<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1997
REGISTRATION STATEMENT NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
THE KRYSTAL COMPANY
KRYSTAL AVIATION CO.
KRYSTAL AVIATION MANAGEMENT CO.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTER)
4812 62-0264140
TENNESSEE 62-1018532
62-1412360
TENNESSEE
TENNESSEE (I.R.S. EMPLOYER
(PRIMARY STANDARD INDUSTRIAL IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
CLASSIFICATION CODE NUMBER)
ONE UNION SQUARE
CHATTANOOGA, TENNESSEE 37402
(TELEPHONE: 423-757-1550)
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
PHILIP H. SANFORD
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
THE KRYSTAL COMPANY
ONE UNION SQUARE
CHATTANOOGA, TENNESSEE 37402
(TELEPHONE: 423-757-1550)
---------------
COPIES TO:
A. ALEXANDER TAYLOR II, ESQ.
MILLER & MARTIN
1000 VOLUNTEER BUILDING
832 GEORGIA AVENUE
CHATTANOOGA, TENNESSEE 37402
(TELEPHONE: 423-756-6600)
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT AGGREGATE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE TO BE PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER NOTE PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 1/4% Senior Notes due 2007............ $100,000,000 100% $100,000,000 $30,303
- ------------------------------------------------------------------------------------------------------
Subsidiary Guarantees of 10 1/4% Senior
Notes Due 2007 (2)...................... -- -- -- --
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities act of 1933.
(2) Pursuant to Rule 457(n), no separate registration fee is payable with
respect to the subsidiary guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated , 1997
PROSPECTUS
THE KRYSTAL COMPANY
OFFER TO EXCHANGE
10 1/4% SENIOR NOTES DUE 2007 ("EXCHANGE NOTES")
FOR ANY AND ALL OUTSTANDING
10 1/4% SENIOR NOTES DUE 2007 ("PRIVATE NOTES")
-----------
[LOGO OF THE KRYSTAL COMPANY APPEARS HERE]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON ,
1997 UNLESS EXTENDED.
The Krystal Company, a Tennessee corporation and the successor to TKC
Acquisition Corp. (the "Company"), hereby offers, upon the terms and subject to
the conditions set forth in this Prospectus (the "Prospectus") and in the
accompanying Letter of Transmittal (the "Letter of Transmittal," which together
with the Prospectus constitute the "Exchange Offer"), to exchange its 10 1/4%
Senior Notes due 2007 (the "Exchange Notes"), which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement of which this Prospectus is a part (together with all
amendments and exhibits thereto, the "Registration Statement"), for an equal
principal amount of its outstanding 10 1/4% Senior Notes due 2007 (the "Private
Notes"), of which $100 million aggregate principal amount was issued on
September 26, 1997 and is outstanding on the date hereof. The Exchange Notes
and the Private Notes are sometimes collectively referred to herein as the
"Notes." The terms of the Exchange Notes are identical in all material respects
to those of the Private Notes, except for certain transfer restrictions and
registration rights relating to the Private Notes. The Exchange Notes will be
issued pursuant to, and be entitled to the benefits of, an Indenture, dated as
of September 26, 1997 (as supplemented by the Supplemental Indenture No. 1
dated as of September 26, 1997) (the "Indenture").
The Exchange Notes mature on October 1, 2007. Interest on the Exchange Notes
will be payable semi-annually on April 1 and October 1 of each year, commencing
April 1, 1998. The Exchange Notes will be redeemable on or after April 1, 2002
at the option of the Company, in whole or in part, at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. Subject to certain requirements, on or prior to April 1, 2000, the
Company may redeem up to 35% of the original principal amount of the Notes with
the net proceeds of one or more Public Equity Offerings, at a redemption price
of 110.25% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption. Upon a Change of Control (as
defined herein), holders of the Exchange Notes will have the right to require
the Company to purchase all or a portion of the Exchange Notes at a price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of purchase. See "Description of the Notes."
The Exchange Notes will be senior unsecured obligations of the Company and
will rank pari passu in right of payment with all existing and future senior
unsecured indebtedness of the Company and senior in right of payment to all
existing and future subordinated indebtedness of the Company. In addition, the
payment obligations of the Company under the Exchange Notes will be jointly and
severally guaranteed (the "Guarantees") by each of the Company's existing
subsidiaries and each of the Company's future subsidiaries (collectively, the
"Guarantors"). Each Guarantee will be a senior unsecured obligation of the
applicable Guarantor and will rank pari passu in right of payment with all
existing and future senior unsecured indebtedness of such Guarantor and senior
in right of payment to all existing and future subordinated indebtedness of
such Guarantor. The Exchange Notes and the Guarantees will be effectively
subordinated to all existing and future secured obligations of the Company and
the Guarantors. As of September 28, 1997, after giving effect to the Financing
(as defined herein), the outstanding indebtedness of the Company (including
capital lease obligations), on a consolidated basis, would have been
approximately $116.0 million, of which approximately $16.0 million would have
been secured indebtedness. See "Pro Forma Capitalization" and "Description of
the Notes."
-----------
SEE "RISK FACTORS" COMMENCING ON PAGE 15 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE
EXCHANGE NOTES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is dated , 1997
<PAGE>
[continued from front cover]
The Company will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5:00 p.m., New York City time, on , 1997,
unless the Exchange Offer is extended by the Company in its sole discretion
(the "Expiration Date"). Tenders of Private Notes may be withdrawn at any time
prior to the Expiration Date. Private Notes may be tendered only in integral
multiples of $1,000. The Exchange Offer is not conditioned upon any minimum
principal amount of Private Notes being tendered for exchange, but is subject
to certain customary conditions. In the event the Company terminates the
Exchange Offer and does not accept for exchange any Private Notes, the Company
will promptly return all previously tendered Private Notes to the holders
thereof. See "The Exchange Offer."
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement, dated as
of September 26, 1997 (the "Registration Rights Agreement"), between the
Company and a certain institutional accredited investor. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to third parties, the
Company believes that the Exchange Notes issued pursuant to the Exchange Offer
in exchange for the Private Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than (i) a broker-dealer who
purchased such Private Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery requirements of the Securities Act; provided that the
holder is acquiring Exchange Notes in the ordinary course of its business and
is not participating, does not intend to participate, and has no arrangement
or understanding with any person to participate, in the distribution of the
Exchange Notes. Holders of Private Notes wishing to accept the Exchange Offer
must represent to the Company that such conditions have been met. Each broker-
dealer that receives Exchange Notes for its own account in exchange for
Private Notes, where such Private Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The Company has agreed
that, for a period of one year after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resales. See "Plan of Distribution." The Company believes that none of the
registered holders of the Private Notes is an affiliate (as such term is
defined in Rule 405 under the Securities Act) of the Company.
The Private Notes have been designated eligible for trading by qualified
institutional investors in the Private Initial Offerings, Resales and Trading
through Automated Linkages ("PORTAL") Market of the National Association of
Securities Dealers (the "NASD"). The Company does not intend to apply for
listing of the Exchange Notes on any securities exchange or to seek approval
through any automated quotation system. There can be no assurance regarding
the future development of a market for the Exchange Notes, or the ability of
holders of the Exchange Notes to sell their Exchange Notes or the price at
which such holders may be able to sell their Exchange Notes. If such a market
were to develop, the Exchange Notes could trade at prices that may be higher
or lower than the initial public offering price depending on many factors,
including prevailing interest rates, the Company's operating results and the
market for similar securities. See "Risk Factors--Lack of a Public Market for
the Notes."
Holders of Private Notes whose Private Notes are not tendered and accepted
in the Exchange Offer will continue to hold such Private Notes and will be
entitled to all the rights and preferences and will be subject to the existing
restrictions upon transfer thereof and the Company will not have any further
obligation to such holders to provide for the registration under the
Securities Act of the Private Notes held by them.
The Company will not receive any proceeds from, and has agreed to bear all
registration expenses of, the Exchange Offer. No underwriter is being used in
connection with the Exchange Offer. See "The Exchange Offer--Resale of the
Exchange Notes."
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained in this
Prospectus or any accompanying Prospectus Supplement and, if given or made,
such information or representations must not be relied upon as having been
authorized by the
1
<PAGE>
Company, or any underwriter, agent or dealer. Neither the delivery of this
Prospectus or any such Prospectus Supplement nor any resale made thereunder
shall, under any circumstance, create an implication that there has been no
change in the affairs of the Company since the date hereof or thereof. This
Prospectus and any such related Prospectus Supplement do not constitute an
offer to sell or a solicitation or an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction.
----------------
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE SECURITIES LAWS. ALL STATEMENTS REGARDING THE COMPANY'S EXPECTED FINANCIAL
POSITION, BUSINESS AND FINANCING PLANS ARE FORWARD-LOOKING STATEMENTS.
ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-
LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH EXPECTATIONS ("CAUTIONARY
STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION,
THE INFORMATION UNDER "RISK FACTORS," "MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL SUCH
FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS.
----------------
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
AVAILABLE INFORMATION
This Prospectus constitutes a part of an exchange offer Registration
Statement on Form S-4 filed by the Company with the Commission under the
Securities Act with respect to the Exchange Notes. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. Reference is made to such Registration Statement and to the
exhibits relating thereto for further information with respect to the Company
and the Exchange Notes. Any statement contained herein concerning the
provisions of certain documents are not necessarily complete, and in each
instance, reference is made to the copy of such document filed as an exhibit
to the Registration Statement for a more complete description of the matter
involved. Each such statement is qualified in its entirety by such reference.
As the result of the filing of the Registration Statement with the
Commission, the Company will be subject to the informational requirements of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act") and
in accordance therewith will be required to file with or furnish to the
Commission certain reports and other information. The Registration Statement,
the exhibits and schedules thereto, reports and other information filed with
or furnished to the Commission by the Company may be inspected at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Additionally, the Commission maintains a Web site on
the Internet (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that submit electronic
filings to the Commission, including the Company.
Pursuant to the Indenture, the Company has agreed, whether or not required
by the rules and regulations of the Commission, to file with the Commission
and to furnish to the Trustee (as defined herein) and to registered holders of
the Notes, without cost to the Trustee or such registered holders, reports and
other information as it would be required to file with the Commission if the
Company were subject to the reporting requirements of the Exchange Act. The
financial statements contained in such reports will be audited and reported
upon by certified public accountants.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data included or
incorporated by reference in this Prospectus.
THE COMPANY
The Company develops, operates and franchises quick-service restaurants
("QSRs") featuring its signature "KRYSTAL(R)" hamburger. The Company, which was
founded in Chattanooga, Tennessee in 1932, is among the earliest QSR chains in
the United States. The Company's restaurant system includes three formats: (i)
full-size restaurants operating under the name Krystal ("FSRs"); (ii) double
drive-thru restaurants operating under the name Krystal Kwik ("DDRs"); and
(iii) restaurants in non-traditional locations such as convenience stores
("NTRs," and collectively with FSRs and DDRs, the "Krystal Restaurants"). As of
September 28, 1997, the Company operated 238 FSRs and 11 DDRs in the
southeastern United States comprised of 134 owned locations and 115 leased
properties. The Company began franchising Krystal Restaurants in 1990 and as of
September 28, 1997, franchisees operated 39 FSRs, 35 DDRs and 21 NTRs. For the
52-week period ended September 28, 1997, the Company generated total revenues
of $248.0 million and EBITDA of $20.7 million from the 344 restaurants in its
system.
Krystal Restaurants feature a menu of distinctive and widely-known products
that have become integral to the Krystal identity. The Company's signature menu
item is the KRYSTAL--a small, square hamburger with steamed-in onion flavor
served hot and fresh off the grill (the "KRYSTAL"). The KRYSTAL is currently
priced in substantially all of the Company's owned and franchised restaurants
at $0.49. Offering 24-hour service in most locations, the Company believes that
its convenience and speed of service, everyday low pricing and recognizable
products are the primary competitive advantages of Krystal Restaurants. The
Company has presented itself as a clean, quick purveyor of fast-food for 65
years. With deep Southern roots and a long tradition of offering the unique
KRYSTAL hamburger, the Company has created a dedicated core of repeat customers
who view Krystal as a "destination" restaurant.
On September 26, 1997 (effective September 29, 1997 for accounting purposes),
the Company was acquired by Port Royal Holdings Inc. ("Holdings") (the
"Acquisition"). At the closing of the Acquisition, TKC Acquisition Corp.
("TKC"), a wholly-owned subsidiary of Holdings, was merged with and into the
Company (the "Merger"), and the Company as the surviving corporation retained
the name "Krystal." The Company has developed a strategic plan to increase
revenues and profits. The Company's strategy is, among other things, to (i)
significantly reduce general and administrative expenses that new Company
management believes have exceeded industry averages in recent years;
(ii) expand selectively in existing and contiguous markets to benefit from
advertising and distribution efficiencies; (iii) centralize vendor
solicitation, which the Company believes will improve purchasing power and
reduce restaurant sales costs; and (iv) capitalize on the significant brand
awareness enjoyed by Krystal Restaurants, especially that associated with the
KRYSTAL, to increase restaurant revenue.
The National Restaurant Association (the "Association"), an independent
research organization, projects QSR revenues to exceed $103.5 billion in 1997,
representing growth of 5.3% over 1996, outpacing projected growth in the
restaurant industry of 4.2% over the same period. As the dominant category
representing 48% of the QSR segment, the hamburger category is projected by
Cahners Bureau of Foodservice Research ("Cahners") to grow 6.6% in 1997. The
Company believes that it is well-positioned to take advantage of the
anticipated growth in the QSR segment in general and the hamburger category in
particular. According to a 1996 Association consumer survey, approximately 66%
of adult food consumers dine "away from home" to receive flavor and taste
sensations that cannot be easily duplicated at home. Consequently, restaurants
offering a unique product with quick service at reasonable prices enjoy a
distinct competitive advantage.
3
<PAGE>
COMPANY STRENGTHS
STRONG BRAND NAME RECOGNITION. Krystal Restaurants operate under one of the
most highly recognized brand names in the Southeast QSR market. The Krystal
name is synonymous with the unique KRYSTAL, a small, square hamburger with a
steamed-in onion flavor served hot and fresh off the grill. The Company has
been offering quick, friendly service and unique food products at everyday low
prices for more than 65 years. The Company's long-standing market presence and
brand name recognition have generated strong consumer loyalty, making it a part
of the fabric of life in the South.
UNIQUE KRYSTAL MENU. In addition to the signature KRYSTAL, Krystal
Restaurants offer other unique items such as "Krystal Chili," "Chili Pups,"
"Corn Pups," "Chili Cheese Fries" and the "Sunriser," a specialty breakfast
sandwich.
EVERYDAY LOW PRICES. The Company believes that it offers its high-quality
hamburgers at a lower price than the leading QSR hamburger chains. The KRYSTAL,
the Company's namesake product, is currently priced at $0.49 ($0.59 with
cheese) at substantially all Krystal Restaurants. The everyday low prices have
encouraged customers to purchase the product by the "sackful" (an average of
three to four KRYSTALS per customer). Such consistent volume purchasing
supports an average check size of $3.77 and $4.09 in company-owned FSRs and
DDRs, respectively.
CONCENTRATED MARKET PRESENCE. As of September 28, 1997, the Company had a
total of 344 Company-owned and franchised restaurant locations spread
throughout the southeastern United States. By virtue of the size and regional
concentration of this restaurant system, the Company is able to leverage its
marketing and advertising expenses and benefit from distribution efficiencies.
The Company's regional concentration has created media efficient markets. The
Company believes that these media efficient markets, or designated market areas
("DMAs"), generate synergies in the area of brand name recognition.
STRENGTH OF THE SOUTHEAST MARKET. According to the Association, growth in the
QSR industry is strongly correlated with factors such as population and income
growth. Krystal Restaurants are located in the following ten states: Georgia,
Tennessee, Alabama, Florida, Mississippi, Kentucky, Arkansas, North and South
Carolina and Louisiana. The Association classifies these states under the South
Atlantic and East South Central regions and predicts that, for the foreseeable
future, both regions will experience population and personal income growth
exceeding that of the United States as a whole. The Company's DMAs are
projected to experience population growth of 1.5% and real personal income
growth of 2.9% versus the projected national averages of 1.0% and 2.3%,
respectively. Considering the strength of the Southeast market, the Company is
well-positioned to benefit from these trends.
STRONG FRANCHISE PROGRAM. The Company began franchising Krystal Restaurants
in 1990, and as of September 28, 1997 had 95 franchised restaurants,
representing over 27.6% of its total restaurant system. The Company believes
that it enjoys strong relationships with its franchisees. The demand for
Krystal franchises has grown steadily since the inception of the franchise
program. The number of franchise locations has increased at a compound annual
growth rate of 29.4% from 28 in December 1992 to 95 as of September 28, 1997.
As of the same date, the Company was in various stages of negotiation to add as
many as 51 additional units by the end of 1997. For the first nine months of
1997, the Company opened seven new franchised restaurants and from existing
commitments expects to open an additional nine restaurants by the end of 1997.
SUBSTANTIAL OWNED PROPERTIES. Over 53.8% of the Company's restaurants are
owned rather than leased, providing a significant asset base.
4
<PAGE>
NEW MANAGEMENT TEAM. Immediately following the Acquisition, the Company named
Philip H. Sanford, as Chairman and Chief Executive Officer, and James F. Exum,
Jr., as President and Chief Operating Officer. Both Mr. Sanford and Mr. Exum
also serve as directors of the Company.
. PHILIP H. SANFORD. For the previous six years, Mr. Sanford was the Senior
Vice President, Finance and Administration of Coca-Cola Enterprises Inc.
("CCE"), the world's largest marketer, distributor and producer of bottled
and canned beverage products of The Coca-Cola Company. Mr. Sanford's
responsibilities included Human Resources, Treasury, Corporate Finance,
Risk Management, Internal Audit and Investment Management. As one of the
four principal executive officers of CCE, Mr. Sanford was significantly
involved in developing and implementing that company's broad corporate
strategy, with a particular focus on administrative management, financial
policy and acquisitions. Mr. Sanford was a senior executive with Johnston
Coca-Cola Bottling Group until it merged with CCE in 1991.
. JAMES F. EXUM, JR. Mr. Exum has served as President and Chief Executive
Officer of Pennant Foods Corp., which owns and operates 75 Wendy's
restaurants, since 1995. From 1991 to 1995, Mr. Exum served as President
and Chief Executive Officer of Southern California Food Services Corp.,
the predecessor to Pennant Foods Corp. Mr. Exum started in the QSR
hamburger industry in 1975 as a management trainee in a Chattanooga
Wendy's restaurant while attending college and has held every significant
position in a QSR hamburger chain.
BUSINESS STRATEGY
The Company's business strategy is to cut costs, primarily at the corporate
level, increase same-restaurant sales and add new restaurants, both company-
owned and franchised, on a selective basis. This strategy is based on the
following elements:
SIGNIFICANTLY REDUCE COST STRUCTURE. The Company's new management has
identified a number of cost savings opportunities that will improve the
Company's earnings. Management believes that the Company has maintained
disproportionately large corporate overhead expenses in relation to its
restaurant operations. The Company plans to improve profitability by
rationalizing the cost structure to bring expenses in line with industry
averages. Management believes it can achieve annual cost savings in excess of
$4.7 million by:
. Reducing Headcount. During the Company's 65-year history of family-
controlled management, a number of positions were created, primarily at
the corporate level, which in the Company's opinion were unnecessary. The
Company believes that streamlining corporate functions to resemble a head
office structure similar to that of its competitors and imposing rigid
expense controls will generate significant cost savings both from the
reduction in headcount and the associated overhead costs.
. Revamping Purchasing Strategy. The Company currently negotiates its
purchasing contracts directly with individual product vendors. The Company
also utilizes three different jobbers to warehouse and distribute the
supplies purchased from its product vendors. The Company intends to
centralize its purchasing by using one jobber instead of three and
permitting that one jobber to conduct direct negotiations with each
product vendor. The Company believes that this consolidation will allow
the Company to benefit from the size and regional concentration of its
restaurant system.
. Outsourcing Selected Functions. The Company currently performs internally
a variety of corporate tasks, such as certain tax functions and
information systems development, that could be performed more efficiently
by external sources. In the Company's opinion, certain areas of "home
grown" expertise have become uneconomical to maintain considering the
availability of industry specialists. Outsourcing functions will reduce
the associated overhead and allow the Company to keep up with certain
industry practices.
5
<PAGE>
GROWTH OPPORTUNITIES. The Company plans to develop new Krystal Restaurants in
existing markets where the Company has an established presence, enabling the
Company to benefit from advertising and distribution efficiencies. The Company
also plans to pursue expansion into carefully selected contiguous markets to
permit overlap benefits from neighboring markets with respect to advertising
and brand name recognition. The Company intends to target restaurant growth in
DMAs where it can achieve, or the Company has already achieved, sufficient
penetration to justify television advertising.
INCREASE FRANCHISED RESTAURANTS. The Company believes that significant
opportunities exist to increase the number of franchised Krystal Restaurants.
System expansion through franchising can provide significant additional revenue
growth with a low level of investment by the Company. Existing and potential
franchisees have expressed interest in developing Krystal Restaurants in areas
inside and outside of the Company's existing and contiguous markets. The
Company expects to evaluate and, where appropriate, pursue such opportunities
with the intent of widening Krystal's brand name recognition at relatively low
risk and cost to the Company. In the near term, franchise location selection
will focus on "filling in" existing DMAs to improve market efficiencies and
provide suitable support for new franchise entrants.
ENHANCE KRYSTAL BRAND RECOGNITION. In 1996, the Company granted an exclusive
worldwide license to the Jimmy Dean Foods Division of Sara Lee Corporation to
manufacture, distribute and sell frozen KRYSTALS into grocery and warehouse
channels. This license has a five-year term with an optional five-year renewal
clause. The concept has been in test marketing since early 1997 in the
Birmingham-Montgomery, Alabama and Tampa-Orlando, Florida markets. The
Company's management believes there are many similar opportunities to
capitalize on the Krystal brand name in venues other than restaurants.
UPGRADE AND LEVERAGE INFORMATION TECHNOLOGY. Currently, the Company relies on
various proprietary software packages installed on mainframe computers to
control functions including accounting, labor scheduling, payroll and
purchasing. The Company believes these applications are outdated and should be
replaced with off-the-shelf programs designed specifically for the restaurant
industry. Such software upgrades would require the replacement of the Company's
mainframes with a client-server system. The costs associated with such software
and hardware upgrades would, in the Company's opinion, be more than offset by
the increased productivity of the required accounting staff, improved labor
scheduling and more efficient delivery of the real-time information required by
management to effectively allocate resources in making price, product and
promotional decisions.
FOCUS ON UNIQUE, QUALITY PRODUCTS AND SUPERIOR CUSTOMER SERVICE. The Company
intends to refocus operations on the core values upon which the Company was
founded. This involves reemphasizing quality food at everyday low prices served
by a friendly staff in clean restaurants. The Company will redesign training
and incentive programs to reorient staff and management toward these goals.
RECENT RESULTS
During the nine-month period ended September 28, 1997, the Company generated
sales of $178.8 million, which represents an increase of 1.9% over the same
period for the previous year and a 3.1% increase in company-operated same-
restaurant sales. The increase in sales was primarily a result of the 6.5%
growth in average check size in Company-operated restaurants to $3.78 from
$3.55 for the nine-month periods ended September 28, 1997 and September 29,
1996 respectively. Operating income increased $1.6 million to $6.0 million
(3.3% of sales) from $4.4 million (2.4% of sales) during the same period for
the previous year.
THE ACQUISITION
Pursuant to the Agreement and Plan of Merger dated as of July 3, 1997 (the
"Merger Agreement"), on September 26, 1997, Holdings acquired the Company (the
"Acquisition") for an aggregate purchase price equal to $108,403,276. At the
closing of the Acquisition (the "Acquisition Closing"), TKC, a wholly-owned
6
<PAGE>
subsidiary of Holdings, merged with and into the Company (the "Merger")
pursuant to the Merger Agreement and the Company as the surviving corporation
retained the name "Krystal." As a result of the Acquisition and Merger,
Holdings became the owner of 100% of the common stock of the Company.
Holdings and TKC were formed to consummate the Acquisition and Merger. Of the
$35.0 million of Holdings' capital stock issued in connection with the
Acquisition, Philip H. Sanford, the Chairman and Chief Executive Officer of the
Company, purchased $5.0 million. Holdings contributed such funds and an
additional $30.0 million raised from private investors to TKC to effect the
Acquisition.
The purchase price for the Acquisition, together with $7.3 million of related
fees and expenses, were funded through (i) a $35.0 million equity contribution
from Holdings to TKC funded by a private equity placement (the "Equity
Contribution"), (ii) borrowings under a new credit facility with SunTrust Bank,
Atlanta, as agent (the "Credit Facility") and (iii) the net proceeds of the
offering of the Private Notes ((i), (ii) and (iii) collectively referred to
herein as the "Financing").
THE EXCHANGE OFFER
The Exchange Offer ..... The Company is hereby offering to exchange Exchange
Notes for an equal principal amount of Private Notes
that are properly tendered and accepted. As of the
date hereof, there is $100 million aggregate
principal amount of Private Notes outstanding. See
"The Exchange Offer."
Based on interpretations by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Private Notes may be offered for resale,
resold and otherwise transferred by a holder thereof
(other than (i) a broker-dealer who purchased such
Private Notes directly from the Company to resell
pursuant to Rule 144A or any other available
exemption under the Securities Act, or (ii) a person
that is an affiliate of the Company within the
meaning of Rule 405 under the Securities Act),
without compliance with the registration and
prospectus delivery requirements of the Securities
Act; provided that the holder is acquiring Exchange
Notes in the ordinary course of its business and is
not participating, does not intend to participate,
and has no arrangement or understanding with any
person to participate, in the distribution of the
Exchange Notes. Holders of Private Notes wishing to
accept the Exchange Offer must represent to the
Company that such conditions have been met. Each
broker-dealer that receives Exchange Notes for its
own account in exchange for Private Notes, where such
Private Notes were acquired by such broker-dealer as
a result of market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities
Act in connection with any resale of such Exchange
Notes.
This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in
exchange for Private Notes acquired by such broker-
dealer as a result of market-making activities or
other trading activities. The Letter of Transmittal
that accompanies this Prospectus states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not
7
<PAGE>
be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. Any holder of
Private Notes who tenders in the Exchange Offer with
the intention to participate in a distribution of the
Exchange Notes could not rely on the above-referenced
position of the staff of the Commission and, in the
absence of an exemption under the Securities Act,
would have to comply with the registration and
prospectus delivery requirements contained therein in
connection with any resale transaction. Failure to
comply with such requirements in such instance could
result in such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company. See "The Exchange Offer--
Resale of the Exchange Notes."
Expiration Date ........ The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1997, unless the Exchange
Offer is extended by the Company in its sole
discretion, in which case the term "Expiration Date"
shall mean the latest date and time to which the
Exchange Offer is extended. See "The Exchange Offer--
Expiration Date; Extensions; Amendments."
Conditions to the
Exchange Offer......... The Exchange Offer is subject to certain customary
conditions that may be waived by the Company. The
Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Private Notes being
tendered for exchange. See "The Exchange Offer--
Conditions."
Procedures for
Tendering
Private Notes .......... Each holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such
Private Notes and any other required documentation to
SunTrust Bank, Atlanta, as exchange agent (the
"Exchange Agent"), at the address set forth herein.
See "The Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners ...... Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender such Private Notes in the
Exchange Offer should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial
owner's behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering such owner's Private Notes, either make
appropriate arrangements to register ownership of the
Private Notes in such owner's name or obtain a
properly completed bond power form the registered
holder. The transfer of registered ownership may take
considerable time and may not be able to be completed
prior to the Expiration Date. See "The Exchange
Offer--Procedures for Tendering."
8
<PAGE>
Guaranteed Delivery
Procedures............. Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any other
documentation required by the Letter of Transmittal
to the Exchange Agent prior to the Expiration Date
must tender their Private Notes according to the
guaranteed delivery procedures set forth under "The
Exchange Offer--Guaranteed Delivery Procedures."
Acceptance of the Private
Notes and Delivery of the
Exchange Notes ......... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company will
accept for exchange any and all Private Notes that
are properly tendered in the Exchange Offer prior to
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered on
the earliest practicable date following the
Expiration Date. See "The Exchange Offer--Terms of
the Exchange Offer."
Withdrawal Rights ...... Tenders of Private Notes may be withdrawn at any time
prior to the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders."
Certain Tax
Considerations......... For a discussion of certain tax considerations
relating to the Exchange Notes, see "Certain U.S.
Federal Income Tax Considerations."
Exchange Agent ......... SunTrust Bank, Atlanta, is serving as the Exchange
Agent in connection with the Exchange Offer. SunTrust
Bank, Atlanta, also serves as trustee (the "Trustee")
under the Indenture.
SUMMARY OF THE TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to the $100 million aggregate principal amount of
the Private Notes. The form and terms of the Exchange Notes are identical in
all material respects to the form and terms of the Private Notes except that
(i) the Exchange Notes will be registered under the Securities Act, and
therefore will not bear legends restricting the transfer thereof and (ii)
holders of the Exchange Notes will not be entitled to any of the registration
rights of holders of the Private Notes under the Registration Rights Agreement.
See "The Exchange Offer--Terms of the Exchange Offer." The Exchange Notes will
evidence the same indebtedness as the Private Notes (which they replace) and
will be issued under and entitled to the benefits of the Indenture. For further
information and for definitions of certain capitalized terms, see "Description
of the Notes."
Maturity Date........... October 1, 2007
Interest Payment Dates.. Interest on the Exchange Notes will be payable semi-
annually commencing April 1, 1998.
Ranking................. The Exchange Notes will be senior unsecured
obligations of the Company ranking pari passu with
all existing and future senior unsecured indebtedness
of the Company and senior in right of payment to all
existing and future subordinated indebtedness of the
Company. The Exchange Notes will be effectively
subordinated in right of payment to all existing and
future secured indebtedness of the Company (including
indebtedness incurred under the Credit Facility) to
the extent of the value of the assets securing such
indebtedness. As of September 28, 1997, after giving
effect to the Financing and the application of the
proceeds therefrom as well as outstanding letters of
credit, the Company would have had $5.5 million of
revolving credit availability under the Credit
Facility.
9
<PAGE>
Guarantees.............. The Exchange Notes will be unconditionally guaranteed
on a senior basis by Krystal Aviation Co., Krystal
Aviation Management Co. and all other existing and
future subsidiaries of the Company (each, a
"Guarantor"). The Guarantees will be general senior
unsecured obligations of each Guarantor and will rank
pari passu in right of payment with all existing and
future senior unsecured indebtedness of each
Guarantor and senior in right of payment to all
existing and future subordinated indebtedness of each
Guarantor. The Guarantees will be effectively
subordinated in right of payment to all secured
indebtedness of each Guarantor (including each
Guarantor's guarantee of the Credit Facility) to the
extent of the value of the assets securing such
indebtedness.
Optional Redemption..... The Exchange Notes will be redeemable, in whole or in
part, at the Company's option on or after April 1,
2002, at the redemption prices set forth herein, plus
accrued and unpaid interest, and Additional Interest
(as defined herein), if any, to the date of
redemption.
In addition, at any time prior to April 1, 2000, the
Company may, at its option, redeem up to 35% of the
aggregate principal amount of Notes originally issued
with the net proceeds of one or more Public Equity
Offerings (as defined herein) of the Company or of a
capital contribution resulting from one or more
Public Equity Offerings made by Holdings at a
redemption price equal to 110.25% of the aggregate
principal amount thereof together with accrued and
unpaid interest and Additional Interest, if any, to
the date of redemption payment; provided, however,
that after such redemption the aggregate principal
amount of the Notes outstanding must equal at least
65% of the aggregate principal amount of the Notes
originally issued and provided, further, that such
redemption shall occur within 60 days of the date of
closing of such Public Equity Offering.
Mandatory Redemption.... None.
Change of Control....... Upon a Change of Control, each holder of Exchange
Notes will have the right to require the Company to
purchase all or any part of such holder's Exchange
Notes at a purchase price in cash equal to 101% of
the aggregate principal amount thereof plus accrued
and unpaid interest, including Additional Interest,
if any, to the date of purchase.
