Hartford, Connecticut, as "Trustee",
WITNESSETH THAT:
WHEREAS, the Company wishes to redeem up to 788,000
shares of its common stock, no par value (the "Common Stock"), and
to issue up to $5,000,000 in aggregate principal amount of
Convertible Subordinated Notes (the "Notes") in exchange for such
Common Stock; and
WHEREAS, the Company wishes to initially issue Two
Million Eight Hundred Thirty-Eight Thousand Dollars ($2,838,000) of
such Notes in exchange for Common Stock and to thereafter issue up
to an additional Two Million One Hundred Sixty-Two Thousand Dollars
($2,162,000) of Notes in further exchange for Common Stock;
WHEREAS, the Notes are to be issued as fully registered
Notes and such Notes and the Trustee's certificate of
authentication to be endorsed thereon shall be in substantially the
form set out in Appendix A hereto, with appropriate variations,
omissions and insertions as permitted or required by this
Indenture; and
WHEREAS, the Company has the power to issue the Notes in
exchange for the Common Stock, and all things necessary to make the
Notes, when authenticated by the Trustee and issued as in this
Indenture provided, the valid, binding and legal obligations of the
Company according to the import thereof, and to constitute this
Indenture a valid pledge to the payment of the principal of, or
Redemption Price, if applicable, premium, if any, and interest on
the Notes and all other amounts due in connection therewith have
been done and performed and the creation, execution and delivery of
this Indenture and the creation, execution and issuance of the
Notes subject to the terms hereof, have in all respects been duly
authorized.
NOW, THEREFORE, the parties agree as follows for the
benefit of each other and for the equal and ratable benefit of the
holders of the Notes issued under this Indenture from time to time:
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1. Definitions. As used in this Indenture:
"Additional Notes" means additional Notes, other than the
Initial Notes, authorized and issued by the Company pursuant to
this Indenture after the date hereof.
"Adjustment Date" shall have the meaning set forth in
Section 2.3(A) hereof.
"Affiliate" means any Person directly or indirectly
controlling or controlled by or under direct or indirect common
control with the Company. 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" means IBJ Schroder Bank & Trust Company, as agent
for the Banks pursuant to the Loan Agreement and any successor
thereto and, if the Loan Agreement does not provide for an agent or
representative of the Senior Lenders, the term "Agent" shall refer
to the Senior Lenders (or any agent, trustee or other
representative acting on their behalf).
"Authorized Denomination" means a denomination of one
thousand dollars and any integral multiple thereof.
"Authorized Representative" means, in the case of the
Company, the Chairman, President, any Vice President, Treasurer or
Secretary thereof, and, when used with reference to the performance
of any act, the discharge of any duty or the execution of any
certificate or other document, any officer, employee or other
person authorized to perform such act, discharge such duty or
execute such certificate or other document.
"Banks" means the lenders who are from time to time
parties to the Loan Agreement.
"Business Day" means any day on which banks, located in
any of the cities in which the principal corporate trust offices of
the Trustee or any Paying Agent are located, are not required or
authorized to remain closed and on which the New York Stock
Exchange is not closed.
"Capital Stock" means, with respect to any Person, any
and all shares, interests, participations or other equivalents
(however designated) of corporate stock, including each class of
common stock and preferred stock of such Person and any warrants,
options or other securities evidencing the right to acquire such
stock.
"Common Stock" shall have the meaning set forth in the
first clause of this Indenture and shall include any stock into
which such Common Stock may hereafter have been changed.
"Company" shall have the meaning set forth in the first
paragraph of this Indenture and shall include the Company's
successors and assigns.
"Consolidated Net Income" means, with respect to any
Person for any period, the aggregate net income (or loss) of such
Person and its Subsidiaries for such period on a consolidated
basis, determined in accordance with GAAP, provided that (a) the
net income of any other Person in which such Person or any
Subsidiary thereof has an interest (which interest does not cause
the net income of such other Person to be consolidated with the net
income of such Person in accordance with GAAP) will be included
only to the extent of the amount of dividends or distributions
actually paid to such Person or its Subsidiaries by such other
Person in such period; (b) the net income of any Subsidiary of such
Person that is subject to any Subsidiary Payment Restriction will
be excluded to the extent of such Subsidiary Payment Restriction;
(c) the net income (or loss) of any other Person acquired in a
pooling of interests transaction for any period prior to the date
of such acquisition will be excluded, and (d) all gains and losses
resulting from the cumulative effect of any accounting change
pursuant to the application of Accounting Principles Board Opinion
No. 20, as amended, will be excluded.
"Consolidated Net Worth" of the Company means
consolidated stockholders' equity as determined in accordance with
GAAP.
"Conversion Price" shall have the meaning set forth in
Section 2.5 hereof.
"Current market price per share" shall have the meaning
set forth in Section 6.7 hereof.
"Disqualified Capital Stock" means any Capital Stock
that, by its terms or by the terms of any security into which, at
the option of the holder, it is convertible or exchangeable, (i)
is, or upon the happening of an event or the passage of time would
be, required to be redeemed or repurchased, including at the option
of the holder, in whole or in part, or (ii) has, or upon the
happening of an event or the passage of time would have, a
redemption or similar payment due, on or prior to the maturity date
of the Notes.
"Distribution" means any payment, whether in cash, in
kind, securities or any other property, but shall not include the
issuance of Common Stock of the Company upon the conversion of the
Notes in accordance with the terms hereof.
"Event" shall have the meaning set forth in Section 8.4
hereof.
"Event of Default" shall have the meaning set forth in
Section 9.1(A) hereof.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" means, with respect to any asset or
property (other than cash), the price which could be negotiated in
an arm's length free market transaction, for cash, between a
willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction.
"Fundamental Change" shall have the meaning set forth in
Section 7.4 hereof.
"GAAP" means generally accepted accounting principles as
in effect in the United States of America as of any date of
determination.
"Group of Persons" means any group of Persons or other
entities acting in concert as a partnership or other group within
the meaning of section 13(d) of the Exchange Act.
"Indebtedness" means, with respect to any Person, without
duplication: (1) (a) all indebtedness of such Person for borrowed
money, (b) all indebtedness of such Person which is evidenced by a
note, debenture, bond or other similar instrument (including
capitalized lease or purchase money obligations) and (c) all
indebtedness (including capitalized lease obligations) incurred,
assumed or given in the acquisition (whether by way of purchase,
merger or otherwise) of any business, real property or other assets
(except assets acquired in the ordinary course of the acquiror's
business); (2) any Indebtedness of others described in the
preceding clause (1) which such Person has guaranteed or for which
it is otherwise liable or which is secured by property of such
Person; and (3) any amendment, renewal, refinancing, extension or
refunding of any such indebtedness.
"Indenture" means this Indenture of Trust as from time to
time modified, amended or supplemented by Supplemental Indentures
in accordance with the terms hereof.
"Initial Notes" means the Convertible Subordinated Notes
issued on the date hereof.
"Intercompany Indebtedness" shall mean (i) any
Indebtedness owed by any Subsidiary of the Company to the Company;
(ii) any Indebtedness owed by the Company to any of its
Subsidiaries (provided, however, that to be included within the
definition of Intercompany Indebtedness, the amount of Indebtedness
included in clause (ii) shall not be more than $150,000 with
respect to any individual Subsidiary other than AFC Holding
Corporation, a Delaware corporation ("AFC"), or more than $600,000
with respect to all such Subsidiaries other than AFC); (iii) any
Indebtedness owed by the Company to AFC as a result of loans made
by AFC to the Company from the proceeds of royalty payments made by
the Company to AFC; and (iv) any Indebtedness owed by one
Subsidiary to another Subsidiary.
"Interest Payment Date" means September 30, December 31,
March 31, and June 30 in each year or, if such date is not a
Business Day, the next following Business Day.
"Loan Agreement" means (i) the Revolving Credit and
Security Agreement dated as of May 13, 1994, among the Company, the
Banks and the Agent, together with all documents related thereto,
including without limitation, all promissory notes and security
documents, in each case, as supplemented, amended, restated or
otherwise modified from time to time; and (ii) any and all
agreements, documents and instruments related to or incurred in
connection with, or extending the maturity of, refinancing,
replacing or restructuring all or any portion of, the foregoing or
the Obligations thereunder.
"Notes" means any Note authenticated and delivered
pursuant to this Indenture.
"Noteholder" or "holder" or words of similar import, when
used with reference to Notes, shall mean any person who shall be
the registered owner of any Outstanding Note.
"Obligations" of a Person shall mean all loans, advances,
debts, liabilities and obligations, of every kind, nature and
description, direct or indirect, secured or unsecured, joint,
several, joint and several, absolute or contingent, due or to
become due, now existing or hereinafter arising, contractual or
tortious, liquidated or unliquidated, owing by such Person at any
time, whether or not evidenced by any note, agreement or other
instrument. This term includes, without limitation, all principal,
interest, fees, charges, reimbursement obligations in respect of
letters of credit, expenses, attorneys' fees and any other sum
chargeable to such Person.
"Officers' Certificate" means a certificate signed by two
Authorized Representatives, one of whom must be the chief executive
officer, chief operating officer, chief financial officer or
principal accounting officer of the Company.
"Outstanding", when used with reference to a Note or
Notes, as of any particular date, means all Notes which have been
authenticated and delivered hereunder, except:
(1) Any Note (or portion of a Note) cancelled by the Trustee
because of payment, conversion or redemption prior to
maturity or surrendered to the Trustee for cancellation;
(2) Any Note (or portion of a Note) which has been paid or
for the payment or redemption of which there has been
separately set aside and held by the Paying Agent moneys
in an amount sufficient to effect payment of the
principal or applicable Redemption Price thereof,
together with accrued interest on such Note to the
payment or redemption date, which payment or redemption
date shall be specified in irrevocable instructions given
to the Trustee to apply such moneys to such payment or
redemption on the date so specified; provided that if
such Notes are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been
made;
(3) Notes in exchange for or in lieu of which other Notes
shall have been authenticated and delivered under Article
III hereof; and
(4) Notes acquired by the Company (provided, that in
determining whether the Trustee shall be protected in
relying on any notice, direction or consent of holders,
only Notes which an officer in the corporate trust
administration department of the Trustee knows to be so
acquired by the Company shall be deemed not to be
Outstanding).
"Paying Agent" means any paying agent for the Notes
appointed pursuant to subsection 10.1(B) hereof (and may include
the Trustee), and its successor or successors and any other
corporation which may at any time be substituted in its place in
accordance herewith.
"Person" means an individual, partnership (including
limited partnerships), corporation (including a business trust),
joint stock company, limited liability corporation or partnership,
trust, unincorporated association, joint venture or other entity,
or a government or any agency, instrumentality or political
subdivision thereof.
"Prime Rate" means that rate of interest set forth in The
Wall Street Journal from time to time as the prime rate or base
rate of interest.
"Qualified Capital Stock" means any Capital Stock that is
not Disqualified Capital Stock.
"Quoted Price" for any security for any day means the
last reported sale price of such security regular way 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 on
such day, in either case on the New York Stock Exchange or, if the
security is not listed or admitted to trading on such exchange, on
the principal national securities exchange on which the security is
listed or admitted to trading or, if the security is not listed or
admitted to trading on any national securities exchange, on NASDAQ
National Market System or NASDAQ, or, if the security is not so
listed or quoted, 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.
"Record Date" means, with respect to any Interest Payment
Date for the Notes, the close of business on the fifteenth day
before the Interest Payment Date or, if such day is not a Business
Day, on the immediately preceding Business Day.
"Redemption Price" means, when used with respect to a
Note or a portion thereof, the principal amount of such Note or
portion thereof plus the applicable premium, if any, payable upon
redemption thereof pursuant to this Indenture.
"Related Person" means (i) any director or executive
officer of the Company or any Subsidiary, (ii) any individual or
other Person who directly or indirectly holds 10% or more of any
class of Capital Stock of the Company, (iii) any relative of such
individual by blood, marriage or adoption not more remote than
first cousin, and (iv) any Affiliate of any of the foregoing, but
shall not include, with respect to the Company, any Subsidiary or
with respect to any Subsidiary, any other Subsidiary or the
Company.
"Repurchase Price" shall have the meaning set forth in
Section 7.1 hereof.
"Required Lenders" means and refers to the "Required
Lenders", the "Required Banks" or any similar term under and as
defined in the Loan Agreement.
"Restricted Payment" shall have the meaning set forth in
Section 4.11 hereof.
"SEC" shall have the meaning set forth in Section 4.7
hereof.
"Senior Default Notice" shall have the meaning set forth
in Section 8.2 hereof.
"Senior Event of Default" means and refers to each "Event
of Default" under and as defined in the Loan Agreement.
"Senior Indebtedness" means all Obligations of any kind
owed by the Company to the Senior Lenders and/or the Agent from
time to time under or pursuant to the Loan Agreement including,
without limitation, all principal, interest (including all interest
accruing after commencement of any case, proceeding or other action
relating to the bankruptcy, insolvency or reorganization of the
Company) accruing thereon, charges, expenses, fees and other sums
chargeable to the Company by the Senior Lenders and/or by the Agent
under or pursuant to the Loan Agreement, and reimbursement,
indemnity or other Obligations due and payable to the Senior
Lenders and/or the Agent under or pursuant to the Loan Agreement.
Senior Indebtedness shall also include any Obligation of the
Company incurred to refinance the Senior Indebtedness. Senior
Indebtedness shall continue to constitute Senior Indebtedness,
notwithstanding the fact that such Senior Indebtedness or any claim
for such Senior Indebtedness is subordinated, voided or disallowed
under the Federal Bankruptcy Code or other applicable law.
"Senior Lenders" means, collectively, the Banks and any
other holder from time to time of all or any portion of the Senior
Indebtedness.
"Significant Subsidiary" means any Subsidiary of the
Company that would, at the time as of which any determination is
being made, be deemed a "significant subsidiary" of the Company
pursuant to the definition of that phrase in Regulation S-X, as
promulgated by the SEC.
"Subordinated Indebtedness" shall have the meaning set
forth in Section 4.9 hereof.
"Subordinated Lending Agreements" means, collectively,
this Indenture, the Notes and all agreements, documents and
instruments now or at any time hereafter executed and/or delivered
by the Company or any other Person to, with or in favor of the
Noteholders in connection therewith or related thereto, as all of
the foregoing now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced in accordance
with the terms of this Indenture.
"Subsidiary" means any corporation or other entity of
which securities or other ownership interests having ordinary
voting power to elect a majority of the Board of Directors or other
Persons shall, at the time as of which any determination is being
made, be owned by the Company either directly or through
Subsidiaries.
"Subsidiary Payment Restriction" shall have the meaning
set forth in Section 4.8 hereof.
"Supplemental Indenture" means any indenture supplemental
hereto or amendatory hereof, executed by the Company and the
Trustee in accordance with Article XII hereof.