Certain Covenants....... The Indenture pursuant to which the Exchange Notes
will be issued (the "Indenture") contains certain
covenants that limit the ability of the Company and
its subsidiaries to, among other things, incur
additional indebtedness, pay dividends or make
certain restricted payments, consummate certain asset
sales, incur liens, enter into sale and leaseback
transactions, enter into certain transactions with
affiliates, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the
Company's assets. In addition, under certain
circumstances, the Company will be required to offer
to purchase the Exchange Notes, in whole or in part,
at a purchase price equal to 100% of the aggregate
principal amount thereof plus accrued and unpaid
interest, including Additional Interest, if any, to
the date of purchase, with the net cash proceeds of
certain Asset Sales (as defined herein).
10
<PAGE>
USE OF PROCEEDS
Neither the Company nor the Guarantors will receive any proceeds from the
Exchange Offer.
RISK FACTORS
See "Risk Factors" as well as other information and data included in this
Prospectus for a discussion of certain factors that should be considered in
evaluating an investment in the Exchange Notes.
11
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER INFORMATION
(DOLLARS IN THOUSANDS)
The information in this table should be read in conjunction with "Selected
Historical Consolidated Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and the notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED (1) NINE MONTHS ENDED
---------------------------------------------------------- ---------------------------
JANUARY 3, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 28,
1993 1994 1995 1995 1996 1996 1997
---------- ---------- ---------- ------------ ------------ ------------- -------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Restaurant sales....... $226,302 $228,468 $239,104 $239,376 $236,470 $175,401 $178,815
Franchise fees......... 487 533 796 618 349 171 219
Royalties.............. 774 1,157 1,880 2,420 2,778 2,021 2,232
Other revenue.......... 4,562 6,575 6,542 5,614 4,671 3,409 3,469
-------- -------- -------- -------- -------- -------- --------
Total revenues......... 232,125 236,733 248,322 248,028 244,268 181,002 184,735
Cost of restaurant
sales.................. 178,543 182,530 192,256 197,031 195,733 145,847 148,393
Depreciation and
amortization expense... 8,823 9,881 11,213 12,311 11,378 8,447 8,216
General and
administrative expense. 25,166 24,781 25,775 25,770 25,422 19,567 19,656
Other operating
expenses, net.......... 4,111 5,651 4,946 4,417 3,809 2,742 2,444
Special charges and
provision for loss on
restaurant closings and
property write-downs... -- -- 2,000 13,911 4,000 -- --
-------- -------- -------- -------- -------- -------- --------
Operating income (loss). $ 15,482 $ 13,890 $ 12,132 $ (5,412) $ 3,926 $ 4,399 $ 6,026
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA (2).............. $ 24,305 $ 23,771 $ 25,345 $ 20,810 $ 19,304 $ 12,846 $ 14,242
EBITDA margin (3)....... 10.5% 10.0% 10.2% 8.4% 7.9% 7.1% 7.7%
Capital expenditures
(4):
Maintenance capital
expenditures.......... $ 4,826 $ 6,209 $ 5,814 $ 5,941 $ 5,290 $ 3,355 $ 4,125
Renovation............. 2,366 2,027 1,943 2,461 603 368 447
New restaurant
development........... 2,083 17,068 17,697 3,806 -- -- --
Other.................. 758 827 1,199 4,099 564 426 935
-------- -------- -------- -------- -------- -------- --------
Total capital
expenditures.......... $ 10,033 $ 26,131 $ 26,653 $ 16,307 $ 6,457 $ 4,149 $ 5,507
======== ======== ======== ======== ======== ======== ========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED (1) NINE MONTHS ENDED
---------------------------------------------------------- ---------------------------
JANUARY 3, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 28,
1993 1994 1995 1995 1996 1996 1997
---------- ---------- ---------- ------------ ------------ ------------- -------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
END OF PERIOD):
Net book value of
property and
equipment (5).......... $ 66,974 $ 85,761 $ 100,888 $ 100,409 $ 92,826 $ 94,497 $ 90,034
Total assets............ 98,657 105,972 130,786 132,695 143,870 137,886 119,130
Total debt and capital
lease obligations (6).. 35,653 32,546 47,584 43,460 42,789 42,907 38,973
Total shareholders'
equity................. 36,642 44,728 51,636 46,647 44,688 46,588 46,279
RESTAURANT DATA
(UNAUDITED) (7):
Systemwide restaurant
sales
Owned.................. $ 226.3 $ 228.5 $ 239.1 $ 239.4 $ 236.5 $ 175.4 $ 178.8
Franchised............. 17.4 25.8 42.3 54.0 61.1 44.5 49.4
Total.................. 243.7 254.3 281.4 293.4 297.6 219.9 228.2
Systemwide restaurants
open, end of period
Owned.................. 231 240 252 256 249 250 249
Franchised............. 28 44 65 80 89 83 95
Total.................. 259 284 317 336 338 333 344
</TABLE>
- --------
(1) The Company has a 52/53-week fiscal year ending on the last Sunday in
December which normally consists of 13 four-week periods. The fiscal year
ended December 29, 1996 included 52 weeks of operations.
(2) EBITDA represents income from operations plus depreciation and
amortization, adjusted for non-cash items related to gain/losses on asset
dispositions and write-downs. EBITDA should not be construed as a substitute
for income from operations or a better indicator of liquidity than cash flow
from operating activities, which is determined in accordance with generally
accepted accounting principles. EBITDA is included herein to provide
additional information with respect to the ability of the Company to meet
its future debt service, capital expenditure and working capital
requirements. In addition, management believes that certain investors may
find EBITDA to be a useful tool for measuring the ability of the Company to
service its debt. EBITDA is not necessarily a measure of the Company's
ability to fund its cash needs. See the Consolidated Statements of Cash
Flows of the Company and the related notes to the Consolidated Financial
Statements thereto included elsewhere in this Prospectus.
(3) EBITDA margin represents EBITDA divided by total revenues.
(4) Capital expenditures (excluding expenditures funded through capital leases)
have been segregated into the following categories to provide additional
information:
Maintenance capital expenditures represents day-to-day expenditures related
to restaurant equipment replacements and general restaurant capital
improvements.
Renovation represents significant restaurant renovations and upgrades
pursuant to the Company's renovation activities with respect to company
operated restaurants.
New restaurant development represents new company-operated restaurant
construction and development.
Other represents capital expenditures at various corporate offices and new
restaurant equipment such as fryers and security systems.
(5) Net book value of property and equipment includes leased properties (under
capital leases).
(6) For the fiscal years ended December 31, 1995, September 29, 1996 and
December 29, 1996, unsecured senior notes totaling $36 million are reflected
on the Company's balance sheets as part of "Liabilities subject to
compromise." For purposes of this table, the Notes are included in "Total
debt and capital lease obligations."
(7) Represents restaurant sales for all franchised and company-operated
restaurants. Sales information for franchised restaurants are as reported by
franchisees or, in some instances, estimated by the Company based on other
data, and is unaudited.
13
<PAGE>
SUPPLEMENTAL SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following presents supplemental summary unaudited pro forma consolidated
financial data of the Company, giving effect to the Financing, the Acquisition
and the cost savings adjustments as if they had occurred on January 1, 1996.
The supplemental summary unaudited pro forma consolidated financial data does
not purport to represent what the Company's results of operations actually
would have been if the Financing and Acquisition had occurred as of the date
indicated or what such results will be for any future periods. The information
in this table should be read in conjunction with "Unaudited Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and the notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWELVE
NINE MONTHS ENDED MONTHS
FISCAL YEAR ENDED ------------------------------------- ENDED
DECEMBER 29, 1996 SEPTEMBER 29, 1996 SEPTEMBER 28, 1997 SEPTEMBER 28, 1997
----------------- ------------------ ------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $244,268 $181,002 $184,735 $248,001
Cost of restaurant
sales.................. 195,096 145,369 147,915 197,642
Depreciation and amorti-
zation................. 14,014 10,424 10,193 13,783
General and administra-
tive expense........... 21,299 16,475 16,564 21,388
Other operating expense. 3,809 2,742 2,444 3,511
Special charges and
provision for loss on
restaurant closings and
property write-downs... 4,000 -- -- 4,000
-------- -------- -------- --------
Operating income........ 6,050 5,992 7,619 7,677
Interest expense........ 12,015 9,013 9,016 12,018
Interest income......... (619) (674) (371) (316)
Reorganization expense.. 3,846 2,288 1,218 2,776
-------- -------- -------- --------
Loss before income taxes
and extraordinary item. (9,192) (4,635) (2,244) (6,801)
Income tax benefit...... (2,868) (1,292) (443) (2,019)
-------- -------- -------- --------
Loss before
extraordinary item..... $ (6,324) $ (3,343) $ (1,801) $ (4,782)
======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(1)............... $ 24,064 $ 16,416 $ 17,812 $ 25,460
EBITDA margin(2) 9.9% 9.1% 9.6% 10.3%
Cash interest expense... $ 11,437 $ 8,579 $ 8,582 $ 11,440
EBITDA/Interest expense. 2.0 1.8 2.0 2.1
EBITDA/Cash interest ex-
pense.................. 2.1 1.9 2.1 2.2
Ratio of long term debt
to EBITDA.............. 4.5
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 28, 1997
------------------
<S> <C>
BALANCE SHEET DATA:
Property, buildings and equipment............................ $111,673
Total assets................................................. 196,424
Long term debt and capital lease obligations................. 115,641
Total debt and capital lease obligations..................... 115,964
Total shareholders' equity................................... 35,000
</TABLE>
- --------
(1) EBITDA represents income from operations plus depreciation and
amortization, adjusted for non-cash items related to gain/losses on asset
dispositions and write-downs. EBITDA should not be construed as a
substitute for income from operations or a better indicator of liquidity
than cash flow from operating activities, which is determined in accordance
with generally accepted accounting principles. EBITDA is included herein to
provide additional information with respect to the ability of the Company
to meet its future debt service, capital expenditure and working capital
requirements. In addition, management believes that certain investors may
find EBITDA to be a useful tool for measuring the ability of the Company to
service its debt. EBITDA is not necessarily a measure of the Company's
ability to fund its cash needs.
(2) EBITDA margin represents EBITDA divided by total revenues.
14
<PAGE>
RISK FACTORS
An investment in the Exchange Notes represents a high degree of risk. There
are a number of factors, including those specified below, which may adversely
affect the Company's ability to make payments on the Exchange Notes. Holders
of Exchange Notes could therefore lose a substantial portion or all of their
investment in the Exchange Notes. Consequently, an investment in the Exchange
Notes should only be considered by persons who can assume such risk. The risk
factors described below are not necessarily exclusive and each potential
investor is encouraged to perform its own investigation with respect to the
Company.
This Prospectus contains forward-looking statements, including statements
regarding, among other items, (i) the expected realization of the Company's
business strategy and the cost savings estimated to be achieved in connection
therewith and the costs associated therewith, (ii) the sufficiency of cash
flow and other sources of liquidity to fund the Company's debt service
requirements, working capital needs and other significant expenditures and
(iii) anticipated trends in QSR food industry, including with respect to
adverse changes in national or local economic conditions, competition from
other restaurants and changes in the availability, cost and terms of
financing. Forward-looking statements are typically identified by the words
"believe," "expect," "anticipate," "intend," "estimate," "project" and similar
expressions. These forward-looking statements are subject to a number of risks
and uncertainties, many of which are beyond the Company's control. Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, actual results could differ materially from those
contemplated by these forward-looking statements as a result of factors
including those described below. In light of these risks and uncertainties,
there can be no assurance that the results and events contemplated by the
forward-looking information contained in this Prospectus will in fact occur.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. The Company does not undertake
any obligation to update or revise any forward-looking statement.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company has incurred significant indebtedness. On a pro forma basis,
after giving effect to the Financing and the Acquisition as if each had
occurred on September 28, 1997 and the application of the net proceeds
therefrom, the Company's aggregate consolidated indebtedness (including
capital lease obligations) would have been $116.0 million, shareholders'
equity would have been $35.0 million and the Company would have had undrawn
commitments of $10.3 million under the Credit Facility. In addition, subject
to the restrictions in the Credit Facility and the Indenture, the Company may
incur additional indebtedness from time to time to finance capital
expenditures or for other purposes. See "Description of Credit Facility" and
"Description of the Notes." Substantially all of the Company's assets have
been pledged to secure the Credit Facility.
The level of the Company's indebtedness could have important consequences
for holders of the Notes, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to service debt and will
not be available for other purposes; (ii) the Company's ability to obtain
additional debt financing in the future for working capital, capital
expenditures and other needs may be limited; and (iii) the Company's level of
indebtedness could limit its flexibility in reacting to changes in the
industry in which it competes and economic conditions in general. Certain of
the Company's competitors currently operate on a less leveraged basis and have
significantly greater operating flexibility than the Company.
The Company's ability to pay interest on the Notes, to repay portions of its
long-term indebtedness (including the Notes) and to satisfy its other debt
obligations will depend on its future operating performance and the
availability of refinancing indebtedness, which will be affected by prevailing
economic conditions and financial, business and other factors, certain of
which are beyond the Company's control. The Company anticipates that its
operating cash flow, together with borrowings under the Credit Facility, will
be sufficient to meet its operating needs and to meet its debt service
requirements as they become due, assuming that the Company achieves a
significant portion of the cost reduction components of its business strategy.
See "Description of Business--Business Strategy." However, if that is not the
case, the Company will be forced to
15
<PAGE>
seek alternatives that may include reducing or delaying capital expenditures,
selling assets, restructuring or refinancing its indebtedness or seeking
additional equity capital. There can be no assurance that any such strategy
could be effected on satisfactory terms, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RECENT FINANCIAL PERFORMANCE; SIGNIFICANT EXPENDITURES; DEPENDENCE ON
SUCCESSFUL IMPLEMENTATION OF BUSINESS STRATEGY
The Company experienced a loss of $2.4 million for the 52 weeks ended
December 29, 1996 and net income of $1.4 million for the nine months ended
September 28, 1997. In order to meet its fixed payment obligations and retain
sufficient borrowing availability under the Credit Facility to satisfy its
working capital requirements, the Company must achieve significant cash flow
from operations which requires it to improve its operating results
significantly. In order to improve operating results, the Company must, among
other things, enhance the Company's brand-name recognition and reduce
operating expenses. In the event that the operating improvements from
management's business strategy are materially less than estimated and/or
require a longer time frame than anticipated, the Company's ability to service
its debt and pay its other fixed charges could be adversely affected.
The estimated cost savings described under "Description of Business--
Business Strategy," represent the Company's current estimates of cost savings
from implementation of management's business strategy. These estimated future
cost savings are based upon a number of assumptions that may not be accurate,
in which case the actual results of such business strategy may differ
materially from these estimates. Moreover, these estimates relate only to
estimated cost reductions on the items described and therefore are not
necessarily indicative of the Company's financial results, including EBITDA
and net income, which are affected by a number of other factors, including
demand for and pricing of the Company's products and other costs associated
with operating the Company.
In the event that the Company's cash flow from operations is less than
anticipated or its cash expenditures are greater than anticipated and
available borrowings under the Credit Facility are used, there can be no
assurance that the Company can raise additional funds through equity or debt
financings or asset sales given the financial and other covenants to which the
Company is subject under the Indenture and the Credit Facility, uncertainty
regarding the Company's future operating performance and the pledge of
substantially all of the Company's assets to secure the Credit Facility.
GROWTH STRATEGY
As part of its business strategy, the Company intends to pursue selected new
expansion opportunities. These depend upon a number of factors (some of which
are beyond the control of the Company), such as the availability and cost of
suitable locations, the hiring, training and retention of skilled management
and personnel, the availability of adequate financing and the selection of
franchisees. There can be no assurance that the Company or its franchisees
will be able to open planned new restaurants or that, if opened, these
restaurants can be operated profitably. The Company may also make selective
acquisitions, depending on, among other factors, the availability of suitable
acquisition prospects and appropriate financing. There can be no assurance
that the Company will be able to acquire additional restaurants, or that, if
acquired, such restaurants will be successfully converted to the Company's
system.
COMPETITION
The QSR industry is highly competitive with respect to price, product
quality, variety and taste, speed of service, convenience of location and
restaurant cleanliness and upkeep. Factors such as inflation, increases in
food, labor (including health care) and energy costs and the availability of
an adequate number of hourly-paid employees also affect the QSR industry. In
each of its markets, the Company competes with large national QSR chains, some
of which have greater financial resources than the Company, as well as
regional QSR chains, convenience stores and other local restaurants offering
moderately priced menus. To the extent that competitors of the Company offer
items that are better priced or more appealing to consumer tastes or if such
competitors increase the number of restaurants operated in one of the
Company's targeted markets, such events could have a
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material adverse effect on the Company's financial condition and results of
operations. With respect to the sale of franchises, the Company competes with
many franchisors of restaurants and other business concepts.
EFFECTIVE SUBORDINATION OF NOTES TO SECURED INDEBTEDNESS
The Notes are senior unsecured obligations of the Company and are
effectively subordinated in right of payment to all existing and future
secured indebtedness of the Company (including indebtedness incurred under the
Credit Facility) to the extent of the value of the assets securing such
indebtedness. The Guarantees are general unsecured senior obligations of each
Guarantor and are effectively subordinated in right of payment to all secured
indebtedness of each Guarantor (including each Guarantors' guarantee of the
Credit Facility) to the extent of the value of the assets securing such
indebtedness. The Credit Facility is secured by substantially all of the
assets of the Company and each Guarantor (as well as a pledge of all of the
Company's common stock held by Holdings) and, therefore, claims of holders of
the Notes will be effectively subordinated to the extent of the value of the
assets securing the Credit Facility.
RESTRICTIVE DEBT COVENANTS
The Indenture contains certain covenants that limit the ability of the
Company and the Guarantors to, among other things, incur additional
indebtedness, pay dividends or make certain restricted payments, consummate
certain asset sales, incur liens, enter into sale and leaseback transactions,
enter into certain transactions with affiliates, merge or consolidate with any
other person or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of the Company's assets. In addition, the Credit
Facility contains other and more restrictive covenants and prohibits the
Company from prepaying the Notes, except in certain circumstances. The Credit
Facility requires the Company to maintain specified financial ratios and
satisfy certain financial tests. The Company's ability to meet such financial
ratios and tests may be affected by events beyond its control. There can be no
assurance that the Company will meet such tests. A breach of these covenants
could result in an event of default under the Credit Facility. If such an
event of default occurs, the lenders under the Credit Facility could elect to
declare all amounts borrowed under the Credit Facility, together with accrued
and unpaid interest, to be immediately due and payable and to terminate all
commitments under the Credit Facility. If the Company were unable to repay all
amounts declared due and payable, the lenders could proceed against the
collateral granted to them to satisfy the indebtedness and other obligations
due and payable. If indebtedness under the Credit Facility were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full such indebtedness and the other indebtedness of
the Company, including the Notes. See "Description of the Notes--Certain
Covenants" and "Description of Credit Facility."
CONTROL BY PRINCIPAL STOCKHOLDERS
All of the Company's common stock is beneficially owned by Holdings.
Holdings controls the Company and has the power to elect all of its directors,
appoint new management and approve any action requiring the approval of the
holders of the Company's common stock, including adopting amendments to the
Company's charter and approving mergers or sales of substantially all of the
Company's assets. The directors elected by Holdings have the authority to make
decisions affecting the capital structure of the Company, including the
issuance of additional capital stock and the declaration of dividends. Under a
shareholder's agreement by and among Holdings and the shareholders of
Holdings, the board of directors of Holdings consists of five members, two of
whom are appointed by Mr. Sanford. See "Management."
DEPENDENCE UPON SENIOR MANAGEMENT
The Company is dependent on the efforts, relationships and abilities of its
senior management team. The loss of services of any of these individuals would
have a material adverse effect on the future performance of the Company. The
Company believes that its success is dependent on its ability to attract and
retain additional qualified employees, and the failure to recruit such other
skilled personnel could have a material adverse effect on the Company's
financial condition and results of operations. See "Management" and
"Description of Business--Employees."
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GOVERNMENT REGULATION OF THE RESTAURANT INDUSTRY
The restaurant industry is subject to extensive laws and regulations
relating to the development and operation of restaurants, including zoning,
the preparation and sale of food and employer/employee relationships. Any
substantial increases in the minimum wage or mandatory health care coverage
could adversely affect the Company's financial condition and results of
operations. Violations of zoning or building codes or regulations could delay
new restaurant openings or the acquisition of existing restaurants. See
"Description of Business--Government Regulation."
FACTORS AFFECTING OPERATIONS
A number of factors beyond the control of the Company may affect sales and
profitability of the Company, including, among other things, the strength of
regional economies where the Company operates, weather, gas prices, and public
health concerns regarding certain foods served at QSRs. Severe weather
conditions in some of the Company's principal markets may have a negative
impact on customer traffic, sales and restaurant contribution. An economic
downturn in any of the Company's regional markets may also have a similar
effect. The Company, as is true with all food establishments, may be adversely
affected by the receipt of tainted products from suppliers or the mishandling
of food on its premises.
MINIMUM WAGE INCREASE
Effective September 1, 1997, the minimum wage increased from $4.75 to $5.15.
Approximately 37.0% of the Company's employees are paid the minimum wage. As a
result, the Company's annual wage cost will increase by approximately $2.4
million per annum. The Company has been anticipating this event, and intends
to try to offset these wage cost increases by pricing increases and cost
reductions through 1997 and 1998. However, there can be no assurance that the
Company's contemplated efforts to offset the expected wage cost increase will
be implemented or, if implemented, that such efforts will be successful.
ENVIRONMENTAL MATTERS
Eight currently owned or leased and one formerly owned property are known or
suspected to have been used by prior owners or operators as retail gas
stations, and a few of these properties may have been used for other
environmentally sensitive purposes. These properties previously contained
underground storage tanks ("USTs"), all of which have been removed. While the
Company is currently not subject to any administrative or court order
requiring remediation of any of its properties, monitoring activities are
being conducted at some properties by former or current owners. In addition,
13 properties owned or leased by Krystal are located adjacent to properties at
which there have been releases of petroleum from underground storage tanks.
Investigation and/or remediation has been undertaken in response to each of
these releases by the owners or operators of these adjacent properties.
Krystal Aviation Co., a wholly-owned subsidiary of the Company, operates
facilities at Lovell Field, the Chattanooga, Tennessee airport. Operations
include the storage and dispensing of fuel and the storage of waste oils in
underground and above ground tanks, as well as the storage and use of small
amounts of cleaning solvents. A portion of one of the facilities is leased to
a firm that performs service on avionics equipment and minor aircraft
maintenance. As a result of the storage and use of petroleum products and
solvents typically associated with repair facilities and fuel dispensing
stations, petroleum products have been released and other contaminants may
have been released at these properties into the soil or groundwater.
Remediation has been conducted at these facilities in response to these
releases, and the applicable authorities are not requiring that Krystal
Aviation Co. or its predecessors conduct further remediation at this time.
Under applicable Federal and state environmental laws, the Company and/or
Krystal Aviation Co., as the current or former owner or operator of their
respective sites, could be liable for the costs of further investigation and
remediation. Further, there can be no assurance that the Company and/or
Krystal Aviation Co. will not be subject to environmental remediation
liability for other environmental conditions at its properties.
FRAUDULENT CONVEYANCE RISKS
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the
obligation of, or liens securing, the Notes or any Guarantee in favor of,
other existing or future creditors of the Company or a Guarantor.
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Under applicable provisions of Federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the
Company or any Guarantor, at the time it incurred the indebtedness evidenced
by the Notes or a Guarantee, (i)(a) was or is insolvent or rendered insolvent
by reason of such occurrence or (b) was or is engaged in a business or
transaction for which the assets remaining with the Company or such Guarantor
constituted unreasonably small capital or (c) intended or intends to incur, or
believed or believes that it would incur, debts beyond its ability to pay such
debts as they mature, and (ii) the Company or such Guarantor received or
receives less than reasonably equivalent value or fair consideration for the
incurrence of the indebtedness, evidenced by the Notes or a Guarantee, and any
pledge or other security interest securing such indebtedness, could be voided,
or claims in respect of the Notes, the Guarantees or the other security
interest securing such indebtedness, could be voided, or claims in respect of
the Notes or the Guarantees could be subordinated to all other debts of the
Company or such Guarantor, as the case may be. The voiding or subordination of
any of such pledges or other security interests or of any of such indebtedness
could result in acceleration thereof. In addition, the payment of interest and
principal by the Company pursuant to the Notes or the payment of amounts by a
Guarantor pursuant to a Guarantee could be voided and required to be returned
to the person making such payment, or to a fund for the benefit of the
creditors of the Company or such Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Guarantor would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, were
greater than the fair saleable value of all of its assets at a fair valuation
or if the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature and (ii)
it could not pay its debts as they become due.
On the basis of the historical financial information and recent operating
history of the Company and each Guarantor as discussed in "Selected Historical
Consolidated Financial Information" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and other factors, the
Company and each Guarantor believe that the indebtedness incurred in
connection with the Notes and the Note Guarantees was incurred for proper
purposes and in good faith and that, after giving effect thereto, the Company,
Krystal Aviation Co. and Krystal Aviation Management Co. are solvent and will
continue to be solvent after issuing the Notes or its Guarantee, as the case
may be, will have sufficient capital for carrying on its business after such
issuance and will be able to pay its debts as they mature. There can be no
assurance, however, as to what standard a court would apply in making such
determinations. In addition, the Company did not obtain a solvency opinion in
connection with the Financing.
PURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon a Change of Control, the Company may be required to offer to purchase
all outstanding Notes at 101% of the principal amount thereof plus accrued and
unpaid interest to the date of purchase. The source of funds for any such
purchase would be the Company's available cash or cash generated from other
sources. However, there can be no assurance that sufficient funds would be
available at the time of any Change of Control to make any required purchases
of Notes tendered or, if applicable, that restrictions in the Credit Facility
would permit the Company to make such required purchases. See "Description of
the Notes--Repurchase at the Option of Holders."
LACK OF A PUBLIC MARKET FOR THE NOTES
The Private Notes have been designated eligible for trading by qualified
institutional investors in the PORTAL market by Qualified Institutional
Buyers. The Company does not intend to apply for listing of the Exchange Notes
on any securities exchange or to seek approval for trading through any
automated quotation system. Future trading prices of the Exchange Notes will
depend on many factors, including prevailing interest rates, the Company's
operating results and the market for similar securities. The Initial Purchaser
has advised the Company that it currently intends to make a market in the
Exchange Notes. However, the Initial Purchaser is not obligated to do so, and
any market making may be discontinued at any time without notice. No assurance
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can be given as to the liquidity of the trading market for the Exchange Notes
or that an active public market for the Exchange Notes will develop or, if
developed, will continue. If an active public market does not develop or is
not maintained, the market price and liquidity of the Exchange Notes may be
adversely affected. See "The Exchange Offer -- Resale of the Exchange Notes"
CONSEQUENCES OF FAILURE TO EXCHANGE
As a consequence of the offer or sale of the Private Notes pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws,
holders of Private Notes who do not exchange their Private Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Private Notes as set forth in the legend
thereon. In general, Private Notes may not be offered or sold unless
registered under the Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. The Company does not currently anticipate that it will
register the Private Notes under the Securities Act.
Upon consummation of the Exchange Offer, due to the restrictions on transfer
of the Private Notes and the absence of such restrictions applicable to the
Exchange Notes, it is likely that the market, if any, for the Private Notes
will be relatively less liquid than the market for Exchange Notes.
Consequently, holders of Private Notes who do not participate in the Exchange
Offer could experience significant diminution in the value of their Private
Notes, compared to the value of the Exchange Notes.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is being made by the Company and the Guarantors to
satisfy certain obligations of the Company under the Registration Rights
Agreement. Pursuant to the Registration Rights Agreement, the Company agreed,
for the benefit of the Holders of the Notes, at the Company's expense, to (i)
file within 60 days after the date of original issuance of the Notes a
registration statement (the "Exchange Offer Registration Statement") with the
Commission with respect to a registered offer to exchange the Private Notes
for the Exchange Notes to be issued under the Indenture or a substantially
similar indenture in the same aggregate principal amount as and with terms
that will be identical in all respects to the Private Notes (except that the
Additional Interest provisions and transfer restrictions will be modified or
eliminated, as appropriate), (ii) use its best efforts to cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act
within 150 days after the date of original issuance of the Private Notes, and
(iii) use its best efforts to consummate the Exchange Offer within 180 days
after the date of original issuance of the Private Notes. Promptly after the
Exchange Offer Registration Statement has been declared effective, the Company
will offer the Exchange Notes in exchange for surrender of the Private Notes.
The Company will keep the Exchange Offer open for not less than 30 days and
not more than 45 days (or longer if required by the applicable law) after the
date notice of the Exchange Offer is mailed to the Holders of the Private
Notes. For each Private Note tendered to the Company pursuant to the Exchange
Offer and not validly withdrawn by the Holder thereof, the Holder of such
Private Note will receive an Exchange Note having a principal amount equal to
the principal amount of such surrendered Private Note.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date.
The Company will issue Exchange Notes in exchange for an equal aggregate
principal amount at maturity of outstanding Private Notes validly tendered
pursuant to the Exchange Offer and not withdrawn prior to the Expiration Date.
Private Notes may be tendered only in integral multiples of $1,000.
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The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Private Notes except that the Exchange
Notes will be registered under the Securities Act and, therefore, will not
bear 1egends restricting the transfer thereof. The Exchange Notes will
evidence the same indebtedness as the Private Notes (which they replace) and
will be issued under and entitled to the benefits of the Indenture, which also
authorized the issuance of the Private Notes, such that the Notes will be
treated as a single class of debt securities under the Indenture.
The Exchange Offer is not being conditioned upon any minimum aggregate
principal amount of Private Notes being tendered for exchange.
As of the date of this Prospectus, $100 million in aggregate principal
amount of the Private Notes are outstanding. Only a registered holder of the
Private Notes (or such holder's legal representative or attorney-in-fact), as
reflected on the records of the Trustee under the Indenture may participate in
the Exchange Offer. Solely for reasons of administration, the Company has
fixed the close of business on , 1997 as the record date for the
Exchange Offer for purposes of determining the persons to whom this Prospectus
and the Letter of Transmittal will be mailed initially. There will be no fixed
record date for determining registered holders of the Private Notes entitled
to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenter's rights
under the Tennessee Business Corporation Act or the Indenture in connection
with the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the provisions of the Registration Rights Agreement and the
applicable requirements of the Securities Act and the rules and regulations of
the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, and if, the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company. The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Private Notes not
theretofore accepted for exchange, upon the occurrence of any of the
conditions specified below under "--Conditions."
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and mail to the registered
holders of the Private Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if, in
the opinion of counsel for the Company, the consummation of the Exchange Offer
would violate any applicable law, rule or regulation or any applicable
interpretation of the staff of the Commission, to terminate or amend the
Exchange Offer by giving oral or written notice of such delay, extension
termination or amendment to the Exchange Agent. Any such delay in acceptance
extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders. If
the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
amendment and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
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Without limiting the manner in which the Company may choose to make a public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
RESALE OF THE EXCHANGE NOTES
Based upon interpretations by the staff of the Commission set forth in
certain no-action letters issued to third parties, the Company believes that
the Exchange Notes issued pursuant to the Exchange Offer in exchange for the
Private Notes may be offered for resale, resold and otherwise transferred by a
holder thereof (other than (i) a broker-dealer who purchased such Private
Notes directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, or (ii) a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
requirements of the Securities Act; provided that the holder is acquiring
Exchange Notes in the ordinary course of its business and is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes. Holders of Private Notes wishing to accept the Exchange Offer
must represent to the Company that such conditions have been met. Each broker-
dealer that receives Exchange Notes for its own account in exchange for
Private Notes, where such Private Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of any Exchange Notes received in exchange
for Private Notes acquired by such broker-dealer as a result of market-making
or other trading activities. Pursuant to the Registration Rights Agreement,
the Company has agreed to make this Prospectus, as it may be amended or
supplemented from time to time, available to any such broker-dealer that
requests copies of such Prospectus in the Letter of Transmittal for use in
connection with any such resale for a period not to exceed one year after the
closing of the Exchange Offer. See "Plan of Distribution."
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 10 1/4% per annum.