"Trustee" shall have the meaning set forth in the first
paragraph of this Indenture and shall include its successor or
assigns hereafter appointed in the manner provided in this
Indenture.
"Voting Shares" means all outstanding shares of any class
or classes (however designated) of Capital Stock of the Company
entitled to vote generally in the election of members of the Board
of Directors of the Company.
Section 1.2. Interpretation.
(A) In this Indenture:
(1) The terms "hereby", "hereof", "hereto",
"herein", "hereunder" and any similar terms, as used in this
Indenture, refer to this Indenture, and the term "hereafter" means
after, and the term "heretofore" means before, the date of
execution of this Indenture.
(2) Words of the masculine gender mean and include
correlative words of the feminine and neuter genders and words
importing the singular number mean and include the plural number
and vice versa.
(3) Any headings preceding the texts of the several
Articles and Sections of this Indenture, and any table of contents
appended to copies hereof, shall be solely for convenience of
reference and shall not constitute a part of this Indenture, nor
shall they affect its meaning, construction or effect.
(4) Except as otherwise provided herein, all
approvals, consents and acceptances required to be given or made by
any Person or party hereunder shall be at the sole discretion of
the party whose approval, consent or acceptance is required.
(5) This Indenture shall be governed by and
construed in accordance with the applicable laws of the State of
New York.
(6) All references to statutes and related
regulations shall include any amendments of same and any successor
statutes and regulations.
(7) All references to any instruments or
agreements, including, without limitation, references to the Loan
Agreement or the Subordinated Lending Agreements, shall include any
and all modifications or amendments thereto and any and all
extensions or renewals thereof, in each case, in accordance with
the terms hereof or thereof.
(8) The term "or" is not exclusive.
(9) Accounting terms not otherwise defined have the
meanings assigned to them in accordance with generally accepted
accounting principles in effect on the date of execution of this
Indenture.
(B) Nothing in this Indenture expressed or implied is
intended or shall be construed to confer upon, or to give to, any
Person other than the Company, the Trustee, the Paying Agent, the
Senior Lenders, the Agent and the holders of the Notes any right,
remedy or claim under or by reason of this Indenture or any
covenant, condition or stipulation thereof. All the covenants,
stipulations, promises and agreements herein contained by and on
behalf of the Company shall be for the sole and exclusive benefit
of the Company, the Trustee, the Paying Agent, the Senior Lenders,
the Agent and the holders of the Notes.
(C) If any one or more of the covenants or agreements
provided herein on the part of the Company, the Trustee or the
Paying Agent to be performed should be contrary to law, then such
covenant or covenants or agreement or agreements shall be deemed
separable from the remaining covenants and agreements hereof, and
shall in no way affect the validity of the other provisions of this
Indenture or of the Notes.
ARTICLE II
AUTHORIZATION, TERMS AND ISSUANCE OF NOTES
Section 2.1. Authorization and Obligation of Notes.
Notes of the Company issued hereunder, each to be entitled
"Convertible Subordinated Notes", shall be subject to the terms,
conditions and limitations established herein. No Notes may be
authenticated and delivered except in accordance with the terms
hereof.
Section 2.2. Issuance of the Notes.
(A) Upon the execution and delivery of this Indenture,
or from time to time thereafter, Notes in an aggregate principal
amount not to exceed $5,000,000 may be authorized and executed by
the Company and delivered to the Trustee for authentication in
accordance with Section 2.7 hereof.
(B) The Notes shall be issuable in denominations of
$1,000 or any integral multiple thereof, in fully registered form
without coupons and shall be dated as provided in Section 3.1
hereof.
Section 2.3. Terms of the Notes.
(A) The Notes shall mature on September 30, 2000 and
bear interest payable in arrears on each Interest Payment Date
commencing, with respect to each Note, on December 31, 1995. The
Initial Notes shall bear interest from the date of this Indenture
and the Additional Notes shall bear interest from the date of their
original issuance. The Initial Notes shall originally bear
interest at the rate of 10% per annum (which rate is 125 basis
points above the Prime Rate on July 19, 1995). The Additional
Notes shall originally bear interest at the rate being borne by the
Initial Notes on the date of issuance of such Additional Notes. If
on any Interest Payment Date the Prime Rate shall have increased or
decreased (whether in one or more increments) from the Prime Rate
as in effect on the immediately preceding Adjustment Date (as
defined below), the interest rate on the Notes shall be
correspondingly increased or decreased so as to be 125 basis points
above the Prime Rate then in effect; provided, however, (i) that no
such adjustment shall be made unless the Prime Rate shall have
increased or decreased by 50 basis points or more from the Prime
Rate as in effect on the immediately preceding Adjustment Date, and
(ii) in no event shall the interest rate payable on the Notes be
more than 10% per annum or less than 8% per annum. The Company
shall notify the Trustee of any adjustment in the interest rate on
the Notes at least ten days prior to the Interest Payment Date
following the interest rate adjustment. For purposes hereof,
"Adjustment Date" means (x) initially, July 19, 1995 and (y)
thereafter, each Interest Payment Date on which the interest rate
on the Notes is adjusted in accordance with this Section 2.3(A).
(B) Interest on the Notes shall be computed on the basis
of a 360-day year of twelve 30-day months.
(C) The Notes shall be numbered from one upward, with
such prefix as may be designated by the Trustee, in consecutive
numerical order.
(D) The principal of, Redemption Price or Repurchase
Price, if applicable, premium, if any, and interest on the Notes
(other than interest payable in accordance with the next sentence)
shall be payable at the principal corporate trust office of the
Trustee in Hartford, Connecticut as Paying Agent, or at the office
designated for such payment of any successor Paying Agent.
Interest on the Notes shall be payable to the Person appearing on
the registration books of the Trustee on the Record Date as the
registered owner thereof by check or draft mailed on the Interest
Payment Date to the registered owner at the address as it appears
on the registration books of the Trustee on the applicable Record
Date or at such other address as may have been filed with the
Trustee for that purpose; except that if and to the extent there
shall be a default in the payment of the interest due on any
Interest Payment Date, the defaulted interest shall be paid to the
owners in whose names the Notes are registered at the close of
business on the fifth Business Day next preceding the date of
payment of the defaulted interest.
(E) In any case where the date of maturity of interest
on or principal of the Notes or the date fixed for redemption of
any Notes shall be a day other than a Business Day, then payment of
such amount shall be made on the next succeeding Business Day with
the same force and effect as if made on the date of maturity or the
date fixed for redemption, together, in the case of payments of
principal, with accrued interest for the period after such date.
Section 2.4. Redemption of Notes.
(A) On or after January 1, 1997, at the option of the
Company, the Notes shall be subject to redemption prior to maturity
in whole or in part at any time or from time to time at the
Redemption Price (expressed as a percentage of principal amount of
the Notes or portions thereof to be so redeemed) opposite such
period in the table below, plus interest accrued to the redemption
date:
Redemption Period Redemption Price
January 1, 1997 through August 31, 1997 101%
September 1, 1997 and thereafter 100%
(B) In the event that the Company elects to make a
Restricted Payment pursuant to Section 4.11(B)(2) hereof, the Notes
shall be subject to redemption prior to maturity as provided in
Section 4.11(B)(2) hereof at a Redemption Price equal to their
principal amount, plus interest accrued to the redemption date.
(C) In the event of a Fundamental Change, at the option
of the Company, the Notes shall be subject to redemption prior to
maturity in whole or in part, at a Redemption Price equal to their
principal amount, plus interest accrued to the redemption date.
(D) Redemption of Notes shall be made pursuant to the
redemption provisions of Article V hereof in whole or in part and
in such principal amounts as the Company shall request in a written
notice delivered to the Trustee (provided, that no partial
redemption shall be in an amount less than $50,000 in the aggregate
and that all partial redemptions shall be in Authorized
Denominations) and the Trustee shall give the notice of redemption
referred to in Article V hereof in respect of each such redemption.
(E) Notwithstanding anything to the contrary set forth
in this Indenture, redemptions or repurchases of Notes shall only
be made if the Required Lenders have consented to such redemption
(if such consent is required pursuant to the Loan Agreement);
provided, that the failure of the Company to redeem or repurchase
Notes as a result of the Senior Lenders not having consented to
such redemption or repurchase shall nevertheless constitute an
Event of Default hereunder.
Section 2.5. Conversion of the Notes.
At any time or from time to time, at the option of any
Noteholder, which option shall be exercised by giving notice to the
Company and the Trustee, the Notes shall be subject to conversion
to Common Stock of the Company as provided in Article VI hereof at
a conversion price of $7.50 per share (such price, as so adjusted
from time to time, the "Conversion Price"), as such price may be
adjusted as provided in Article VI hereof. The Notes may be
converted in whole or in part, provided that if any Note is
converted in part, the principal amount remaining with respect to
the Notes shall be in an Authorized Denomination. No fractional
shares will be issued upon the conversion of the Notes and any
fractional amount shall be paid to the holder in cash.
In case a Note or portion thereof is called for
redemption, such conversion privilege in respect of the Note or
portion so called shall expire at the close of business on the
redemption date.
Notes surrendered for conversion during the period from
the close of business on any Record Date next preceding any
Interest Payment Date to the opening of business on such Interest
Payment Date shall be accompanied by payment of an amount equal to
the interest payable from the date of conversion to and including
the Interest Payment Date on the principal amount of Notes
surrendered for conversion.
Section 2.6. Subordination.
The Notes shall be subordinated in right of payment to
all Senior Indebtedness as provided in Article VIII.
<PAGE>
Section 2.7. Execution and Authentication of Notes.
(A) After their authorization as provided in this
Article, Notes may be executed by or on behalf of the Company and
delivered to the Trustee for authentication. Each Note shall be
executed in the name of the Company by the manual or facsimile
signature of any one or more Authorized Representatives of the
Company and its official seal or a facsimile thereof shall be
thereunto affixed, impressed, imprinted, engraved or otherwise
reproduced thereon and attested by the manual or facsimile
signature of the secretary or assistant secretary of the Company.
(B) In case any officer who shall have signed, sealed or
attested any of the Notes shall cease to be such officer before the
Notes so signed, sealed or attested shall have been authenticated
and delivered by the Trustee, such Notes may nevertheless be
authenticated and delivered as herein provided as if the person who
so signed, sealed or attested such Notes had not ceased to be such
officer. Any Note may be signed, sealed or attested on behalf of
the Company by any person who, on the date of such act, shall hold
the proper office, notwithstanding that at the date of such Note
such person may not have held such office.
(C) The Notes shall each bear thereon a certificate of
authentication, in the form set forth in the form of Note attached
as Appendix A hereto, executed manually by the Trustee. Only such
Notes as shall bear thereon such certificate of authentication
shall be entitled to any right or benefit under this Indenture and
no Note shall be valid or obligatory for any purpose until such
certificate of authentication shall have been duly executed by the
Trustee. Such certificate of the Trustee upon any Note executed on
behalf of the Company shall be conclusive evidence that the Note so
authenticated has been duly authenticated and delivered under this
Indenture and that the holder thereof is entitled to the benefits
hereof.
Section 2.8. Delivery of Notes. The Notes shall be
executed in the form and manner set forth herein and shall be
deposited with the Trustee and thereupon shall be authenticated by
the Trustee. Upon delivery to the Trustee of the Common Stock to
be redeemed in exchange for Notes, the Notes shall be delivered by
the Trustee to or upon the order of the holders thereof, but only
upon receipt by the Trustee of:
(1) A certified copy of the Company's resolution
authorizing the issuance of such Notes, providing for the terms
thereof, and, in the case of the Initial Notes, the execution and
delivery of this Indenture;
(2) A request and authorization to the Trustee on behalf
of the Company to authenticate and deliver such Notes to the
prospective holders therein identified upon receipt by the Trustee,
for the account of the Company, of the Common Stock redeemed in
exchange therefor; and
(3) An Officers' Certificate to the effect that, on the
date of delivery of such Notes, to the knowledge of each such
person, no Event of Default or event which, upon notice or lapse of
time or both would constitute an Event of Default, exists under
this Indenture.
Prior to the delivery of any Additional Notes, the
Company shall, in addition to the other requirements of Section 2.8
hereof, execute or cause to be executed and delivered to the
Trustee such other and further instruments of conveyance as the
Trustee shall in its sole discretion reasonably deem necessary.
ARTICLE III
GENERAL TERMS AND PROVISIONS OF NOTES
Section 3.1. Date of Notes; Indenture. Each Initial
Note shall be dated September 11, 1995, and each Additional Note
shall be dated the date of its issuance, except that Notes issued
in exchange for or upon the registration of transfer of the Notes
shall be dated as of the date of exchange for or registration of
the transfer. Interest on the Interest Payment Date next
succeeding any such transfer shall be paid in its entirety to the
holder of the Note as of the Record Date with respect to such
Interest Payment Date. The terms and provisions contained in the
Notes shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound
thereby.
Section 3.2. Form and Denominations. Notes shall be
issued in fully registered form, without coupons. The Notes shall
be in denominations of $1,000 or any integral multiple thereof.
The Notes shall be in substantially the form set forth in Appendix
A to this Indenture, with such variations, omissions and insertions
as are permitted or required by this Indenture.
Section 3.3. Medium of Payment. The principal of,
interest on, Repurchase Price, if applicable, Redemption Price, if
applicable, and premium, if any, on the Notes shall be payable in
any coin or currency of the United States of America which, on the
respective dates of payment thereof, is legal tender for the
payment of public and private debts. Interest on the Notes shall
be payable by check or as otherwise provided in Section 2.3(D)
hereof.
Section 3.4. Note Details. Subject to the provisions
hereof, the Notes shall be dated, shall mature in such years and
such amounts, shall bear interest at such rate or rates per annum,
shall be subject to redemption on such terms and conditions and
shall be payable as to principal of, Repurchase Price, if
applicable, Redemption Price, if applicable, premium, if any, and
interest at such place or places as shall be specified in this
Indenture.
Section 3.5. Exchange, Transfer and Registry.
(A) Each Note shall be transferable only upon compliance
with the restrictions on transfer set forth in such Note and only
upon the books of the Company, which shall be kept for that purpose
at the principal office of the Trustee, by the registered owner
thereof or by his attorney duly authorized in writing, upon
presentation thereof together with a written instrument of transfer
satisfactory to the Trustee duly executed by the registered owner
or his duly authorized attorney. Upon the transfer of any Note the
Trustee shall prepare and issue in the name of the transferee one
or more new Notes of the same aggregate principal amount and
maturity as the surrendered Note; provided all Notes shall be in an
Authorized Denomination.
(B) Any Note, upon surrender thereof at the principal
corporate trust office of the Trustee in Hartford, Connecticut with
a written instrument of transfer satisfactory to the Trustee, duly
executed by the registered owner or his attorney duly authorized in
writing, may, at the option of the owner thereof, be exchanged for
an equal aggregate principal amount of Notes of the same maturity
of any other Authorized Denomination.