Interest on the Exchange Notes will be payable semi-annually commencing April
1, 1998. Holders of Exchange Notes will receive interest on April 1, 1998 from
the date of initial issuance of the Exchange Notes, plus an amount equal to
the accrued interest on the Private Notes from the last interest payment date
on which interest was paid on the Private Notes, or if no interest has been
paid on the Private Notes, from the date of original issuance of the Private
Notes to but not including the date of exchange thereof. Holders of Private
Notes that are accepted for exchange will be deemed to have waived the right
to receive any interest accrued on the Private Notes.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of any Private Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the Company's sole judgment, might materially impair the ability
of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or enacted,
or any existing law, statute, rule or regulation is interpreted by the
staff of the Commission, which, in the Company's sole judgment, might
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
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The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Private Notes, by giving oral or
written notice of such extension to the holders thereof. During any such
extensions, all Private Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company. Any Private
Notes not accepted for exchange for any reason will be returned without
expense to the tendering holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Private Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified above. The Company will give oral or written notice
of any extension, amendment, non-acceptance or termination to the holders of
the Private Notes as promptly as practicable, such notice in the case of any
extension to be issued no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its reasonable judgment. The failure by the Company
at any time to exercise any of the foregoing rights shall not be deemed a
waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Private Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Private Notes, if at such time any stop order shall be threatened or in effect
with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939 (the "TIA").
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile
thereof, have the signatures thereon guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile to the Exchange Agent at the address set forth below under "--
Exchange Agent" for receipt prior to the Expiration Date. In addition, either
(i) certificates for such Private Notes must be received by the Exchange Agent
along with the Letter of Transmittal, (ii) a timely confirmation of a book-
entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Depository") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the holder must comply with the guaranteed delivery
procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement among such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. DO NOT SEND THE LETTER OF TRANSMITTAL OR ANY
PRIVATE NOTES TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner of the Private Notes whose Private Notes are registered
in the name of a broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender should contact the registered holder promptly
and instruct such registered holder to tender on such beneficial owner's
behalf. If such beneficial
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<PAGE>
owner wishes to tender on such owner's behalf, such owner must, prior to
completing and executing the Letter of Transmittal and delivering such owner's
Private Notes, either make appropriate arrangements to register ownership of
the Private Notes in such owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may
take considerable time and may not be able to be completed prior to the
Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box titled "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be made by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible
guarantor institution" (within the meaning of Rule 17Ad-15 under the Exchange
Act) that is a member of one of the recognized signature guarantee programs
identified in the Letter of Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder exactly as such registered holder's name appears on such
Private Notes.
If the Letter of Transmittal or any Private Notes are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must
submitted with the Letter of Transmittal.
The Exchange Agent and the Depository have confirmed that any financial
institution that is a participant in the Depository's system may utilize the
Depository's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Private Notes not properly tendered or any Private Notes the Company's
acceptance of, would, in the opinion of counsel for the Company, be unlawful.
The Company also reserves the right to waive any defects, irregularities or
conditions of tender as to particular Private Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
the instructions in the Letter of Transmittal) will be final and binding on
all parties. Unless waived, defects or irregularities in connection with
tenders of Private Notes must be cured within such time as the Company shall
determine. Although the Company intends to notify holders of defects or
irregularities with respect to tenders of Private Notes, neither the Company,
the Exchange Agent nor any other person shall incur any liability for failure
to give such notification. Tenders of Private Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived.
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Private Notes that are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Private Notes that remain outstanding
subsequent to the Expiration Date and, to the extent permitted by applicable
law, purchase Private Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) the Exchange Notes to be acquired by such holder
of Private Notes in connection with the Exchange Offer are being acquired by
such holder in the ordinary course of business of such holder, (ii) holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such holder acknowledges and agrees
that any person who is participating in the Exchange Offer for the purposes of
distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the
24
<PAGE>
Securities Act in connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely on the position of the
staff of the Commission set forth in certain no-action letters, (iv) such
holder understands that a secondary resale transaction described in clause
(iii) above and any resales of Exchange Notes obtained by such holder in
exchange for Private Notes acquired by such holder directly from the Company
should be covered by an effective registration statement containing the
selling security holder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission and (v) such holder is not an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company.
If the holder is a broker-dealer that will receive Exchange Notes for such
holder's own account in exchange for Private Notes that were acquired as a
result of market-making activities or other trading activities such holder
will be required to acknowledge in the Letter of Transmittal that such holder
will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, such
holder will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn, such unaccepted, withdrawn or non-exchanged Private Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Private Notes tendered by book-entry transfer into the Exchange Agent's
account at the Depository pursuant to the book-entry transfer procedures
described below, such Private Notes will be credited to an account maintained
with the Depository) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes with the Depository for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depository's systems may make book-
entry delivery of Private Notes by causing the Depository to transfer such
Private Notes into the Exchange Agent's account at the Depository in
accordance with the Depository's procedures for transfer. However, although
delivery of Private Notes may be effected through book-entry transfer at the
Depository, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "--Exchange Agent" on or prior to the Expiration Date or pursuant
to guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder and the certificate number(s) of such Private Notes,
stating that the tender is being made thereby and guaranteeing that, within
five business days after the Expiration Date, the Letter of Transmittal (or a
facsimile thereof), together with the certificate(s) representing the Private
Notes in proper form for transfer or a Book-Entry Confirmation, as the case
be, and any other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof) as
well as the certificate(s) representing all tendered Private Notes in proper
form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five business days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to guaranteed
delivery procedures set forth above.
25
<PAGE>
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date. To withdraw a tender of
Private Notes in the Exchange Offer, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to the Expiration Date. Any such notice of withdrawal must
(i) specify the name of the person having deposited the Private Notes to be
withdrawn, (ii) identify the Private Notes to be withdrawn (including
certificate number or numbers) and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Private Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt
of such notices will be determined by the Company, in its sole discretion,
whose determination shall be final and binding on all parties. Any Private
Notes withdrawn will be deemed not to have been validly tendered for purposes
of Exchange Offer, and no Exchange Notes will be issued with respect thereto
unless the Private Notes so withdrawn are validly retendered. Properly
withdrawn Private Notes may be retendered by following one of the procedures
described above under "The Exchange Offer--Procedures for Tendering" at any
time prior to the Expiration Date.
EXCHANGE AGENT
SunTrust Bank, Atlanta has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies
of this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand:
SunTrust Bank, Atlanta (For Eligible Institutions Only) SunTrust Bank, Atlanta
Corporate Trust Administration (404) 332-3966 Corporate Trust Administration
P.O. Box 105036 58 Edgewood Avenue
Atlanta, Georgia 30348-5036 Confirm by Telephone: 4th Floor Annex
Attention: David M. Kaye (404) 588-8060 Atlanta, Georgia 30303
Attention: David M. Kaye
By Overnight Delivery:
SunTrust Bank, Atlanta
Corporate Trust Administration
58 Edgewood Avenue
4th Floor Annex
Atlanta, Georgia 30303
Attention: David M. Kaye
</TABLE>
SunTrust Bank, Atlanta also serves as Trustee under the Indenture.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, facsimile transmission, telephone or in person by
officers and regular employees of the Company and their affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it its reasonable, out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include registration fees, fees and
expenses of the Exchange Agent and the Trustee, accounting and legal fees and
printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to exchange of
Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering
holder.
26
<PAGE>
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of Private Notes
are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
Private Notes that are not exchanged for the Exchange Notes pursuant to the
Exchange Offer will remain "restricted securities" within the meaning of Rule
144(a)(3)(iv) of the Securities Act. Accordingly, such Private Notes may not
be offered, sold, pledged or otherwise transferred except (i) to a person whom
the seller reasonably believes is a "qualified institutional buyer" within the
meaning of Rule 144A under the Securities Act purchasing for its own account
or for the account of a qualified institutional buyer in a transaction meeting
the requirements of Rule 144A, (ii) in an offshore transaction complying with
Rule 903 or Rule 904 of Regulation S under the Securities Act, (iii) pursuant
to an exemption from registration under the Securities Act provided by Rule
144 thereunder (if available), (iv) pursuant to an effective registration
statement under the Securities Act or (v) to institutional accredited
investors in a transaction exempt from the registration requirements of the
Securities Act, and, in each case, in accordance with all other applicable
securities laws and the transfer restrictions set forth in the Indenture.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the remaining term of the Notes.
THE ACQUISITION
GENERAL
Pursuant to the Merger Agreement, on September 26, 1997 (effective September
29, 1997 for accounting purposes), Holdings acquired the Company (the
"Acquisition") for an aggregate purchase price equal to $108,403,276. At the
Acquisition Closing, TKC, a wholly-owned subsidiary of Holdings, was merged
with and into the Company (the "Merger") pursuant to the Merger Agreement and
the Company as the surviving corporation retained the name "Krystal." As a
result of the Acquisition and Merger, the Notes became obligations of the
Company as the successor corporation to TKC, and Holdings became the owner of
100% of the common stock of the Company.
FINANCING OF THE ACQUISITION
Holdings and TKC were formed to consummate the Acquisition and Merger. Of
the $35.0 million of Holdings capital stock issued in connection with the
Acquisition, Philip H. Sanford, the Chairman and Chief Executive Officer of
the Company, purchased $5.0 million. Holdings made the Equity Contribution by
contributing such funds to TKC at the Acquisition Closing.
The purchase price for the Acquisition, together with $7.3 million of
related fees and expenses, was funded through the Financing.
The following table sets forth the amounts of sources and uses of funds on a
pro forma basis received by the Company in connection with the Financing:
<TABLE>
<CAPTION>
AMOUNT
(IN
000'S)
--------
<S> <C>
Sources:
Cash......................................... $ 5,426
Revolving Credit Facility.................... 12,491
Notes........................................ 100,000
Equity....................................... 35,000
--------
Total Sources............................... $152,917
========
Uses:
Acquisition of Common Stock.................. $108,403
Refinance Existing Debt(1)................... 35,500
Letter of Credit Cash Collateral............. 1,759
Transactions Costs & Fees.................... 7,255
--------
Total Uses.................................. $152,917
========
</TABLE>
- --------
(1) The indebtedness that was refinanced bore interest at a weighted average
rate of 9.2% as of September 28, 1997.
27
<PAGE>
USE OF PROCEEDS OF THE EXCHANGE NOTES
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the Exchange Notes offered hereby and has
agreed to pay the expenses of the Exchange Offer. In consideration for issuing
the Exchange Notes as contemplated in this Prospectus, the Company will
receive, in exchange, the Private Notes representing an equal aggregate
principal amount. The form and terms of the Exchange Notes are identical in
all material respects to the form and terms of the Private Notes, except as
otherwise described herein under "The Exchange Offer--Terms of the Exchange
Offer." The Private Notes surrendered in exchange for Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase in the outstanding indebtedness
of the Company.
PRO FORMA CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Company as of September 28, 1997, (ii) the adjustments necessary thereto to
give effect to (a) the closing of the offering of the Private Notes and the
application of the net proceeds therefrom and from borrowings under the Credit
Facility and (b) the Acquisition and (iii) the pro forma consolidated
capitalization of the Company following such adjustments. This table should be
read in conjunction with "Use of Proceeds," "Selected Historical Consolidated
Financial Information" and "Unaudited Pro Forma Financial Information,"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 28, 1997
-------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt and capital
lease obligations............................. $ 2,323 $(2,000) $ 323
-------- ------- --------
Long-term debt and capital lease obligations:
Credit Facility (1)........................... -- 12,491 12,491
Capital lease obligations and other long-term
debt......................................... 36,650 (33,500) 3,150
Senior Notes.................................. -- 100,000 100,000
-------- ------- --------
Total long-term debt and capital lease obli-
gations..................................... 36,650 78,991 115,641
-------- ------- --------
Shareholders' equity
Common stock.................................. 40,363 (5,363) 35,000
Retained earnings............................. 7,318 (7,318) --
Deferred compensation......................... (1,402) 1,402 --
-------- ------- --------
Total shareholders' equity................... 46,279 (11,279) 35,000
-------- ------- --------
Total capitalization....................... $ 85,252 $65,712 $150,964
======== ======= ========
</TABLE>
- --------
(1) Reflects borrowings under the Credit Facility necessary to consummate the
Financing and the Acquisition. The total availability under the Credit
Facility is $25.0 million. See "Unaudited Pro Forma Financial Information"
and "Description of Credit Facility."
28
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements (the
"Pro Forma Financial Statements") include the unaudited pro forma condensed
consolidated balance sheet as of September 28, 1997 (the "Pro Forma Balance
Sheet"), and the unaudited pro forma condensed consolidated statements of
operations for the fiscal year ended December 29, 1996, the nine months ended
September 28, 1997, and the nine months ended September 29, 1996 (the "Pro
Forma Statements of Operations").
The Pro Forma Statements of Operations give effect to the Financing and the
Acquisition and the cost reduction items described in the following paragraph
as if they had been consummated on January 1, 1996. The Pro Forma Balance
Sheet gives effect to the Transactions as if they were consummated on
September 28, 1997.
Management will initiate a cost reduction plan after the close of the
transaction to reduce costs by over $4.7 million in 1997 and 1998 as compared
with fiscal 1996 levels. See "Summary--Business Strategy."
The Acquisition will be accounted for using the purchase method of
accounting. The aggregate purchase price for the Acquisition will be allocated
to the tangible and intangible assets and liabilities acquired based upon
their respective fair values. The allocation of the aggregate purchase price
reflected in the Pro Forma Financial Statements is preliminary. The final
allocation of the purchase price is contingent upon studies and valuations
that have not yet been completed.
The Pro Forma Financial Statements are based on the historical financial
statements of the Company and the assumptions and adjustments described in the
accompanying notes. The Pro Forma Financial Statements do not purport to
represent what the Company's results of operations or financial position
actually would have been had the Financing and the Acquisition and the cost
reduction items described herein in fact been consummated on the dates
indicated or to project the results of operations or financial position for
any future period or date. The Pro Forma Financial Statements are based upon
assumptions that management believes are reasonable and should be read in
conjunction with the consolidated financial statements and the notes thereto
of the Company included elsewhere in this Prospectus.
29
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
OFFERING ACQUISITION
HISTORICAL(A) ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Cash...................... $ 5,926 $(5,426)(c) $ 500
142,446 (b) $(142,446)(c)
Accounts receivable....... 4,012 -- 4,012
Inventories............... 1,890 177 (d) 2,067
Other current assets...... 8,748 1,759 (c) 2,599 (d) 13,106
-------- --------
Current Assets........... 20,576 19,685
Property, Building &
Equipment, net........... 90,034 21,639 (d) 111,673
Other Assets.............. 8,520 7,255 (e) 8,414 (f) 24,189
Intangibles............... -- 40,877 (d) 40,877
-------- --------
Total Assets............. 119,130 196,424
======== ========
Accounts Payable &
Accruals................. 23,013 3,200 (d) 26,213
Current Maturities of Debt
& Leases................. 2,323 (2,000)(c) 323
-------- --------
Current Liabilities...... 25,336 26,536
Revolver.................. -- 12,491 (b) 12,491
Long Term Debt & Leases... 36,650 (33,500)(c) 3,150
Senior Notes.............. -- 100,000 (b) 100,000
Other Liabilities......... 10,865 8,382 (h) 19,247
-------- --------
Total Liabilities........ 72,851 161,424
Common Stock.............. 40,363 35,000 (b) (40,363)(g) 35,000
Retained Earnings......... 7,318 (7,318)(g) --
Deferred Compensation..... (1,402) 1,402 (g)
-------- --------
Shareholders' Equity..... 46,279 35,000
-------- --------
Total Liabilities &
Shareholders' Equity.... $119,130 $196,424
======== ========
</TABLE>
See accompanying notes.
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The Pro Forma Condensed Consolidated Balance Sheet reflects the Financing
and the Acquisition as if they had occurred as of September 28, 1997 (actual
amounts may differ from amounts estimated below).
(a) Certain historical balances for the Company have been reclassified or
condensed for purposes of this pro forma presentation.
(b) Reflects the issuance of the Notes, the Equity Contribution and the
Financing:
<TABLE>
<S> <C>
Issuance of the Notes........................................... $100,000
Equity Financing................................................ 35,000
Senior Credit Facility:
Current portion................................................ --
Long-term portion.............................................. 12,491
Less: issuance-related fees and expenses........................ (5,045)
--------
$142,446
========
</TABLE>
(c) Represents the following cash payments related to the Acquisition:
<TABLE>
<S> <C>
Purchase price................................................ $(108,403)
Retirement of pre-acquisition debt............................ (35,500)
Letter of credit cash collateral.............................. (1,759)
Acquisition expenses.......................................... (2,210)
Less: use of excess cash on hand.............................. 5,426
---------
$(142,446)
=========
</TABLE>
(d) Reflects the preliminary allocation of the purchase price of the
Acquisition. The Acquisition will be accounted for using the purchase method
of accounting. The Company has not yet determined the final allocation of
the purchase price and, accordingly, the amounts shown below will differ
from the amounts ultimately determined.
The preliminary pro forma allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Purchase price for the Company common stock..................... $108,403
Less:
Elimination of the Company stockholders' equity................ 46,279
--------
Excess of purchase price over historical amounts to be
allocated..................................................... $ 62,124
========
</TABLE>
Allocation of excess of purchase price based on preliminary estimated
values:
<TABLE>
<S> <C>
Property, Building & Equipment (based on preliminary
appraisal, subject to adjustment based on final appraisal)... $ 21,639
Inventories (elimination of LIFO reserve) .................... 177
Other Current Assets (net benefit for income taxes as a result
of a net operating loss carryback from short year return).... 2,599
Other Assets (pension plan adjustment for plan assets at fair
value in excess of projected benefit obligation--net of
write-off of deferred loan costs)............................ 8,414
Goodwill (subject to final adjustment as a result of asset
appraisal)................................................... 40,877
Other Liabilities (elimination of pension plan accrual and
increase in deferred compensation plan--net of tax
adjustment).................................................. (8,382)
Accruals for employee severance and restructuring costs....... (3,200)
--------
$ 62,124
========
</TABLE>
31
<PAGE>
(e) Reflects the following:
<TABLE>
<S> <C>
Issuance-related fees and expenses.............................. $ 5,045
Acquisition expenses............................................ 2,210
-------
$ 7,255
=======
(f) Reflects the following:
Adjustment of defined benefit pension plan for excess of plan
assets at fair value over the projected benefit obligation..... $ 9,725
Elimination of existing deferred loan costs related to
extinguishment of debt ........................................ (1,311)
-------
$ 8,414
=======
</TABLE>
(g) Reflects the elimination of historical equity balances.
(h) Reflects the following:
<TABLE>
<S> <C>
Elimination of unfunded pension benefit obligations............. $ 4,007
Adjustment of deferred tax...................................... (12,039)
Adjustment of deferred compensation plan to unfunded projected
benefit level.................................................. (350)
-------
$(8,382)
=======
</TABLE>
32
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COST
OFFERING ACQUISITION SAVINGS SUPPLEMENTAL
HISTORICAL(A) ADJUSTMENTS ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------- ----------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Restaurant sales....... $236,470 $236,470 $236,470
Franchise fees......... 349 349 349
Royalties.............. 2,778 2,778 2,778
Other revenue.......... 4,671 4,671 4,671
-------- -------- --------
Total revenues....... 244,268 244,268 244,268
Cost of restaurant
sales.................. 195,733 195,733 $ (637)(b) 195,096
Depreciation and
amortization........... 11,378 $2,636 (c) 14,014 14,014
General and
administrative expense. 25,422 25,422 (4,123)(b) 21,299
Other operating expense. 3,809 3,809 3,809
Special charges and
provision for loss on
restaurant closings and
property write downs... 4,000 4,000 4,000
-------- -------- --------
Operating income........ 3,926 1,290 6,050
Interest expense........ 4,796 $ 7,219 12,015 (d) 12,015
Interest income......... (814) 195 (e) (619) (619)
Reorganization expense.. 3,846 3,846 3,846
-------- -------- --------
Loss before income taxes
and extraordinary item. (3,902) (13,952) (9,192)
Income tax provision
(benefit).............. (1,480) (2,817)(f) (380)(f) (4,677) 1,809 (f) (2,868)
-------- -------- --------
Loss before
extraordinary item..... $ (2,422) $ (9,275) $ (6,324)
======== ======== ========
OTHER FINANCIAL DATA:
EBITDA.................. $ 19,304 $ 24,064
EBITDA margin........... 7.9% 9.9%
EBITDA/Interest expense. 4.0 2.0
EBITDA/Cash interest
expense ............... 4.0 2.1
</TABLE>
See accompanying notes.
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 28, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COST
OFFERING ACQUISITION SAVINGS SUPPLEMENTAL
HISTORICAL(A) ADJUSTMENTS ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------- ----------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Restaurant sales....... $178,815 $178,815 $178,815
Franchise fees......... 219 219 219
Royalties.............. 2,232 2,232 2,232
Other revenue.......... 3,469 3,469 3,469
-------- -------- --------
Total revenues....... 184,735 184,735 184,735
Cost of restaurant
sales.................. 148,393 148,393 $ (478)(b) 147,915
Depreciation and
amortization........... 8,216 $1,977 (c) 10,193 10,193
General and
administrative expense. 19,656 19,656 (3,092)(b) 16,564
Other operating expense. 2,444 2,444 2,444
Special charges and
provision for loss on
restaurant closings and
property write-downs... -- -- --
-------- -------- --------
Operating income........ 6,026 4,049 7,619
Interest expense........ 2,732 $6,284 9,016 (d) 9,016
Interest income......... (517) 146 (e) (371) (371)
Reorganization expense.. 1,218 1,218 1,218
-------- -------- --------
Income (loss) before
income taxes and
extraordinary item..... 2,593 (5,814) (2,244)
Income tax provision
(benefit).............. 928 (2,443)(f) (285)(f) (1,800) 1,357 (f) (443)
-------- -------- --------
Income (loss) before
extraordinary item..... $ 1,665 $ (4,014) $ (1,801)
======== ======== ========
OTHER FINANCIAL DATA:
EBITDA.................. $ 14,242 $ 17,812
EBITDA margin........... 7.7% 9.6%
EBITDA/Interest expense. 5.2 2.0
EBITDA/Cash interest
expense................ 5.2 2.1
</TABLE>
See accompanying notes.
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COST
OFFERING ACQUISITION SAVINGS SUPPLEMENTAL
HISTORICAL(A) ADJUSTMENTS ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------- ----------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Restaurant sales....... $175,401 $175,401 $175,401
Franchise fees......... 171 171 171
Royalties.............. 2,021 2,021 2,021
Other revenue.......... 3,409 3,409 3,409
-------- -------- --------
Total revenues....... 181,002 181,002 181,002
Cost of restaurant
sales.................. 145,847 145,847 $ (478)(b) 145,369
Depreciation and
amortization........... 8,447 $1,977 (c) 10,424 10,424
General and
administrative expense. 19,567 19,567 (3,092)(b) 16,475
Other operating expense. 2,742 2,742 2,742
Special charges and
provision for loss on
restaurant closings and
property write-downs... -- -- --
-------- -------- --------
Operating income........ 4,399 2,422 5,992
Interest expense........ 3,461 $ 5,552 9,013 (d) 9,013
Interest income......... (820) 146 (e) (674) (674)
Reorganization expense.. 2,288 2,288 2,288
-------- -------- --------
Loss before income taxes
and extraordinary item. (530) (8,205) (4,635)
Income tax provision
(benefit).............. (199) (2,165)(f) (285)(f) (2,649) 1,357 (f) (1,292)
-------- -------- --------
Loss before
extraordinary item..... $ (331) $ (5,556) $ (3,343)
======== ======== ========
OTHER FINANCIAL DATA:
EBITDA.................. $ 12,846 $ 16,416
EBITDA margin........... 7.1% 9.1%
EBITDA/Interest expense. 3.7 1.8
EBITDA/Cash interest
expense................ 3.7 1.9
</TABLE>
See accompanying notes.
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
The Pro Forma Consolidated Statements of Operations reflect the Financing
and the Acquisition as if they had occurred as of January 1, 1996 (actual
amounts may differ from amounts estimated below).
(a) Certain historical balances of the Company have been reclassified or
condensed for purposes of this pro forma presentation.
<TABLE>
<CAPTION>
YEAR-
ENDED NINE MONTHS- NINE MONTHS-
12/29/96 ENDED 9/28/97 ENDED 9/29/96
-------- ------------- -------------
(b) Reflects the following:
<S> <C> <C> <C>
Estimated reduction in costs from
headcount reduction and associated
overhead............................. $ 4,760 $ 3,570 $ 3,570
<CAPTION>
YEAR-
ENDED NINE MONTHS- NINE MONTHS-
12/29/96 ENDED 9/28/97 ENDED 9/29/96
-------- ------------- -------------
(c) Reflects the following:
<S> <C> <C> <C>
Additional amortization of goodwill
and intangibles...................... $ 1,723 $ 1,292 $ 1,292
Additional depreciation on the
increase in property, building and
equipment ........................... $ 913 $ 685 $ 685
------- ------- -------
$ 2,636 $ 1,977 $ 1,977
======= ======= =======
<CAPTION>
YEAR-
ENDED NINE MONTHS- NINE MONTHS-
12/29/96 ENDED 9/28/97 ENDED 9/29/96
-------- ------------- -------------
(d) Reflects the following:
<S> <C> <C> <C>
Interest expense on Credit Facility at
8.4%................................. $ 1,049 $ 787 $ 787
Interest expense on the Notes at
10.25%............................... 10,250 7,688 7,688
Unused commitment fees and agency
fees................................. 63 47 47
Interest expense on mortgages and
loans against cash surrender value of
life insurance at an average rate of
6.4% ................................ 75 60 57
------- ------- -------
Total cash interest expense........... $11,437 $ 8,582 $ 8,579
Amortization of deferred finance
costs................................ 578 434 434
------- ------- -------
Total interest expense................ $12,015 $ 9,016 $ 9,013
======= ======= =======
</TABLE>
A change of 1/4% in the interest rate on the Notes and the senior credit
facility would have an impact on pro forma interest expense of $281 and $211
for the year ended December 29, 1996 and the nine month periods ended
September 28, 1997 and September 29, 1996, respectively.
(e) Reflects the decline in interest income resulting from the use of cash on
hand in the acquisition.
(f) Reflects the net additional income tax expense (benefit) as a result of
the Transaction, at the effective rates of 38% for the year ended December
29, 1996 and the nine months ended September 28, 1997 and September 29,
1996.
36
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following selected financial data is qualified in its entirety by the
consolidated financial statements of the Company and other information
contained elsewhere in this Prospectus. The financial data as of January 3,
1993, January 2, 1994, January 1, 1995, December 31, 1995, and December 29,
1996, and for the years then ended, has been derived from the audited
financial statements of the Company contained elsewhere in this Prospectus.
The financial data as of and for the nine months ended September 29, 1996 and
September 28, 1997 have been derived from the unaudited financial statements
of the Company and, in the opinion of the Company's management, include all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation. Interim results are not necessarily
indicative of financial results of the Company for the full fiscal year. The
following financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the Consolidated Financial Statements and notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED(1) NINE MONTHS ENDED
---------------------------------------------------------- ---------------------------
JANUARY 3, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 28,
1993 1994 1995 1995 1996 1996 1997
---------- ---------- ---------- ------------ ------------ ------------- -------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Restaurant sales........ $226,302 $228,468 $239,104 $239,376 $236,470 $175,401 $178,815
Franchise fees.......... 487 533 796 618 349 171 219
Royalties............... 774 1,157 1,880 2,420 2,778 2,021 2,232
Other revenue........... 4,562 6,575 6,542 5,614 4,671 3,409 3,469
-------- -------- -------- -------- -------- -------- --------
Total revenues.......... 232,125 236,733 248,322 248,028 244,268 181,002 184,735
Cost of restaurant
sales.................. 178,543 182,530 192,256 197,031 195,733 145,847 148,393
Depreciation &
amortization expense... 8,823 9,881 11,213 12,311 11,378 8,447 8,216
General & administrative
expense................ 25,166 24,781 25,775 25,770 25,422 19,567 19,656
Other operating
expenses, net.......... 4,111 5,651 4,946 4,417 3,809 2,742 2,444
Provision for loss on
restaurant closings and
other property write-
downs.................. -- -- -- 3,911 -- -- --
Special charges......... -- -- 2,000 10,000 4,000 -- --
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses............... 216,643 222,843 236,190 253,440 240,342 176,603 178,709
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations............. 15,482 13,890 12,132 (5,412) 3,926 4,399 6,026
Reorganization item..... -- -- -- 184 3,846 2,288 1,218
Interest expense........ 5,177 3,494 3801 4,134 4,796 3,461 2,732
Interest income......... (1,092) (842) (820) (718) (814) (820) (517)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
provision for (benefit
from) income taxes and
extraordinary items.... 11,397 11,238 9,151 (9,012) (3,902) (530) 2,593
Provision for (benefit
from) income taxes..... 4,391 3,772 2,962 (3,688) (1,480) (199) 928
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of
change in accounting
principle and
extraordinary item..... 7,006 7,466 6,189 (5,324) (2,422) (331) 1,665
Cumulative effect of
accounting principle
change
Post-retirement health
benefits, net of
income tax benefit of
$178,000.............. -- (290) -- -- -- -- --
Income Taxes........... -- 413 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary item..... 7,006 7,589 6,189 (5,324) (2,422) (331) 1,665
Extraordinary loss on
early extinguishment of
debt, net of tax
benefit of $134,000 in
1997................... -- -- -- -- -- -- 220
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 7,006 $ 7,589 $ 6,189 $ (5,324) $ (2,422) $ (331) $ 1,445
======== ======== ======== ======== ======== ======== ========
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED(1) NINE MONTHS ENDED
---------------------------------------------------------- ---------------------------
JANUARY 3, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 28,
1993 1994 1995 1995 1996 1996 1997
---------- ---------- ---------- ------------ ------------ ------------- -------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
---------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(2)............... $24,305 $ 23,771 $ 25,345 $ 20,810 $ 19,304 $ 12,846 $ 14,242
EBITDA margin(3)........ 10.5% 10.0% 10.2% 8.4% 7.9% 7.1% 7.7%
Capital expenditures(4):
Maintenance capital ex-
penditures............ 4,826 6,209 5,814 5,941 5,290 3,355 4,125
Renovation............. 2,366 2,027 1,943 2,461 603 368 447
New restaurant develop-
ment.................. 2,083 17,068 17,697 3,806 -- -- --
Other.................. 758 827 1,199 4,099 564 426 935
------- -------- -------- -------- -------- -------- --------
Total capital
expenditures......... $10,033 $ 26,131 $ 26,653 $ 16,307 $ 6,457 $ 4,149 $ 5,507
BALANCE SHEET DATA (AT
END OF PERIOD):
Net book value of prop-
erty and equipment(5).. $66,974 $ 85,761 $100,888 $100,409 $ 92,826 $ 94,497 $ 90,034
Total assets............ 98,657 105,972 130,786 132,695 143,870 137,886 119,130
Total debt and capital
lease obligations(6)... 35,653 32,546 47,584 43,460 42,789 42,907 38,973
Total shareholder's eq-
uity................... 36,642 44,728 51,636 46,647 44,688 46,588 46,279
</TABLE>
- --------
(1) The Company has a 52/53-week fiscal year ending on the last Sunday in
December which normally consists of 13 four-week periods. The fiscal year
ended December 29, 1996 included 52 weeks of operations.
(2) EBITDA represents income from operations plus depreciation and
amortization, adjusted for non-cash items related to gain/losses on asset
dispositions and write-downs. EBITDA should not be construed as a
substitute for income from operations or a better indicator of liquidity
than cash flow from operating activities, which is determined in
accordance with generally accepted accounting principles. EBITDA is
included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital
expenditure and working capital requirements in addition, management
believes that certain investors may find EBITDA to be a useful tool for
measuring the ability of the Company to service its debt. EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs. See
the Consolidated Statements of Cash Flows of the Company and the related
notes to the Consolidated Financial Statements thereto included elsewhere
in this Offering Memorandum.
(3) EBITDA margin represents EBITDA divided by total revenues.
(4) Capital expenditures (excluding expenditures funded through capital
leases) have been segregated into the following categories to provide
additional information:
Maintenance capital expenditures represents day-to-day expenditures to
restaurant equipment replacements and general restaurant capital
improvements.
Renovation represents significant restaurant renovations and upgrades
pursuant to the Company's renovation activities with respect to Company
operated restaurants.
New restaurant development represents new company-operated restaurant
construction and development.