(C) The Company, the Trustee and any Paying Agent may
deem and treat the Person in whose name any Note shall be
registered as the absolute owner of such Note, whether such Note
shall be overdue or not, for the purpose of receiving payment of,
or on account of, the principal, Repurchase Price, if applicable,
Redemption Price, if applicable, premium, if any, and interest on
such Note and for all other purposes, and all payments made to any
such registered owner or upon his order shall be valid and
effectual to satisfy and discharge the liability upon such Note to
the extent of the sum or sums so paid, and neither the Company, the
Trustee nor any Paying Agent shall be affected by any notice to the
contrary.
Section 3.6. Notes Mutilated, Destroyed, Stolen or
Lost. In case any Note shall become mutilated or be destroyed,
stolen or lost, the Company shall execute and thereon the Trustee
shall authenticate and deliver a new Note of like maturity and
principal amount as the Note so mutilated, destroyed, stolen or
lost, (i) in exchange and substitution for such mutilated Note,
upon surrender and cancellation of such mutilated Note or (ii) in
lieu of and substitution for the Note destroyed, stolen or lost, in
each case upon filing with the Trustee of evidence satisfactory to
the Company and the Trustee that such Note has been destroyed,
stolen or lost and proof of ownership thereof, and upon furnishing
the Company and the Trustee with indemnity satisfactory to them and
complying with such other reasonable requirements as the Company
and the Trustee may prescribe and paying such expenses as the
Company and Trustee may incur. All Notes so surrendered to the
Trustee shall be cancelled by it. Any such new Notes issued
pursuant to this Section in substitution for Notes alleged to be
destroyed, stolen or lost shall constitute original additional
contractual obligations on the part of the Company, whether or not
the Notes so alleged to be destroyed, stolen or lost be at any time
enforceable by anyone, and shall be entitled to equal and
proportionate benefits with all other Notes issued hereunder in any
moneys or securities held by the Company, the Trustee or any Paying
Agent for the benefit of the Noteholders.
Section 3.7. Cancellation and Destruction of Notes.
All Notes paid, converted or redeemed, either at or before
maturity, shall be delivered to the Trustee when such payment,
conversion or redemption is made, and such Notes shall thereupon be
promptly cancelled. Notes so cancelled shall be cremated or
otherwise destroyed by the Trustee, who, upon request by the
Company, shall execute a certificate of cremation or destruction in
duplicate under signature of one of its authorized officers
describing the Notes so cremated or otherwise destroyed, and one
executed certificate shall be filed with the Company and the other
executed certificate shall be retained by the Trustee.
Section 3.8. Requirements With Respect to Transfers.
In all cases in which the privilege of exchanging or transferring
Notes is exercised, the Company shall execute and the Trustee shall
authenticate and deliver Notes in accordance with the provisions of
this Indenture. All Notes surrendered in any such exchange or
transfer shall forthwith be cancelled by the Trustee. For every
such exchange or transfer of Notes, the Company or the Trustee may,
as a condition precedent to the privilege of making such exchange
or transfer, make a charge sufficient to reimburse it for any tax,
fee or other governmental charge required to be paid with respect
to such exchange or transfer and may charge a sum sufficient to pay
the reasonable cost of preparing and delivering each new Note
issued upon such exchange or transfer, which sum or sums shall be
paid by the person requesting such exchange or transfer.
Section 3.9. Registrar. The Trustee shall also be
Registrar for the Notes, and shall maintain a register showing the
names of all registered holders of Notes, Note numbers and amounts,
and other information appropriate to the discharge of its duties
hereunder.
ARTICLE IV
PARTICULAR COVENANTS OF THE COMPANY
Section 4.1. Prompt Payment of Principal and Interest;
Deposit in Trust. The Company will duly and punctually pay or
cause to be paid the principal of, Repurchase Price, if applicable,
Redemption Price, if applicable, premium, if any, and interest on
each of the Notes at the times and places and in the manner
mentioned in the Notes as the same become payable under any
applicable provision thereof or hereof.
The Company, at or prior to the time when any principal
of, Redemption Price, Repurchase Price, premium or interest on, any
of the Notes becomes payable under any applicable provision of the
Notes, whether at the stated maturity thereof, by call for
redemption, by declaration of acceleration or otherwise, will
deposit or cause to be deposited with the Trustee in immediately
available funds no later than 12:00 noon New York time on the
payment date (under an arrangement for any necessary transfers of
such deposits between the Trustee and the Paying Agent in such
manner that all such principal, Redemption Price, Repurchase Price,
premium and interest shall be paid when and where payable) the
entire amount necessary to pay all the principal, Redemption Price,
Repurchase Price, premium and interest payable on such date, other
than principal, Redemption Price, Repurchase Price, premium and
interest represented by such Notes, if any, as are not Outstanding;
and each such deposit on account of principal, Redemption Price,
Repurchase Price, premium or interest shall be held by the Trustee,
and by the Paying Agent with which any deposit is so made, upon the
trusts hereof until applied to the payment of the Notes payable on
each such date.
Section 4.2. To Fill Vacancy in Trustee's Office.
Whenever necessary to avoid or fill a vacancy in the office of
Trustee, the Company will in the manner provided in Section 10.11
appoint a Trustee so that there shall at all times be a Trustee
hereunder in compliance herewith.
Section 4.3. Corporate Existence, etc. Subject to
the terms hereof, the Company covenants that it will at all times
preserve and keep in full force and effect its corporate existence
and rights and franchises material to its business.
Section 4.4. Compliance with Laws, etc. The Company
covenants that it will comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental
authority, the noncompliance with which would materially adversely
affect the business, condition (financial or other), assets,
properties or operations of the Company.
Section 4.5. Maintenance of Properties; Insurance.
The Company covenants that it will maintain or cause to be
maintained in good repair, working order and condition all material
properties used or useful in the business of the Company and from
time to time will make or cause to be made all appropriate repairs,
renewals and replacements thereof. The Company covenants that it
will maintain or cause to be maintained, with financially sound and
reputable insurers, insurance with respect to its properties
against loss or damage of the kinds customarily insured against by
corporations of established reputation engaged in the same or
similar business and similarly situated, of such types and in such
amounts as are customarily carried under similar circumstances by
other corporations.
Section 4.6. Issuance of Common Stock on
Conversion. The Company covenants that it will reserve
sufficient Common Stock for issuance upon the conversion of the
Notes. The Company will, in accordance with Article VI hereof,
promptly issue certificates for shares of Common Stock upon
compliance by any Noteholder with Article VI hereof.
Section 4.7. Reports to be Filed by the Company with
the Trustee. The Company agrees:
(A) to file with the Trustee within fifteen days after
the Company is required to file the same with the Securities and
Exchange Commission (the "SEC"), copies of annual reports and of
the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may from time to time
by rules and regulations prescribe) which the Company is required
to file with the SEC pursuant to Section 13 or Section 15(d) of the
Exchange Act;
(B) if the Company is not subject to the requirements of
Section 13(a) or 15(d) of the Exchange Act or shall cease to be
required by the SEC to file SEC reports, to nevertheless continue
to cause SEC reports, comparable to those which it would be
required to file pursuant to Section 13(a) or 15(d) of the Exchange
Act if it were subject to the requirements of either such Section,
to be so filed with the SEC for public availability (unless the SEC
will not accept such a filing) and with the Trustee and mailed to
the Noteholders, in each case, within the same time periods as
would have applied (including under the preceding sentence) had the
Company been subject to the requirements of Section 13(a) or 15(d)
of the Exchange Act; and
(C) to file with the Trustee, together with each
delivery of financial information pursuant to clauses (A) and (B),
an Officers' Certificate stating that the signer has reviewed the
terms of this Indenture and the Notes and has made a review in
reasonable detail of the transactions and conditions of the Company
during the fiscal period covered by such financial information and
that such review has not disclosed the existence of, and that such
signer does not have knowledge of, any condition or event which
constitutes an Event of Default, or if such condition or event
exists, specifying the nature and period of existence thereof and
what action the Company has taken or intends to take with respect
thereto.
Section 4.8. Limitation on Payment Restrictions
Affecting Subsidiaries.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or
restriction on the ability of any such Subsidiary to (i) pay
dividends or make any other distributions on its Capital Stock or
pay any Obligations owed to the Company or a Subsidiary of the
Company, (ii) make loans or advances to the Company or a Subsidiary
of the Company or (iii) transfer any of its property to the Company
or a Subsidiary of the Company (any such restriction being referred
to herein as a "Subsidiary Payment Restriction"), except for such
encumbrances or restrictions existing under or by reason of (A)
customary provisions restricting subletting or assignment of any
lease governing a leasehold interest of the Company or any
Subsidiary, (B) any instrument governing Indebtedness of a Person
acquired by the Company at the time of such acquisition, which
encumbrance or restriction is not applicable to any Person other
than the Person, or the property of the Person, so acquired, (C)
with respect to clause (iii) of this Section 4.8, purchase money
obligations for property acquired in the ordinary course of
business; (D) Indebtedness of a Subsidiary permitted by Section 4.9
hereof (other than Intercompany Indebtedness) existing now or in
the future pursuant to a written agreement; or (E) restrictions
imposed pursuant to this Indenture.
Section 4.9. Limitation on Incurrence of Additional
Indebtedness.
(A) No Significant Subsidiary shall, directly or
indirectly, create, incur, issue, assume, guarantee, permit to
exist or otherwise become directly or indirectly liable with
respect to any Indebtedness and the Company shall not, directly or
indirectly, create, incur, issue, assume, guarantee, permit to
exist or otherwise become directly or indirectly liable with
respect to any Indebtedness (other than, in the case of the
Company, Subordinated Indebtedness), except for (i) Indebtedness,
in the case of the Company, issued under this Indenture, (ii)
Indebtedness, in the case of the Company, that is pari passu in
right of payment to the Notes, refinancing or replacing all or a
portion of the Notes, (iii) Indebtedness, in the case of the
Company or any Significant Subsidiary, for borrowed money issued to
any bank or other financial institution, (iv) Indebtedness, in the
case of the Company or any Significant Subsidiary, existing on the
date hereof and not otherwise allowed pursuant to this Section
4.9(A) not to exceed for the Company and all such Significant
Subsidiaries together an aggregate of $500,000 outstanding, (v)
Intercompany Indebtedness, (vi) Indebtedness, in the case of the
Company, in respect of commercial paper to the extent the
obligations of the Company thereunder are guaranteed by, or
otherwise receive a credit enhancement from, a bank or other
financial institution, and (vii) additional Indebtedness, in the
case of the Company or any Significant Subsidiary, not to exceed
for the Company and all such Significant Subsidiaries together an
aggregate of $5,000,000 outstanding at any time; provided, that any
such additional Indebtedness issued by the Company shall be pari
passu in right of payment to the Notes.
(B) The Company shall not, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness
that is subordinated in right of payment to the Notes
("Subordinated Indebtedness") unless (i) such Subordinated
Indebtedness shall have a maturity date after the maturity date of
the Notes, (ii) no payment in respect of the principal of such
Subordinated Indebtedness (whether at maturity, by redemption,
repurchase or otherwise) shall be permitted to be made (or actually
made) until after the maturity date of the Notes, and (iii) such
Subordinated Indebtedness is subordinated to the Notes (including
restrictions on the Company's ability to pay such Subordinated
Indebtedness) at least to the same extent that the Notes are
subordinated to the Senior Indebtedness.
Section 4.10. Limitation on Transactions With Related
Persons. Neither the Company nor any Subsidiary will, directly or
indirectly, enter into or suffer to exist any transaction or series
of related transactions (including the sale, purchase, exchange or
lease of assets, property or services) with a Related Person of the
Company (a "Related Person Transaction") unless such Related Person
Transaction or series of Related Person Transactions (a) is on
terms that are no less favorable to the Company than would be
available in a comparable transaction with an unrelated party, (b)
if such Related Person Transaction or series of Related Person
Transactions involves in the aggregate payments in excess of
$1,000,000, the Company's Board of Directors determines that such
Related Person Transaction or series of Related Person Transactions
complies with clause (a) above and such determination is evidenced
by a resolution of the Board of Directors of the Company or (c) if
such Related Person Transaction or series of Related Person
Transactions is approved by the affirmative vote of over 50% of the
shares represented at an annual or special meeting of stockholders
of the Company without taking into account for this purpose the
vote of any stockholder who is an executive officer of director of
the Company or any Subsidiary or any Affiliate of any such
executive officer or director. Notwithstanding anything to the
contrary contained herein, the term Related Party Transaction shall
not include any transaction or series of related transactions to
which the Company or any Subsidiary is a party on the date hereof,
or any transaction to which the Company or any Subsidiary is
obligated on the date hereof to become a party; provided that any
such transaction that was required by applicable law to have been
disclosed in any SEC report filed on or prior to the date hereof
was so disclosed.
Section 4.11. Limitation on Restricted Payments.
(A) The Company shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to declare or pay any
dividend on, or make any Distribution on or in respect of, or
purchase, redeem or otherwise acquire or retire for value any of
the Company's Capital Stock (except, in the case of the Company,
through the issuance solely of the Company's own Qualified Capital
Stock, or rights thereto) (a "Restricted Payment") unless:
(a) at the time of and after giving effect to the
proposed Restricted Payment no Event of Default shall
have occurred and be continuing; and
(b) at the time of and after giving effect to the
proposed Restricted Payment (the value of any such
payment, if other than cash, being the Fair Market Value
thereof), the aggregate amount of all Restricted Payments
declared or made during any fiscal year of the Company
shall not exceed the sum of (1) the Company's
Consolidated Net Income (or if such Consolidated Net
Income is a loss, minus such loss) earned during the
Company's most recently-ended fiscal year immediately
preceding the date of such proposed Restricted Payment
and (2) 100% of the aggregate net cash proceeds received
by the Company from the issuance and sale of Qualified
Capital Stock (excluding Qualified Capital Stock sold to
a Subsidiary) during the Company's most recently-ended
fiscal year preceding the date of such Restricted
Payment.
(B) Notwithstanding Section 4.11(A), the following shall be
permitted:
(1) the payment of any dividend within 60 days after the
date of declaration thereof if at said date of declaration such
payment would have complied with Section 4.11(A);
(2) the making of any Restricted Payment in excess of
the amount allowed pursuant to Section 4.11(A)(b) (the "Excess"),
if the Company actually redeems, pursuant to Article V and Section
2.4(B) hereof, Notes in an aggregate principal amount equal, as of
the record date of such Restricted Payment, to the product of (x)
the aggregate principal amount of Notes then Outstanding, and (y)
a fraction, the numerator of which is the Excess divided by the
number of shares of Capital Stock of the Company then Outstanding,
and the denominator of which is either (i) if the current market
value per share (determined pursuant to clause (D) below) is
greater than or equal to 50% of the stockholders' equity per share
of the Company as of the end of the most recent fiscal year (the
"book value"), then the book value, or (ii) if the current market
value per share (determined pursuant to clause (D) below) is less
than 50% of the book value, then the current market value per
share.