Other represents capital expenditures at various corporate offices and new
restaurant equipment such as fryers and security systems.
(5) Net book value of property and equipment includes leased properties (under
capital leases).
(6) For the periods ended December 31, 1995, September 29, 1996 and December
29, 1996, unsecured senior notes totaling $36 million are reflected on the
Company's balance sheets as part of "Liabilities subject to compromise."
For purposes of this table, the senior notes are included in "Total debt
and capital lease obligations."
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The Company's revenues are derived primarily from sales by Company-owned
restaurants. Total Company-owned restaurants decreased from 256 at the end of
1995 to 249 at September 28, 1997. Royalties and franchise fees from
franchisees have been a small portion of the Company's revenues to date, but
those sources of revenues are anticipated to increase significantly in future
years as the Company continues to develop its franchised restaurants. The
total number of franchised restaurants grew from 80 to 89 in 1996,
representing an increase of 11.0%. During the first nine months of 1997, the
number of franchised restaurants grew from 89 to 95 (net of one closing),
representing an increase of 6.7%. The Company expects its franchisees to
develop nine new restaurants during the remainder of 1997. The Company
operates a fixed base airport hangar operation in Chattanooga, Tennessee,
although revenues from this operation in each of the last three years were
less than 3.0% of the Company's total revenues.
The Company's fiscal year ends on the Sunday nearest December 31.
Consequently, the Company will occasionally have a 53 week fiscal year. The
years ended January 1, 1995, December 31, 1995 and December 29, 1996 were 52
week fiscal years.
Cost of restaurant sales relates to food and paper costs, labor and all
other restaurant costs for company-owned restaurants. Other expenses, such as
depreciation and amortization and general and administrative expenses, relate
primarily to company-owned restaurants and to the Company's franchise sales
and support functions.
BANKRUPTCY FILING
In July 1994, the Company was named a defendant in a suit filed in the
United States District Court for the Middle District of Tennessee, in which 41
plaintiffs, who were current and former employees of the Company, alleged
violations of the Fair Labor Standards Act of 1938 ("FLSA") and sought back
wages, liquidated damages, costs and attorneys' fees. The suit alleged that
the plaintiffs were uncompensated for time which they worked on the Company's
behalf. In February 1995, ten additional plaintiffs, also current and former
employees of the Company, filed a separate suit in the same Court containing
essentially the same allegations. As a result, the Company established a
reserve of $2 million to cover the claims of the plaintiffs in the two suits,
the costs associated therewith, and the claims of any other employees and the
costs associated therewith. Since the February 1995 action was originally
filed, approximately 300 additional plaintiffs joined that suit.
On April 18, 1995, the Company settled the July 1994 case by agreeing to pay
$840,000 to the plaintiffs and their counsel. By order dated August 28, 1995,
the Court in the February 1995 case provisionally granted the plaintiffs'
motion for court-supervised notice of the pendency of that action to
prospective class members from among current and former employees of the
Company for the past three years.
In the third quarter of 1995, a total of 17 additional current and former
employees of the Company filed three new suits in the United States District
Courts for the Northern District of Georgia, the Northern District of Alabama
and the Middle District of Florida, containing essentially the same
allegations as set forth in the July 1994 and February 1995 suits.
In light of the three new suits filed against the Company during the third
quarter of 1995 and the order entered in the February 1995 suit provisionally
granting the plaintiffs' motion for court-supervised notice of the pendency of
that action, the Company established an additional $10 million reserve to
cover an estimate of the exposure resulting from (i) the claims of the
plaintiffs in the four pending suits, (ii) the potential for additional claims
of other current and former employees, (iii) related claims and (iv) the costs
associated therewith.
39
<PAGE>
On December 15, 1995, the Company filed a voluntary petition under Chapter
11 of the United States Bankruptcy Code with the United States Bankruptcy
Court for the Eastern District of Tennessee (the "Bankruptcy Court") for the
purpose of completely and finally resolving the various claims filed against
the Company by current and former employees alleging violations of the FLSA.
The Company was a debtor-in-possession for purposes of the bankruptcy case.
Approximately 8,000 current or former employees filed claims by the June 6,
1996 bar date in unspecified amounts alleging that they worked time for which
they were not compensated.
An agreement, subject to court approval, was reached in January 1997 to
settle the various wage claims for approximately $13 million. In 1996, the
Company added $4 million to the reserve for settlement of the wage claims,
associated payroll taxes, and related expenses, the balance of which was
$13,875,000 at December 29, 1996.
The Company filed a plan of reorganization with the bankruptcy court (the
"Reorganization Plan") which incorporated the terms of the wage claim
settlement and provided for the payment in full of all valid pre-petition
obligations of the Company. The terms and provisions of the Reorganization
Plan were approved by the Bankruptcy Court on April 10, 1997 and became
effective April 23, 1997. The confirmed plan provided for the following:
. term loans of $10.0 million and $20.0 million and a revolving loan of
$23.0 million effective April 23, 1997, and maturing April 23, 2002 (which
were repaid with proceeds from the Financing);
. the payment of senior debt and secured debt totaling approximately $38.6
million along with all past due interest and additional interest at 1.3%
per annum;
. the settlement of approximately 6,000 FLSA claims totaling about $12.6
million with pro se claims settled for approximately $100,000; and
. the payment of holders of approximately $7.6 million of trade claims of
100% of their claims with interest at 8.5% per annum for the period
December 15, 1995-April 23, 1997.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of certain items from the Company's
statements of operations. The table also sets forth certain restaurant
operating data for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------ -------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 28,
1995 1995 1996 1996 1997
---------- ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales....... 96.3% 96.5% 96.8% 96.9% 96.8%
Franchise fees......... 0.3 0.2 0.2 0.1 0.1
Royalties.............. 0.8 1.0 1.1 1.1 1.2
Other revenue.......... 2.6 2.3 1.9 1.9 1.9
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of restaurant
sales................. 77.4 79.4 80.1 80.6 80.3
Depreciation and amor-
tization.............. 4.5 5.0 4.7 4.7 4.5
General and administra-
tive expenses......... 10.4 10.4 10.4 10.8 10.6
Other expenses, net.... 2.0 1.8 1.6 1.5 1.3
Provision for loss on
restaurant closings
and other property
write-downs........... -- 1.6 -- -- --
Special charge......... 0.8 4.0 1.6 -- --
----- ----- ----- ----- -----
95.1 102.2 98.4 97.6 96.7
Operating income (loss). 4.9 (2.2) 1.6 2.4 3.3
Reorganization expense.. -- (0.1) (1.6) (1.3) (0.7)
Interest expense:
Contractual rate inter-
est................... (1.5) (1.6) (1.6) (1.7) (1.5)
Interest related to
certain pre-petition
liabilities, net...... -- -- (0.3) (0.2) --
Interest income......... 0.3 0.3 0.3 0.5 0.3
----- ----- ----- ----- -----
Income (loss) before
provision for income
taxes.................. 3.7 (3.6) (1.6) (0.3) 1.4
Provision for (benefit
from) income taxes..... 1.2 (1.5) (0.6) (0.1) (0.5)
----- ----- ----- ----- -----
Net income (loss)....... 2.5% (2.1)% (1.0)% (0.2)% 0.9 %
===== ===== ===== ===== =====
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------ -------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 28,
1995 1995 1996 1996 1997
---------- ------------ ------------ ------------- -------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Restaurant Operating Data:
Number of restaurants at
end of period:
Company-owned.......... 252 256 249 250 249
Franchised............. 65 80 89 83 95
Total................. 317 336 338 333 344
Average sales per
Company-owned
restaurant:
FSR................... $987 $956 $956 $707 $733
DDR................... 487 534 521 383 399
Combined.............. 960 939 937 693 718
Average sales increase
(decrease) per company-
owned restaurant vs.
prior year:
FSR................... (1.5)% (3.1)% 0.0% (0.5)% 3.7%
DDR................... 0.2 9.7 (2.4) (3.0) 4.2
Combined.............. (1.2) (2.2) (0.2) (0.7) 3.6
Company-owned same
restaurant sales
(decrease) vs. prior
year:
FSR................... (1.8)% (2.9)% (0.4)% (0.6)% 3.1%
DDR................... (0.6) (5.7) (1.1) (1.7) 4.7
Combined.............. (1.7) (2.9) (0.4) (0.7) 3.1
</TABLE>
COMPARISON OF THE NINE MONTHS ENDING SEPTEMBER 28, 1997 TO THE NINE MONTHS
ENDED SEPTEMBER 29, 1996
Total revenues increased 2.1% to $184.7 million for the first nine months of
1997 compared to $181.0 million for the same period of 1996. Restaurant sales
accounted for $3.4 million of this $3.7 million increase. Restaurant sales for
249 units open the first nine months of 1997 and 1996 increased $5.4 million
during the first nine months of 1997 compared to the same period in 1996 but
were partially offset by the closing of seven restaurants at various times
during 1996 whose combined sales were $2.0 million during the same period of
1996. Company-owned average same restaurant sales for the first nine months of
1997 were $721,000 compared to $699,000 for the same period in 1996, an
increase of 3.1%. The Company's management believes the 1997 first nine months
sales increase can be attributed to several factors, including price
increases, new advertising and promotional programs, continuing improvements
in operations at the restaurant level and the mild weather in the southeast in
the first quarter 1997 as compared to the same period in 1996. The Company had
249 restaurants open at the end of the first nine months of 1997 compared to
250 at the end of the first nine months of 1996.
Franchise fees and royalties increased $259,000 to $2.5 million in the first
nine months of 1997 versus the same period in 1996. The franchise system had
95 restaurants open at the end of the first nine months of 1997 compared to 83
open at the end of the same period in 1996. This increase in franchise fees
and royalties is a result of the increase in franchised restaurants.
Other revenue, which comes from the Company's aviation subsidiary, was $3.5
million in the first nine months of 1997 compared to $3.4 million in the same
period of 1996.
The average customer check for Company-owned full size restaurants in the
first nine months of 1997 was $3.78 as compared to $3.55 in the same period of
1996, an increase of 6.5%. The changes in average customer check are due to
product prices increasing approximately 3.7% in the first nine months of 1997
over the same period in 1996, and introducing promotional products and menu
combinations which increased the average customer check. Customer counts per
restaurant day decreased to 691 in the first nine months of 1997 compared to
709 in the same period of 1996, a decrease of 2.5%. The customer count decline
is partly attributable to a new cash register being installed throughout the
system which counts a customer with each sale registered rather than each time
the cash drawer is opened as the prior register system did. Conversion was
completed in 208 restaurants at September 28, 1997, and management believes
this change has reduced reported customer counts by approximately 1.7%, but
produces a more accurate customer count.
41
<PAGE>
Cost of restaurant sales increased $2.5 million, approximately 1.8%, to
$149.4 million in the first nine months of 1997, from $145.8 million in the
same period of 1996. Cost of restaurant sales as a percentage of restaurant
sales decreased to 83.0% in the first nine months of 1997 from 83.2% in the
same period of 1996. This decrease is primarily the result of increases in
food and paper costs and labor expenses that the Company was able to pass
through to customers with offsetting product price increases. Total food and
paper costs were $57.7 million in the first nine months of 1997 as compared to
$56.2 million in the same period of 1996. Food and paper costs as a percentage
of restaurant sales increased to 32.3% in the first nine months of 1997 as
compared to 32.0% in the same period of 1996. Direct labor cost increased
$522,000 in the first nine months of 1997, approximately 1.3%, to 22.3% of
restaurant sales in the first nine months of 1997, versus 22.4% in the same
period of 1996. Assistant restaurant manager labor cost increased $494,000,
approximately 6.3%. Assistant restaurant manager labor cost as a percentage of
restaurant sales increased to 4.7% in the first nine months of 1997 from 4.5%
in the same period of 1996. Restaurant manager labor cost increased $90,000,
approximately 1.6%, due to average salary increases for the first nine months
of 1997.
Depreciation and amortization expenses decreased $231,000, approximately
2.7%, to $8.2 million in the first nine months of 1997 as compared to $8.4
million for the same period in 1996. This decrease in the first nine months of
1997 is due to some assets being fully depreciated in late 1996.
General and administrative expenses increased by $89,000, approximately
0.5%, to $19.7 million in the first nine months of 1997 versus $19.6 million
in the same period of 1996. Advertising expense was approximately $7.5 million
in the first nine months of 1997, down from $7.6 million in the same period of
1996. Advertising expense as a percentage of restaurant sales was 4.2% in the
first nine months of 1997 compared to 4.4% in the same period of 1996.
Salaries increased $287,000 approximately 5.0%, to $6.0 million in the first
nine months of 1997 from $5.7 million in the same period of 1996. This
increase in salaries was primarily the result of accruing $226,000 for profit
incentive bonuses in 1997; no accrual was made in 1996 as there was a year-to-
date net loss.
In accordance with Statement of Position 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code, issued by the American
Institute of Certified Public Accountants, the Company is expensing
Reorganization Items as incurred. The total of such professional fees and
expenses during the first nine months of 1997 was $1.2 million as compared to
$2.3 million in the same period of 1996.
A reducing adjustment of $331,000 in interest related to certain pre-
petition liabilities, net, resulted in $96,000 of income during the first nine
months of 1997 compared to expense of $459,000 in the same period of 1996.
Interest income decreased $303,000 for the first nine months of 1997 compared
to the same period in 1996 due to the reduction in cash and temporary
investments from 1996.
Provision for income taxes increased to $928,000 in the first nine months of
1997 as compared to an income tax benefit of $199,000 for the same period in
1996, when the Company recorded a net loss for the period. The effective tax
rate of 36.0% approximates the combined statutory federal and state income tax
rates.
The write-off of unamortized financing costs in conjunction with
extinguishment of debt of $334,000 pre-tax was recorded in the first nine
months of 1997.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
Total revenues decreased 1.5% to $244.3 million in 1996 compared to $248.0
million in 1995. Restaurant sales decreased $2.9 million to $236.5 million in
1996 from 1995. Fiscal 1996 and fiscal 1995 were both 52 week years. Average
sales per company-owned restaurant decreased by 0.2% to $937,000 from $939,000
in 1995. The Company closed seven full size restaurants in 1996. Franchise
fees decreased $269,000 and royalties increased $358,000 in 1996 as the
Company's franchise system grew to 89 restaurants at the end of 1996 from 80
restaurants at the end of 1995. The Company recognizes franchise fees as
revenues upon the opening of a franchised restaurant.
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Same restaurant sales declined 0.4% in 1996 versus 1995. The principal cause
of this decrease was a 3.9% decrease in average customer count per restaurant
day to 714 in 1996 from 743 in 1995. Product prices increased approximately
2.2% in 1996 over 1995. The average customer check in 1996 was $3.59 for
company-owned FSRs and $3.90 for company-owned DDRs as compared to $3.46 and
$3.80, respectively, in 1995, an increase of approximately 3.8% and 2.6%,
respectively. The Company's management believes that the major national chains
deep discounting and heavy advertising combined with the over-expansion within
the industry have limited the Company's opportunities for increasing market
share. Given the competitive environment, the Company is deferring capital
outlays for new restaurant development and will concentrate on building same
restaurant sales to the levels experienced in the early 1990's.
Cost of restaurant sales decreased $1.3 million, approximately 0.7%, to
$195.7 million in 1996 from $197.0 million in 1995. Cost of restaurant sales
as a percentage of restaurant sales increased to 82.8% in 1996 from 82.3% in
1995. Total food and paper costs increased $1.2 million, approximately 1.5%,
and increased as a percentage of restaurant sales to 32.2% in 1996 as compared
to 31.3% in 1995. Direct labor cost decreased $1.2 million, approximately
2.2%, and decreased as a percent of restaurant sales to 22.3% in 1996 versus
22.5% in 1995, due to the reduction of the number of restaurants open in 1996
and the institution of a program to reduce direct labor staffing and increase
assistant manager staffing to improve training and operations. Assistant
restaurant manager labor cost increased $694,000, approximately 7.0%, and
increased as a percentage of restaurants sales to 4.5% in 1996 compared to
4.1% in 1995 due to the aforementioned program and average salary increases.
Restaurant manager labor cost increased $79,000, approximately 1.1%, due to
average salary increases net of seven restaurant closings during 1996.
Depreciation and amortization expense decreased $933,000, approximately
7.6%, to $11.4 million in 1996 as compared to $12.3 million in 1995. The
decrease in 1996 was primarily due to certain assets being fully depreciated
in late 1995 and during 1996.
General and administrative expenses decreased $348,000, approximately 1.4%,
to $25.4 million in 1996 versus $25.8 million in 1995. Advertising expense
increased $18,000 to $9.9 million in 1996 from $9.8 million in 1995.
Advertising expense as a percentage of restaurant sales was 4.2% in 1996
compared to 4.1% in 1995. Salaries increased $478,000, approximately 6.9%, to
$7.7 million in 1996 from $7.2 million in 1995. The increase in salaries was
primarily the result of normal cost of living increases given to staff
employees and the addition of key management personnel during 1995.
Professional fees, other than professional fees and expenses related to the
Chapter 11 proceedings, decreased $1.1 million, approximately 53.4%, to
$933,000 in 1996 as compared to $2.0 million in 1995.
In December 1995, the Company recorded a provision for loss on restaurant
closings and other property write-downs of $3,911,000 as discussed in Note 4
to Consolidated Financial Statements.
A special charge of $4.0 million was recorded in 1996, in addition to $10.0
million that was recorded in 1995, in connection with the compensation of
hourly employees as discussed in Note 11 to Consolidated Financial Statements.
Professional fees and expenses related to the Chapter 11 proceedings have
increased $3.7 million to $3.8 million in 1996 compared to $184,000 in 1995.
The Company has operated under Chapter 11 all of 1996 versus 16 days in 1995.
Contractual rate interest decreased $129,000 to $4.0 million in 1996
compared to $4.1 million in 1995 due to reductions in principal in 1995 before
the Chapter 11 filing stayed further principal payments.
Interest related to certain pre-petition liabilities is intended to
compensate creditors for the loss of use of funds during the Chapter 11
period. $1,200,000 was recorded for this expense in 1996, net of approximately
$375,000 of interest income from the investment of funds which, except for the
Chapter 11 restrictions, would have paid vendors' accounts.
Benefit from income taxes was $1.5 million in 1996 versus $3.7 million in
1995. The Company's effective income tax rates in 1996 and 1995 were 38.0% and
40.9%, respectively, as compared to the approximate combined statutory federal
and state income tax rates of 38.0%. The increased effective benefit rate for
1995 resulted from utilization of tax credits which were not available for
most of 1996.
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COMPARISON OF FISCAL 1995 TO FISCAL 1994
Total revenues decreased 0.1% to $248.0 million in 1995 compared to $248.3
million in 1994. Restaurant sales increased $272,000 to $239.4 million in 1995
from 1994. Fiscal 1995 and fiscal 1994 were both fifty-two week years. Average
sales per company-owned restaurant decreased by 2.2% to $939,000 from $960,000
in 1994. The Company opened six new full size restaurants and purchased an FSR
and a DDR from a franchisee and closed four full size restaurants in 1995.
Franchise fees decreased $178,000 and royalties increased $540,000 in 1995 as
the Company's franchise system grew to 80 restaurants at the end of 1995 from
65 restaurants at the end of 1994. The Company recognizes franchise fees as
revenues upon the opening of a franchised restaurant.
Same restaurant sales declined 2.9% in 1995 versus 1994. The principal cause
of this decrease was a decrease in average customer count per restaurant day
to 743 in 1995 from 778 in 1994, a decrease of 4.5%. Product prices increased
approximately 1.0% in 1995 over 1994. The average customer check in 1995 was
$3.46 for company-owned FSRs and $3.80 for company-owned DDRs as compared to
$3.37 and $3.65, respectively, in 1994, an increase of approximately 2.7% and
4.1%, respectively. The Company's management believes that the major national
chains deep discounting and heavy advertising combined with the over-expansion
within the industry have limited the Company's opportunities for increasing
market share.
Cost of restaurant sales increased $4.8 million, approximately 2.5%, to
$197.0 million in 1995 from $192.3 million in 1994. Cost of restaurant sales
as a percentage of restaurant sales increased to 82.3% in 1995 from 80.4% in
1994. Total food and paper costs increased $539,000, approximately 0.7% and
increased as a percentage of restaurant sales to 31.3% in 1995 as compared to
31.2% in 1994. Direct labor cost increased $2.7 million, approximately 5.4%,
to 22.5% of restaurant sales in 1995 versus 21.4% in 1994, due to average
hourly rate increases and additional staffing for new restaurants. Assistant
restaurant manager labor cost decreased $683,000, approximately 6.5% and
decreased as a percentage of restaurant sales to 4.1% in 1995 compared to 4.4%
in 1994. Restaurant manager labor cost increased $308,000, approximately 4.3%,
due to average salary increases and additional staffing for new restaurants.
Depreciation and amortization expense increased $1.1 million, approximately
9.8%, to $12.3 million in 1995 as compared to $11.2 million in 1994. The
increase in 1995 was primarily due to new restaurants, restaurant remodeling
and various equipment replacements.
General and administrative expenses for 1995 were approximately $25.8
million, unchanged from 1994. Advertising expense increased to $9.8 million in
1995 from $9.7 million in 1994. Advertising expense as a percentage of
restaurant sales was 4.1% in 1995 and 1994. Salaries increased $155,000,
approximately 2.2%, to $7.2 million in 1995 from $7.1 million in 1994.
Employees' benefit expenses decreased by $641,000, approximately 25.3%, to
$1.9 million in 1995 as compared to $2.5 million in 1994, primarily due to a
decrease in net pension expense as reported in the Notes to Consolidated
Financial Statements included elsewhere herein and a decrease in net deferred
compensation expense. Professional fees increased by $177,000, approximately
9.6%, to $2.0 million in 1995 as compared to $1.8 million in 1994 due to
various consultations in actuarial, architectural, legal and tax services.
In December 1995, the Company recorded a provision for loss on restaurant
closings and other property write-downs of $3,911,000 as discussed in Note 4
to Consolidated Financial Statements. This provision primarily relates to the
Company's estimated losses to be incurred associated with decisions to close
specific restaurants.
A special charge of $10.0 million was recorded in 1995 in connection with
the compensation of hourly employees as discussed in Note 11 to Consolidated
Financial Statements.
Interest expense increased by $333,000, approximately 8.8%, to $4.1 million
from $3.8 million in 1994. The increase in interest expense from 1994 was due
to the issuance of $20.0 million of senior notes in two tranches of $10.0
million each on May 2, 1994 and August 2, 1994, as reported in the Notes to
Consolidated Financial Statements.
Benefit from income taxes was $3.7 million in 1995 versus a $3.0 million
provision in 1994. The Company's effective income tax rates in 1995 and 1994
were 40.9% and 32.4%, respectively, as compared to
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the approximate combined statutory federal and state income tax rates of
38.0%. The increased effective benefit rate for 1995 and the lower effective
tax rate for 1994 primarily result from utilization of tax credits.
LIQUIDITY AND CAPITAL RESOURCES
The terms and provisions of the Reorganization Plan were approved by the
Bankruptcy Court on April 10, 1997 and became effective April 23, 1997. The
confirmed plan, which was substantially executed during the second quarter of
1997, provided for the following:
. term loans of $10.0 million and $20.0 million and a revolving loan of
$23.0 million effective April 23, 1997, and maturing April 23, 2002
(which were repaid with proceeds from the Financing);
. the payment of senior debt and secured debt totaling about $38.6 million
along with all past due interest and additional interest at 1.3% per
annum;
. the settlement of approximately 6,000 FLSA claims totaling about $12.6
million with pro se claims settled for approximately $100,000;
. the payment of holders of approximately $7.6 million of trade claims of
100% of their claims with interest at 8.5% per annum for the period
December 15, 1995-April 23, 1997.
The Company does not maintain significant inventory or accounts receivables
since substantially all of its restaurants' sales are for cash. Like many
restaurant businesses, the Company receives several weeks of trade credit in
purchasing food and supplies. The Company's receivables from franchisees are
closely monitored and collected weekly. The Company normally operates with
working capital deficits (current liabilities exceeding current assets), and,
had a working capital deficit of $4.8 million at September 28, 1997 compared
to a working capital surplus of $15.9 million at September 29, 1996. At
September 29, 1996, approximately $26.4 million of liabilities classified as
Liabilities Subject to Compromise during Chapter 11 status, would otherwise
have been classified as Current Liabilities.
Capital expenditures totaled approximately $5.5 million in the first nine
months of 1997 compared to $4.1 million for the same period in 1996. The
Company opened no new restaurants during the first nine months of 1997 or the
same period in 1996. Approximately $7.6 million is budgeted for capital
expenditures in 1997 for refurbishing of certain restaurants and ongoing
capital improvements. The Company owns approximately 53.8% of its restaurant
sites and leases the remainder.
On September 26, 1997 (effective September 29, 1997 for accounting
purposes), the Company was acquired by Holdings. The Acquisition was funded
through (i) the Equity Contribution, (ii) borrowings under the Credit Facility
and (iii) net proceeds of the offering of the Private Notes.
The Notes bear interest at 10 1/4% per annum and mature October 1, 2007.
Interest on the Notes is payable semi-annually on April 1 and October 1 of
each year commencing April 1, 1998. The Notes are redeemable in whole or in
part on or after April 1, 2002, at the option of the Company at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to the date
of redemption. In addition, prior to April 1, 2000 the Company may, subject to
certain conditions, redeem up to 35% of the original principal amount of the
Notes with the net proceeds of one or more Public Equity Offerings at a
redemption price equal to 110.25% of the principal amount thereof plus accrued
and unpaid interest thereon, if any, to the date of redemption. The Notes are
jointly and severally guaranteed by the Company's subsidiaries, but are
unsecured.
The Credit Facility is with SunTrust Bank, Atlanta, as agent for a group of
lenders and accrues interest at 0.0% to 0.5% over base rate or 1.0% to 2.5%
over Eurodollar rates based on the Company's funded debt coverage ratio. The
Credit Facility matures August 26, 2000, and is secured by substantially all
the tangible and intangible assets of the Company.
After acquisition of the Company's common stock, refinancing of existing
debt and payment at closing of $6.3 million of $7.3 million of transaction
costs and fees, the Company had available cash of approximately $5.9 million
and an available revolving loan facility of $9.5 million of which
approximately $4.0 million was used for letters of credit. Management believes
funds from operations, existing cash and the available Credit Facility will be
sufficient to meet its operating requirements, anticipated capital
expenditures and other obligations for the foreseeable future.
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BUDGETED CAPITAL EXPENDITURES
Management believes that cash flow from operations, existing cash and the
available Credit Facility will be sufficient to meet its anticipated capital
expenditures and other obligations for the next 12 months.
IMPACT OF INFLATION
Although increases in labor, food and other operating costs could adversely
affect the Company's operations, management does not believe that inflation
has had a material effect on income during the past several years.
SEASONALITY
The Company believes that seasonality affects operations during the
Company's first fiscal quarter (January, February and March) as indicated by
historic trends. The Company believes that revenues are lower in the first
fiscal quarter than in other fiscal quarters as a result of changes in
consumer shopping habits in reaction to the climate during that time of year.
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DESCRIPTION OF BUSINESS
HISTORICAL DEVELOPMENT OF KRYSTAL
The Company was founded in 1932 as a single restaurant in Chattanooga,
Tennessee by R.B. Davenport, Jr. and J. Glenn Sherrill. The Company expanded
steadily in subsequent years, entering the Georgia market in 1936, and during
the 1950's and 1960's began relocating restaurants from urban to suburban
locations and transforming its format from "cook-to-order" items to a more
standardized menu.
The Company's centerpiece of growth was its namesake, the KRYSTAL, a small,
square hamburger with steamed-in onion flavor served hot and fresh off the
grill. In the late 1960's, the Company repositioned the business away from its
specific market niche, expanding the menu to include larger hamburgers, fried
chicken and other entree items. The move placed the Company in direct
competition with other QSR chains. Despite the additional menu items, the
KRYSTAL continued to be the most popular item on the menu and the prime driver
of customer traffic.
In 1985, the Company refocused the menu, removing various entree items
previously added to compete with other QSR chains. As competition in the
restaurant industry increased in the late 1980's, the Company firmly
maintained its market niche by emphasizing the unique KRYSTAL. Krystal
Restaurants have continued to emphasize the KRYSTAL and have built their
customer base around this and other items such as "Krystal Chili," "Chili
Pups," "Corn Pups," the "Sunriser," a specialty breakfast sandwich, and the
"Country Breakfast."
On December 15, 1995, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code, solely for the purpose
of completely and finally resolving various claims of former and current
employees alleging violations of the FLSA. On April 10, 1997 the Bankruptcy
Court approved the Reorganization Plan including the settlement of the FLSA
claims which became effective on April 23, 1997. All allowed claims under the
Reorganization Plan have been paid and a final decree, terminating the
bankruptcy proceeding, is expected to be entered by the Bankruptcy Court by
the end of 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Bankruptcy Filing."
ACQUISITION
On September 26, 1997 (effective September 29, 1997 for accounting
purposes), the Company was acquired by Holdings (the "Acquisition"). At the
closing of the Acquisition, TKC, a wholly-owned subsidiary of Holdings, was
merged with and into the Company (the "Merger") and the Company as the
surviving corporation retained the name "Krystal." As a result of the
Acquisition and Merger, Holdings became the owner of 100% of the common stock
of the Company.
INDUSTRY OVERVIEW
The restaurant industry continues to benefit from the trend of the average
American family to consume meals "away from home." According to the
Association, Americans consumed an average of 4.1 commercially prepared meals
per week in 1996, up from 3.8 in 1995, a 7.9% increase. An increase of 0.3
commercially prepared meals weekly has added approximately 68 million meals
weekly to the commercial foodservice market. Restaurant industry sales are
strongly correlated with factors such as population and income growth and
employment conditions. Historically, as personal disposable income increases,
consumers eat "away from home" more frequently and spend a greater portion of
their food dollar on meals "away from home." The Association projects
population, personal income and total employment to grow 1.0%, 5.1% and 1.4%,
during 1997, respectively. As a result, the restaurant industry is estimated
to grow 4.2% (assuming an inflation of 2.8%) during 1997 generating revenues
of $320.4 billion.
The QSR segment includes hamburgers, pizza, chicken, Mexican food,
fish/seafood, ice cream/yogurt, donuts, bagels and various types of
sandwiches. In recent years, the QSR industry has experienced significant
growth in both revenues and number of restaurants. Representing over 30% of
total restaurant industry revenues, the QSR segment is projected to grow 5.3%
to exceed $103.5 billion in 1997, outpacing industry growth. According to
Technomic, Inc., the QSR segment grew at a compound annual growth rate of 5.1%
between 1993
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and 1996. Hamburgers represent almost 48% of the QSR segment, the largest food
product category, followed by pizza and sandwiches. Cahners projects the
hamburger category to grow 6.6% in 1997, exceeding the growth rates of all
other categories and the QSR segment as a whole.
Convenience, cleanliness, speed of service and perceived value continue to
be the primary factors that drive QSR revenues, along with an increasing
demand for unique taste sensations. In general, many consumers lack the
skills, knowledge, kitchen equipment or foodstuffs to reproduce their favorite
foods at home. According to a 1996 Association consumer survey, approximately
66% of adult food consumers dine "away from home" to receive flavor and taste
sensations that cannot be easily duplicated at home. Consequently, restaurants
offering a unique product with quick service at reasonable prices enjoy a
distinct competitive advantage.
COMPANY STRENGTHS
STRONG BRAND NAME RECOGNITION. Krystal Restaurants operate under one of the
most highly recognized brand names in the Southeast QSR market. The Krystal
name is synonymous with the unique KRYSTAL, a small, square hamburger with a
steamed-in onion flavor served hot and fresh off the grill. The Company has
been offering quick, friendly service and unique food products at everyday low
prices for more than 65 years. The Company's long-standing market presence and
brand name recognition have generated strong consumer loyalty, making it a
part of the fabric of life in the South.
UNIQUE KRYSTAL MENU. In addition to the signature KRYSTAL, Krystal
Restaurants offer other unique items such as "Krystal Chili," "Chili Pups,"
"Corn Pups," "Chili Cheese Fries" and the "Sunriser," a specialty breakfast
sandwich.