(3) any Distribution, purchase or redemption required or
permitted to be made pursuant to the terms of the Indenture.
(C) Not later than the date of making any Restricted Payment,
the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted hereunder and
setting forth the basis upon which the calculations required by
this Section 4.11 were computed.
(D) For purposes of clause (B)(2) of this Section 4.11,
current market value per share shall mean the average of the Quoted
Prices of the Common Stock for the five consecutive trading days
immediately preceding the date on which the Company announces the
pertinent Restricted Payment.
Section 4.12. Performance of Covenants. The Company
covenants that it will faithfully perform at all times any and all
covenants, undertakings, stipulations and provisions contained in
this Indenture and in any and every Note executed, authenticated
and delivered hereunder. The Company represents and warrants that
it is duly authorized to issue the Notes authorized hereby and to
execute this Indenture and otherwise perform all acts and sign all
documents in connection therewith; that all action on its part for
the issuance of the Notes and the execution and delivery of this
Indenture has been duly and effectively taken, and that the Notes
in the hands of the holders and owners thereof are and will be
valid and enforceable obligations according to their terms and the
terms of this Indenture.
ARTICLE V
REDEMPTION OF NOTES
Section 5.1. Privilege of Redemption and Redemption
Price. Notes or portions thereof subject to redemption prior to
maturity shall be redeemable, upon mailed notice as provided in
this Article, at the times, at the Redemption Prices and upon such
terms in addition to and consistent with the terms contained in
this Article as shall be specified in Section 2.4 hereof and in
such Notes.
Section 5.2. Notice of Redemption. When redemption is
permitted by this Indenture, the Company shall provide the Trustee
with written notice at least 30 days prior to the date fixed for
redemption specifying the principal amount of the Notes it wishes
to redeem and the date therefor. The Trustee shall promptly
thereafter give notice of such redemption in the name of the
Company, specifying the numbers and amounts of the Notes or
portions thereof to be redeemed, the redemption date, the
Conversion Price, that Notes called for redemption may be converted
at any time before the close of business on the redemption date,
that holders who want to convert Notes must satisfy the
requirements set forth in this Indenture and the Notes and the
place or places where amounts due upon such redemption will be
payable. Such notice shall further state that on such date there
shall become due and payable upon each Note or portion thereof to
be redeemed the Redemption Price thereof together with interest
accrued to the redemption date, and that from and after such date
interest thereon shall cease to accrue and be payable. Notice of
redemption shall be given by the Trustee in the name and on behalf
of the Company by mailing a copy of each such notice to the
registered owner of each Note to be redeemed by first-class mail
postage prepaid, addressed to such Noteholder at the last known
address as it appears upon the Note register, not more than 60 nor
less than 15 days prior to the date fixed for redemption. Such
notice shall be effective when mailed and any failure to receive
such notice shall not affect the validity of the proceedings for
redemption. In the event of a postal strike, the Trustee shall give
notice by other appropriate means selected by the Trustee in its
discretion.
Section 5.3. Selection of Notes to be Redeemed. In the
event of redemption of less than all the Outstanding Notes, the
Trustee shall assign to each such Outstanding Note a distinctive
number for each $1,000 in principal amount thereof and shall select
by lot, using such method of selection as it shall deem proper in
its discretion, from the numbers assigned to such Notes, as many
numbers as, at $1,000 for each number, shall equal the principal
amount of Notes to be redeemed. The Notes to be redeemed shall be
Notes to which are assigned numbers so selected, but only so much
of the principal amount of such Note of a denomination of more than
$1,000 as shall equal $1,000 for each number assigned to it and so
selected. For purposes of this Section, Notes which have
theretofore been selected by lot for redemption shall not be deemed
Outstanding.
Section 5.4. Payment of Redeemed Notes.
(A) Notice having been given in the manner provided in
Section 5.2 hereof, the Notes or portions thereof so called for
redemption shall, unless theretofore converted pursuant to the
terms of this Indenture, become due and payable on the redemption
dates so designated at the Redemption Price, plus interest accrued
to the redemption date. If, on the redemption date, moneys for the
redemption of all the Notes or portions thereof to be redeemed,
together with interest to the redemption date, shall be held by the
Paying Agent so as to be available therefor on such date and if
notice of redemption shall have been given as aforesaid, then, from
and after the redemption date, interest on the Notes or portions
thereof so called for redemption shall cease to accrue and become
payable. If such moneys shall not be so available on the
redemption date, such Notes or portions thereof shall continue to
bear interest until paid at the same rate as they would have borne
had they not been called for redemption.
(B) Payment of the Redemption Price together with
interest shall be made to or upon the order of the registered
owner, only upon presentation of the Note for cancellation and
exchange as provided in Section 5.5 hereof.
Section 5.5. Cancellation of Redeemed Notes.
(A) All Notes redeemed in full under the provisions of
this Article shall forthwith be cancelled and destroyed by the
Trustee and a certificate of destruction furnished to the Company,
and no Notes shall be executed, authenticated, issued or delivered
in exchange or substitution therefor or for or in respect of any
paid portion of a fully registered Note.
(B) If there shall be drawn for redemption less than all
of a Note, the Company shall execute and the Trustee shall
authenticate and deliver, upon the surrender of such Note, without
charge to the owner thereof, for the unredeemed balance of the
principal amount of the Note so surrendered, Notes of like maturity
in any Authorized Denominations.
ARTICLE VI
CONVERSION OF NOTES
Section 6.1. Notice of Conversion. The Noteholder
converting Notes shall give written notice to the Company and the
Trustee at least fifteen days prior to such conversion of its
election to convert Notes, specifying the numbers and amounts of
the Notes or portions thereof to be converted, accompanied (in the
case of notice to the Trustee) by the Notes being converted, any
payment of interest required to be made pursuant to Section 2.5
hereof, and an instrument of transfer satisfactory to the Trustee.
No fractional shares of Common Stock will be issued on the
conversion of the Notes and any such fractional amount shall be
paid by the Company in cash.
Section 6.2. Issuance of Common Stock.
(A) Notice having been given in the manner provided in
Section 6.1 above, the Notes or portions thereof shall be converted
to Common Stock as set forth in such notice.
(B) Common Stock will be promptly issued by the Company
to or upon the order of the registered owner of the Notes or
portions thereof to be converted upon compliance with the above
provisions.
Section 6.3. Cancellation of Converted Notes.
(A) All Notes converted in full under the provisions of
this Article shall forthwith be cancelled and destroyed by the
Trustee and a certificate of destruction furnished to the Company,
and no Notes shall be executed, authenticated, issued or delivered
in exchange or substitution therefor or for or in respect of any
converted portion of a fully registered Note.
(B) If there shall be presented for conversion less than
all of a Note, the Company shall execute and the Trustee shall
authenticate and deliver, upon the surrender of such Note, without
charge to the owner thereof, for the unconverted balance of the
principal amount of the Note so surrendered, Notes of like maturity
in an Authorized Denomination.
Section 6.4. Adjustment for Change in Capital Stock. If
the Company:
(1) issues any shares of its Capital Stock as a
dividend (or other distribution) on its Common Stock;
(2) subdivides its outstanding shares of Common
Stock into a greater number of shares;
(3) combines its outstanding shares of Common Stock
into a smaller number of shares; or
(4) issues by reclassification of its Common Stock
any shares of its Capital Stock,
then the conversion privilege and the Conversion Price in effect
immediately prior to such action shall be adjusted so that the
holder of a Note thereafter converted will receive the number of
shares of capital stock of the Company which would have been
received (and if there is more than one class of such capital
stock, then shares of each class in the same proportions that would
have been received) upon consummation of such action by a holder of
the number of shares of Common Stock into which such Note might
have been converted immediately prior to such action.
The adjustment described in the preceding paragraph shall
become effective immediately after the record date in the case of
a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
If after an adjustment a holder of a Note may receive
shares of two or more classes of capital stock of the Company upon
conversion of such Note, the Company shall determine the allocation
of the adjusted Conversion Price between or among those classes of
capital stock. After such allocation, the conversion privilege and
the conversion price of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those
applicable to Common Stock in this Article VI.
Section 6.5. Adjustment for Rights Issue. If the Company
distributes any rights or warrants 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 (as defined in Section 6.7) on that record date, the
Conversion Price shall be adjusted in accordance with the formula:
AC = CC x (M x O) + (N x P)
(M x O) + (M x N)
where:
AC = the adjusted Conversion Price.
CC = the current Conversion Price.
O = the number of shares of Common Stock outstand-
ing on the record date for the determination of
shareholders entitled to receive any rights or
warrants.
N = the number of additional shares of Common Stock
offered.
P = the offering price per share of the additional
shares.
M = the current market price per share of Common
Stock (as defined in Section 6.7) on the record
date for the determination of shareholders entitled
to receive the rights or warrants.
The adjustment shall be made successively whenever any
such rights or warrants are issued and shall become effective
immediately after the record date for the determination of the
stockholders entitled to receive the rights or warrants. If at the
end of the period during which such warrants or rights are
exercisable, not all warrants or rights shall have been exercised,
the Conversion Price shall be immediately readjusted to what it
would have been if "N" in the above formula had been the actual
number of shares issued upon exercise of such rights or warrants.
Section 6.6. Adjustment for Other Distribution.
(A) If the Company distributes to all holders of its
Common Stock cash, debt securities or other assets (including other
evidences of indebtedness), except to the extent paid out of
Consolidated Net Income for the immediately preceding fiscal year
of the Company, the Conversion Price shall be adjusted in
accordance with the formula:
AC = CC x (M x N) - P
M x (N - T)
where:
AC = the adjusted Conversion Price.
CC = the current Conversion Price.
M = the current market price per share of Common
Stock (as defined in Section 6.7) on the record
date for the determination of shareholders
entitled to receive the distribution.
P = the aggregate fair market value on the record
date for the determination of shareholders
entitled to receive the distribution (as
determined by the Board of Directors and set
forth in a certified resolution filed with the
Trustee) of the cash, debt securities or other
assets distributed (or deemed to be
distributed) to holders of Common Stock.
N = the number of shares of Common Stock outstand-
ing (including any shares referred to in the
definition of T below but excluding any other
treasury shares) at the close of business on
the record date for the determination of
shareholders entitled to receive the
distribution.
T = in the case of a deemed distribution pursuant
to subsection (B) below, the number of shares
of Common Stock purchased by the Company in
connection with such deemed distribution, and
in any other case, zero.
The adjustment shall become effective, in the case of a
deemed distribution pursuant to subsection (B), immediately after
the expiration date of the cash tender offer that results in such
deemed distribution, and in any other case, immediately after the
record date for the determination of shareholders entitled to
receive the distribution.
(B) For purposes of this Section 6.6, a purchase of
Common Stock by the Company pursuant to a cash tender offer to all
holders of Common Stock shall be deemed to be a distribution to all
holders of Common Stock of cash in an amount equal to the aggregate
purchase price thereof, which distribution shall be deemed to have
been made on the date such cash tender offer expires.
Section 6.7. Current Market Price. For purposes of
Sections 6.5 and 6.6 the current market price per share of Common
Stock on any date is the average of the Quoted Prices of the Common
Stock for 5 consecutive trading days selected by the Company
commencing not more than 20 trading days before, and ending not
later than, the earlier of the date in question and the trading day
before the "ex" date, if any, with respect to the issuance or
distribution requiring such computation. The term "`ex' date", when
used with respect to any issuance or distribution, means the first
trading day on which the Common Stock trades the regular way in the
market from which the Quoted Price is then to be determined without
the right to receive such issuance or distribution. In the absence
of one or more such quotations, the Company shall determine the
current market price on the basis of such quotations as it considers
appropriate.
Section 6.8. When Adjustment May Be Deferred. No
adjustment in the Conversion Price need be made unless the adjust-
ment would require an increase or decrease of at least 1% in the
Conversion Price then in effect. Any adjustments which are not made
shall be carried forward and taken into account in any subsequent
adjustment.
All calculations under this Article VI shall be made to
the nearest cent.
Section 6.9. When No Adjustment Required. No adjustment
need be made for a transaction referred to in Sections 6.4, 6.5 or
6.6 if Noteholders are entitled to participate in the transaction on
a basis and with notice that the Board of Directors, in good faith,
reasonably determines to be fair and appropriate under the circum-
stances.
No adjustment need be made for rights to purchase Common
Stock pursuant to a Company plan for reinvestment of dividends or
interest.
No adjustment need be made for a change in the par value
(including a change to or from no par value) of the Common Stock.
To the extent the Notes become convertible into cash, no
adjustment need be made thereafter as to the cash. Interest will
not accrue on the cash.
Notwithstanding any provision to the contrary in this
Indenture, no adjustment shall be made in the Conversion Price which
would have the effect of reducing the Conversion Price below the par
value of the Common Stock.
Section 6.10. Notice of Adjustment. Whenever the
Conversion Price is adjusted, the Company shall promptly mail to
Noteholders a notice of the adjustment and file with the Trustee a
certificate from the Company's independent public accountant briefly
stating the facts requiring the adjustment and the manner of
computing it. In the absence of manifest error, such certificate
shall be presumptive evidence that the adjustment is correct. The
Trustee shall have no responsibility for calculating or confirming
any adjustment to the Conversion Price and shall be entitled to rely
upon calculations of such adjustments set forth in such certificate.
Section 6.11. Notice of Certain Transactions. If:
(1) the Company takes any action which would require
an adjustment in the Conversion Price pursuant to Section
6.4, 6.5 or 6.6 and if the Company does not let
Noteholders participate therein pursuant to Section 6.9;
(2) the Company takes any action that would require
a supplemental indenture pursuant to Section 6.12; or
(3) there is a dissolution or liquidation of the
Company,
the Company shall mail to Noteholders and the Trustee a notice
stating the record date for any such distribution or the effective
date of any such subdivision, combination, reclassification,
consolidation, merger, transfer, lease, liquidation or dissolution.
The Company shall mail the notice at least 15 days before such date.
Failure to mail the notice or any defect in it shall not affect the
validity of any transaction referred to in clause (1), (2) or (3) of
this Section.
Section 6.12. Consolidation, Merger of the Company or
Transfer or Lease. The Company shall not consolidate or merge with
or into, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets to, any Person unless (i) the
Company is the surviving Person or that Person is a corporation
organized under the laws of the United States, any state thereof or
the District of Columbia or a corporation or comparable legal entity
organized under the laws of a foreign jurisdiction; (ii) immediately
after giving effect to such transaction, no Event of Default shall
have occurred and be continuing; and (iii) the Person formed by such
consolidation or resulting from such merger or which assumes or
leases such assets shall assume by a supplemental indenture executed
and delivered to the Trustee, in form satisfactory to the Trustee,
all of the obligations of the Company under the Notes and this
Indenture, except as to conversion of the Notes the supplemental
indenture shall provide that the holder of a Note may convert it
into the kind and amount of securities, cash or other assets
receivable upon the consolidation, merger, transfer or lease by a
holder (other than any party to such transaction or any of its
Affiliates) of the number of shares of Common Stock into which such
Note might have been converted immediately before the effective date
of such transaction, assuming such holder of Common Stock failed to
exercise his rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such
consolidation, merger, transfer or lease (provided that, if the kind
or amount of securities, cash or other property receivable upon such
consolidation, merger, transfer or lease is not the same for each
share of Common Stock held immediately prior to such consolidation,
merger, transfer or lease by others than the parties to such
transaction or their Affiliates and in respect of which such rights
of election shall not have been exercised ("non-electing share"),
then for the purposes of this Section the kind and amount of
securities, cash and other property receivable upon such
consolidation, merger, transfer or lease by 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). The supplemental indenture
shall provide for adjustments which shall be as nearly equivalent as
may be practical to the adjustments provided for in this Article VI.
If the issuer of securities deliverable upon conversion of Notes is
an affiliate of the surviving, transferee or lessee corporation,
that issuer shall join in the supplemental indenture. The successor
Company shall mail to each Noteholder a notice briefly describing
the supplemental indenture.
If this Section applies to a particular event, (i) Section
6.6 shall not apply to such event and (ii) the surviving, transferee
or lessee corporation shall be the successor Company, but the
predecessor Company in the case of a transfer or lease shall not be
released from the obligation to pay the principal of, Redemption
Price or Repurchase Price, if applicable, and premium, if any, and
interest on the Notes.
ARTICLE VII
REPURCHASE OF SECURITIES AT THE OPTION OF THE
HOLDERS UPON A FUNDAMENTAL CHANGE
Section 7.1. Repurchase upon a Fundamental Change. The
Company covenants and agrees that, subject to the provisions of
Section 2.4 (E) and Article VIII hereof, in the event that there
occurs a Fundamental Change, each holder will have the right, at
such holder's option, to require the Company to repurchase all, or
any portion that is an integral multiple of $1,000, of such holder's
Notes on the Repurchase Date selected as provided below at a
repurchase price (the "Repurchase Price") equal to the principal
amount of such Notes plus accrued and unpaid interest to the
Repurchase Date; provided, that the failure of the Company to
repurchase Notes as a result of the application of Article VIII
hereof or the failure of the Required Lenders to have consented to
the repurchase shall nevertheless constitute an Event of Default
hereunder.
Section 7.2. Notices, Etc. Unless the Company shall have
theretofore called for redemption all the outstanding Notes on or
before the 30th day after the occurrence of a Fundamental Change,
the Company shall deliver to the Trustee, and the Company shall, or,
if so requested by the Company upon ten days prior written notice,
the Trustee shall, in the name of the Company and at the Company's
expense, mail to each holder at such holder's address appearing in
the Notes register a written notice (the "Company Notice")
describing the occurrence of the Fundamental Change and of the
repurchase right set forth herein arising as a result thereof, as
well as stating the final date by which the Notes must be
surrendered for repurchase, the last day on which an election to
require repurchase must be revoked, the Conversion Price then in
effect, the Repurchase Date, the Repurchase Price and the procedure
which the holder must follow to elect repurchase.
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 Notes.
Section 7.3. Exercising Repurchase Right.
(A) To elect repurchase of any Notes or portion thereof,
the holder will be required to surrender, on or before the Final
Surrender Date (as defined below), at any place where principal is
payable, such Note duly endorsed or assigned to the Company or in
blank, together with written notice of the holder's election to have
the Company repurchase all or any $1,000 portion of such Note speci-
fied in such notice. Election of repurchase by a holder shall be
revocable at any time prior to the Final Surrender Date by
delivering written notice to that effect to the Trustee. "Final
Surrender Date" shall mean the date which is, subject to any
contrary requirements of applicable law, 60 days after the date of
mailing of the Company Notice. "Repurchase Date" shall mean the
date selected by the Company for the repurchase of the Notes that is
not less than 10 and not more than 30 days after the Final Surrender
Date.
(B) In the event a repurchase right shall be exercised in
accordance with the terms hereof, subject to the provisions of
Article VIII hereof, the Company shall pay or cause to be paid the
Repurchase Price in cash to the holder on the Repurchase Date;
provided, however, that installments of interest that mature on or
prior to the Repurchase Date shall be payable in cash to the holders
of such Notes, registered as such at the close of business on the
relevant record date specified in the Notes according to the terms
and provisions of Article II.
(C) If any Note surrendered for repurchase shall not be
so paid on the Repurchase Date, the principal amount which is
payable at maturity shall, until the Repurchase Price (as calculated
at the date of payment) is paid, continue to bear interest from the
Repurchase Date at the rate borne by the Note and each such Note
shall continue to remain convertible into Common Stock until said
Repurchase Price shall have been paid to the holder or duly provided
for by deposit with the Paying Agent in immediately available funds
without restriction.
(D) Any Note 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 deliver to the holder without service charge, a new
Note or Notes, of any Authorized Denomination as requested by such
holder in aggregate principal amount equal to and in exchange for
the unrepurchased portion of the principal of the Note so
surrendered.
Section 7.4. Certain Definitions. For purposes of this
Article VII the term "Fundamental Change" shall mean any of the
following:
(a) an event or series of events occurs by which any
Person or Group of Persons shall, as a result of a tender
or exchange offer, open market purchases, privately
negotiated purchases, merger, consolidation or otherwise
(which shall not include an Allowed Transaction, as
defined in Section 7.4(c) hereof, other than an Allowed
Transaction described in Section 7.4(c)(w) hereunder),
have become the "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as
amended) of the Voting Shares entitled to exercise more
than 50% of the total voting power of all outstanding
Voting Shares (including any Voting Shares that are not
then outstanding of which such Person or Group of Persons
is deemed the beneficial owner); or
(b) the direct or indirect sale, lease, exchange or
other transfer to any Person or Group of Persons of all or
substantially all of the assets of the Company (which
shall not include (i) a transaction the primary purpose of
which is to provide financing for the Company's operations
so long as such transaction is otherwise permitted by and
complies with the terms of this Indenture, or (ii) any
sale or transfer by the Company of all or substantially
all of its assets to one or more of its wholly-owned
subsidiaries, in any one transaction or a series of
transactions); or
(c) any consolidation of the Company with, or merger
of the Company into, any other Person or any merger of
another Person into the Company (other than (w) a
consolidation or merger which does not result in any
reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock other than Shares of
Common Stock owned by either of the parties to the
consolidation or merger, (x) a merger which is effected
solely to change the jurisdiction of incorporation of the
Company, (y) any consolidation with or merger of the
Company into a wholly-owned subsidiary of the Company in
which the stockholders of the Company hold all of the
outstanding shares of the surviving corporation in the
same proportion as immediately prior to the merger or
consolidation, or (z) a consolidation or merger in which
the stockholders of the Company hold more than a majority
of the combined voting power of the then outstanding
Voting Shares of the Person surviving such transaction,
provided, in any such case, that the resulting corporation
or each such subsidiary assumes or guarantees the
Company's obligations under the Notes and the Consolidated
Net Worth of the surviving or acquiring corporation in any
such consolidation, merger or sale of assets immediately
after the consummation of any such transaction equals or
exceeds the Consolidated Net Worth of the Company
immediately prior to such transaction (each case set forth
in (w), (x), (y) and (z), an "Allowed Transaction")); or
(d) the liquidation or dissolution of the Company;
or
(e) the purchase or other acquisition by the
Company, directly or indirectly, of beneficial ownership
of Voting Shares if such purchase or acquisition would
result in a violation or default that has not been waived
under any agreement, instrument or document evidencing any
Senior Indebtedness to which the Company is a party,
whether as primary obligor, guarantor or otherwise which
would entitle the holders of any Senior Indebtedness to
accelerate or otherwise require the payment of amounts
owed under any such Senior Indebtedness; or
(f) the making of a Restricted Payment not otherwise
permitted pursuant to Section 4.11 hereof; or
(g) any Person shall succeed in having a sufficient
number of his or its nominees elected to the Board of
Directors of the Company such that such nominees so
elected (whether new or continuing as directors) shall
constitute a majority of the Board of Directors of the
Company, provided that such nominees are originally
proposed for election either (i) in opposition to those
nominees proposed for election by the Board of Directors
of the Company or (ii) without being nominated by the
Board of Directors of the Company.
ARTICLE VIII
SUBORDINATION
Section 8.1. Subordination Provisions. Notwithstanding
any other provision of this Indenture or the Notes to the contrary,
any Distribution with respect to the Notes is and shall be expressly
junior and subordinated in right of payment, to the extent and in
the manner set forth in this Article VIII, to all amounts due and
owing upon all Senior Indebtedness outstanding from time to time.
Section 8.2 Payments. The Company shall make no
Distribution on the Notes until such time as the Senior Indebtedness
shall have been paid in full in cash and the Loan Agreement shall
have been irrevocably terminated; provided, however, that so long as
the Trustee has not received a written notice from the Agent or any
Senior Lender (or any agent, trustee or representative acting on its
behalf) stating that a Senior Event of Default has occurred and is
continuing and specifying the nature thereof (any such notice, a
"Senior Default Notice"), the Company may pay and the Noteholders
may receive payments of principal of, or Redemption Price, if
applicable, Repurchase Price, if applicable, premium, if any, and
interest on the Notes; provided, however, that if the Trustee
receives a Senior Default Notice within five (5) business days
following an Interest Payment Date or payment of principal of the
Notes specifying that a Senior Event of Default occurred prior to or
on such Interest Payment Date or date of payment of principal and
such Senior Event of Default is continuing as of the date of such
notice, then the Noteholders shall be obligated to remit such
payments to the Agent for the ratable benefit of the Senior Lenders
as provided in Section 8.5(C) hereof.
Following the Trustee's receipt of a Senior Default
Notice, (i) the Company shall make no Distribution on the Notes, and
(ii) no Noteholder shall be entitled to receive or retain such
Distribution in respect of the Notes; provided that, notwithstanding
the foregoing restriction, the Company may pay and the holders of
the Notes shall be entitled to receive and retain any principal or
interest payment which shall have become due and payable (on a non-
accelerated basis) on the earliest to occur of (x) the date on which
the Trustee receives a written notice from the Agent or any Senior
Lender (or any agent, trustee or other representative acting on its
behalf) stating that all such Senior Events of Default have been cured
or waived or the benefits of this sentence have been waived by or on
behalf of the holders of the Senior Indebtedness or (y) payment in
full in cash of all Senior Indebtedness and the irrevocable
termination of the Loan Agreement.
Section 8.3. Limitation on Acceleration. During any
period described in Section 8.2 hereof in which a Distribution is not
permitted to be made on the Notes (any such period, a "Non-Payment
Period"), neither the Trustee nor the Noteholders shall be entitled
to accelerate the maturity of the Notes or commence any other action
or proceeding to recover any amounts due or to become due with respect
to the Notes, provided, however, the foregoing limitation on
acceleration or exercise of any remedy shall not be applicable
following the earliest to occur of (w) the Senior Indebtedness being
paid in full and the Loan Agreement irrevocably terminated; (x) an
Event (as to which Section 8.4 shall apply), (y) the acceleration of
the Senior Indebtedness or, after maturity (as the same may be
extended) of the Senior Indebtedness, the exercise of any remedy by
the Senior Lenders pursuant to, or to otherwise enforce, the Loan
Agreement, excluding imposition of a default rate of interest or (z)
the later to occur of (i) February 13, 1998, or (ii) the date 270 days
following the Trustee's receipt of a Senior Default Notice other than
a Senior Default Notice relating to a default in payment of any
Obligation with respect to the Senior Indebtedness, in which case this
clause (z) shall have no force or effect; provided further, however,
that the foregoing limitation on exercise of any remedy shall not
restrict or limit the Trustee or the Noteholders from commencing an
action or proceeding against the Company or any Subsidiary seeking
only equitable relief as to the enforcement of the Company's covenants
or other agreements hereunder.
Section 8.4. Prior Payment of Senior Indebtedness in
Bankruptcy, etc. In the event of any insolvency or bankruptcy
proceedings relative to the Company or its property, or any
receivership, liquidation, reorganization or other similar proceedings
in connection therewith or, in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of the Company
or distribution or marshaling of its assets or any composition with
creditors of the Company, whether or not involving insolvency or
bankruptcy, or if the Company shall cease its operations, call a
meeting of its creditors or no longer do business as a going concern
(each individually or collectively, an "Event"), then all Senior
Indebtedness shall be indefeasibly paid in full and satisfied in cash
before any Distribution shall be made on account of the Notes. Any
such Distribution which would, but for the provisions hereof, be
payable or deliverable in respect of the Notes shall be paid or
delivered directly to the Agent for the ratable benefit of the Senior
Lenders, until all amounts owing upon the Senior Indebtedness shall
have been indefeasibly paid in full in cash.
Section 8.5. Trustee to Effect Subordination.
(A) Each Noteholder by such holder's acceptance hereof and
its Notes(s) authorizes and directs the Trustee on such holder's
behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article and appoints
the Trustee such holder's attorney-in-fact with full power to act in
such holder's place and stead for any and all such purposes,
including the right to make, present and file proofs of claim
against the Company on account of all or any part of the Notes in a
proceeding referred to in Section 8.4 or upon the happening of any
Event and to receive and collect any and all payments with respect
to the Notes or other payments thereon and to apply same on account
of the Senior Indebtedness as contemplated in this Article.
(B) If the Trustee fails or omits to take any action
required or permitted to be taken pursuant to Section 8.5(A) hereof,
each Noteholder, by such holder's acceptance hereof and its Note(s)
authorizes and directs the Agent on such holder's behalf to take
such action as may be necessary or appropriate to effectuate the
subordination provided in this Article and appoints the Agent such
holder's attorney-in-fact with full power to act in such holder's
place and stead for any and all such purposes, including the right
to make, present and file proofs of claim against the Company on
account of all or any part of the Notes in a proceeding referred to
in Section 8.4 or upon the happening of any Event and to receive and
collect any and all payments with respect to the Notes or other
payments thereon and to apply same on account of the Senior
Indebtedness as contemplated in this Article.
(C) Should any Distribution or the proceeds thereof in
respect of the Notes be collected or received by the Trustee or any
Noteholder at a time when such Noteholder is not permitted to
receive any such Distribution or proceeds thereof, then the Trustee
or such Noteholder, as the case may be, will forthwith deliver, or
cause to be delivered, the same to the Agent for the ratable benefit
of the Senior Lenders in precisely the form held by the Trustee or
such Noteholder (except for any necessary endorsement) and until so
delivered, the same shall be held in trust by the Trustee or such
Noteholder, as the case may be, as the property of the Senior
Lenders.
Section 8.6. Subrogation.