EVERYDAY LOW PRICES. The Company believes that it offers its high-quality
hamburgers at a lower price than the leading QSR hamburger chains. The
KRYSTAL, the Company's namesake product, is currently priced at $0.49 ($0.59
with cheese) at substantially all Krystal Restaurants. The everyday low prices
have encouraged customers to purchase the product by the "sackful" (an average
of three to four KRYSTALS per customer). Such consistent volume purchasing
supports an average check size of $3.77 and $4.09 in company-owned FSRs and
DDRs, respectively.
CONCENTRATED MARKET PRESENCE. As of September 28, 1997, the Company had a
total of 344 Company-owned and frachised restaurant locations spread
throughout the southeastern United States. By virtue of the size and regional
concentration of this restaurant system, the Company is able to leverage its
marketing and advertising expenses and benefit from distribution efficiencies.
The Company's regional concentration has created DMAs that the Company
believes generate synergies in the area of brand name recognition.
STRENGTH OF THE SOUTHEAST MARKET. According to the Association, growth in
the QSR industry is strongly correlated with factors such as population and
income growth. Krystal Restaurants are located in the following ten states:
Georgia, Tennessee, Alabama, Florida, Mississippi, Kentucky, Arkansas, North
and South Carolina and Louisiana. The Association classifies these states
under the South Atlantic and East South Central regions and predicts that, for
the foreseeable future, both regions will experience population and personal
income growth exceeding that of the United States as a whole. The Company's
DMAs are projected to experience population growth of 1.5% and real personal
income growth of 2.9% versus the projected national averages of 1.0% and 2.3%,
respectively. Considering the strength of the Southeast market, the Company is
well-positioned to benefit from these trends.
STRONG FRANCHISE PROGRAM. The Company began franchising Krystal Restaurants
in 1990, and as of September 28, 1997 had 95 franchised restaurants,
representing over 27.6% of its total restaurant system. The Company believes
that it enjoys strong relationships with its franchisees. The demand for
Krystal franchises has grown steadily since the inception of the franchise
program. The number of franchise locations has increased at a compound annual
growth rate of 29.4% from 28 in December 1992 to 95 as of September 28, 1997.
As of the same date, the Company was in various stages of negotiation to add
as many as 51 additional units by the end of 1997. For the first nine months
of 1997, the Company opened seven new franchised restaurants and from the
existing commitments expects to open an additional nine restaurants by the end
of 1997.
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SUBSTANTIAL OWNED PROPERTIES. Over 53.8% of the Company's restaurants are
owned rather than leased, providing a significant asset base.
NEW MANAGEMENT TEAM. Immediately following the Acquisition, the Company
named Philip H. Sanford, as Chairman and Chief Executive Officer, and James F.
Exum, Jr., as President and Chief Operating Officer. Both Mr. Sanford and Mr.
Exum also serve as directors of the Company.
. PHILIP H. SANFORD. For the previous six years, Mr. Sanford was the Senior
Vice President, Finance and Administration of Coca-Cola Enterprises Inc.
("CCE"), the world's largest marketer, distributor and producer of
bottled and canned beverage products of The Coca-Cola Company. Mr.
Sanford's responsibilities included Human Resources, Treasury, Corporate
Finance, Risk Management, Internal Audit and Investment Management. As
one of the four principal executive officers of CCE, Mr. Sanford was
significantly involved in developing and implementing that company's
broad corporate strategy, with a particular focus on administrative
management, financial policy and acquisitions. Mr. Sanford was a senior
executive with Johnston Coca-Cola Bottling Group until it merged with CCE
in 1991.
. JAMES F. EXUM, JR. Mr. Exum has served as President and Chief Executive
Officer of Pennant Foods Corp., which owns and operates 75 Wendy's
restaurants since 1995. From 1991 to 1995, Mr. Exum served as President
and Chief Executive Officer of Southern California Food Services Corp.,
the predecessor to Pennant Foods Corp. Mr. Exum started in the QSR
hamburger industry in 1975 as a management trainee in a Chattanooga
Wendy's restaurant while attending college and has held every significant
position in a QSR hamburger chain.
BUSINESS STRATEGY
The Company's business strategy is to cut costs, primarily at the corporate
level, increase same-restaurant sales and add new restaurants, both company-
owned and franchised, on a selective basis. This strategy is based on the
following elements:
SIGNIFICANTLY REDUCE COST STRUCTURE. The Company's new management has
identified a number of cost savings opportunities that will improve the
Company's earnings. Management believes that the Company has maintained
disproportionately large corporate overhead expenses in relation to its
restaurant operations. The Company plans to improve profitability by
rationalizing the cost structure to bring expenses in line with industry
averages. Management believes it can achieve annual cost savings in excess of
$4.7 million by:
. Reducing Headcount. During the Company's 65-year history of family-
controlled management, a number of positions were created, primarily at
the corporate level, which in the Company's opinion were unnecessary. The
Company believes that streamlining corporate functions to resemble a head
office structure similar to that of its competitors and imposing rigid
expense controls will generate significant cost savings both from the
reduction in headcount and the associated overhead costs.
. Revamping Purchasing Strategy. The Company currently negotiates its
purchasing contracts directly with individual product vendors. The
Company also utilizes three different jobbers to warehouse and distribute
the supplies purchased from its product vendors. The Company intends to
centralize its purchasing by using one jobber instead of three and
permitting that one jobber to conduct direct negotiations with each
product vendor. The Company believes that this consolidation will allow
the Company to benefit from the size and regional concentration of its
restaurant system.
. Outsourcing Selected Functions. The Company currently performs internally
a variety of corporate tasks, such as certain tax functions and
information systems development, that could be performed more efficiently
by external sources. In the Company's opinion, certain areas of "home
grown" expertise have become uneconomical to maintain considering the
availability of industry specialists. Outsourcing
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functions will reduce the associated overhead and allow the Company to
keep up with certain industry practices.
GROWTH OPPORTUNITIES. The Company plans to develop new Krystal Restaurants in
existing markets where Krystal has an established presence, enabling the
Company to benefit from advertising and distribution efficiencies. The Company
also plans to pursue expansion into carefully selected contiguous markets to
permit overlap benefits from neighboring markets with respect to advertising
and brand name recognition. The Company intends to target restaurant growth in
DMAs where it can achieve, or the Company has already achieved, sufficient
penetration to justify television advertising.
INCREASE FRANCHISED RESTAURANTS. The Company believes that significant
opportunities exist to increase the number of franchised Krystal Restaurants.
System expansion through franchising can provide significant additional revenue
growth with a low level of investment by the Company. Existing and potential
franchisees have expressed interest in developing Krystal Restaurants in areas
inside and outside of the Company's existing and contiguous markets. The
Company expects to evaluate and, where appropriate, pursue such opportunities,
with the intent of widening Krystal's brand name recognition at relatively low
risk and cost to the Company. In the near term, franchise location selection
will focus on "filling in" existing DMAs to improve market efficiencies and
provide suitable support for new franchise entrants.
ENHANCE KRYSTAL BRAND RECOGNITION. In 1996, the Company granted an exclusive
worldwide license to the Jimmy Dean Foods Division of Sara Lee Corporation to
manufacture, distribute and sell frozen KRYSTALS into grocery and warehouse
channels. This license has a five-year term with an optional five-year renewal
clause. The concept has been in test marketing since early 1997 in the
Birmingham-Montgomery, Alabama and Tampa-Orlando, Florida markets. The
Company's management believes there are many similar opportunities to
capitalize on the Krystal brand name in venues other than restaurants.
UPGRADE AND LEVERAGE INFORMATION TECHNOLOGY. Currently, the Company relies on
various proprietary software packages installed on mainframe computers to
control functions including accounting, labor scheduling, payroll and
purchasing. The Company believes these applications are outdated and should be
replaced with off-the-shelf programs designed specifically for the restaurant
industry. Such software upgrades would require the replacement of the Company's
mainframes with a client-server system. The costs associated with such software
and hardware upgrades would, in the Company's opinion, be more than offset by
the increased productivity of the required accounting staff, improved labor
scheduling and more efficient delivery of the real-time information required by
management to effectively allocate resources in making price, product and
promotional decisions.
FOCUS ON UNIQUE, QUALITY PRODUCTS AND SUPERIOR CUSTOMER SERVICE. The Company
intends to refocus operations on the core values upon which the Company was
founded. This involves reemphasizing quality food at everyday low prices served
by a friendly staff in clean restaurants. The Company will redesign training
and incentive programs to reorient staff and management toward these goals.
RESTAURANT OPERATIONS
Menu. Krystal Restaurants offer a substantially uniform menu consisting of
the well-known KRYSTAL, "Krystal Chili," "Chili Pups," "Corn Pups," "Chili
Cheese Fries," "Krystal Chicken Sandwich," the "Sunriser," a specialty
breakfast sandwich, and the "Country Breakfast." While emphasizing the KRYSTAL,
the menu is designed to provide choices to satisfy a broad range of consumer
preferences. The Company also test markets new products from time to time.
Format. The Company has developed three formats for its restaurant locations.
Format selection for individual restaurant sites involves consideration of a
number of factors, including site location and site availability. The three
Krystal Restaurant formats are as follows:
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. FULL-SIZE RESTAURANTS ("FSRS"). The Company's full-size restaurants offer
the full Krystal menu and range in size from 1,800 to 3,100 square feet,
20 to 80 seats and 30 to 50 parking spots. FSR new unit investment is
estimated to range from $645,450 to $862,650 without land. The typical
FSR is open 24 hours a day and generates an average check size of $3.77
in company-owned restaurants and $4.05 in franchised restaurants. Located
primarily in suburban areas, FSRs generally draw traffic from a three to
five mile radius.
. DOUBLE DRIVE-THRU RESTAURANTS ("DDRS"). The DDR format was developed
primarily in response to customer demand for quicker service. Less than
one-third the size of FSRs and requiring a significantly lower capital
investment (ranging from approximately $387,950 to $550,650 without
land), DDRs range in size from 350 to 640 square feet and generate an
average check size of $4.09 in company-owned restaurants and $4.29 in
franchised restaurants. The higher average check size and lower initial
capital outlay has made the DDR an attractive format choice for
franchisees.
. NON-TRADITIONAL RESTAURANTS ("NTRS"). Recently, the Company has opened
restaurants in a "store-within-a-store" concept (i.e. convenience
stores). The strong Krystal brand name drives traffic to the underlying
store, making the addition of a Krystal counter an attractive investment
opportunity for the owners of such stores seeking to increase customer
traffic. New unit investment for this format ranges from $191,575 to
$494,900. On average, these locations generate average check sizes of
$3.82.
Restaurant Sales Data. The following table sets forth certain restaurant
operating data for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
------------------------------------ -------------
JANUARY 1, DECEMBER 31, DECEMBER 29, SEPTEMBER 28,
1995 1995 1996 1997
---------- ------------ ------------ -------------
(DOLLARS IN THOUSANDS EXCEPT CHECK-SIZE
INFORMATION)
<S> <C> <C> <C> <C>
Average sales per Compa-
ny-owned restaurant:
FSRs................... $ 987 $ 956 $ 956 $ 733
DDRs................... 487 534 521 399
Combined............... 960 939 937 718
Same-restaurant sales
(decrease) vs. prior
years:
Company-owned.......... (1.7)% (2.9)% (0.4)% 3.1%
Franchised............. (5.8) (5.5) (6.2) (1.3)
Average Check-Size
Company-owned.......... $3.38 $3.46 $3.60 $3.78
Franchised............. 3.86 3.87 3.93 4.07
</TABLE>
RESTAURANT DEVELOPMENT
In 1996, 13 new Krystal Restaurants were opened, including six NTRs in
convenience stores and for the nine months ended September 28, 1997 a further
seven Krystal Restaurants were added, of which six were NTRs. These NTRs,
typically licensed to multi-unit convenience store operators, represent an
important growth vehicle as they allow the Company to pursue two core
development strategies (i) to "fill in" existing markets with the optimum
number of restaurants in smaller, secondary trading areas that would not
typically support a free-standing restaurant; and (ii) to increase the speed
of expansion in existing markets by joining with partners who have the
resources and skills to roll-out quickly multi-unit operations.
The Company believes that it can sustain average unit growth of 20 to 35
units per year representing a five to 10% growth in the overall system. From
January 1, 1992 to September 28, 1997, 131 restaurants were opened, of which
35 were company-owned and 96 were franchised, and 34 restaurants were closed,
of which 20 were company-owned and 14 were franchised. This net increase of 97
restaurants represents an average annual increase of 6.8%. Company-owned
restaurant expansion was suspended during the bankruptcy proceedings; recent
system growth has been provided by franchisees.
51
<PAGE>
The following table sets forth the development of Krystal Restaurants from
1992 through the first nine months of 1997.
<TABLE>
<CAPTION>
NUMBER OF RESTAURANTS
------------------------
COMPANY
YEAR OWNED FRANCHISED TOTAL
---- ------- ---------- -----
<S> <C> <C> <C>
1992........................ 231 28 259
1993........................ 240 44 284
1994........................ 252 65 317
1995........................ 256 80 336
1996........................ 249 89 338
1997 (first nine months).... 249 95 344
</TABLE>
RESTAURANT LOCATIONS
The following table sets forth the number of restaurants in the Company's
system as of September 28, 1997.
ALABAMA
<TABLE>
<CAPTION>
MARKET COMPANY FRANCHISED TOTAL
------ ------- ---------- -----
<S> <C> <C> <C>
Anniston.................... 0 1 1
Birmingham.................. 13 3 16
Dothan...................... 0 1 1
Huntsville.................. 11 4 15
Mobile...................... 9 3 12
Montgomery.................. 5 3 8
--- --- ---
Subtotal.................. 38 15 53
ARKANSAS
<CAPTION>
MARKET COMPANY FRANCHISED TOTAL
------ ------- ---------- -----
<S> <C> <C> <C>
Jonesboro................... 0 1 1
--- --- ---
Subtotal.................. 0 1 1
FLORIDA
<CAPTION>
MARKET COMPANY FRANCHISED TOTAL
------ ------- ---------- -----
<S> <C> <C> <C>
Jacksonville................ 17 3 20
Orlando..................... 19 0 19
Panama City................. 0 2 2
Tallahasse, Thomasville, GA. 2 1 3
Tampa....................... 3 1 4
--- --- ---
Subtotal.................. 41 7 48
GEORGIA
<CAPTION>
MARKET COMPANY FRANCHISED TOTAL
------ ------- ---------- -----
<S> <C> <C> <C>
Albany...................... 4 1 5
Atlanta..................... 46 17 63
Augusta..................... 5 2 7
Columbus.................... 9 1 10
Macon....................... 8 2 10
Savannah.................... 6 3 9
--- --- ---
Subtotal.................. 78 26 104
</TABLE>
52
<PAGE>
KENTUCKY
<TABLE>
<CAPTION>
MARKET COMPANY FRANCHISED TOTAL
------ ------- ---------- -----
<S> <C> <C> <C>
Bowling Green............... 2 0 2
Lexington................... 0 5 5
Paducah-Harrisburg.......... 0 1 1
--- --- ---
Subtotal.................. 2 6 8
LOUISIANA
<CAPTION>
MARKET COMPANY FRANCHISED TOTAL
------ ------- ---------- -----
<S> <C> <C> <C>
New Orleans................. 0 1 1
--- --- ---
Subtotal.................. 0 1 1
MISSISSIPPI
<CAPTION>
MARKET COMPANY FRANCHISED TOTAL
------ ------- ---------- -----
<S> <C> <C> <C>
Columbus-Tupelo............. 0 2 2
Gulfport.................... 0 2 2
Greenville.................. 0 1 1
Hattiesberg................. 2 2
Jackson..................... 8 5 13
Meridian.................... 0 1 1
--- --- ---
Subtotal.................. 10 11 21
NORTH CAROLINA / SOUTH CAROLINA
<CAPTION>
MARKET COMPANY FRANCHISED TOTAL
------ ------- ---------- -----
<S> <C> <C> <C>
Charlotte................... 0 2 2
Greenville, Spartanburg,
Asheville.................. 0 1 1
--- --- ---
Subtotal.................. 0 3 3
TENNESSEE
<CAPTION>
MARKET COMPANY FRANCHISED TOTAL
------ ------- ---------- -----
<S> <C> <C> <C>
Bristol-Kingsport-Johnson
City....................... 0 3 3
Chattanooga................. 19 1 20
Jackson..................... 1 1 2
Knoxville................... 16 6 22
Memphis..................... 15 6 21
Nashville................... 29 8 37
--- --- ---
Subtotal.................. 80 25 105
=== === ===
Totals.................... 249 95 344
=== === ===
</TABLE>
FRANCHISE OPERATIONS
The Krystal franchise system includes three distinct types of franchise
agreements (the "Franchise Agreements").
Standard Franchise Agreement: Pursuant to a standard franchise agreement (a
"Standard Agreement"), a franchisee acquires the right to operate a single
Krystal restaurant at a specific location for a standard term of ten years. A
fee of $32,500 (the "Franchise Fee") is payable upon execution of a Standard
Agreement. In addition, each Standard Agreement requires the franchisee to pay
a franchise royalty and service fee and a marketing
53
<PAGE>
contribution equal to a percentage of the weekly gross receipts generated by
the franchised restaurant as well as other fees related to, among other
things, additional training and assistance. A Standard Agreement can be
renewed for a term of ten years if the franchisee meets certain requirements.
Subsequent to a renewal term, a franchisee can request any number of successor
franchise agreements provided that the requesting franchisee is in good
standing with the Company.
Multi-Unit Franchise Development Agreement: A multi-unit franchise
development agreement (a "Multi-Unit Agreement") provides a franchisee with
the right and license to develop a certain number of restaurants in a defined
geographic territory within a specified period of time. A separate Standard
Agreement must be executed and a Franchise Fee must be paid for each
restaurant developed under a Multi-Unit Agreement. A development fee of
$12,500 is required for each restaurant developed pursuant to a Multi-Unit
Agreement. This development fee is then credited toward the Franchise Fee
payable for each restaurant. A Multi-Unit Agreement is not renewable and
expires on the date that the last restaurant to be developed under the
agreement opens or is scheduled to be opened.
Non-Traditional Location License Agreement: A non-traditional location
license agreement (a "Non-Traditional License Agreement") provides a licensee
with the right to operate a restaurant unit in a non-traditional location such
as a convenience store for a term of either five or ten years depending on the
license fee amount. A license fee of $8,125 is required for a five-year term
and a license fee of $16,250 is required for a ten-year term. In addition to a
license fee, each licensee under a Non-Traditional License Agreement must pay
a license royalty and service fee and a marketing contribution equal to a
percentage of the weekly gross receipts generated by the franchised unit as
well as certain other fees. Non-Traditional License Agreements can be renewed
for successive five-year terms provided that the requesting licensee is in
good standing with Krystal.
As of September 28, 1997, there were 95 franchised units of which 82 were
operated under Standard Agreements and 13 were operated under Non-Traditional
License Agreements. Total revenues received by the Company from franchising
activities amounted to approximately $3.0 million in 1995, $3.1 million in
1996, and $2.5 million as of September 28, 1997.
Eight of the Company's Franchise Agreements are due to expire in 2000 and an
additional 29 are due to expire during the two years thereafter. The Company
believes that it enjoys a good relationship with its franchisees and that the
Company will be able to renew substantially all of the Franchise Agreements
due to expire as set forth above at their expiration.
The Franchise Agreements do not grant exclusive territories and can be
terminated by the Company upon failure of a franchisee to comply with the
terms of the Franchise Agreement, including the Company operating policies,
and for certain other events. Each of the three types of Franchise Agreements
is assignable by the franchisee only with the Company's consent. Krystal
franchisees obtain their own financing.
SUPPLIERS AND DISTRIBUTION
The Company negotiates prices directly with wholesale suppliers for the
purchase of food, equipment, beverages and other supplies ("Supplies"). Under
the terms negotiated by the Company, the Supplies are then sold to third-
parties ("Jobbers") who warehouse and sell the Supplies to the Company as
needed. Currently, the Company purchases its Supplies through three Jobbers
with approximately 80% of the total purchases made through a single Jobber,
PYA Monarch. However, the Company feels that alternative Jobbers (and
suppliers) are available or can be made available without material
interruption to the Company's operations and that benefits can be derived from
consolidating 100% of the Company's purchases with one Jobber. Franchisees may
purchase their Supplies from the same suppliers used by the Company or from
other company-approved suppliers.
54
<PAGE>
QUALITY ASSURANCE
The Company currently maintains an in-house quality control department that
monitors and enforces standards on products, and continually evaluates food
quality in all restaurants. The restaurants prepare, assemble and package food
products using specifically designed production techniques and equipment to
obtain uniform standards of quality. In recent years, additional emphasis has
been placed on the development and support of product quality and consumer
quality assurance. Supplier and product monitoring activities include periodic
manufacturing facility audits, product sampling and analysis of products
according to certain well-defined criteria.
LICENSE AGREEMENT
In 1996, the Company granted an exclusive worldwide license to the Jimmy
Dean Foods Division of Sara Lee Corporation to manufacture, distribute and
sell frozen KRYSTALS into grocery and warehouse channels. The license has a
five-year term with an optional five-year renewal clause. The concept has been
in test market since early 1997 in the Birmingham-Montgomery, Alabama and
Tampa-Orlando, Florida markets. In connection with the test marketing, Krystal
is also conducting research to determine the impact of the program (i) on the
Krystal brand name, (ii) on restaurant sales and (iii) on the amount of
potential ancillary income. The results of the test marketing and related
research are not yet complete. Should the Company decide to go forward, the
initial roll-out will occur in present Krystal markets, and the Company will
be required under the license agreement to invest approximately $210,000 in
addition to the $140,000 already invested in the program. Should the Company
decide not to go forward for any reason other than non-performance by Sara
Lee, the Company is required to pay to Sara Lee $100,000.
COMPETITION
The QSR industry is highly competitive with respect to price, product
quality, variety and taste, speed of service, convenience of location and
restaurant cleanliness and upkeep. The Company believes that Krystal
Restaurants compete effectively in each of the aforementioned categories in
its DMAs. Factors such as inflation, increases in food, labor (including
health care) and energy costs and the availability of an adequate number of
hourly-paid employees also affect the QSR industry. In each of its markets,
the Company competes with large national QSR chains, some of which have
greater financial resources than the Company. Regional QSR chains,
delicatessens, food counters, cafeterias and other local restaurants offering
moderately priced menus also compete with the Company. The Company believes
that the only other QSR chain with similar products and pricing is White
Castle, whose presence in the Company's market is limited to three restaurants
in Nashville, Tennessee.
With respect to the sale of franchises, the Company competes with many
franchisors of restaurants, including franchisors of QSR food concepts and
other business concepts. The Company believes that it succeeded in attracting
a number of franchisees due to the strength of the Krystal brand name and the
Company's regional presence. In general, there is also active competition for
management personnel, capital and attractive commercial real estate sites
suitable for restaurants.
EMPLOYEES
As of September 28, 1997, the Company employed 8,593 employees of which 844
were salaried employees and 7,749 were hourly wage earners. The Company does
not have contracts with any unions or any of its employees. Approximately 37%
of Krystal's employees are paid the minimum wage and, consequently, their rate
of pay is increased as mandated by applicable laws. Effective September 1,
1997, the Federal minimum wage increased from $4.75 to $5.15. See "Risk
Factors--Minimum Wage Increase." The Company had been anticipating this
increase, and believes that it can offset such increases through pricing
increases and cost reductions.
RESTAURANT STAFFING AND TRAINING
A typical FSR or DDR during peak hours is staffed with eight to 14 crew
members with a manager or assistant manager on the premises at all times. The
function of assuring that each company-owned restaurant
55
<PAGE>
consistently delivers high-quality food and service is performed by district
supervisors, who report to directors of area operations. Directors of area
operations, in turn, report to the director of field operations. District
supervisors and directors of area operations are compensated with a fixed
salary plus a bonus based on the performance of the restaurants under their
supervision. On average, the Company has one district supervisor for every
seven Krystal Restaurants for a total of 35 positions and eight directors of
area operations.
The Company's current training programs emphasize quality food preparation,
quick service, cleanliness of restaurants, courteous employees and consistency
of execution. The Company hosts the Krystal achievement program for its
restaurant crews, a program that utilizes video and hands-on training to
communicate the Company's values relating to customer service and food
quality. Shift managers experience a six-week, off-site basic operations
program, which includes both hands-on and classroom training. A follow-up 13-
week advanced operations course is conducted on-site, reviewing labor
scheduling, food safety and management practices. Additionally, the Company
conducts frequent technical seminars that cover a variety of topics including
inventory management, sensitivity training (i.e., sexual harassment seminars)
and customer service techniques. The Company believes that training is
important to the success of Krystal Restaurant operations and expects to
continue these programs and seminars in some form.
ADVERTISING AND PROMOTION
The Company utilizes a three-tiered marketing strategy funded by both
franchised and company-owned restaurants to grow sales. Broadcast media (TV
and radio) create brand awareness and quickly communicate new promotional
programs to a large audience. The majority of markets in which the Company has
restaurants (15 out of 23 markets) have a full broadcast marketing program.
Print media (newspaper inserts, direct mail) generate trial and repeat
customer visits by offering incentives (usually in the form of coupons) to
purchase promoted menu items or discounted meal offers. These programs can be
tailored to local-market or restaurant-specific situations. Finally, the in-
restaurant merchandising (signage and point-of-purchase advertising)
encourages customers to try new offers or to increase the check amount through
combo meals and portion trade-up offers.
The annual promotional calendar typically has seven media-supported events,
consisting of either value-offers of current menu items, normally focused on
the KRYSTAL, or limited time offers ("LTOs") of new menu items. The objective
of the LTOs is to increase short-term sales by giving consumers a new reason
to visit Krystal while simultaneously enhancing Krystal's brand name and value
perception by offering distinctive tasting items at a good price.
TRADEMARKS AND PATENTS
The Company has registered "Krystal," "Krystal Kwik" and variations of each,
as well as certain product names, with the United States Patent and Trademark
Office. The Company regards these trademarks as having significant value and
as being important to current and future marketing efforts. The Company
intends to pursue registration of these marks whenever possible and oppose
vigorously any infringement of these marks.
56
<PAGE>
PROPERTIES
As of September 28, 1997, the Company owned or leased a total of 249 real
property sites for the operation of FSRs and DDRs. These sites are further
described in the following table:
<TABLE>
<CAPTION>
PERCENT OF HISTORICAL PERCENT OF
DESCRIPTION NUMBER TOTAL GROSS COST TOTAL
----------- ------ ---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Owned and mortgaged........... 134 53.82% 109,045 68.81%
--- ------ ------- ------
Total owned.................. 134 53.82% 109,045 68.81%
Ground leased and building
owned........................ 64 25.70% 31,511 19.88%
Land and building leased,
improved by the company...... 51 20.48% 17,928 11.31%
--- ------ ------- ------
Total leased................. 115 46.18% 49,439 31.19%
--- ------ ------- ------
Total restaurants............ 249 100.00% 158,484 100.00%
=== ====== ======= ======
</TABLE>
The average remaining life under the Company's capital and operating leases
is approximately five years, without consideration of renewal privileges.
Including these renewal arrangements, the average life remaining is
approximately 13 years. The Company also owns five parcels and leases one
unimproved parcel of real property for future use as restaurant sites. The
Company also owns one and leases 24 restaurant sites in the Baltimore,
Washington, D.C. and St. Louis metropolitan areas, which it in turn leases or
subleases to Davco Restaurants, Inc. ("Davco"), a Wendy's International, Inc.
franchisee and former affiliate of the Company. The Company believes that it
will be able to renew all of the aforementioned leases upon their expiration
at commercially acceptable rates or sell the sites to Davco or a third party.
The Company leases 45,741 square feet of space for its corporate
headquarters located at One Union Square in Chattanooga, Tennessee. This lease
expires on June 30, 1998. The Company believes that it will be able to renew
this lease, or find alternative space, at rates that are similar to or better
than the current rate.
The Company seeks to remodel its stores every three to five years, on
average, which generally entails remodeling of the dining area, and cleaning
and maintenance of the kitchen and storage areas. The timing of the decision
to remodel restaurants depends on such factors as store type and age, traffic
and location. The Company believes that its stores are modern and in a good
state of repair.
AVIATION OPERATIONS
Through subsidiary companies, the Company began operating a fixed base
hangar and airplane fueling operation in 1977 and managing the leasing of
airplanes in 1989. The Company's wholly-owned subsidiary, Krystal Aviation Co.
("Aviation") operates a fixed base airport hangar in Chattanooga, Tennessee.
Aviation's revenues in each of the last three years were less than three
percent of the Company's total revenues. Aviation contributed $839,000,
$482,000 and $434,000 million in EBITDA in each of 1994, 1995 and 1996,
respectively. Results in 1995 and 1996 included write-downs associated with
the acquisition of Signal Aviation and the elimination of maintenance
operations in connection with that acquisition.
For the first nine months of 1997, Aviation had revenues of approximately
$3.5 million. Revenues for the same period from the preceding year were also
approximately $3.4 million. EBITDA for the first nine months of 1997 was
$628,000 compared to $315,000 for the same period of the preceding year. The
Company believes that EBITDA for the first nine months of 1997 was higher than
EBITDA for the same period from the preceding year largely as a result of the
elimination of maintenance operations.
GOVERNMENT REGULATION
Various Federal, state and local laws affect the operation of Krystal
Restaurants including various health, sanitation, fire and safety standards.
Newly constructed or remodeled restaurants are subject to state and local
57
<PAGE>
building code and zoning requirements. In connection with the remodeling and
alteration of Krystal Restaurants, the Company may be required to expend funds
to comply with certain Federal, state and local regulations, including
regulations requiring remodeled or altered buildings to be handicap
accessible.
The Company is subject to the Fair Labor Standards Act and various state
laws governing such matters as minimum wage requirements, overtime and other
working conditions and citizenship requirements. A significant number of
Krystal's food service personnel are paid at rates related to the Federal
minimum wage, and increases in the minimum wage could increase labor costs.
Effective September 1, 1997, the Federal minimum wage increased from $4.75 to
$5.15. See "Risk Factors--Minimum Wage Increase."
State laws that regulate the offer and sale of franchises and the
franchisor-franchisee relationship presently exist in a significant number of
states. Such laws generally require registration of the franchise offering
with state authorities and regulates the franchisor-franchisee relationship
by, for example, requiring the franchisor to deal with the franchisees in good
faith, prohibiting interference with the right of free association among
franchisees, limiting the imposition of standards of performance on a
franchisee and regulating discrimination among franchisees in charges, fees or
royalties. These laws have not precluded the Company from seeking franchisees
in any given area. Although such laws may restrict a franchisor in the
termination of a franchise agreement by, for example, requiring "good cause"
to exist as a basis for the termination, advance notice to the franchisee of
the termination, an opportunity to cure a default and repurchase of inventory
or other compensation, these provisions have not had a significant effect on
the Company's operations.
ENVIRONMENTAL MATTERS
While the Company is not aware of any Federal, state or local environmental
regulations that will materially affect the Company's operations or
competitive position, or result in material capital expenditures, it cannot
predict the effect on its operations from possible future legislation or
regulation. For the nine months ended September 28, 1997, other than normal
equipment expenditures, the Company made no material capital expenditures for
environmental control facilities and the Company does not presently anticipate
any such material expenditures. See "Risk Factors--Environmental Matters."
LITIGATION
The Company is party to various legal proceedings incidental to its
business. In the opinion of the Company, the resolution of these proceedings
will not have a material adverse effect on the Company's financial condition
or results of operations.
58
<PAGE>
MANAGEMENT
The directors and senior management of the Company are:
<TABLE>
<S> <C> <C>
Philip H. Sanford..................... 44 Chairman, Chief Executive Officer and Director
James F. Exum, Jr..................... 40 President, Chief Operating Officer and Director
Gordon L. Davenport, Jr............... 38 Vice President, Marketing
Larry J. Reeher....................... 50 Vice President, Human Resources
A. Alexander Taylor, II............... 44 Secretary and General Counsel
Clay H. Buckner, Jr................... 60 Treasurer, Controller and Principal Accounting Officer
W.A. Bryan Patten..................... 56 Director
Richard C. Patton..................... 36 Director
Benjamin R. Probasco.................. 36 Director
</TABLE>
Philip H. Sanford was Senior Vice President, Finance and Administration, of
Coca-Cola Enterprises, Inc., for the last six years. Mr. Sanford was a senior
executive with Johnston Coca-Cola Bottling Group until 1991.
James F. Exum, Jr. was President and Chief Executive Officer of Southern
California Food Services Corp., from 1991 to 1995. From 1995 to September
1997, Mr. Exum served as President and Chief Executive Officer of Pennant
Foods Corp., Knoxville, Tennessee.
Gordon L. Davenport, Jr. has been Vice President--Marketing and New Business
at Krystal since November 1995. From 1986 to 1995, Mr. Davenport served in
various marketing and sales management positions with Warner Lambert Company.
Larry J. Reeher has been Vice President--Human Resources since August 1995.
From 1988 to 1995, Mr. Reeher was Executive Vice President--Human Resources
for Gardner Merchant Food Services, Inc.
A. Alexander Taylor, II has been a partner with the law firm of Miller &
Martin since 1983. Mr. Taylor is a director of Chattem, Inc., a consumer
products company, and U.S. Xpress Enterprises, Inc., a transportation company.
Clay H. Buckner, Jr. was elected as Treasurer, Controller and Principal
Accounting Officer of the Company on October 8, 1997. Mr. Buckner has served
as Controller since September 1994 and in several accounting positions with
the Company since 1977.
W.A. Bryan Patten is the President of Patten & Patten Inc., a registered
investment advisory firm in Chattanooga, Tennessee.
Richard C. Patton has been President of Investments at Ingram Industries
Inc., a diversified holding company, since January of 1996. Prior to joining
Ingram Industries Inc., Mr. Patton was self-employed as an investor. From June
1992 to June 1995, Mr. Patton was an equity analyst and portfolio manager with
Fidelity Investments. From June 1984 to September 1990 Mr. Patton developed
the San Antonio Taco Co. and Granite Falls restaurants.
Benjamin R. Probasco has been employed at Probasco & Company, a real estate
development company, since 1997. Prior to joining Probasco & Company, Mr.
Probasco spent six years at Leonard, Kinsey & Associates from 1991 to 1997 and
from 1983 to 1988 was employed at Johnston Coca-Cola Bottling Group.
59
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the total compensation for the last three
fiscal years of the Chief Executive Officer and the four other most highly
compensated executive officers of the Company during the last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ------------
RESTRICTED
OTHER ANNUAL STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2)
- --------------------------- ---- -------- ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Carl D. Long(3)............. 1996 $365,000 $ 0 $13,075 --
Chairman of the Board of 1995 365,000 0 25,952 --
Directors, Chief Executive
Officer 1994 365,000 0 14,625 --
R. B. Davenport, IV(4)...... 1996 200,000 0 6,440 --
President, Chief Operating 1995 200,000 0 9,985 --
Officer 1994 200,000 0 9,971 --
Camden B. Scearce(5)........ 1996 145,619 0 8,392 --
Vice President, Chief 1995 133,005 0 8,767 --
Financial Officer, 1994 126,672 0 15,075 --
Secretary, Treasury
Gordon L. Davenport, Jr.(6). 1996 152,023 0 5,548 --
Vice President--Marketing 1995 51,154 0 15,528(7) $186,000(8)
and Development
James R. Ventura(9)......... 1996 140,394 0 14,950 --
Vice President--Franchise 1995 133,224 0 7,466 --
Operations 1994 129,689 0 5,904 --
</TABLE>
- --------
(1) Consists of the costs of personal benefits provided to the named executive
officer by the Company.
(2) The fair market value of restricted stock awards is calculated by
multiplying the closing market price of unrestricted stock on the date of
grant by the number of shares awarded. The fair market value of the
949,360 aggregate restricted shares held as of the end of the Company's
1996 fiscal year based upon the trading price at the close of business on
December 27, 1996, was $5,458,820. Holders of restricted stock are
entitled to any dividends declared upon the common stock of the Company.
(3) Mr. Long resigned from the Company on September 25, 1997.
(4) Mr. R. B. Davenport, IV resigned from the Company on September 26, 1997.
(5) Mr. Scearce resigned from the Company on October 31, 1997.
(6) Mr. Gordon L. Davenport, Jr. was hired as Vice President--New Business and
Strategic Planning on August 30, 1995. Mr. Gordon L. Davenport, Jr. is the
nephew of R. B. Davenport, III and a first cousin of R. B. Davenport, IV.
(7) Includes moving bonus of $12,500.
(8) Represents 24,000 shares of restricted stock valued at $7.75, the trading
price at the close of business on the date of grant.
(9) Mr. Ventura retired as Vice President--Franchise Operations as of December
31, 1996.
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The following table sets forth the compensation to be paid to certain
members of the Company's senior management (the "Named Executive Officers") on
an annual basis. There are no employment agreements with any of these
individuals.
<TABLE>
<CAPTION>
ANNUAL
NAME COMPENSATION
---- ------------
<S> <C>
Philip H. Sanford......................... $350,000
Chairman and Chief Executive Officer
James F. Exum, Jr......................... $300,000
President and Chief Operating Officer
</TABLE>
The Company expects to adopt performance-based incentive compensation plans
for senior management of the Company, including a cash management bonus plan
and a stock ownership plan, under which total awards may, in the aggregate,
equal 10% of the outstanding common stock of the Company on a fully-diluted
basis, assuming exercise of options. Non-employee directors receive a fee of
$1000 for each Board of Directors meeting attended
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY
All of the outstanding capital stock of the Company is held by Holdings. The
following table sets forth certain information regarding beneficial ownership
of the common stock of Holdings by: (i) each person who holds more than 5% of
the common stock of Holdings, (ii) each director of the Company, (iii) each of
the Named Executive Officers and (iv) all directors and Named Executive
Officers as a group. The address of each of the holders of more than 5% of the
common stock of Holdings is c/o The Krystal Company, 10th Floor, Krystal
Building, Chattanooga, Tennessee 37402.
<TABLE>
<CAPTION>
PERCENT
NAME AMOUNT OF BENEFICIAL OWNERSHIP OF CLASS
---- ------------------------------ --------
<S> <C> <C>
Philip H. Sanford....................... 2,600,000 26.0
W.A. Bryan Patten(1).................... 863,333 8.6
Richard C. Patton(2).................... 1,233,333 12.3
Benjamin R. Probasco(3)................. 863,333 8.6
James F. Exum, Jr....................... 0 0
Katherine J. Johnston Trust............. 1,233,333 12.3
Woodmont Capital, LLC................... 1,233,333 12.3
P&P Port Royal Investors, LP............ 863,333 8.6
All directors and Named Executive
Officers as a group (5 persons)........ 5,559,999 55.6
</TABLE>
- --------
(1) Includes shares held by P&P Port Royal Investors, LP, of which P&P PRI,
LLC is the general partner, of which Patten & Patten, Inc. is the manager.
Mr. Patten is a director, officer and shareholder of Patten & Patten, Inc.
(2) Includes shares held by Woodmont Capital, LLC, of which Mr. Patton is the
President.
(3) Includes shares held by trusts of which Mr. Probasco is a beneficiary.
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DESCRIPTION OF CAPITAL STOCK
The Company has 100 shares of common stock authorized, 100 of which are
issued and outstanding. Holdings owns all of the Company's issued and
outstanding common stock, which stock has been pledged to the lenders under
the Credit Facility. The Company has no shares of preferred stock authorized.
DESCRIPTION OF CREDIT FACILITY
GENERAL
The Company has a $25 million senior secured revolving credit facility (the
"Credit Facility") provided by SunTrust Bank, Atlanta, as agent, and the Union
Bank of Switzerland, New York Branch, an affiliate of the Initial Purchaser,
as syndication agent (collectively, the "Lenders"). The Credit Facility is
secured by a perfected first priority security interest in substantially all
of the tangible and intangible assets of the Company. The Credit Facility is
guaranteed on a senior basis by (i) Holdings, which guarantee is secured by a
pledge of all of the Company's common stock held by Holdings and (ii) each
existing and future subsidiary of the Company. This information relating to
the Credit Facility is qualified in its entirety by reference to the complete
text of the documents entered into in connection therewith, copies of which
are included as exhibits to the Registration Statement of which this
Prospectus is a part.
Borrowings under the Credit Facility were used to finance a portion of the
Acquisition, pay for transaction costs related to the Acquisition, refinance
outstanding debt of the Company and provide for the working capital and
general corporate needs of the Company. The revolving credit loans will bear
interest at a rate based upon either, at the Company's election, the SunTrust
Bank base rate (as applicable) or in the form of a LIBOR-based rate plus, in
each case, a borrowing margin which is determined on the basis of the
Company's funded debt/EBITDA ratio. The borrowing margin for SunTrust Bank
base rate loans ranges from a minimum of 0.0% to a maximum of 0.50% and for
LIBOR-based loans from a minimum of 1.25% to a maximum of 2.75%.
Notwithstanding the foregoing, prior to September 30, 1998, the borrowing
margin will be fixed at 0.50% for SunTrust Bank base rate loans and 2.75% for
LIBOR-based loans. The Credit Facility will terminate 35 months after the date
of the closing with respect thereto. Outstanding revolving credit loans will
be payable on such date or such earlier date as may be accelerated following
the occurrence of an event of default.
CERTAIN COVENANTS
The Credit Facility contains covenants that restrict the Company from taking
certain actions and that requires the Company to achieve and maintain certain
financial covenants. The Company is not permitted to exceed a maximum funded
debt/EBITDA ratio and is required to maintain a minimum fixed charge coverage
ratio and meet minimum net worth requirements. The Credit Facility includes
other covenants that impose limitations on capital expenditures, sale and
leaseback transactions, indebtedness, liens, mergers or consolidations,
dividend payments, loans and advances, affiliate transactions and certain
other corporate activities. The Credit Facility prohibits certain changes in
control of Holdings.
EVENTS OF DEFAULT
The Credit Facility contains customary events of default, including
nonpayment of principal, interest or fees, violation of covenants, inaccuracy
of representations or warranties in any material respect, cross default to the
payment of other indebtedness of the Company, bankruptcy, environmental
matters, material judgments and material liabilities and change of control.
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<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Exchange Notes will be issued pursuant to an indenture (the "Indenture")
dated as of September 26, 1997 among the Company, as issuer, and SunTrust
Bank, Atlanta, as trustee (the "Trustee"), as supplemented by Supplemental
Indenture No. 1 dated as of September 26, 1997 between the Company, the
Guarantors and the Trustee (together, the "Indenture"). For purposes of this
summary, the term "Notes" refers to both the Exchange Notes and the Private
Notes. The terms of the Exchange Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). The Exchange Notes are
subject to all such terms, and Holders (as defined herein) of Exchange Notes
are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below.
Copies of the Indenture and the Registration Rights Agreement are available
without charge from the Company or the Trustee as set forth under "Additional
Information." Definitions of certain terms used in the following summary are
set forth below under the caption "Certain Definitions."
The Notes will be unsecured senior general obligations of the Company,
ranking senior in right of payment to all existing and future subordinated
indebtedness of the Company and pari passu with all existing and future
unsecured senior Indebtedness of the Company. The Notes will be guaranteed on
a senior unsecured basis (a "Note Guarantee") by Krystal Aviation Co., Krystal
Aviation Management Co. and all other existing and future Subsidiaries of the
Company (each, a "Guarantor") and the Company will cause each future
Subsidiary of the Company to enter into a supplemental indenture providing for
a Note Guarantee as required in the Indenture. The Credit Agreement and the
guarantees of the Company's obligations thereunder are secured by
substantially all of the existing and future assets of the Company and its
Subsidiaries. As a result, the Notes and the Note Guarantees will be
effectively subordinated in right of payment to all existing and future
indebtedness under the Credit Agreement and the guarantees thereunder as well
as to all other existing and future secured Indebtedness permitted to be
incurred under the Indenture to the extent of the value of the assets securing
such indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $100 million and
will mature on October 1, 2007. Interest on the Notes will accrue at the rate
of 10 1/4% per annum and will be payable semiannually in arrears on April 1
and October 1, commencing on April 1, 1998, to Holders of record on the
immediately preceding March 15 and September 15. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date on which the Notes were originally
issued. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium, if any, interest and Additional
Interest on the Notes will be payable at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest and Additional Interest may be made
by check mailed to the Holders of the Notes at their respective addresses set
forth in the register of Holders of Notes; provided that all payments with
respect to Global Notes and Certificated Notes (as such terms are defined
below under the caption "Book Entry, Delivery and Form"), the Holders of which
have given wire transfer instructions to the Company, will be required to be
made by wire transfer of immediately available funds to the accounts specified
by the Holders thereof. Until otherwise designated by the Company, the
Company's office or agency in New York will be in the office of the Trustee
maintained for such purpose. The Notes have been and will be issued only in
fully registered form, without coupons and in denominations of $1,000 and
integral multiples thereof; provided that Certificated Notes originally
purchased by or transferred to institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who are
not "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act) will be subject to a minimum denomination of $250,000.
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<PAGE>
NOTE GUARANTEES
Under any existing and future Note Guarantee, the Guarantors irrevocably and
unconditionally, jointly and severally, guarantee the performance and punctual
payment when due, whether at stated maturity, by acceleration or otherwise, of
all Obligations of the Company under the Indenture and the Notes. Each of the
Guarantors will agree to pay, in addition to any amount stated above, any and
all expenses (including reasonable counsel fees and expenses) incurred by the
Trustee in enforcing any rights under the Note Guarantee. Each Note Guarantee
will be limited in amount to an amount not to exceed the maximum amount that
can be guaranteed by the relevant Guarantor without rendering such Note
Guarantee as it relates to such Guarantor voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. See "Risk Factors--Fraudulent
Conveyance Risks."
Each Note Guarantee will be a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all of the Company's
Obligations under the Indenture and the Notes and (b) inure to the benefit of
and be enforceable by the Trustee, the Holders and their successors,
transferees and assigns. Each Note Guarantee shall be a guarantee of payment
and not of collection.
The Indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of any Guarantor or a sale or other
disposition of all of the Capital Stock of any Guarantor, by way of merger,
consolidation or otherwise, such Guarantor (in the event of a sale or other
disposition of all of the Capital Stock of such Guarantor) will be released
and relieved of its obligations under its Note Guarantee or the Person
acquiring the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) will not be required to
enter into a Note Guarantee; provided, in each case, that such transaction is
carried out pursuant to and in accordance with the covenants described below
under the captions "Repurchase at the Option of Holders--Asset Sales" and
"Certain Covenants--Merger, Consolidation or Sale of Assets."
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to April 1,
2002. Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Additional
Interest, if any, thereon to the applicable redemption date, if redeemed
during the twelve-month period beginning on April 1 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................. 105.125%
2003.............................. 103.417%
2004.............................. 101.708%
2005 and thereafter............... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 1, 2000, the
Company, at its option, may redeem up to 35% of the principal amount of the
Notes originally issued with the net proceeds of one or more Public Equity
Offerings made by the Company or of a capital contribution made by the Parent
to the common equity capital of the Company with the net proceeds of one or
more Public Equity Offerings made by the Parent, at a redemption price of
110.25% of the principal amount thereof plus accrued and unpaid interest and
Additional Interest, if any, to the redemption date; provided, however, that
after such redemption the aggregate principal amount of the Notes outstanding
must equal at least 65% of the aggregate principal amount of the Notes
originally issued and provided, further, that such redemption shall occur
within 60 days of the date of closing of such Public Equity Offering.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis;
provided that no Notes of $1,000 or
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<PAGE>
less shall be redeemed in part. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date to
each Holder of Notes to be redeemed at its registered address. If any Note is
to be redeemed in part only, the notice of redemption that relates to such
Note shall state the portion of the principal amount thereof to be redeemed. A
new Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Note. On and after the redemption date, interest ceases to accrue on Notes or
portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest and Additional Interest thereon (the "Change of Control Purchase
Price") to the date of purchase (the "Change of Control Payment Date"). Within
30 days after the date of any Change of Control, the Company will mail a
notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes pursuant to
the procedures required by the Indenture and described in such notice. The
Change of Control Payment Date shall be a business day not less than 30 days
nor more than 60 days after such notice is mailed.
On the Change of Control Payment Date, the Company will (1) accept for
payment all Notes or portions thereof properly tendered pursuant to the Change
of Control Offer, (2) deposit with the Paying Agent an amount equal to the
Change of Control Purchase Price in respect of all Notes or portions thereof
so tendered and (3) deliver or cause to be delivered to the Trustee the Notes
so tendered together with an officers' certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by the Company.
The Paying Agent will promptly mail to each Holder of Notes so tendered the
Change of Control Purchase Price for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each
Holder a new Note equal in principal amount to any unpurchased portion of the
Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Notes to require
that the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring. Although the existence of a
Holder's right to require the Company to repurchase the Notes in respect of a
Change of Control may deter a third party from acquiring the Company in a
transaction that constitutes a Change of Control, the provisions of the
Indenture relating to a Change of Control in and of themselves may not afford
Holders of the Notes protection in the event of a highly leveraged
transaction, reorganization, recapitalization, restructuring, merger or
similar transaction involving the Company that may adversely affect Holders,
if such transaction is not the type of transaction included within the
definition of a Change of Control.
The Credit Agreement provides that certain change of control events with
respect to the Company would constitute a default thereunder permitting
holders of any indebtedness thereunder to exercise remedies, including the
right to seek immediate payment of amounts then owing under the Credit
Agreement.
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<PAGE>
The meaning of the phrase "all or substantially all," as used in the
definition of "Change of Control" with respect to a sale of assets, varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree
of uncertainty in ascertaining whether a particular transaction would involve
a disposition of "all or substantially all" of the assets of the Company, and
therefore it may be unclear whether a Change of Control has occurred and
whether the Notes are subject to a Change of Control Offer.
Restrictions in the Indenture described herein on the ability of the Company
and its Subsidiaries to incur additional Indebtedness, to grant Liens on its
or their property, to make Restricted Payments and to make Asset Sales may
also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the management of the Company. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of
the Notes, and there can be no assurance that the Company or the acquiring
party will have sufficient financial resources to effect such redemption or
repurchase. In certain circumstances, such restrictions and the restrictions
on transactions with Affiliates may make more difficult or discourage any
leveraged buyout of the Company or any of its Subsidiaries. While such
restrictions cover a variety of arrangements which have traditionally been
used to effect highly leveraged transactions, the Indenture may not afford the
Holders of Notes protection in all circumstances from the adverse aspects of a
highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, engage in an Asset Sale except an
Exempt Asset Sale, as defined below, unless (i) the Company (or such
Subsidiary) receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets sold or otherwise disposed of,
and in the case of a lease of assets, a lease providing for rent and other
conditions which are no less favorable to the Company (or such Subsidiary) in
any material respect than the then prevailing market conditions (evidenced in
each case by a resolution of the Board of Directors of the Company set forth
in an officers' certificate delivered to the Trustee), and (ii) at least 85%
(100% in the case of lease payments) of the consideration therefor received by
the Company or such Subsidiary is in the form of cash or cash equivalents. An
"Exempt Asset Sale" means an Asset Sale on or after the date of the Indenture,
the Net Proceeds of which, plus the Net Proceeds of all other Asset Sales made
in the same fiscal year (but, in all cases, after the date of the Indenture)
do not exceed $2.5 million.
The Company may apply, and may permit its Subsidiaries to apply, Net
Proceeds of an Asset Sale (other than an Exempt Asset Sale), at its option,
within 180 days after the consummation of such an Asset Sale (a) to
permanently reduce Senior Indebtedness (and to permanently reduce the
commitments, if any, with respect thereto), (b) to acquire Eligible Assets or
to reimburse the Company or its Subsidiaries for expenditures previously made
to acquire Eligible Assets, provided that any such expenditures were made not
more than 180 days prior to the consummation of such Asset Sale and were made
in contemplation of such Asset Sale and for the purpose of replacing the
assets to be disposed of in such Asset Sale, or (c) to reimburse the Company
or its Subsidiaries for expenditures made, and costs incurred, to repair,
rebuild, replace or restore property subject to loss, damage or taking to the
extent that the Net Proceeds consist of insurance proceeds received on account
of such loss, damage or taking. Pending the final application of any such Net
Proceeds, the Company may invest such Net Proceeds temporarily in Cash
Equivalents or apply such Net Proceeds to reduce amounts outstanding under the
Credit Agreement. Any Net Proceeds from Asset Sales (other than Exempt Asset
Sales) that are not applied within 180 days after the consummation of an Asset
Sale as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $5.0 million, the Company will be required to make an offer to all
Holders of Notes (an "Asset Sale Offer") to purchase, on a pro rata basis, the
principal amount of Notes equal in amount to the Excess Proceeds (and not just
the amount thereof that exceeds $5.0 million), at a purchase price in cash in
an amount equal to 100% of the principal amount thereof plus accrued and
unpaid interest and Additional Interest thereon to the date of purchase, in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate
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<PAGE>
amount of Notes tendered pursuant to an Asset Sale Offer is less than the
amount of Excess Proceeds, the Company may use such deficiency, or a portion
thereof, for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero, subject to any subsequent Asset Sale.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction permitted under the caption "Certain Covenants--
Merger, Consolidation or Sale of Assets" below, the successor corporation
shall be deemed to have sold the properties and assets of the Company and its
Subsidiaries not so transferred for purposes of this covenant, and shall
comply with the provisions of this covenant with respect to such deemed sale
as if it were an Asset Sale. In addition, the fair market value of such
properties and assets of the Company or its Subsidiaries deemed to be sold
shall be deemed to be Net Proceeds for purposes of this covenant.
If at any time any non-cash consideration received by the Company or any
Subsidiary in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash, then such conversion or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Proceeds thereof
shall be applied in accordance with this covenant.
Notwithstanding the foregoing, the Company will not, and will not permit any
Subsidiary to, directly or indirectly, make any Asset Sale of any of the
Capital Stock of a Subsidiary except pursuant to an Asset Sale of all of the
Capital Stock of such Subsidiary.
The Company will comply with the requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Notes as a result of a Change of Control
or an Asset Sale.
The Company may use Net Proceeds from Exempt Asset Sales for general
corporate purposes (subject to the other provisions of the Indenture).
CERTAIN COVENANTS
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Indebtedness) other than Permitted Indebtedness and that the Company
will not issue any Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that
the Company may incur Indebtedness (including Acquired Indebtedness) and may
issue Disqualified Stock if: (i) the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which
such additional Indebtedness is incurred or such Disqualified Stock is issued
would have been at least 2.0 to 1.0 for Indebtedness incurred prior to
September 30, 2000, and 2.5 to 1.0 for Indebtedness incurred thereafter
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or
the Disqualified Stock had been issued, as the case may be, at the beginning
of such four-quarter period; and (ii) no Default or Event of Default shall
have occurred and be continuing or would occur as a consequence thereof.
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any distribution of any kind or character (whether in cash, securities
or other property) on account of any class of the Company's or any of its
Subsidiaries' Equity Interests
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<PAGE>
or to holders thereof (including, without limitation, any payment to
shareholders of the Company in connection with a merger or consolidation
involving the Company), other than (a) dividends or distributions payable
solely in Equity Interests (other than Disqualified Stock) of the Company or
(b) dividends or distributions payable solely to the Company or any Wholly
Owned Subsidiary of the Company; (ii) purchase, redeem or otherwise acquire or
retire for value any Equity Interests of the Company, any Subsidiary of the
Company, or any other Affiliate of the Company (other than any such Equity
Interests owned by the Company or any Wholly Owned Subsidiary of the Company);
(iii) make any principal payment on, or purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness of the Company or any Guarantor
that is pari passu with or subordinated to the Notes or the Note Guarantees
prior to any scheduled repayment date, mandatory sinking fund payment date or
final maturity date (other than the Notes), other than through the purchase,
redemption or acquisition by the Company of Indebtedness of the Company or any
of its Subsidiaries through the issuance in exchange therefor of Equity
Interests (other than Disqualified Stock) of the Company; (iv) make any
Investment (other than Permitted Investments) or (v) make any payments to any
Affiliate of the Company as compensation for management services, except
through the issuance of Equity Interests (other than Disqualified Stock) of
the Company (all such payments and other actions set forth in clauses (i)
through (v) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) at the time of such Restricted Payment and after giving pro forma
effect thereto as if such Restricted Payment had been made at the beginning
of the applicable four-quarter period, the Company would have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made by the Company and its
Subsidiaries on or after the date of the Indenture (excluding Restricted
Payments permitted by clauses (ii), (iii), (iv), (v) and (vi) of the second
sentence of the next succeeding paragraph), is less than the sum of (i) 50%
of the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale after the date of the Indenture of Equity Interests of
the Company or of debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or convertible
debt securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted into
Disqualified Stock).
The foregoing clauses (b) and (c) will not prohibit (i) the payment of any
dividend on any class of Capital Stock of the Company or any Subsidiary of the
Company within 60 days after the date of declaration thereof, if on the date
on which such dividend was declared such payment would have complied with the
provisions of the Indenture; (ii) any dividend on shares of Capital Stock
payable solely in shares of Capital Stock (other than Disqualified Stock);
(iii) any dividend or other distribution payable from a Subsidiary to the
Company or any Wholly-Owned Subsidiary; (iv) the making of any Investment in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of Equity Interests of the Company
(other than Disqualified Stock); provided, that any net cash proceeds that are
utilized for any such Investment, and any Net Income resulting therefrom,
shall be excluded from clause (c) of the preceding paragraph; (v) the
redemption, repurchase, retirement or other acquisition of any Equity
Interests of the Company in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided that any net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition, and any Net Income resulting
therefrom, shall be excluded from clause (c) of the preceding paragraph; (vi)
the defeasance, redemption or
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repurchase of pari passu or subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness or the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests of the Company (other than Disqualified Stock); provided,
that any net cash proceeds that are utilized for any such defeasance,
redemption or repurchase, and any Net Income resulting therefrom, shall be
excluded from clause (c) of the preceding paragraph and (vii) the repurchase
of shares of Capital Stock of the Company in connection with repurchase
provisions under employee stock option and stock purchase agreements or other
agreements to compensate management employees of the Company to the extent
such payments do not exceed $1.0 million in the aggregate.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an officers' certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company
or such Subsidiary, as the case may be, pursuant to the Restricted Payment.
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 and setting forth the basis upon which the calculations
required by the covenant described under this caption were computed, which
calculations may be based upon the Company's latest available financial
statements.
LIENS
The Indenture provides that, unless the Notes and the Note Guarantees are
equally and ratably secured, the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien on any of its assets, now owned or hereafter acquired,
securing any Indebtedness other than Permitted Liens; provided that, if such
Indebtedness is by its terms expressly subordinate to the Notes or the Note
Guarantees, the Lien securing such subordinate or junior Indebtedness shall be
subordinate and junior to the Lien securing the Notes or the Note Guarantees
with the same relative priority as such subordinated or junior Indebtedness
shall have with respect to the Notes or the Note Guarantees.
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not cause or
permit any of its Subsidiaries to, enter into any Sale and Leaseback
Transaction. Notwithstanding the foregoing, the Company or any Subsidiary may
enter into a Sale and Leaseback Transaction if: (i) after giving pro forma
effect to any such Sale and Leaseback Transaction, the Company shall be in
compliance with the covenants described under the captions "--Incurrence of
Indebtedness and Issuance of Preferred Stock" and "--Liens" above; (ii) the
gross cash proceeds of such Sale and Leaseback Transaction are at least equal
to the fair market value of such property (as determined by the Board, whose
determination shall be conclusive if made in good faith and evidenced by a
Board Resolution); (iii) the aggregate rent payable by the Company in respect
of such Sale and Leaseback Transaction is not in excess of the fair market
rental value of the property leased pursuant to such Sale and Leaseback
Transaction; and (iv) the Company shall apply the net cash proceeds of the
sale as provided under "Repurchase at the Option of Holders--Asset Sales"
above, to the extent required therein.
OWNERSHIP OF AND LIENS ON CAPITAL STOCK
The Indenture provides that the Company (i) will not permit any Person
(other than the Company or any Wholly Owned Subsidiary of the Company) to own
any Capital Stock of any Subsidiary of the Company, and (ii) will not permit
any Subsidiary of the Company to issue Capital Stock (except to the Company or
to a Wholly Owned Subsidiary) or create, incur, assume or suffer to exist any
Lien thereon, in each case except (a) directors' qualifying shares, (b)
Capital Stock issued prior to the time such Person became a Subsidiary of the
Company, provided that such Capital Stock was not issued in anticipation of
such transaction, (c) if such Subsidiary merges with another Subsidiary of the
Company, (d) if such Subsidiary ceases to be a Subsidiary of the Company (as a
result of the sale of 100% of the shares of such Subsidiary, the Net Proceeds
from which are applied in accordance with "Repurchase at the Option of
Holders--Asset Sales"), (e) Liens on Capital Stock of any Subsidiary of the
Company to secure Indebtedness incurred under the Credit Agreement or (f)
Liens on
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Capital Stock of any Subsidiary of the Company granted in accordance with the
provisions of the Indenture described above in the first sentence under the
caption "Liens."
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will 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 Subsidiary of the Company to
(i) pay dividends or make any other distributions to the Company or any
of its Subsidiaries on its Capital Stock or with respect to any other
interest or participation in, or measured by, its profits;
(ii)pay any Indebtedness or other obligation owed to the Company or any
of its Subsidiaries;
(iii)make loans or advances to the Company or any of its Subsidiaries;
(iv)sell, lease or transfer any of its properties or assets to the
Company or any of its Subsidiaries; or
(v)grant liens or security interests on its assets in favor of the
Holders of Notes; or
(vi)guarantee the obligations of the Company evidenced by the Notes or
any renewals, refinancings, exchanges, refundings or extensions thereof
except for such encumbrances or restrictions existing under or by reason of
(A) the Indenture and the Notes, (B) the Credit Agreement as in effect on the
Closing Date, (C) applicable law, (D) any instrument governing Acquired
Indebtedness or Capital Stock of a Person acquired by the Company or any of
its Subsidiaries as in effect at the time of such acquisition (except to the
extent such Acquired Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired,
provided that the Consolidated EBITDA of such Person is not taken into account
in determining whether such acquisition was permitted by the terms of the
Indenture, (E) any document or instrument governing Indebtedness incurred
pursuant to clause (iii) of the definition of Permitted Indebtedness, provided
that any such restriction contained therein relates only to the asset or
assets constructed or acquired in connection therewith, or (F) Permitted
Refinancing Indebtedness of Indebtedness described in clause (B) and clause
(D) hereof, provided that the provisions relating to such encumbrances or
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced.
LIMITATION ON LAYERING DEBT
Neither the Company nor any Subsidiary may, directly or indirectly, in any
event Incur any Indebtedness which by its terms (or by the terms of any
agreement governing such Indebtedness) is expressly subordinated to any other
Indebtedness of the Company or such Subsidiary, as the case may be, unless
such Indebtedness is also by its terms (or by the terms of any agreement
governing such Indebtedness) made expressly subordinate to the Notes to the
same extent and in the same manner, and so long as, such Indebtedness is
subordinated pursuant to subordination provisions that are no more favorable
to the holders of any other Indebtedness of the Company or such Subsidiary, as
the case may be.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company will not, and will not permit any
Subsidiary of the Company to, in a single transaction or series of related
transactions, consolidate or merge with or into (other than the consolidation
or merger of a Wholly Owned Subsidiary of the Company with another Wholly
Owned Subsidiary of the Company or into the Company) (whether or not the
Company or such Subsidiary is the surviving corporation), or directly and/or
indirectly through its Subsidiaries sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the properties or assets of
the Company and its Subsidiaries (determined on
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a consolidated basis for the Company and its Subsidiaries taken as a whole) in
one or more related transactions to, another corporation, Person or entity
unless
(i) either (a) the Company, in the case of a transaction involving the
Company, or such Subsidiary, in the case of a transaction involving a
Subsidiary of the Company, is the surviving corporation or (b) in the case
of a transaction involving the Company or a Guarantor, the entity or the
Person formed by or surviving any such consolidation or merger (if other
than the Company or such Guarantor) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States of
America, any state thereof or the District of Columbia and expressly
assumes all the obligations of the Company under the Notes and the
Indenture or such Guarantor under the relevant Note Guarantee and the
Indenture, as the case may be, pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee;
(ii) immediately prior to or after such transaction no Default or Event
of Default shall have occurred and/or be continuing;
(iii) in the case of a transaction involving the Company, the Company or,
if other than the Company, the entity or Person formed by or surviving any
such consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (A) will have
Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company immediately
preceding the transaction, and (B) will, at the time of such transaction
and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock;"
(iv) if, as a result of any such transaction, property or assets of the
Company or a Guarantor would become subject to a Lien securing Indebtedness
not excepted from the provisions of the Indenture described above under the
caption "--Liens," the Company, any such Guarantor or the surviving entity,
as the case may be, shall have secured the Notes and the relevant Note
Guarantee, as required by such provisions; and
(v) the Company shall have delivered to the Trustee an officers'
certificate and, except in the case of a merger of a Subsidiary of the
Company into the Company or into a Wholly Owned Subsidiary of the Company,
an opinion of counsel, each stating that such consolidation, merger,
conveyance, lease or disposition and any supplemental indenture with
respect thereto, comply with all of the terms of this covenant and that all
conditions precedent provided for in this provision relating to such
transaction or series of transactions have been complied with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of
the Company the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer
of all or substantially all of the properties and assets of the Company.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services), with any Affiliate (each
of the foregoing, an "Affiliate Transaction"), other than Exempt Affiliate
Transactions, unless (a) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than would be
obtained in a comparable transaction with a Person that is not an Affiliate
and (b) (i) with respect to a transaction or series of transactions involving
aggregate consideration in excess of $2.5 million, a committee of independent
Directors of the Company shall approve by resolution certifying that such
transaction or series of transactions comply with the clause (a) above, and
(ii) with respect to a transaction or series of transactions involving
aggregate consideration
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equal to or greater than $10.0 million, the Company receives a written opinion
from a nationally recognized investment bank that such transaction or series
of transactions is fair to the Company from a financial point of view.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the Holders of Notes and file with the Trustee, within
15 days after it is or would have been required to file such with the
Commission, all information, documents and reports specified in Section 13 and
Section 15(d) of the Exchange Act. In addition, whether or not required by the
rules and regulations of the Commission, the Company will file a copy of all
such information, documents and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make
such information available to securities analysts and prospective investors.