(A) Subject to the prior payment in full in cash of the
Senior Indebtedness and the irrevocable termination of the Loan
Agreement, to the extent that Senior Lenders have received any
Distribution on the Senior Indebtedness which, but for this Article
would have been applied to the Notes, the Trustee and the
Noteholders shall be subrogated to the then or thereafter rights of
the Senior Lenders including, without limitation, the right to
receive any Distribution on the Senior Indebtedness until the
principal of, interest on and other charges due under the Notes
shall be paid in full; and, for the purposes of such subrogation, no
Distribution to the Senior Lenders to which the Noteholders would be
entitled except for the provisions of this Article shall, as between
the Company, its creditors (other than the Senior Lenders) and the
Noteholders be deemed to be a Distribution by the Company to or on
account of the Senior Indebtedness, it being understood that the
provisions hereof are intended solely for the purpose of defining
the relative rights of the Noteholders on the one hand, and the
Senior Lenders on the other hand.
(B) Nothing in this Indenture shall impair, between the
Company and the Noteholders, the unconditional and absolute
obligation of the Company to punctually pay the principal, interest
and other amounts and obligations owing under this Indenture, the
Notes and the other Subordinated Lending Agreements in accordance
with the terms hereof and thereof, subject to the rights of the
Senior Lenders under this Article.
Section 8.7. Notice to the 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 Notes pursuant to the provisions of this
Article. Regardless of anything to the contrary contained in this
Article or elsewhere in this Indenture, the Trustee shall not be
charged with knowledge of the existence of any Senior Event of
Default (or of any other facts which would prohibit the making of
any payment to or by the Trustee) unless and until the Trustee shall
have received notice in writing at its corporate trust office to
that effect signed by an officer of the Company, the Agent or by any
Senior Lender (or any agent, trustee or other representative acting
on its behalf); and prior to the receipt of any such written notice,
the Trustee shall be entitled to assume that no such facts exist;
provided, that if the Trustee shall not have received the notice
provided for in this Section at least three Business Days prior to
the date upon which by the terms of this Indenture any monies shall
become payable for any purpose (including, without limitation the
payment of the principal of, Redemption Price, Repurchase Price,
premium, if any, or interest on any Note), then, regardless of
anything herein to the contrary, the Trustee shall have full power
and authority to receive any monies from the Company and to apply
the same to the purpose for which they were received, and shall not
be affected by any notice to the contrary which may be received by
it on or after such prior date. Nothing contained in this Section
8.7 shall limit the right of the Senior Lenders to recover payments
as contemplated herein. The Trustee shall be entitled to rely on
the delivery to it of a written notice by a Person representing
himself or itself to be the Agent or a Senior Lender (or an agent,
trustee, or other representative of such Senior Lender) to establish
that such notice has been given by the Agent or such Senior Lender
(or an agent, trustee or other representative of any such Senior
Lender).
In the event that the Trustee determines in good faith
that any evidence is required with respect to the right of any
Person as a Senior Lender to participate in any payment or
Distribution pursuant to this Article, the Trustee may request that
such Person furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of Senior Indebtedness held by such Person,
the extent to which such Person is entitled to participate in such
payment or Distribution and any other facts pertinent to the rights
of such Person under this Article, and if any such evidence is not
furnished, then the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to
receive such payment.
Section 8.8. Reliance on Judicial Order or Certificate
of Liquidating Agent. Subject to the provisions of this Article,
upon any payment or Distribution of assets or securities of the
Company referred to in this Article, the Trustee shall be entitled
to rely upon any order or decree made by any court of competent
jurisdiction in which bankruptcy, dissolution, winding up,
liquidation or reorganization proceedings are pending, or upon a
certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or Distribution,
delivered to the Trustee for the purpose of ascertaining the Persons
entitled to participate in such Distribution, the holders of the
Senior Indebtedness and other indebtedness of the Company, the
amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article. Nothing in this Section,
however, shall limit or alter any rights or remedies of the Senior
Lenders under this Article.
Section 8.9. Trustee's Relation to Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness
which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Senior
Indebtedness and nothing in this Indenture shall deprive the Trustee
or any Paying Agent of any of its rights as such holder.
With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this
Article, and no implied covenants or obligations with respect to the
holders of Senior Indebtedness shall be read into this Indenture
against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Indebtedness.
Section 8.10. Miscellaneous.
(A) The rights of the Senior Lenders to enforce the
provisions of this Article shall not be prejudiced or impaired by
any act or omitted act of the Company, the Trustee or any Senior
Lender, including forbearance, waiver, consent, compromise,
amendment, extension, renewal or taking or release of the security
in respect of any Senior Indebtedness or noncompliance with such
provisions, regardless of the actual or imputed knowledge of the
Company, the Trustee or any Senior Lender.
(B) This Article shall continue in full force and effect
after the filing of any petition by or against the Company under the
United States Bankruptcy Code and all converted or succeeding cases
in respect thereof. All references herein to the Company shall be
deemed to apply to the Company as debtor-in-possession and to a
trustee for the Company.
(C) So long as the Loan Agreement remains in effect,
neither the Company nor the Trustee shall enter into any amendment
or modification of this Indenture or any other Subordinated Lending
Agreement which (i) without the prior written consent of the
Required Lenders, increases the aggregate principal amount of the
Notes to greater than $5,000,000 or increases the interest rate on
or shortens or reduces the time for payment (including, without
limitation, a provision for mandatory redemption), of any amount on
account of the Notes or modifies the provisions of Section 2.4(E)
hereof or adds to or modifies to make more restrictive the Events of
Default or covenants of the Company hereunder or (ii) without the
prior written consent of each Senior Lender affected thereby,
adversely affects the rights of any holder of Senior Indebtedness at
the time outstanding to the benefits of the subordination affected
by this Article.
(D) Nothing contained in this Article or elsewhere in
this Indenture shall in any manner limit or restrict the ability of
the Agent or the Senior Lenders from increasing or changing the
terms of the Loan Agreement or the Senior Indebtedness or to
otherwise waive, amend or modify the terms and conditions of the
Loan Agreement or the Senior Indebtedness, in such manner as the
Agent or such Senior Lenders and the Company determine. Each
Noteholder, by its acceptance hereof and of its Notes(s), hereby
consents to any and all such waivers, amendments, modifications and
compromises, and any other renewals, extensions, indulgences,
releases of collateral or other accommodations granted by the Agent
or the Senior Lenders to the Company from time to time, and agrees
that none of such actions shall in any manner affect or impair the
subordination established by this Article in respect of the Notes.
(E) This Article shall be a continuing agreement, shall
be binding upon and shall inure to the benefit of holders of the
Senior Indebtedness from time to time and their respective
successors and assigns, shall be irrevocable without the consent of
the Senior Lenders as provided herein and shall remain in full force
and effect until the Senior Indebtedness shall have been satisfied
or paid in full in cash and the Loan Agreement shall have been
irrevocably terminated, but shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part
thereof, of any amount paid by or on behalf of the Company with
regard to the Senior Indebtedness is rescinded or must otherwise be
restored or returned upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization or the Company, or upon or as a result
of the appointment of a receiver, intervenor or conservator, or any
trustee, custodian or similar officer, for the Company or any of its
property.
(F) The failure to make a payment pursuant to the Notes
by reason of any provision of this Article shall not prevent the
occurrence of an Event of Default. Subject to Section 8.3, nothing
in this Article shall have any effect on the right of the
Noteholders or the Trustee to accelerate the maturity of the Notes
or pursue any other remedy with respect thereto.
ARTICLE IX
REMEDIES OF TRUSTEE AND NOTEHOLDERS
Section 9.1. Events of Default; Acceleration of Due
Dates.
(A) Each of the following events is hereby defined as and
shall constitute an "Event of Default":
(1) Failure to duly and punctually pay the interest
on any Note when the same shall become due and payable and the
continuance of such failure for a period of thirty (30) days;
(2) Failure to duly and punctually pay the principal
or Redemption Price (including premium, if any) or Repurchase Price
of any Note when the same shall become due and payable, whether at
the stated maturity thereof or upon proceedings for redemption
thereof or otherwise;
(3) Failure of the Company to observe or perform any
covenant, condition or agreement in the Notes or hereunder on its
part to be performed (except as set forth in Section 9.1(A) (1) or
(2) hereof) and (a) the continuance of such failure for a period of
sixty (60) days after written notice of default given to the Company
and the Agent by the Trustee or by the holders of not less than
fifty percent (50%) in aggregate principal amount of the Notes then
Outstanding, or (b) if by reason of the nature of such failure the
same cannot be remedied within the said sixty (60) days, the Company
fails to proceed with diligence after receipt of such notice to cure
the same or fails to continue with reasonable diligence its efforts
to cure the same;
(4) The Company or any Significant Subsidiary shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, or shall consent to any such
relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced
against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action to authorize any of the
foregoing;
(5) An involuntary case or other proceeding shall be
commenced against the Company or any Significant Subsidiary or
seeking liquidation, reorganization or other relief with respect to
it or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official
of it or any substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and unstayed for
a period of 60 days;
(6) There shall be a default under any mortgage,
indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness of the Company or
any Significant Subsidiary, which default shall have resulted in the
acceleration (which acceleration has not been rescinded or annulled)
of such Indebtedness prior to its stated final maturity and the
principal amount of such Indebtedness exceeds an aggregate of
$3,000,000, or the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness the
maturity of which has been accelerated (which acceleration has not
been rescinded or annulled), exceeds an aggregate of $3,000,000; or
(7) There shall be judgments against the Company or
any of its Significant Subsidiaries not covered by insurance
aggregating (for the Company and all Significant Subsidiaries in the
aggregate) in excess of $1,000,000 at any time and (a) such
judgments are not stayed, vacated, bonded or discharged within 60
days after their entry or (b) an enforcement proceeding shall have
been commenced (and not discharged, stayed or settled) by any
creditor upon any such judgments.
(B) Subject to the provisions of Article VIII hereof,
upon the happening and continuance of any Event of Default specified
in Section 9.1(A) hereof, unless the principal of all the Notes
shall have already become due and payable, either (i) the Trustee
may, or upon direction of not less than one-third (33.33%) in
principal amount of the Notes then Outstanding shall, (by notice in
writing to the Company) or (ii) the holders of not less than one-
third (33.33%) in principal amount of the Notes then Outstanding (by
notice in writing to the Company and the Trustee) may declare the
principal of all the Notes then Outstanding, and the interest
accrued thereon, to be due and payable immediately, and upon such
declaration the same shall become and be immediately due and
payable; provided that in the case of an Event of Default referred
to in Section 9.1(4) or 9.1(5) the Notes and all other amounts due
hereunder shall become immediately due and payable without notice,
presentment, demand, protest or other formalities of any kind, which
are hereby expressly waived by the Company. If a notice pursuant to
this Section 9.1(B) should be given or sent, then, for all purposes
under this Indenture, the Company and the Trustee shall be deemed to
have received a Senior Default Notice simultaneously with the giving
or sending of that notice hereunder.
(C) The right of the Trustee or of the holders of not
less than one-third (33.33%) in principal amount of the Notes to
make any declaration authorized under Section 9.1(B) hereof with
respect to any failure under Section 9.1(A) (1) or 9.1(A) (2)
hereof, however, is subject to the condition that if, at any time
before such declaration, all overdue installments of interest upon
the Notes together with the reasonable and proper charges, expenses
and liabilities of the Trustee, shall either be paid by or for
account of the Company or provision satisfactory to the Trustee
shall be made for such payment, then in every such case any such
default and its consequences shall ipso facto be deemed to be
annulled, but no such annulment shall extend to or affect any
subsequent default or impair or exhaust any right or power
consequent thereon.
Section 9.2. Enforcement of Remedies.
(A) Upon the happening and continuance of any Event of
Default, then and in every case the Trustee may proceed, and upon
the written request of the holders of more than fifty percent (50%)
in principal amount of Notes Outstanding shall proceed, subject in
each case to the provisions of Article VIII hereof, to protect and
enforce its rights and the rights of the Noteholders under the Notes
and this Indenture, and under any agreement executed in connection
with the foregoing, forthwith by such suits, actions or special
proceedings in equity or at law, whether for the specific
performance of any covenant or agreement contained in this Indenture
or in aid of the execution of any power granted therein or for the
enforcement of any legal or equitable rights or remedies as the
Trustee, being advised by counsel, shall deem most effectual to
protect and enforce such rights or to perform any of its duties
under this Indenture.
(B) In the enforcement of any right or remedy under this
Indenture the Trustee, subject to the provisions of Article VIII
hereof, shall be entitled to sue for, enforce payment on and receive
any or all amounts then or during any Event of Default becoming due,
and at any time remaining unpaid, from the Company for principal,
Redemption Price, Repurchase Price, interest or otherwise under any
of the provisions of this Indenture or of the Notes, with interest
on overdue payments at the applicable rate or rates of interest
specified in the Notes, together with any and all costs and expenses
of collection and of all proceedings under this Indenture and under
the Notes, without prejudice to any other right or remedy of the
Trustee or of the Noteholders, and to recover and enforce any
judgment or decree against the Company, for any portion of such
amounts remaining unpaid, with interest, costs, and expenses, and to
collect in any manner provided by law, the moneys adjudged or
decreed to be payable.
Section 9.3. Application of Money After Default.
(A) All moneys received by the Trustee pursuant to any
right given or action taken under the provisions of this Article,
after payment of the costs and expenses of the Trustee of the
proceedings resulting in the collection of such moneys and of the
expenses, liabilities and advances incurred or made by the Trustee
and of all other amounts owing to the Trustee, shall be applied as
follows:
(1) Unless the principal of all of the Notes shall
have become due and payable:
FIRST To the payment to the Persons entitled thereto of
all installments of interest then due on the Notes, in the
order of the maturity of the installments of such interest
and, if the amount available shall not be sufficient to
pay in full any particular installment, then to the
payment ratably, according to the amounts due on such
installment, to the Persons entitled thereto, without any
discrimination or preference; and
SECOND To the payment to the Persons entitled thereto of
the unpaid principal, Repurchase Price, if applicable, or
Redemption Price, if applicable, of any of the Notes or
principal installments which shall have become due (other
than Notes called for redemption for the payment of which
moneys are held pursuant to the provisions of this
Indenture) from the respective dates upon which they
become due and, if the amount available shall not be
sufficient to pay in full Notes or principal installments
due on any particular date, then to the payment ratably,
according to the amount of principal due on such date, to
the Persons entitled thereto without any discrimination or
preference.
(2) If the principal of all the Notes shall have
become or have been declared due and payable, to the
payment of the principal and interest (at the rate or
rates expressed thereon) then due and unpaid upon the
Notes without preference or priority of principal over
interest or of interest over principal, or of any
installment of interest over any other installment of
interest, or of any Note over any other Note, ratably,
according to the amounts due respectively for principal
and interest, to the Persons entitled thereto without any
discrimination or preference.
(3) If the principal of all the Notes shall have
been declared due and payable, and if such declaration
shall thereafter have been rescinded and annulled under
the provisions of this Article, then, subject to the
provisions of Section 9.3(A)(2) hereof which shall be
applicable in the event that the principal of all the
Notes shall later become due and payable, the moneys shall
be applied in accordance with the provisions of Section
9.3(A)(1) hereof.