In addition, the Company has agreed that, for so long as any Notes remain
outstanding, it will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information specified in Rule
144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Additional Interest with respect to, the Notes; (ii) default in the payment
when due of the principal of or premium, if any, on the Notes; (iii) failure
by the Company to comply with the provisions described under the captions
"Repurchase at Option of Holders--Change of Control," "Repurchase at Option of
Holders--Asset Sales," "--Ownership of and Liens on Capital Stock," "--
Restricted Payments," "--Incurrence of Indebtedness and Issuance of Preferred
Stock" or "--Merger, Consolidation or Sale of Assets"; (iv) failure by the
Company to comply with any of its other agreements or covenants in the
Indenture or the Notes for 30 days after written notice by the Trustee or
Holders of at least 25% of the aggregate principal amount of the Notes
outstanding; (v) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the
date of the Indenture, which default (a) is caused by a failure to pay
principal of such Indebtedness at final maturity thereof (after giving effect
to applicable grace periods) (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness as to which there has been a
Payment Default or the maturity of which has been so accelerated, exceeds in
the aggregate $5.0 million; (vi) failure by the Company or any of its
Subsidiaries to pay final judgments (not covered by insurance) which exceed in
the aggregate $5.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; (vii) certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any of its Subsidiaries; and
(viii) the Note Guarantee of any Guarantor is held in any judicial proceeding
to be unenforceable or invalid or ceases for any reason to be in full force
and effect (other than in accordance with the terms of the Indenture) or any
Guarantor or any Person acting on behalf of any Guarantor denies or disaffirms
such Guarantor's obligations under its Note Guarantee (other than by reason of
a release of such Guarantor from its Note Guarantee in accordance with the
terms of the Indenture).
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of all of the then outstanding
Notes may declare all the Notes to be due and payable immediately in an amount
equal to the principal amount of the Notes, together with accrued interest to
the date the Notes become due and payable. After such acceleration, but before
a judgment or decree based on acceleration, the Holders of a majority in
aggregate principal amount of outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the non-payment of principal, interest, premium or Additional
Interest that have become due solely because of such acceleration,
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have been cured or waived as provided in the Indenture. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company or any Subsidiary of the
Company, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Indenture
provides that if a Default occurs and is continuing, generally the Trustee
must give notice of such Default to the Holders within 90 days after the
occurrence of such Default. The Trustee may withhold from Holders of the Notes
notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or premium, if any, or
interest or Additional Interest) if it determines that withholding notice is
in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest or premium or Additional Interest on, or the principal of,
any Note (except a payment default resulting from an acceleration that has
been rescinded) or in respect of a provision that cannot be amended or waived
without the consent of the Holder affected. See "Amendment, Supplement and
Waiver."
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and upon becoming aware of any
Default or Event of Default, the Company is required to deliver to the Trustee
a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. No director, officer, employee,
incorporator or stockholder of any Guarantor, as such, shall have any
liability for any obligations of such Guarantor under its Note Guarantee or
the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes and the Note Guarantees. Such waiver
may not be effective to waive liabilities under the Federal securities laws
and it is the view of the Commission that such waiver is against public
policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
At its option and at any time, the Company may elect to have all of the
obligations of the Company and the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest and Additional Interest on such Notes when such payments
are due from the trust referred to below, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of
Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the Company's obligations under the Registration Rights Agreement,
(iv) the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (v) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including nonpayment,
bankruptcy and insolvency events) described under "Events of Default" will no
longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, U.S.
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Government Obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest and
Additional Interest on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds (or the granting of a Lien as security therefor) to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 123rd day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under the Credit
Agreement or any other material agreement or instrument (other than the
Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
deliver to the Trustee an officers' certificate stating that the deposit was
not made by the Company with the intent of preferring the Holders of Notes
over other creditors of the Company or the Guarantors or with the intent of
defeating, hindering, delaying or defrauding creditors of the Company, the
Guarantors or others; (vii) such Legal Defeasance or Covenant Defeasance shall
not result in the trust arising from such deposit constituting an investment
company within the meaning of the Investment Company Act of 1940, as amended,
unless such trust shall be registered under such Act or exempt from
registration thereunder; and (viii) the Company must deliver to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent relating to Legal Defeasance or Covenant Defeasance, as
the case may be, have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Trustee will act as paying agent and registrar for the Notes. The Company,
the registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents as well as
certifications, legal opinions and other information and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in aggregate principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange
offer for the Notes), and any existing default or failure to comply with any
provision of the Indenture or the Notes may be waived (other than a payment
default) with the consent of the Holders of a majority in aggregate principal
amount of the
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then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for the Notes).
Without the consent of each Holder, an amendment or waiver may not: (i)
reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or premium on or
change the fixed maturity of any Note or alter the provisions with respect to
the redemption of the Notes (other than provisions relating to the covenants
described above under the caption "--Repurchase at the Option of Holders"),
(iii) reduce the rate of or change the time for payment of interest on any
Note, (iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest or Additional Interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount of the then outstanding Notes and a waiver of
the payment default that resulted from such acceleration), (v) make any Note
payable in money other than that stated in the Notes, (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of Notes to receive payments of principal or premium, if
any, or interest or Additional Interest on the Notes, (vii) waive a redemption
payment with respect to any Note (other than a payment required by one of the
covenants described above under the caption "--Repurchase at the Option of
Holders"), (viii) modify the ranking or priority of the Notes or the Note
Guarantee of any Guarantor, (ix) release any Guarantor from any of its
obligations under its Note Guarantee or the Indenture other than in accordance
with the terms of the Indenture or (x) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of Certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect
the interests of the Holders of the Notes in any material respect, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any terms or provisions of the Notes,
unless such consideration is offered to be paid or agreed to be paid to all
Holders of the Notes which so consent, waive or agree to amend in the time
frame set forth in the solicitation documents relating to such consent, waiver
or agreement.
CONCERNING THE TRUSTEE
SunTrust Bank, Atlanta is the Trustee under the Indenture. The Trustee's
current address is 58 Edgewood Avenue, 4th Floor Annex, Atlanta, Georgia
30303.
The Indenture contains certain limitations on the rights of the Trustee, if
it becomes a creditor of the Company, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee is permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Trust Indenture Act) it must eliminate such conflict or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not have been cured), the Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in
the conduct of his own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to the Company at One
Union Square, Chattanooga, Tennessee 37402, Attn: Treasurer.
BOOK-ENTRY, DELIVERY AND FORM
The Private Notes were issued in the form of one global certificate (the
"Private Global Certificate") for QIBS. The Exchange Notes will initially be
issued in the form of one or more global certificates (collectively, the
"Exchange Global Notes"). The Private Global Note was deposited on the date of
the closing of the sale of the Private Notes and the Exchange Global Notes
will be deposited on the date of the closing of the Exchange Offer with, or on
behalf of, The Depository Trust Company (the "Depositary") and registered in
the name of Cede & Co., as nominee of the Depositary (such nominee being
referred to herein as the "Global Note Holder"). The term "Global Notes" means
the Private Global Notes or the Exchange Global Notes, as the context may
require.
Exchange Notes to be held by institutional "accredited investors" who are
not "qualified institutional buyers" (as such terms are defined under
"Transfer Restrictions" elsewhere herein (the "Non-Global Purchasers")) or
(ii) issued as described below under "Certificated Notes" will be issued in
registered, definitive, certificated form (the "Certificated Notes"). Upon the
transfer to a qualified institutional buyer of Certificated Notes initially
issued to a Non-Global Purchaser, such Certificated Notes may, unless the
Global Note has previously been exchanged for Certificated Notes, be exchanged
for an interest in the Global Note representing the principal amount of the
Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Note and (ii) ownership of the Notes
evidenced by the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to own, transfer or pledge Notes evidenced
by the Global Note will be limited to such extent. For certain other
restrictions on the transferability of the Notes, see "Transfer Restrictions."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of
any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced
by the Global Note will not be considered the owners or Holders thereof under
the Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Notes.
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Payments in respect of the principal of, premium, if any, interest and
Additional Interest, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names Notes, including the Global
Note, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of Notes. The Company believes, however, that it is currently the
policy of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED NOTES
Transferees of Exchange Notes who are not "qualified institutional buyers"
as defined in Rule 144A under the Securities Act may hold Notes only in the
form of Certificated Notes. All such Certificated Notes would be subject to
the legend requirements described herein under "Transfer Restrictions." In
addition, if (i) the Company notifies the Trustee in writing that the
Depositary is no longer willing or able to act as a depositary and the Company
is unable to locate a qualified successor within 90 days or (ii) the Company,
at its option, notifies the Trustee in writing that it elects to change the
issuance of Notes in the form of Certificated Securities under the Indenture
then, upon surrender by the Global Note Holder of its Global Note,
Certificated Notes will be issued to each person that the Global Note Holder
and the Depositary identify as being the beneficial owner of the related
Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, interest and Additional
Interest, if any) be made by wire transfer of immediately available funds to
the accounts specified by the Global Note Holder. With respect to Certificated
Notes, the Company will make all payments of principal, premium, if any,
interest and Additional Interest, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no
such account is specified, by mailing a check to each such Holder's registered
address. Secondary trading in long-term notes and debentures of corporate
issuers is generally settled in clearing-house or next-day funds. In contrast,
the Notes represented by the Global Note are expected to be eligible to trade
in the PORTAL market and to trade in the Depositary's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
Notes will, therefore, be required by the Depositary to be settled in
immediately available funds. The Company expects that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
REGISTRATION RIGHTS; ADDITIONAL INTEREST
The Company and the Initial Purchaser entered into the Registration Rights
Agreement on September 26, 1997 (the "Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, the Company agreed, for the
benefit of the Holders of the Notes, at the Company's expense, to (i) file
within 60 days after the date of original issuance of the Notes a registration
statement (the "Exchange Offer Registration Statement") with the Commission
with respect to a registered offer to exchange the Private Notes for the
Exchange Notes to be issued under the Indenture or a substantially similar
indenture in the same aggregate principal amount as and with terms that will
be identical in all respects to the Private Notes (except that the Additional
Interest provisions
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and transfer restrictions will be modified or eliminated, as appropriate),
(ii) use its best efforts to cause the Exchange Offer Registration Statement
to be declared effective under the Securities Act within 150 days after the
date of original issuance of the Notes and (iii) use its best efforts to
consummate the Exchange Offer within 180 days after the date of original
issuance of the Notes. Promptly after the Exchange Offer Registration
Statement has been declared effective, the Company will offer the Exchange
Notes in exchange for surrender of the Private Notes (the "Exchange Offer").
The Company will keep the Exchange Offer open for not less than 30 days and
not more than 45 days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the Holders of the Private Notes.
For each Private Note tendered to the Company pursuant to the Exchange Offer
and not validly withdrawn by the Holder thereof, the Holder of such Private
Note will receive an Exchange Note having a principal amount equal to the
principal amount of such surrendered Note.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and
subject to the immediately following sentence, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the
Private Notes may be offered for resale, resold and otherwise transferred by
the Holders thereof (other than (i) a broker-dealer who purchased such Private
Notes directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, or (ii) a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
requirements of the Securities Act; provided that the holder is acquiring
Exchange Notes in the ordinary course of its business and is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes. Holders of Private Notes wishing to accept the Exchange Offer
must represent to the Company that such conditions have been met. Each broker-
dealer that receives Exchange Notes for its own account in exchange for
Private Notes, where such Private Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes. The
Commission has taken the position that Exchanging Dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other
than a resale of an unsold allotment from the original sale of the Notes) with
the prospectus contained in the Exchange Offer Registration Statement. Under
the Registration Rights Agreement, the Company is required to allow Exchanging
Dealers to use the prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of such Exchange Notes.
In the event that any changes in law or applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange
Offer, or if for any reason the Exchange Offer is not consummated within 180
days after the date of original issuance of the Private Notes or in certain
other circumstances, the Company will, at its expense, (i) as promptly as
practicable, and in any event on or prior to 60 days after such filing
obligation arises, file with the Commission a shelf registration statement
(the "Shelf Registration Statement") covering resales of the Notes, (ii) use
its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act on or prior to 45 days after such filing
occurs and (iii) keep effective the Shelf Registration Statement until two
years after its effective date (or such shorter period that will terminate
when all the Notes covered thereby have been sold pursuant thereto or in
certain other circumstances). The Company will, in the event of the filing of
a Shelf Registration Statement, provide to each Holder of the Notes covered by
the Shelf Registration Statement copies of the prospectus that is a part of
the Shelf Registration Statement, notify each such Holder when the Shelf
Registration Statement for the Notes has become effective and take certain
other actions as are required to permit unrestricted resales of the Notes. A
Holder of Notes that sells such Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling securityholder
in the related prospectus and to deliver a prospectus to the purchaser, will
be subject to certain of the civil liability provisions under the Securities
Act in connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such Holder (including
certain indemnification obligations). In addition, each Holder of the Notes
will be required to deliver certain information to be used in connection with
the Shelf Registration Statement in order to have its Notes included in the
Shelf Registration. If (a) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statements is not
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declared effective by the Commission on or prior to the date specified for
such effectiveness (the "Effectiveness Target Date"), (c) the Company fails to
consummate the Exchange Offer within 30 days of the Effectiveness Target Date
with respect to the Exchange Offer Registration Statement or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above, a "Registration Default"), then the Company
will pay liquidated damages ("Additional Interest") to each Holder of Notes,
with respect to the first 90-day period immediately following the occurrence
of such Registration Default in an amount equal to 0.5% per annum of the
principal amount of Notes held by such Holder. The amount of the Additional
Interest for such Registration Default will increase by an additional 0.5% per
annum for each subsequent 90-day period until such Registration Default has
been cured, up to an aggregate maximum amount of Additional Interest of 1.0%
per annum for all Registration Defaults. All accrued Additional Interest will
be paid by the Company on each interest payment date with respect to the
Notes. Following the cure of all Registration Defaults, the accrual of
Additional Interest will cease and all accrued and unpaid Additional Interest
shall be paid promptly thereafter.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Registration Rights Agreement, a copy of which is available
as set forth under "Additional Information."
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person, (i) any
Indebtedness or Disqualified Stock of any other Person existing at the time
such other Person is merged with or into or becomes a Subsidiary of such
specified Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging with or
into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness
secured by a Lien encumbering any asset acquired by such specified Person, and
in either case for purposes of the Indenture shall be deemed to be incurred by
such specified Person at the time such other Person is merged with or into or
becomes a Subsidiary of such specified Person or at the time such asset is
acquired by such specified Person, as the case may be.
"Additional Interest" has the meaning ascribed to such term under the
caption "Registration Rights; Additional Interest".
"Affiliate" of any specified Person means (i) any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any other Person who is a director
or executive officer of (a) such specified Person or (b) any Person described
in the preceding clause (i). For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of any class, or any series
of any class, of equity securities of a Person, whether or not voting, shall
be deemed to be control.
"Agent Bank" means SunTrust Bank, Atlanta and its successors under the
Credit Agreement.
"Asset Sale" means with respect to any Person, the sale, lease, conveyance
or other disposition, that does not constitute a Restricted Payment or an
Investment, by such Person of any of its assets (including, without
limitation, by way of a Sale and Leaseback Transaction and including the
issuance, sale or transfer of any Equity Interests in any Subsidiary of the
Company) other than to the Company (including the receipt of proceeds of
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insurance paid on account of the loss of or damage to any asset and awards of
compensation for any asset taken by condemnation, eminent domain or similar
proceeding, and including the receipt of proceeds of business interruption
insurance), in each case, in one or a series of related transactions;
provided, that notwithstanding the foregoing, the term "Asset Sale" shall not
include: (a) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company, in accordance with the
terms of the covenant described under the caption "Certain Covenants--Merger,
Consolidation or Sale of Assets," (b) the sale or lease of equipment,
inventory, accounts receivable or other assets in the ordinary course of
business consistent with past practice, (c) a transfer of assets by the
Company to a Wholly Owned Subsidiary of the Company or by a Wholly Owned
Subsidiary of the Company to the Company or to another Wholly Owned Subsidiary
of the Company, (d) an issuance of Equity Interests by a Wholly Owned
Subsidiary of the Company to the Company or to another Wholly Owned Subsidiary
of the Company, (e) the issuance by the Company of shares of its Capital
Stock, or (f) the sale or other disposition of cash or Cash Equivalents.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, capital stock, (ii)
in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Change of Control" means such time as either:
(i) prior to an initial Public Equity Offering by the Company or the
Parent of its common stock, the Permitted Shareholders cease to be,
directly or indirectly, the beneficial owners, in the aggregate, of more
than 50% of the voting power of the Voting Stock of the Company or of the
Parent, in each case on a fully-diluted basis, after giving effect to the
conversion and exercise of all outstanding warrants, options and other
securities of the Company or the Parent, as the case may be, convertible
into or exercisable for Voting Stock of the Company or the Parent, as the
case may be (whether or not such securities are then currently convertible
or exercisable); or
(ii) after an initial Public Equity Offering by the Company or the Parent
of its common stock, (a) any "person" or "group" (within the meaning of
Section 13(d) or 14(d) of the Exchange Act) (other than one or more of the
Permitted Shareholders) has become, directly or indirectly, the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), by way of
merger, consolidation or otherwise, of 35% or more of the voting power of
the Voting Stock of the Company or the Parent in each case on a fully-
diluted basis, after giving effect to the conversion and exercise of all
outstanding warrants, options and other securities of the Company or the
Parent, as the case may be, convertible into or exercisable for Voting
Stock of the Company or the Parent, as the case may be (whether or not such
securities are then currently convertible or exercisable) and (b) such
person or group is or becomes, directly or indirectly, the beneficial owner
of a greater percentage of the voting power of the Voting Stock of the
Company or of the Parent, as the case may be, calculated on such fully-
diluted basis, than the percentage beneficially owned by the Permitted
Shareholders; or
(iii) the Company or the Parent merges with or into another Person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person merges with or
into the Company or the Parent, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company or the Parent is
converted into or exchanged for cash, securities or other property, other
than any such transaction where (x) the outstanding Voting Stock of the
Company or the Parent is converted into or exchanged for (1) Voting Stock
(other than Disqualified Stock) of the surviving
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or transferee corporation and/or (2) cash, securities and other property in
an amount which could be paid by the Company as a Restricted Payment under
the Indenture and (y) immediately after such transaction no "person" or
"group" (within the meaning of Section 13(d) and 14(d) of the Exchange Act)
(other than one or more of the Permitted Shareholders) is the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of (1) 35% or more of the voting power of the Voting Stock of
the surviving or transferee corporation on a fully diluted basis, after
giving effect to the conversion and exercise of all outstanding warrants,
options and other securities of such surviving or transferee corporation,
convertible into or exercisable for Voting Stock of such surviving or
transferee corporation (whether or not such securities are then currently
convertible or exercisable) and (2) a greater percentage of the voting
power of the Voting Stock of such surviving or transferee corporation
calculated on such fully diluted basis, than the percentage then
beneficially owned by the Permitted Shareholders; or
(iv) during any period of two consecutive calendar years, individuals who
at the beginning of such period constituted either the board of directors
of the Company or of the Parent, as the case may be, together with any new
members of such board of directors (a) whose election by such board of
directors or whose nomination for election by the stockholders of the
Company or the stockholders of the Parent, as the case may be, was approved
by a vote of a majority of the members of such board of directors then
still in office who either were directors at the beginning of such period
or whose election or nomination for election was previously so approved or
(b) elected by the Permitted Shareholders, cease for any reason to
constitute a majority of the directors of the Company or of the Parent, as
the case may be, then in office.
"Consolidated EBITDA" means, with respect to any Person for any period, the
sum of, without duplication, (i) the Consolidated Net Income of such Person
and its Subsidiaries for such period, plus (ii) the Fixed Charges for such
period, plus (iii) amortization of deferred financing charges for such period,
plus (iv) provision for taxes based on income or profits for such period (to
the extent such income or profits were included in computing Consolidated Net
Income for such period), plus (v) consolidated depreciation, amortization and
other noncash charges of such Person and its Subsidiaries required to be
reflected as expenses on the books and records of such Person, minus (vi) cash
payments with respect to any nonrecurring, noncash charges previously added
back pursuant to clause (v), and excluding (vii) the impact of foreign
currency translations. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization and
other noncash charges of, a Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent (and
in the same proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to such Person by such Subsidiary without any prior governmental
approval (that has not been obtained), and without direct or indirect
restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary
or that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash to
the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income
of any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, and (iv) the cumulative effect
of a change in accounting principles shall be excluded.
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"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups subsequent to the date of the Indenture in the book value of any
asset owned by such Person or a consolidated Subsidiary of such Person (other
than purchase accounting adjustments made, in connection with any acquisition
of any entity that becomes a consolidated Subsidiary of such Person after the
date of the Indenture, to the book value of the assets of such entity), (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and
(z) all unamortized debt discount and expense and unamortized deferred charges
as of such date, all of the foregoing determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Tangible Assets" means, with respect to any Person, the
total amount of assets of such Person and its Subsidiaries (less applicable
depreciation, amortization and other valuable reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in accordance with GAAP), after deducting
therefrom all goodwill, copyrights, customer lists, tradenames, trademarks,
patents, unamortized debt discount and expense and other like intangibles, all
as set forth on the most recently available consolidated balance sheet of the
Person and its consolidated Subsidiaries, prepared in accordance with GAAP.
"Credit Agreement" means that certain Credit Agreement, dated as of
September 26, 1997 by and among the Company and SunTrust Bank, Atlanta, as
agent, and the lenders parties thereto, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, increased,
renewed, refunded, replaced, restated or refinanced in whole or in part from
time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means (a) with respect to any Person, Capital Stock of
such Person that, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the Holder thereof,
in whole or in part, on or prior to the date which is one year after the date
on which the Notes mature and (b) with respect to any Subsidiary of such
Person (including with respect to any Subsidiary of the Company), any Capital
Stock.
"Eligible Assets" means another business or any substantial part of another
business or other long-term assets (including, without limitation, new
restaurant locations), in each case, in, or used or useful in, the same or a
similar line of business as the Company (exclusive of Krystal Aviation Co. and
Krystal Aviation Management Co.) was engaged in on the date of the Indenture
or any reasonable extensions or expansions thereof (including the Capital
Stock of another Person engaged in such business, provided such other Person
is, or immediately after giving effect to any such acquisition shall become, a
Wholly Owned Subsidiary of the Company).
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock), whether outstanding
prior to, on or after the date of the Indenture.
"Exempt Affiliate Transactions" means (a) transactions between or among the
Company and/or its Wholly Owned Subsidiaries, (b) advances to officers of the
Company or any Subsidiary of the Company in the ordinary course of business to
provide for the payment of reasonable expenses incurred by such persons in the
performance of their responsibilities to the Company or such Subsidiary or in
connection with any relocation, (c)
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fees and compensation paid to and indemnity provided on behalf of directors,
officers or employees of the Company or any Subsidiary of the Company in the
ordinary course of business, (d) any employment agreement that is in effect on
the date of the Indenture and any such agreement entered into by the Company
or a Subsidiary of the Company after the date of the Indenture in the ordinary
course of business of the Company or such Subsidiary and (e) any Restricted
Payment that is not prohibited by the covenant set forth under the caption
"Certain Covenants--Restricted Payments".
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its
Subsidiaries for such period to the Fixed Charges of such Person and its
Subsidiaries for such period. In the event that the Company or any of its
Subsidiaries incurs, assumes, guarantees or repays or redeems any Indebtedness
(other than revolving credit borrowings) or issues or redeems preferred stock
subsequent to the commencement of the four-quarter reference period for which
the Fixed Charge Coverage Ratio is being calculated but on or prior to the
date on which the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
guarantee, repayment or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. For purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first
day of the four-quarter reference period and Consolidated EBITDA for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, (ii) the
Consolidated EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded and (iii) the Fixed Charges attributable
to discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Subsidiaries for such period (net of any interest income) including,
without limitation, amortization of original issue discount, noncash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations, but excluding amortization of deferred
financing charges for such period and (ii) the consolidated interest expense
of such Person and its Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Subsidiaries or secured by a Lien on
assets of such Person or one of its Subsidiaries (whether or not such
guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments (and noncash dividend payments in the case of a Person that
is a Subsidiary) on any series of preferred stock of such Person payable to a
party other than the Company or a Wholly Owned Subsidiary, multiplied by (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate
for taxes based on the income or profits of such Person, expressed as a
decimal, on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession of the United States, that are applicable to the circumstances as
of the date of determination; provided that, except as specifically provided
in the Indenture, all calculations made for purposes of determining compliance
with the covenants set forth in Article IV and Section 5.01 of the Indenture
(which include the covenants described above under "--Certain
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Covenants") shall use GAAP as in effect on the date of the Indenture for
financial statements for fiscal years ending on or after December 29, 1996.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means Krystal Aviation Co., Krystal Aviation Management Co. and
each Subsidiary of the Company formed or acquired (and each other Person that
becomes a Subsidiary of the Company) after the date of the Indenture; provided
that any Person constituting a Guarantor as described above shall cease to
constitute a Guarantor when its guarantee is released in accordance with the
terms of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person entered into in the ordinary course of business under interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements and other similar financial agreements or arrangements designed to
protect such Person against, or manage the exposure of such Person to,
fluctuations in interest rates.
"Holder" or "Holders" means any holder from time to time of the Notes.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations, or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable
incurred in the ordinary course of business, if and to the extent any of the
foregoing indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all indebtedness of others secured by a Lien
on any asset of such Person (whether or not such indebtedness is assumed by
such Person) and, to the extent not otherwise included, indebtedness of others
that is guaranteed by such Person that is recourse to such Person or that is
otherwise its legal liability.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or other extensions of credit or capital contributions to other
Persons (by means of any transfer of cash or other property but excluding
advances to officers of the type specified in clause (b) of the definition of
Exempt Affiliate Transactions), or any purchases, acquisitions for
consideration of Indebtedness, Equity Interests or other securities or
ownership by such Person of any Capital Stock, bonds, notes, debentures or
other securities (including, without limitation, any interests in a
partnership or joint venture) issued or owned by any other Person, and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP; provided that an acquisition by the Company
for consideration consisting of common equity securities of the Company shall
not be deemed to be an Investment.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person, determined in accordance with GAAP and before
any reduction in respect of preferred stock dividends, excluding, however, (i)
any gain (but not loss), together with any related provision for taxes on such
gain (but not loss), realized in connection with (a) any Asset Sale
(including, without limitation, dispositions pursuant to Sale and Leaseback
Transactions) or (b) the disposition of any securities by such Person or any
of its Subsidiaries or the extinguishment of any Indebtedness of such Person
or any of its Subsidiaries and (ii) any extraordinary or
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nonrecurring gain (but not loss), together with any related provision for
taxes on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any
noncash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions), taxes paid or payable as
a result thereof, and any reserve for adjustment in respect of the sale price
of such asset or assets established in accordance with GAAP.
"Obligations" means any principal, interest, penalties, premiums, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Parent" means Port Royal Holdings, Inc., a Georgia corporation and 100%
owner of the Company.
"Permitted Indebtedness" means (i) the incurrence by the Company of
Indebtedness under the Credit Agreement and the incurrence by Subsidiaries of
the Company of guarantees thereof in an aggregate principal amount at any time
outstanding (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Company and its Subsidiaries
thereunder) not to exceed $25.0 million, less the aggregate amount of all Net
Proceeds of Asset Sales applied to permanently reduce the outstanding amount
or the commitments with respect to such Indebtedness pursuant to the covenant
described under the caption "--Asset Sales;" (ii) the incurrence by the
Company and any Guarantors of Indebtedness represented by the Notes and the
Note Guarantees; (iii) the incurrence by the Company or any of its
Subsidiaries of Indebtedness represented by Capital Lease Obligations (whether
or not incurred pursuant to Sale and Leaseback Transactions), mortgage
financings or Purchase Money Obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property used in the business of the Company or
such Subsidiary (provided that such Indebtedness is incurred within 180 days
of the date such property is purchased or the date on which such construction
of or improvement to such property is commenced) or any Permitted Refinancing
Indebtedness thereof (provided that the requirements of clause (ii) of the
definition of Permitted Refinancing Indebtedness need not be met for the
purposes of this clause (iii)) in an aggregate principal amount at any time
outstanding not to exceed the greater of (x) $15.0 million or (y) 10.0% of
Consolidated Net Tangible Assets; (iv) the incurrence by the Company of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund, any
Indebtedness permitted under the Fixed Charge Coverage Ratio Test described in
the covenant under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; (v) the incurrence by the Company or any of its Wholly Owned
Subsidiaries of intercompany Indebtedness between or among the Company and any
of its Wholly Owned Subsidiaries or between or among any Wholly Owned
Subsidiaries; provided, however, that (a) any subsequent issuance or transfer
of Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Wholly Owned Subsidiary of the Company and
(b) any sale or other transfer of any such Indebtedness to a Person that is
not either the Company or a Wholly Owned Subsidiary of the Company shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by the
Company or such Subsidiary, as the case may be; (vi) the incurrence by the
Company of Hedging Obligations; and (vii) the incurrence by the Company of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount at any time outstanding not
to exceed $10.0 million plus the aggregate amount of all Net Proceeds of Asset
Sales applied to permanently reduce the outstanding amount or commitments with
respect to Indebtedness under the Credit Agreement pursuant to the covenant
described under the caption "--Asset Sales."
"Permitted Investments" means (a) any Investments in the Company; (b) any
Investments in Cash Equivalents; (c) Investments made as a result of the
receipt of noncash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption
"Repurchase at the Option of Holders--Asset Sales;" (d) Investments in
property or assets to be used in any line of business in which the Company or
any of its Subsidiaries was engaged on the date of the Indenture or any
reasonable
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extensions or expansions thereof; and (e) Investments in Wholly Owned
Subsidiaries of the Company and any entity that (i) is engaged in the same or
a similar line of business as the Company or any of its Subsidiaries was
engaged in on the date of the Indenture or any reasonable extensions or
expansions thereof and (ii) as a result of such Investment, becomes a Wholly
Owned Subsidiary of the Company.