(B) Whenever moneys are to be applied pursuant to the
provisions of this Section, such moneys shall be applied at such
times, and from time to time, as the Trustee shall determine, having
due regard to the amount of such moneys available for application
and the likelihood of additional moneys becoming available for such
application in the future. Whenever the Trustee shall apply such
funds, it shall fix the date upon which such application shall be
made and upon such date interest on the amounts of principal to be
paid on such date shall cease to accrue. The Trustee shall give
such notice as it may deem appropriate of the deposit with it of any
such moneys and of the fixing of any such date, and shall not be
required to make payment to the holder of any Notes until such Notes
shall be presented to the Trustee for appropriate endorsement or for
cancellation if fully paid.
(C) Whenever all Notes and interest thereon and all other
amounts due under this Indenture and the Notes have been paid under
the provisions of this Section and all expenses and charges of the
Trustee and the Paying Agent have been paid, any balance remaining
shall be paid to the Company.
Section 9.4. Actions by Trustee. All rights of action
under this Indenture or under any of the Notes may be enforced by
the Trustee without the possession of any of the Notes or the
production thereof in any trial or other proceedings relating
thereto and any such suit or proceedings instituted by the Trustee
shall be brought in its name as Trustee without the necessity of
joining as plaintiffs or defendants any holders of the Notes, and
any recovery of judgment, subject to the provisions of Article VIII
and Section 9.3 hereof, shall be for the benefit of the holders of
the Outstanding Notes.
Section 9.5. Majority Noteholders Control Proceedings.
The holders of a majority in aggregate principal amount of Notes
then Outstanding shall have the right, at any time, by an instrument
or instruments in writing executed and delivered to the Trustee, to
direct the method and place of conducting all proceedings to be
taken in connection with the enforcement of the terms and conditions
of this Indenture, or for any other proceedings hereunder; but such
direction shall not be otherwise than in accordance with the
provisions of law and of this Indenture.
Section 9.6. Individual Noteholder Action Restricted.
Unless otherwise expressly provided in this Indenture, no holder of
the Notes shall have any right to institute any suit, action or
proceeding at law or in equity for the enforcement of any provision
of this Indenture or the Notes or for any remedy under this
Indenture, unless (i) such holder shall have previously given to the
Trustee written notice of the happening and continuation of an Event
of Default, as provided in this Article, (ii) the holders of not
less than one-third (33.33%) in principal amount of the Notes then
Outstanding shall have filed a written request with the Trustee, and
shall have offered it reasonable opportunity, to exercise the powers
granted in this Indenture to institute such action, suit or
proceeding in its own name, (iii) such holders shall have offered to
the Trustee adequate security and indemnity against the costs,
expenses and liabilities to be incurred therein or thereby, and (iv)
the Trustee shall have refused to comply with such request for a
period of sixty days after receipt by it of such notice, request and
offer of indemnity, it being understood and intended that no holder
of any Note shall have any right in any manner whatever by his or
their action to enforce any right under this Indenture except in the
manner herein provided, but subject to the provisions of Article
VIII hereof; and that all proceedings at law or in equity to enforce
any provision of this Indenture shall be instituted, had and
maintained for the equal benefit of all holders of the Outstanding
Notes.
Section 9.7. Effect of Discontinuance of Proceedings.
In case any proceeding taken by the Trustee on account of any Event
of Default shall have been dismissed, discontinued or abandoned for
any reason, or shall have been determined adversely, then and in
every such case the Company, the Trustee and the Noteholders shall
be restored, respectively, to their former positions and rights
hereunder, and all rights, remedies, powers and duties of the
Trustee shall continue as though no such proceedings had been taken.
Section 9.8. Remedies Not Exclusive. No remedy by the
terms of this Indenture conferred upon or reserved to the Trustee or
to the holders of the Notes is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall
be in addition to any other remedy given hereunder or now or
hereafter existing at law or in equity or by statute.
Section 9.9. Delay or Omission Upon Default. No delay
or omission of the Trustee or of the holder of any Note to exercise
any right or power arising upon any Event of Default shall impair
any right or power or shall be construed to be a waiver of any such
Event of Default or any acquiescence therein; and, subject to
Section 9.6, every power and remedy given by this Article to the
Trustee and the holder of any Note may be exercised from time to
time and as often as may be deemed expedient by the Trustee or by
the Noteholders.
Section 9.10. Notice of Default. The Trustee shall
promptly mail to each Noteholder, the Company and the Agent written
notice of the occurrence of any Event of Default of which a trust
officer in its corporate trust administration department has actual
knowledge. The Trustee shall not, however, be subject to any
liability to any Noteholder or any Senior Lender by reason of its
failure to mail any notice required by this Section.
Section 9.11. Waivers of Default. The Trustee shall
waive any Event of Default hereunder and its consequences upon the
written request of the holders of more than fifty percent (50%) in
aggregate principal amount of the Notes then Outstanding; except
that there shall not be waived without the consent of the holders of
all the Notes then Outstanding (a) any default in the payment of the
principal of any Outstanding Notes at the date of maturity specified
therein or (b) any default in the payment when due of the interest
on any such Notes unless, prior to or contemporaneously with such
waiver, all arrears of interest, with interest (to the extent
permitted by law) at the rate borne by the Notes on overdue
installments of interest in respect of which such default shall have
occurred, or all arrears of payments of principal when due, as the
case may be, and all expenses of the Trustee in connection with such
Event of Default shall have been paid or provided for. In the case
of any such waiver, then and in every such case the Company, the
Trustee and the Noteholders shall be restored to their former
positions and rights hereunder respectively and any Event of Default
so waived shall be deemed to have been cured and not to have
occurred for all purposes of this Indenture, but no such waiver
shall extend to any subsequent or other Event of Default, or impair
any right consequent thereon.
Section 9.12. Collection Suit by Trustee. If an Event of
Default specified in Section 9.1(A)(1) or (2) occurs and is
continuing, subject to Article VIII hereof, the Trustee may recover
judgment in its own name and as trustee of an express trust against
the Company for the whole amount of principal, premium, if any, and
interest remaining unpaid together with interest on overdue
principal and premium, if any, and, to the extent that payment of
such interest is lawful, interest on overdue installments of
interest, in each case at the rate per annum then applicable to the
Notes.
Section 9.13. Trustee May File Proofs of Claim. The
Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the
Trustee and the Noteholders allowed in any judicial proceeding
relative to the Company, its creditors or its property.
Nothing contained in this Indenture or in the Notes shall
be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Noteholder any plan of
reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Noteholder in any
such proceedings.
ARTICLE X
TRUSTEE AND PAYING AGENTS
Section 10.1. Appointment and Acceptance of Duties.
(A) Shawmut Bank Connecticut, National Association is
hereby appointed as Trustee. The Trustee shall signify its
acceptances of the duties and obligations of the Trustee by
executing this Indenture.
(B) The Trustee is hereby appointed as Paying Agent for
the Notes. The Company may also from time to time appoint one or
more other Paying Agents in the manner and subject to the conditions
set forth in Section 10.12 hereof for the appointment of a successor
Paying Agent. Each Paying Agent shall signify its acceptance of the
duties and obligations imposed upon it by this Indenture by
executing and delivering to the Company and to the Trustee a written
acceptance thereof. The principal offices of the Paying Agents are
designated as the respective offices of the Company for the payment
of the principal, Redemption Price or Repurchase Price, if
applicable, premium, if any, and the interest on the Notes.
Section 10.2. Indemnity. The Trustee shall be under no
obligation to institute any suit, or to take any remedial proceeding
under this Indenture, or to enter any appearance in or in any way
defend any suit in which it may be made defendant, or to take any
steps in the execution of the trusts hereby created or in the
enforcement of any rights and powers hereunder, until it shall be
indemnified to its satisfaction against any and all reasonable costs
and expenses, outlays, and counsel fees and other disbursements, and
against all liability not due to its willful misconduct, gross
negligence or bad faith.
Section 10.3. Responsibilities of Trustee.
(A) The Trustee shall have no responsibility in respect
of the validity or sufficiency of this Indenture or the due
execution hereof by the Company, or in respect of the validity of
any Notes authenticated and delivered by the Trustee in accordance
with this Indenture or any other document or instrument whatsoever.
The recitals, statements and representations contained herein and in
the Notes shall be taken and construed as made by and on the part of
the Company and not by the Trustee, and it does not assume any
responsibility for the correctness of the same; except that the
Trustee shall be responsible for its representation contained in its
certificate on the Notes.
(B) The Trustee shall not be liable or responsible
because of the failure of the Company to perform any act required of
it by this Indenture or because of the loss of any moneys arising
through the insolvency or the act or default or omission of any
depositary other than itself in which such moneys shall have been
deposited. The Trustee shall not be responsible for any moneys
deposited with it and paid out, invested, withdrawn or transferred
in accordance herewith or for any loss resulting from any such
investment. The Trustee shall not be liable in connection with the
performance of its duties hereunder except for its own willful
misconduct, gross negligence or bad faith. The immunities and
exemptions from liability of the Trustee shall extend to its
directors, officers, employees and agents.
(C) The Trustee, prior to the occurrence of an Event of
Default, undertakes to perform such duties and only such duties as
are specifically set forth in this Indenture. In case an Event of
Default has occurred and is continuing (and not waived), the Trustee
shall exercise such of the rights and powers vested in it hereby and
use the same degree of care and skill in their exercise, as a
prudent person would exercise under the circumstances in the conduct
of his own affairs, but the Trustee shall not be liable for any
action taken or not taken except for willful misconduct, gross
negligence or bad faith.
Section 10.4. Compensation. The Company agrees:
(A) To pay to the Trustee from time to time reasonable
compensation for all services rendered hereunder (which compensation
shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(B) Except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for 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 the Trustee's negligence or bad
faith; and
(C) To indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense 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 costs and
expenses of defending itself against any claim or liability arising
out of or in connection with the exercise or performance of any of
its powers or duties hereunder.
Section 10.5. Evidence on which Trustee May Act.
(A) In case at any time it shall be necessary or
desirable for the Trustee to make any investigation concerning any
fact preparatory to taking or not taking any action, or doing or not
doing anything, as such Trustee, and in any case in which this
Indenture provides for permitting or taking any action, the Trustee
may rely upon any certificate required or permitted to be filed with
it under the provisions hereof, and any such certificate shall be
evidence of such fact or protect it in any action that it may or may
not take, or in respect of anything it may or may not do, in good
faith, by reason of the supposed existence of such fact.
(B) The Trustee shall be protected and shall incur no
liability in acting or proceeding, or in not acting or not
proceeding, under this Indenture upon any resolution, order, notice,
request, consent, waiver, certificate, statement, affidavit,
requisition, bond or other paper or document which it shall believe
to be genuine and to have been adopted or signed by the proper board
or person, or to have been prepared and furnished pursuant to any of
the provisions of this Indenture or upon the written opinion of any
attorney (who may be an attorney for the Company) or accountant
believed by the Trustee to be qualified in relation to the subject
matter, except for action taken or not taken due to willful
misconduct, gross negligence or bad faith.
Section 10.6. Evidence of Signatures of Noteholders and
Ownership of Notes.
(A) Any request, consent, revocation of consent or other
instrument which this Indenture may require or permit to be signed
and executed by the Noteholders may be in one or more instruments of
similar tenor, and shall be signed or executed by such Noteholders
in person or by their attorneys appointed in writing. Proof of (i)
the execution of any such instrument, or of any instrument
appointing any such attorney, or (ii) the holding by any person of
the Notes shall be sufficient for any purpose of this Indenture
(except as otherwise herein expressly provided) if made in the
following manner, or in any other manner satisfactory to the
Trustee, which may nevertheless in its discretion require further or
other proof in cases where it deems the same desirable:
(1) The fact and date of the execution by any Noteholder
or his attorney of such instruments may be proved by a
guarantee of the signature thereon by an officer of a bank or
trust company or by the certificate of any notary public or
other officer authorized to take acknowledgments of deeds, that
the person signing such request or other instrument
acknowledged to him the execution thereof, or by an affidavit
of a witness of such execution, duly sworn to before such
notary public or other officer. Where such execution is by an
officer of a corporation or a member of an association or
partnership, on behalf of such corporation, association or
partnership, such signature guarantee, certificate or affidavit
shall be accompanied by sufficient proof of his authority.
(2) The ownership of registered Notes and the amount,
numbers and other identification, and date of holding the same
shall be proved by the registry books.
(B) Except as otherwise provided in Section 12.3 hereof
with respect to revocation of a consent, any request or consent by
the holder of any Note shall bind all future holders of such Note in
respect of anything done or suffered to be done by the Company or
the Trustee or any Paying Agent in accordance therewith.
Section 10.7. Trustee and Paying Agent May Deal in Notes
and With Company. Any national banking association, bank or trust
company acting as a Trustee, or Paying Agent, and its directors,
officers, employees or agents, may in good faith buy, sell, own,
hold and deal in any of the Notes and may join in any action which
any Noteholder may be entitled to take and may otherwise deal with
the Company with like effect as if such association, bank or trust
company were not such Trustee or Paying Agent.
Section 10.8. Non-presentment of Notes. In the event any
Note shall not be presented for payment when the principal thereof
becomes due, either at maturity or at the date fixed for redemption
thereof, or otherwise, and funds sufficient to pay any such Note
shall have been made available to the Trustee for the benefit of the
holder or holders thereof, all liability of the Company to the
holder thereof for the payment of such Note shall forthwith cease,
terminate and be completely discharged, and thereupon it shall be
the duty of the Trustee to pay such funds to the person or persons
entitled thereto in the case of a fully registered bond or if the
person is not known to the Trustee, to hold such funds, without
liability for interest thereon, for the benefit of the holder of
such Note, who shall thereafter be restricted exclusively to such
funds, for any claim of whatever nature on his part under this
Indenture or on, or with respect to, such Note. Funds remaining
with the Trustee as above and unclaimed for six years shall be,
subject to applicable escheat laws, paid to the Company. After the
payment of such unclaimed moneys to the Company, the holder of such
Note shall thereafter look only to the Company for the payment
thereof, and all liability of the Trustee or the Paying Agent with
respect to such moneys shall thereupon cease.
Section 10.9. Moneys to be Held in Trust. All moneys
required to be deposited with or paid to the Trustee under any
provision of this Indenture and all investments made therewith shall
be held by the Trustee in trust, and while held by the Trustee
constitute part of the trust estate.
Section 10.10. Resignation or Removal of Trustee.
(A) The Trustee may resign and thereby become discharged
from the trusts created under this Indenture by notice in writing
given to the Company and by notice mailed, postage prepaid, to the
Noteholders not less than sixty days before such resignation is to
take effect, but such resignation shall take effect only upon the
appointment of and acceptance of the Trust hereby created by a
successor Trustee, pursuant to Section 10.11 hereof.
(B) The Trustee may be removed at any time by an
instrument or concurrent instruments in writing, filed with the
Trustee and signed by the holders of more than fifty percent (50%)
in principal amount of the Notes then Outstanding or their
attorneys-in-fact duly authorized. The Trustee shall promptly give
notice of such filing to the Company.
Section 10.11. Successor Trustee.
(A) If at any time the Trustee shall resign, or shall be
removed, be dissolved or otherwise become incapable of acting or
shall be adjudged a bankrupt or insolvent, or if a receiver,
liquidator or conservator thereof, or of its property, shall be
appointed, or if any public officer shall take charge or control of
the Trustee or of its property or affairs, the position of Trustee
shall thereupon become vacant. If the position of Trustee shall
become vacant for any of the foregoing reasons or for any other
reason, the Company shall appoint a successor Trustee within thirty
days to fill such vacancy. Within twenty days after such
appointment, the Company shall cause notice of such appointment to
be mailed, postage prepaid, to all Noteholders.
(B) At any time within one year after such vacancy shall
have occurred, the holders of more than fifty (50%) in principal
amount of the Notes then Outstanding, by an instrument or concurrent
instruments in writing, signed by such Noteholders or their
attorneys-in-fact thereunto duly authorized and filed with the
Company, may appoint a successor Trustee, which shall, immediately
and without further act, supersede any Trustee theretofore
appointed. If no appointment of a successor Trustee shall be made
pursuant to the foregoing provisions of this Section, the holder of
any Note then Outstanding or any retiring Trustee may apply to any
court of competent jurisdiction to appoint a successor Trustee.
Such court may thereupon, after such notice, if any, as such court
may deem proper and prescribe, appoint a successor Trustee.
(C) Any Trustee appointed under this Section shall be a
national banking association or a bank or trust company duly
organized under the laws of the state of its organization or under
the laws of the United States or any state thereof authorized to
exercise corporate trust powers and authorized by law and its
charter to perform all the duties imposed upon it by this Indenture.
At the time of its appointment, any successor Trustee shall have a
capital stock and surplus aggregating not less than $50,000,000.
(D) Every successor Trustee shall execute, acknowledge
and deliver to its predecessor, and also to the Company, an
instrument in writing accepting such appointment, and thereupon such
successor Trustee, without any further act, deed, or conveyance,
shall become fully vested with all moneys, estates, properties,
rights, immunities, powers and trusts, and subject to all the duties
and obligations of its predecessor, with like effect as if
originally named as such Trustee; but such predecessor shall,
nevertheless, on the written request of its successor or of the
Company, and upon payment of the compensation, expenses, charges and
other disbursements of such predecessor which are due and payable
pursuant to Section 10.4 hereof, execute and deliver an instrument
transferring to such successor Trustee all the estate, properties,
rights, immunities, powers and trusts of such predecessor. Any
successor Trustee shall promptly notify the Paying Agent of its
appointment as Trustee.
(E) Any company into which the Trustee may be merged or
converted or with which it may be consolidated or any company
resulting from any merger, conversion or consolidation to which it
shall be a party or any company to which the Trustee may sell or
transfer all or substantially all of its corporate trust business,
provided such company shall be a national banking association or a
bank or trust company duly organized under the laws of the United
States or any state of the United States, and shall be authorized by
law and its charter to perform all the duties imposed upon it by
this Indenture, shall be the successor to such Trustee without the
execution or filing of any paper or the performance of any further
act.
(F) Any Trustee which resigns, is replaced or becomes
incapable of acting as Trustee shall pay over, assign and deliver to
its successor any moneys, funds or investments held by it and shall
render an accounting to the Company.
Section 10.12. Resignation or Removal of Paying Agent;
Successors.
(A) The Paying Agent may at any time resign and be
discharged of the duties and obligations created by this Indenture
by giving at least sixty days' prior written notice to the Company
and the Trustee. The Paying Agent may be removed at any time by an
instrument in writing, filed with the Paying Agent, and signed by
either the Company or the Trustee. Any successor Paying Agent shall
be appointed by the Company, with the approval of the Trustee, and
shall be a bank or trust company duly organized under the laws of
the United States or any State thereof or a national banking
association, having a capital stock and surplus aggregating at least
$5,000,000, and willing and able to accept the office on reasonable
and customary terms and authorized by law to perform all the duties
imposed upon it by this Indenture.
(B) In the event of the resignation or removal of the
Paying Agent, such Paying Agent shall pay over, assign and deliver
any moneys held by it as Paying Agent to its successor, or if there
be no successor, to the Trustee. In the event that for any reason
there shall be a vacancy in the office of the Paying Agent, the
Trustee shall act as Paying Agent.
ARTICLE XI
DISCHARGE OF INDENTURE
Section 11.1. Termination of Company's Obligation.
This Indenture shall cease to be of further force or
effect (except that the Company's obligations under Section 10.4 and
the Company's, Trustee's and Paying Agent's obligations under
Section 11.3 shall survive) when all outstanding Notes theretofore
authenticated and issued have been delivered (other than destroyed,
lost or stolen Notes that have been replaced or paid) to the Trustee
for cancellation and the Company has paid all sums payable by the
Company hereunder.
Section 11.2. Application of Trust Money.
The Trustee or a trustee satisfactory to the Trustee and
the Company shall hold in trust money deposited with it pursuant to
Section 11.1. It shall apply the deposited money through the Paying
Agent and in accordance with this Indenture to the payment of
principal, Redemption Price, Repurchase Price, premium, if any, and
interest on the Notes.
Section 11.3. Repayment to Company.
Subject to any applicable abandoned property law, the
Trustee and the Paying Agent shall pay to the Company upon request
any money held by them for the payment of principal, Repurchase
Price, Redemption Price, premium, if any, or interest that remains
unclaimed for two years, and, thereafter, Noteholders entitled to
the money must look to the Company for payment as general creditors.
<PAGE>
ARTICLE XII
AMENDMENTS OF INDENTURE
Section 12.1. Limitation on Modifications. Subject to
Sections 9.11 and 8.10(C) hereof, this Indenture shall not be
modified or amended in any respect except as provided in and in
accordance with and subject to the provisions of this Article.
Section 12.2. Supplemental Indentures Without
Noteholders' Consent.
(A) The Company may, from time to time and at any time,
execute Supplemental Indentures without the consent of any
Noteholders for any of the following purposes:
(1) To cure any formal defect, omission or ambiguity in
this Indenture, if such action is not adverse to the interests
of the Noteholders.
(2) To grant to or confer upon the Trustee for the
benefit of the Noteholders any additional rights, remedies,
powers, authority or security which may lawfully be granted or
conferred and which are not contrary to or inconsistent with
this Indenture as theretofore in effect.
(3) To add to the covenants and agreements of the Company
in this Indenture other covenants and agreements to be observed
by the Company which are not contrary to or inconsistent with
this Indenture as theretofore in effect.
(4) To add to the limitations and restrictions in this
Indenture other limitations and restrictions to be observed by
the Company which are not contrary to or inconsistent with this
Indenture as theretofore in effect.
(B) Before the Company shall execute any Supplemental
Indenture pursuant to this Section, there shall have been filed with
the Trustee an opinion of counsel who is satisfactory to the Trustee
(which counsel may be counsel to the Company) stating that such
Supplemental Indenture is authorized or permitted by this Indenture
and complies with its terms, and that upon execution it will be
valid and binding upon the Company in accordance with its terms.
Section 12.3. Supplemental Indentures With Noteholders'
Consent.
(A) Subject in all events to Sections 8.10(C) and 9.11
hereof, and except as otherwise provided in Section 12.2 or in this
Section 12.3 hereof, the holders of more than fifty percent (50%) in
aggregate principal amount of the Notes then Outstanding shall have
the right from time to time to consent to and approve the execution
by the Company of any Supplemental Indenture as shall be deemed
necessary or desirable by the Company for the purpose of modifying,
altering, amending, adding to or rescinding, in any particular, any
of the terms or provisions contained herein. Subject in all events
to Sections 8.10(C) and 9.11 hereof, nothing herein contained shall
permit, or be construed as permitting, (i) without the consent of
the holder of any Note affected thereby, a change in the terms of
redemption, repurchase or maturity of the principal of or the
interest on any Outstanding Note, or a reduction in the principal
amount, terms of conversion, Redemption Price or Repurchase Price of
any Outstanding Note or the rate of interest thereon (except to the
extent contemplated by Section 2.3 hereof), or (ii) without the
consent of all of the Noteholders, (y) a preference or priority of
any Note or Notes over any other Note or Notes, except as otherwise
expressly provided in this Indenture, or (z) a reduction in the
aggregate principal amount of the Notes required for consent to a
Supplemental Indenture or to waive any default.
(B) If at any time the Company shall determine to execute
any Supplemental Indenture for any of the purposes of this Section,
it shall cause notice of the proposed Supplemental Indenture to be
mailed, postage prepaid, to all Noteholders and the Agent. Such
notice shall briefly set forth the nature of the proposed
Supplemental Indenture, and shall state that a copy thereof is on
file at the offices of the Trustee for inspection by all
Noteholders.
(C) At any time within one year after the date of such
notice, the Company may execute such Supplemental Indenture in
substantially the form described in such notice only if there shall
have first been filed with the Company (i) the written consents of
holders of not less than a majority or 100%, as the case may be, in
aggregate principal amount of the Notes then Outstanding; and (ii)
an opinion of counsel satisfactory to the Trustee (which counsel may
be counsel for the Company) stating that such Supplemental Indenture
is authorized or permitted by this Indenture and complies with its
terms, and that upon execution it will be valid and binding upon the
Company in accordance with its terms. Each valid consent shall be
effective only if accompanied by proof of the holding, at the date
of such consent, of the Notes with respect to which such consent is
given. A certificate or certificates by the Trustee that it has
examined such proof and that such proof is sufficient in accordance
with this Indenture shall be conclusive that the consents have been
given by the holders of the Notes described in such certificate or
certificates. Any such consent shall be binding upon the holder of
the Notes giving such consent and upon any subsequent holder of such
Notes and of any Notes issued in exchange therefor (whether or not
such subsequent holder thereof has notice thereof), unless such
consent is revoked in writing by the holder of such Notes giving
such consent or a subsequent holder thereof by filing such
revocation with the Trustee prior to the execution of such
Supplemental Indenture.
(D) If the holders of not less than the percentage of
Notes required by this Section shall have consented to and approved
the execution of a Supplemental Indenture as herein provided, no
holder of any Note shall have any right to object to the execution
of such Supplemental Indenture, or to object to any of the terms and
provisions contained therein or the operation thereof, or in any
manner to question the propriety of the execution thereof, or to
enjoin or restrain the Company from executing the same or from
taking any action pursuant to the provisions thereof.
(E) Upon the execution of any Supplemental Indenture
pursuant to the provisions of this Section, this Indenture shall be
deemed to be modified and amended in accordance therewith, and the
respective rights, duties and obligations under this Indenture of
the Company, the Trustee and all holders of Notes then Outstanding
shall thereafter be determined, exercised and enforced under this
Indenture after giving effect to all such modifications and
amendments.
Section 12.4. Supplemental Indenture Part of the
Indenture. Any Supplemental Indenture executed in accordance with
the provisions of this Indenture shall thereafter form a part of
this Indenture and all the terms and conditions contained in any
such Supplemental Indenture as to any provisions authorized to be
contained therein shall be deemed to be part of the terms and
conditions of this Indenture for any and all purposes. The Trustee
shall execute any Supplemental Indenture adopted in accordance with
the provisions of Sections 12.2 or 12.3 hereof.
ARTICLE XIII
GENERAL PROVISIONS
Section 13.1. Notices. Any notice, request, demand,
communication or other paper shall be sufficiently given and shall
be deemed given when delivered or mailed by registered or certified
mail, return receipt requested, postage prepaid, or sent by
facsimile transmission (receipt confirmed), addressed as follows:
if to the Company, at 2700 South Quincy, Arlington, Virginia,
Attention: Craig Fishman, Esq.; if to the Trustee, at 777 Main
Street, Hartford, Connecticut, Attention: Corporate Trust
Administration; and if to the Agent at One State Street, New York,
New York 10004, Attention Alfred Scoyni. Any party may designate
any further or different addresses to which subsequent notices,
certificates or other communications shall be sent.
Section 13.2. Effective Date; Counterparts. This
Indenture shall become effective on delivery. It may be
and in no event shall any monetary or deficiency judgment be sought
or secured against any such member, director, officer, agent,
employee or other natural person.
Section 13.5. Governing Law; Severability. This
Indenture, together until the rights and obligations of the parties
hereunder, shall be governed by, construed and enforced in
accordance with the laws of the State of New York without giving
effect to the conflict of laws provisions thereof. In the event any
provisions of this Indenture shall be held by a court of competent
jurisdiction to be contrary to law, the remaining provisions of the
Indenture shall remain in full force and effect.
IN WITNESS WHEREOF, Allstate Financial Corporation has
caused this Indenture of Trust to be signed in its name and behalf
by an Authorized Representative, and to evidence its acceptance of
the trusts hereby created, Shawmut Bank Connecticut, National
Association has caused these presents to be signed in its name and
behalf by its duly authorized officer, as of the date first above
written.
ALLSTATE FINANCIAL CORPORATION
By Leon Fishman
Name: Leon Fishman
Title: President
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION
By: Michelle K. Blezard
Authorized Officer
Exhibit 4.4
September 11, 1995
Board of Directors
Allstate Financial Corporation
2700 South Quincy Street
Suite 540
Arlington, VA 22206
Gentlemen:
Each of the undersigned agrees (severally but not jointly) as
follows:
1. He will not exchange any shares of Common Stock of
Allstate Financial Corporation ("AFC") owned or controlled by him
for Convertible, Subordinated Notes of AFC to be issued under an
Indenture of Trust dated as of September 11, 1995 between AFC and
Shawmut Bank Connecticut, National Association pursuant to the
"Exchange Offer for Other Stockholders" contemplated in Section 5.2
of the Stock Purchase Agreement dated as of September 11, 1995 (the
"Stock Purchase Agreement") among AFC and the Stockholders (as
defined therein); and
2. He will vote all voting securities of AFC owned or
controlled by him in favor of the election of the persons
designated by the Stockholders pursuant to Section 5.1 of the Stock
Purchase Agreement for nomination as directors of AFC at any annual
meeting of the shareholders of AFC referred to in such Section 5.1,
but only as and to the extent such designees have been approved by
the Board of Directors of AFC.
Sincerely,
Leon Fishman
Eugene Haskin
ACKNOWLEDGED AND AGREED:
ALLSTATE FINANCIAL CORPORATION
By Bret L. Kelly
Name: Bret L. Kelly
Title: Senior Vice President/COO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS INFORMATION EXTRACTED FROM THE THIRD QUARTER 10-Q AND THE
YEAR ENDED 1994 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000852220
<NAME> ALLSTATE FINANCIAL CORP
<S> <C>
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