"Permitted Liens" means with respect to any Person, (a) pledges or deposits
by such person under workmen's compensation laws, unemployment insurance laws
or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States government
bonds to secure surety or appeal bonds to which such Person is a party, or
deposits as security for contested taxes or for the payment of rent, in each
case incurred in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanic's Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings; or
other Liens arising out of judgments or awards against such Person with
respect to which such Person shall be proceeding with an appeal or other
proceedings for review; (c) Liens for property taxes not yet subject to
penalties for non-payment or which are being contested in good faith and by
appropriate proceedings; (d) Liens in favor of issuers of surety bonds or
letters of credit issued pursuant to the request of and for the account of
such Person in the ordinary course of its business; provided, however, that
such letters of credit do not constitute Indebtedness; (e) survey exceptions,
minor encumbrances, easements or reservations of, or rights of others for,
licenses, rights of way, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions as to the use of
real properties or liens incidental to the conduct of the business of such
Person or the ownership of its properties which were not incurred in
connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use
in the operation of the business of such Person; (f) Liens securing
Indebtedness (including Indebtedness described in clause (iii) of the
definition of Permitted Indebtedness) incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to, property;
provided, however, that the Lien may not extend to any other property owned by
the Company or any Subsidiary at the time the Lien is incurred, and the
Indebtedness secured by the Lien may not be issued more than 180 days after
the later of the acquisition or construction of the property subject to the
Lien; (g) Liens to secure Indebtedness described in clause (i) of the
definition of Permitted Indebtedness; (h) Liens existing on the date of the
Indenture; (i) Liens on property or shares of stock of a Person at the time
such Person becomes a Subsidiary; provided, however, that any such Lien may
not extend to any other property owned by the Company or any Subsidiary; (j)
Liens on property at the time the Company or a Subsidiary acquires the
property including any acquisition by means of a merger or consolidation with
or into the Company or a Subsidiary; provided, however, that the Liens may not
extend to any other property owned by the Company or any Subsidiary; (k) Liens
securing Indebtedness or other obligations of a Subsidiary owing to the
Company or a Wholly Owned Subsidiary; (l) Liens securing Hedging Obligations
so long as the related Indebtedness is, and is permitted to be under this
Indenture, secured by a Lien on the same property securing such Hedging
Obligations; and (m) Liens to secure any refinancing, refunding, extension,
renewal or replacement (or successive refinancings, refundings, extensions,
renewals or replacements) as a whole, or in part, of any Indebtedness secured
by any Lien referred to in the foregoing clauses (f), (h), (i) and (j);
provided, however, that (x) such new Lien shall be limited to all or part of
the same property that secured the original Lien (plus improvements on such
property) and (y) the Indebtedness secured by such Lien at such time is not
increased to any amount greater than the sum of (A) the outstanding principal
amount or, if greater, committed amount of the Indebtedness described under
clauses (f), (h), (i) or (j) at the time the original Lien became a Permitted
Lien under the Indenture and (B) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing, refunding,
extension, renewal or replacement. Clause (m) shall not be deemed to limit the
provisions of clauses (a) through (e), (g) or (k).
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the
principal amount of such Permitted Refinancing Indebtedness does not exceed
the principal amount of the Indebtedness so extended,
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refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either
by the Company or by the Subsidiary of the Company that is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Permitted Shareholders" means (i) those Persons who "beneficially own" (as
such term is defined in Rules 13d-3 and 13d-5 under the Exchange Act) voting
stock of the Parent as of the Issue Date; (ii) the spouses parents, siblings,
descendants (including children or grandchildren) of such Persons; (iii) in
the event of the incompetence or death of any of the Persons described in
clause (i) or (ii), such Person's estate, executor, administrator, committee
or other personal representative in each case who at any particular date shall
beneficially own or have the right to acquire, directly or indirectly, voting
stock of the Parent; (iv) any trusts created for the sole benefit of the
Persons described in clause (i),(ii) or (iii) or any trust for the benefit of
such trust or (v) any Person of which any of the Persons described in clause
(i), (ii) or (iii) (x) "beneficially owns" (as such term is defined in Rules
13d-3 and 13d-5 under the Exchange Act) on a fully-diluted basis all of the
voting stock of such Person or (y) is the sole trustee or general partner, or
otherwise has the sole power to manage the business and affairs, of such
Person.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, limited liability
company, unincorporated organization or government or any agency or political
subdivision thereof.
"Public Equity Offering" means an underwritten primary public offering of
the common stock of the Company or of the common stock of the Parent pursuant
to an effective registration statement filed with the Commission in accordance
with the Securities Act (whether alone or in conjunction with a secondary
public offering).
"Purchase Money Obligations" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
construction and/or acquisition of real or personal property to be used in the
business of such Person or any of its Subsidiaries in an amount that is not
more than 100% of the cost of such property, and incurred within 180 days
after the date of such construction or acquisition (excluding accounts payable
to trade creditors incurred in the ordinary course of business).
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Subsidiary of any property, whether owned by the
Company or any Subsidiary as of the date of the Indenture or later acquired,
which has been or is to be sold or transferred by the Company or such
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
"Senior Bank Debt" means the Obligations outstanding under the Credit
Agreement.
"Senior Indebtedness" means, with respect to the Company, (i) the Notes,
(ii) the Senior Bank Debt and (iii) any other Indebtedness permitted to be
incurred by the Company under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that
it is subordinated in right of payment to any Indebtedness for money borrowed.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include (w) any liability for federal, state, local or other taxes
owed or owing by the Company, (x) any Indebtedness of the Company to any of
its Subsidiaries or other Affiliates, (y) any trade payables or (z) any
Indebtedness to the extent that it is incurred in violation of the Indenture
(other than Senior
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Bank Debt incurred in accordance with the terms of the Credit Agreement as in
effect on the date of the initial issuance of the Notes). "Senior
Indebtedness" means, with respect to any Guarantor, any guarantee by such
Guarantor of Senior Indebtedness of the Company.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of such
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"U.S. Government Obligations" means (i) securities that are (a) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (b) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at
the option of the issuer thereof; and (ii) depositary receipts issued by a
bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with
respect to any U.S. Government Obligation which is specified in clause (i)
above and held by such bank for the account of the holder of such depositary
receipt, or with respect to any specific payment of principal or interest on
any U.S. Government Obligation which is so specified and held, provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal or interest of the U.S.
Government Obligation evidenced by such depositary receipt.
"Voting Stock" of a corporation means all classes of capital stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payments at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material U.S. federal income tax
consequences of the exchange of the Private Notes for the Exchange Notes
pursuant to the Exchange Offer. This discussion is based on provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), its legislative
history, judicial authority, current administrative rulings and practice, and
existing and proposed Treasury Regulations, all as in effect and existing on
the date hereof. Legislative, judicial or administrative changes or
interpretations after the date hereof could alter or modify the validity of
this discussion and the conclusions set forth below. Any such changes or
interpretations may be retroactive and could adversely affect a Holder of the
Private Notes or Exchange Notes.
This discussion does not purport to deal with all aspects of U.S. federal
income taxation that might be relevant to particular Holders in light of their
personal investment or tax circumstances or status, nor does it
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discuss the U.S. federal income tax consequences to certain types of Holders
subject to special treatment under the U.S. federal income tax laws, such as
certain financial institutions, insurance companies, dealers in securities or
foreign currency, tax-exempt organizations, foreign corporations or non-
resident alien individuals, or persons holding Private Notes or Exchange Notes
that are a hedge against, or that are hedged against, currency risk or that
are part of a straddle or conversion transaction, or persons whose functional
currency is not the U.S. dollar. Moreover, the effect of any state, local or
foreign tax laws is not discussed.
EACH HOLDER OF A PRIVATE NOTE THAT IS PARTICIPATING IN THE EXCHANGE OFFER IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
SUCH HOLDER'S PARTICULAR TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL OR FOREIGN TAX LAWS OF THE
EXCHANGE OF THE PRIVATE NOTES FOR THE EXCHANGE NOTES PURSUANT TO THE EXCHANGE
OFFER.
The exchange of the Private Notes by any Holder for the Exchange Notes
pursuant to the Exchange Offer should not be treated as an "exchange" for
federal income tax purposes because the Exchange Notes should not be
considered to differ materially in kind or extent from the Private Notes.
Rather, Exchange Notes received by any Holder should be treated as a
continuation of the Private Notes in the hands of such Holder for tax
purposes. As a result, there should be no adverse federal income tax
consequences to Holders exchanging the Private Notes for Exchange Notes
pursuant to the Exchange Offer, and the federal income tax consequences of
holding and disposing of the Exchange Notes should be the same as the federal
income tax consequences of holding and disposing of the Private Notes.
Accordingly, a Holder's adjusted tax basis in the Exchange Notes will be the
same as its adjusted tax basis in the Private Notes exchanged therefor and its
holding period for the Private Notes will be included in its holding period
for the Exchange Notes. Thus, the determination of gain on a subsequent sale
or other disposition of the Exchange Notes will be the same as for the Private
Notes.
PLAN OF DISTRIBUTION
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with resales of any Exchange Notes
received in exchange for Private Notes acquired by such broker-dealer as a
result of market-making or other trading activities. Each broker-dealer that
receives Exchange Notes for its own account in exchange for such Private Notes
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Company
agreed that for a period of up to one year after the closing of the Exchange
Offer, it will make this Prospectus, as amended or supplemented, available to
any such broker-dealer that requests copies of this Prospectus in the Letter
Transmittal for use in connection with any such resale. In addition, until
, 199 , all dealers effecting transactions in the Exchange Notes
may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, negotiated
transactions or through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or
purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange
Notes that were received by it for its own account pursuant to the Exchange
Offer in exchange for Private Notes acquired by such broker-dealer as a result
of market-making or other trading activities and any broker-dealer
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on such
resale of Exchange Notes and any commissions or concessions received by such
persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit it is an "underwriter" within the meaning of the Securities Act.
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The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Private Notes (including any broker-dealers), certain
parties related to such holders, against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Miller & Martin, Chattanooga, Tennessee. A. Alexander Taylor, II, an officer
of the Company, is a partner in the law firm of Miller & Martin.
EXPERTS
The financial statements included in this registration statement to the
extent and for the periods indicated in their report have been audited by
Arthur Andersen LLP, independent public accountants, and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
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THE KRYSTAL COMPANY AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1995, December 29, 1996, and September 28, 1997
(unaudited), and for the fiscal years ended January 1, 1995, December 31, 1995,
and December 29, 1996, and for the nine months ended September 29, 1996
(unaudited), and September 28, 1997 (unaudited):
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Public Accountants.................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Shareholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
The Krystal Company:
We have audited the accompanying consolidated balance sheets of The Krystal
Company (a Tennessee corporation) and subsidiary as of December 31, 1995 and
December 29, 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years ended January 1, 1995,
December 31, 1995 and December 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Krystal Company and
subsidiary as of December 31, 1995 and December 29, 1996, and the results of
their operations and their cash flows for the years ended January 1, 1995,
December 31, 1995 and December 29, 1996, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Chattanooga, Tennessee
February 13, 1997 (except
with respect to the matter
discussed in Note 3 as to
which the date is March 3, 1997)
F-2
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, SEPTEMBER 28,
1995 1996 1997
ASSETS ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and temporary investments........ $ 13,713 $ 28,765 $ 5,926
Receivables, net...................... 1,752 2,566 4,012
Income tax receivable................. 609 0 4,524
Net investment in direct financing
leases-current portion............... 856 562 305
Inventories........................... 2,322 2,156 1,890
Deferred tax asset.................... 5,553 8,327 2,844
Prepayments and other................. 830 1,980 1,075
-------- -------- --------
Total current assets................ 25,635 44,356 20,576
-------- -------- --------
NET INVESTMENT IN DIRECT FINANCING
LEASES, EXCLUDING CURRENT PORTION..... 867 305 100
-------- -------- --------
PROPERTY, BUILDINGS, AND EQUIPMENT, NET
OF ACCUMULATED DEPRECIATION OF $74,370
AT DECEMBER 31, 1995 AND $82,370 AT
DECEMBER 29, 1996..................... 98,546 91,173 88,525
-------- -------- --------
LEASED PROPERTIES, NET OF ACCUMULATED
AMORTIZATION OF $2,952 AT DECEMBER 31,
1995 AND $3,162 AT DECEMBER 29, 1996.. 1,863 1,653 1,509
-------- -------- --------
OTHER ASSETS:
Cash surrender value of life
insurance............................ 5,117 5,638 6,121
Other................................. 667 745 2,299
-------- -------- --------
Total other assets.................. 5,784 6,383 8,420
-------- -------- --------
$132,695 $143,870 $119,130
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................... $ 1,681 $ 4,535 $ 4,756
Accrued liabilities................... 9,427 17,986 18,257
Current portion of long-term debt..... 432 967 2,053
Current portion of capital lease
obligations.......................... 653 454 270
Income taxes payable.................. 0 822 --
-------- -------- --------
Total current liabilities........... 12,193 24,764 25,336
-------- -------- --------
LIABILITIES SUBJECT TO COMPROMISE
(NOTES 3 AND 7)....................... 56,909 58,317 0
-------- -------- --------
LONG-TERM DEBT, EXCLUDING CURRENT
PORTION............................... 3,621 3,090 34,573
-------- -------- --------
CAPITAL LEASE OBLIGATIONS, EXCLUDING
CURRENT PORTION....................... 2,754 2,278 2,077
-------- -------- --------
DEFERRED INCOME TAXES.................. 2,719 2,286 1,838
-------- -------- --------
OTHER LONG-TERM LIABILITIES............ 7,852 8,447 9,027
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (NOTES 10
AND 11)
SHAREHOLDERS' EQUITY:
Preferred stock, without par value;
5,000,000 shares authorized; no
shares issued and outstanding........ 0 0 0
Common stock, without par value;
15,000,000 shares authorized; issued
and outstanding, 7,526,808 shares at
December 31, 1995 and 7,491,768
shares at December 29,1996........... 40,830 40,556 40,363
Retained earnings..................... 8,195 5,873 7,318
Deferred compensation................. (2,378) (1,741) (1,402)
-------- -------- --------
Total shareholders' equity.......... 46,647 44,688 46,278
-------- -------- --------
$132,695 $143,870 $119,130
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------ ---------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 28,
1995 1995 1996 1996 1997
---------- ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Restaurant sales....... $239,104 $239,376 $236,470 $175,401 $178,815
Franchise fees......... 796 618 349 171 219
Royalties.............. 1,880 2,420 2,778 2,021 2,232
Other revenues......... 6,542 5,614 4,671 3,409 3,469
-------- -------- -------- -------- --------
248,322 248,028 244,268 181,002 184,735
-------- -------- -------- -------- --------
COST AND EXPENSES:
Cost of restaurant
sales................. 192,256 197,031 195,733 145,847 148,393
Depreciation and
amortization expense.. 11,213 12,311 11,378 8,447 8,216
General and
administrative
expenses.............. 25,775 25,770 25,422 19,567 19,656
Other expenses, net.... 4,946 4,417 3,809 2,742 2,444
Provisions for loss on
restaurant closing and
other property write-
downs (note 4)........ 0 3,911 0 -- --
Special charge (Note
11)................... 2,000 10,000 4,000 -- --
-------- -------- -------- -------- --------
236,190 253,440 240,342 176,603 178,709
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS). 12,132 (5,412) 3,926 4,399 6,026
REORGANIZATION ITEM
(NOTE 3)............... 0 (184) (3,846) (2,288) (1,218)
INTEREST EXPENSE:
Contractual rate
interest.............. (3,801) (4,134) (4,005) (3,002) (2,828)
Interest related to
certain pre-petition
liabilities........... 0 0 (791) (459) 96
INTEREST INCOME......... 820 718 814 820 517
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE
PROVISION FOR (BENEFIT
FROM) INCOME TAXES..... $ 9,151 (9,012) (3,902) (530) 2,593
PROVISION FOR (BENEFIT
FROM) INCOME TAXES..... 2,962 (3,688) (1,480) (199) 928
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM..... $ 6,189 $ (5,324) $ (2,422) $ (331) $ 1,665
EXTRAORDINARY ITEM...... 0 0 0 -- (220)
-------- -------- -------- -------- --------
NET INCOME (LOSS)....... $ 6,189 $ (5,324) $ (2,422) $ (331) $ 1,445
EARNINGS (LOSS) PER
COMMON SHARE:
Earnings (loss) per
common share.......... $ 0.82 $ (0.71) $ (0.32) $ (0.04) $ 0.19
======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING............ 7,512 7,517 7,500 7,502 7,480
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED DEFERRED
STOCK EARNINGS COMPENSATION
------- -------- ------------
<S> <C> <C> <C>
BALANCE, JANUARY 2, 1994........................ $40,911 $ 6,976 $(3,159)
Issuance of 1,440 common shares under re-
stricted stock plans......................... 20 0 (20)
Forfeiture of 8,000 restricted shares......... (22) 0 22
Net income.................................... 0 6,189 0
Amortization of deferred compensation......... 0 0 446
Tax benefit of restricted stock vested........ 0 273 0
------- ------- -------
BALANCE, JANUARY 1, 1995........................ 40,909 13,438 (2,711)
Issuance of 73,440 common shares under re-
stricted stock plans......................... 567 0 (567)
Forfeiture of 56,480 restricted shares........ (646) 0 646
Net loss...................................... 0 (5,324) 0
Amortization of deferred compensation......... 0 0 254
Tax benefit of restricted stock vested........ 0 81 0
------- ------- -------
BALANCE, DECEMBER 31, 1995...................... 40,830 8,195 (2,378)
Issuance of 960 common shares under restricted
stock plan................................... 4 0 (4)
Forfeiture of 36,000 restricted shares........ (278) 0 278
Net loss...................................... 0 (2,422) 0
Amortization of deferred compensation......... 0 0 363
Tax benefit of restricted stock vested........ 0 100 0
------- ------- -------
BALANCE, DECEMBER 29, 1996...................... $40,556 $ 5,873 $(1,741)
Net income.................................... 0 1,445 0
Issuance of 720 common shares to management
and non-employee director under restricted
stock plan .................................. 4 0 (4)
Forfeiture of 16,400 restricted shares........ (158) 0 158
Amortization of deferred compensation......... 0 0 98
------- ------- -------
BALANCE, SEPTEMBER 28, 1997 (UNAUDITED)......... $40,363 $ 7,318 $(1,402)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------ ---------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 28,
1995 1995 1996 1996 1997
---------- ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)...... $ 6,189 $ (5,324) $(2,422) $ (331) $ 1,445
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities............
Depreciation and
amortization........ 11,213 12,221 11,378 8,447 8,216
Deferred income
taxes............... (1,568) (5,011) (3,207) -- (448)
Decrease in deferred
tax asset........... (448) -- 5,483
Provision for loss on
restaurant closings
and other property
write-downs......... 0 3,911 0 -- 354
(Increase) decrease
in receivables, net. (270) 406 (814) (31) (1,446)
(Increase) decrease
in income tax
receivable.......... 0 (609) 609 (594) (4,524)
(Increase) decrease
in inventories...... 47 (185) 166 294 266
(Increase) decrease
in prepayments and
other............... 222 (49) (1,150) (252) 905
Increase (decrease)
in accounts payable. 692 (5,423) 2,854 2,104 221
Increase (decrease)
in income taxes
payable............. (643) (318) 822 -- (822)
Increase (decrease)
in accrued
liabilities......... 2,670 (3,376) 8,559 6,235 2271
Other, net........... 1,068 523 (64) (131) (2,136)
Increase in
liabilities from
reorganization
activities.......... 0 20,909 1,408 (3,034) (22,317)
-------- -------- ------- ------- --------
Net cash provided by
(used in) operating
activities......... 19,620 17,675 18,139 12,707 (14,532)
-------- -------- ------- ------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to property,
buildings, and
equipment............. (26,653) (16,307) (6,457) (4,149) (5,507)
Proceeds from sale of
property, buildings,
and equipment......... 793 908 3,282 2,083 554
Payments received on
net investment in
direct financing
leases................ 673 766 856 643 462
-------- -------- ------- ------- --------
Net cash used in
investing
activities......... (25,187) (14,633) (2,319) (1,423) (4,491)
-------- -------- ------- ------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Decrease in debt from
reorganization
activities............ 0 0 0 -- (36,000)
Proceeds from issuance
of long-term debt..... 20,218 0 0 -- 36,320
Repayments of long-
term debt............. (4,657) (3,472) (53) (41) (3,751)
Principal payments of
capital lease
obligations........... (593) (652) (675) (512) (385)
Other.................. (413) (9) (40) -- --
-------- -------- ------- ------- --------
Net cash provided by
(used in) financing
activities......... 14,555 (4,133) (768) (553) (3,816)
-------- -------- ------- ------- --------
NET INCREASE (DECREASE)
IN CASH AND TEMPORARY
INVESTMENTS............ 8,988 (1,091) 15,052 10,731 (22,839)
CASH AND TEMPORARY
INVESTMENTS, BEGINNING
OF PERIOD ............. 5,816 14,804 13,713 13,713 28,765
-------- -------- ------- ------- --------
CASH AND TEMPORARY
INVESTMENTS, END OF
PERIOD................. $ 14,804 $ 13,713 $28,765 $24,444 $ 5,926
======== ======== ======= ======= ========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION:
Cash paid during the
period for:
Interest, net of
amount capitalized.. $ 3,600 $ 4,005 $ 648 $ 513 $ 6,928
======== ======== ======= ======= ========
Income tax........... $ 4,176 $ 1,819 $ 917 $ 637 $ 1,159
======== ======== ======= ======= ========
Reorganization item.. $ 0 $ 184 $ 1,092 $ 618 $ 2,531
======== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS ACTIVITIES
The Krystal Company (a Tennessee corporation) is engaged primarily in the
development, operation and franchising of fast food restaurants in the
southeastern United States. Krystal's wholly-owned subsidiary, Krystal
Aviation Co. ("Aviation") operates a fixed base airport hangar operation in
Chattanooga, Tennessee. Aviation's revenues in each of the last three years
were less than 3% of the Company's total revenues. As discussed in Note 3, on
December 15, 1995, Krystal filed a petition for relief under Chapter 11 of the
federal bankruptcy laws.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
The Krystal Company ("Krystal") and Aviation (referred to collectively as the
"Company"). All significant intercompany balances and transactions have been
eliminated.
Fiscal Year End
The Company's fiscal year ends on the Sunday nearest December 31.
Consequently, the Company will occasionally have a 53 week fiscal year. The
years ended January 1, 1995, December 31, 1995 and December 29, 1996 were 52
week fiscal years.
Cash and Temporary Investments
For purposes of the consolidated statements of cash flows, the Company
considers repurchase agreements and other temporary cash investments with a
maturity of three months or less to be temporary investments. As of December
29, 1996, Krystal was holding $23,913,000 in certificates of deposits which
are included in cash and temporary investments in the accompanying
consolidated balance sheet.
Inventories
Inventories are stated at cost and consist primarily of food, paper products
and other supplies. The Company uses the last-in, first-out (LIFO) method of
accounting for a substantial portion of its inventories. If the first-in,
first-out (FIFO) method had been used instead of LIFO, inventories at December
31, 1995 and December 29, 1996, would have been approximately $2,485,000 and
$2,310,000, respectively.
Property, Buildings and Equipment
Property, buildings and equipment are stated at cost. Expenditures which
materially increase useful lives are capitalized, whereas ordinary maintenance
and repairs are expensed as incurred. All significant properties are reviewed
periodically for operational suitability, and, if such properties are
determined to be unsuitable for future operations, reserves are provided to
reduce the properties to estimated realizable values. Depreciation of fixed
assets is computed using the straight-line method for financial reporting
purposes and accelerated methods for tax purposes over the estimated useful
lives of the related assets as follows:
<TABLE>
<S> <C>
Buildings and improvements................... 10-39 years
Equipment.................................... 3-10 years
Leaseholds................................... Life of lease up to 20 years
</TABLE>
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 on accounting for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to assets to be held and used. SFAS No. 121 also establishes
accounting standards for long-lived assets and certain identifiable
intangibles to be disposed of. The Company adopted SFAS No. 121 effective the
beginning of fiscal 1996. The adoption of SFAS No. 121 did not have a
significant impact on the Company's consolidated financial position and
results of operations.
F-7
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
Under SFAS No. 109, "Accounting for Income Taxes", deferred tax assets and
liabilities are computed based on the difference between the financial
statement and income tax bases of assets and liabilities using the enacted tax
rate. Deferred income tax expenses or benefits are based on the changes in the
asset or liability from period to period. Tax benefits are recognized in the
financial statements in the period in which they are generated.
Franchise and License Agreements
Franchise or license agreements are available for single and multi-unit
restaurants. The multi-unit agreement establishes the number of restaurants
the franchisee or licensee is to construct and open in the franchised area
during the term of the agreement. At December 31, 1995, there were 80
franchised or licensed restaurants of which 50 restaurants were operated under
multi-unit agreements. At December 29, 1996, there were 89 franchised or
licensed restaurants of which 57 restaurants were operated under multi-unit
agreements. Franchisees and licensees are required to pay the Company a
franchise or license fee and a weekly royalty and service fee of either 4.5%
or 6.0%, depending on the duration of the franchise agreement, of the
restaurants' gross receipts. Unit franchise and license fees are recorded as
income as related restaurants begin operations. Royalty and service fees,
which are based on restaurant sales of franchisees and licensees, are accrued
as earned Franchise fees received prior to the opening of the restaurant are
deferred and included in accrued liabilities on the consolidated balance
sheets. At December 31, 1995 and December 29, 1996, total deferred franchise
and license fees were approximately $715,000 and $682,000, respectively.
Earnings Per Common Share
Earnings per common share is based on the weighted average number of common
shares outstanding.
Stock-Based Compensation
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB NO. 25). Effective in 1996, the Company adopted the disclosure option of
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires
companies that do not choose to account for stock-based compensation as
prescribed by the statement to disclose the pro forma effects on net income
and earnings per share as if SFAS No. 123 had been adopted. Additionally,
certain other disclosures are required with respect to stock-based
compensation and the assumptions used to determine the pro forma effects of
SFAS No. 123.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made in the fiscal 1995 financial
statements to conform with the 1996 presentation.
3. PETITION FOR RELIEF UNDER CHAPTER 11
On December 15, 1995 (the "petition date"), Krystal filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code with
the United States Bankruptcy Court for the Eastern District of Tennessee in
Chattanooga, Tennessee (the "Court"), for the purpose of completely and
finally resolving the
F-8
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
various claims filed against the Company by current and former employees
alleging violations of the Fair Labor Standards Act of 1938 ("FLSA"). Under
Chapter 11, enforcement of certain pre-petition unsecured claims were stayed,
while Krystal continues operations in the ordinary course of business as a
debtor-in-possession. These unsecured stayed claims are reflected in the
accompanying December 31, 1995 and December 29, 1996 consolidated balance
sheets as liabilities subject to compromise (Notes 6, 7 and 11). Claims
secured by Krystal's assets ("secured claims") were also stayed, although the
holders of such claims have the right on motion to the Court for relief from
the stay. Secured claims are secured primarily by liens on some of Krystal's
real property and buildings. Any additional claims that have arisen subsequent
to the petition date which include amounts determined by the Court as
allowable claims for contingencies and other disputed amounts have been
included in liabilities subject to compromise at December 29, 1996.
Krystal's wholly-owned subsidiary, Aviation, did not file a petition for
relief under Chapter 11 with the Court. Separate condensed financial
statements of Krystal have not been presented as the operations of Krystal
represent substantially all of the operations of the Company.
A plan of reorganization, as amended (the "Plan") was formally filed on
February 24, 1997. The terms of the Plan provide for full payment of all
administrative expenses, tax claims, priority claims and secured claims. The
Plan also provides for full payment of unsecured claims which includes trade
and financial creditors. The Plan further provides for interest of 8.5% per
annum or a market rate determined to be appropriate by the Court for unsecured
trade creditors. Interest will be paid from the later of the petition date or
the date at which the obligation became due. The Plan also provides for the
payment of 1.3% per annum penalty interest on the unsecured senior notes held
by financial creditors.
The Court has approved the distribution of the Plan which must be accepted
by at least two-thirds in amount and by more than one-half in number of the
voting unsecured creditors. The Court has set a confirmation hearing date for
the Plan on April 9, 1997 at which time the Plan will be granted or denied by
the Court (the "Confirmation Order"). The Plan states that as a condition to
the Confirmation Order, Krystal must present to the Court the settlement of
the FLSA class suit (Note 11) and the successful consummation of a loan
transaction whereby Krystal will borrow at least $45,000,000 from a commercial
lending institution on or before the distribution date of the Plan. On March
3, 1997, Krystal received a commitment from a financial institution to provide
the financing required by the Plan. The commitment provides for a $23,000,000
five year revolving credit facility, a $10,000,000 term loan due in equal
quarterly installments over five years and a $20,000,000 term loan due in
quarterly installments in the third through the fifth year following
completion of the financing. The revolving credit facility and term loans are
to be secured by substantially all of the Company's assets. Funding of this
commitment is subject to fulfillment of certain conditions and requirements.
In 1995, Krystal received approval from the Court to pay or otherwise honor
certain of its pre-petition obligations, including employee wages and
benefits; and, accordingly, these amounts have been paid or are included in
the appropriate liability captions on the accompanying consolidated balance
sheet at December 31, 1995. In 1996, Krystal received approval from the Court
to pay certain pre-petition obligations including state sales taxes, real and
business personalty taxes; and accordingly, these amounts have been paid and
are excluded as liabilities subject to compromise on the accompanying
consolidated balance sheets at December 29, 1996. Krystal paid $3,024,000 in
pre-petition obligations in 1996.
Interest income of approximately $375,000 earned on excess cash due to the
bankruptcy has been recorded as a reduction in interest expense related to
certain pre-petition liabilities which include the 1.3% penalty interest on
the senior notes and the 8.5% interest expense associated with the unsecured
pre-petition trade payables. All other interest income and contractual
interest expense incurred in the ordinary course of business has been reported
separately in the accompanying consolidated statement of operations for the
year ended December 29, 1996.
F-9
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Professional and other fees of $184,000 and $3,846,000 incurred as a result
of Krystal's Chapter 11 filing have been segregated from expenses related to
ordinary operations and reported as a reorganization item in the accompanying
consolidated statements of operations for the years ended December 31, 1995
and December 29, 1996, respectively.
4. PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment at December 31, 1995 and December 29,
1996, consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Land........................ $ 35,102 $ 33,803
Buildings and improvements.. 48,905 49,044
Equipment................... 67,328 69,467
Leaseholds.................. 20,228 20,333
Construction in progress.... 1,353 896
-------- --------
172,916 173,543
Accumulated depreciation and
amortization............... (74,370) (82,370)
-------- --------
$ 98,546 $ 91,173
======== ========
</TABLE>
In December 1995, the Company recorded a provision for loss on restaurant
closings and other property write-downs of $3,911,000 which is reflected in
the accompanying consolidated statement of operations for the year ended
December 31, 1995. This provision primarily relates to the Company's estimated
losses to be incurred associated with decisions to close certain restaurants.
5. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1995 and December 29, 1996, consisted of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Salaries, wages and vacation
pay........................ $3,442 $ 3,477
Workers' compensation....... 3,295 3,753
State sales taxes........... 774 1,321
Deferred franchise fees..... 715 682
Accrued interest............ 234 4,178
Accrued reorganization ex-
penses..................... 0 2,286
Other....................... 967 2,289
------ -------
$9,427 $17,986
====== =======
</TABLE>
F-10
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INDEBTEDNESS
Long-term debt at December 31, 1995 and December 29, 1996, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
7.6% senior notes, payable in annual install-
ments beginning in May 1997 and balance due May
2004........................................... $ 20,000 $ 20,000
11.16% senior notes, payable in annual install-
ments and balance due May 1999................. 16,000 16,000
10.5% mortgage bonds, payable in monthly in-
stallments through October 2001................ 2,884 2,884
Other........................................... 1,169 1,173
-------- --------
40,053 40,057
Less--Current maturities........................ (432) (967)
Liabilities subject to compromise............... (36,000) (36,000)
-------- --------
$ 3,621 $ 3,090
======== ========
</TABLE>
Unsecured debt included in liabilities subject to compromise at December 31,
1995 and December 29, 1996 consisted of the $20,000,000 senior notes and the
$16,000,000 senior notes.
On December 29, 1996, outstanding letters of credit not reflected in the
accompanying financial statements aggregated approximately $3,461,000. Letters
of credit issued in 1996 of $800,000 are collateralized by the Company with
certificates of deposit which are included in cash and temporary investments
on the balance sheet.
Property and buildings with a net book value of $3,181,000 at December 29,
1996, are pledged as collateral on the 10.5% mortgage bonds.
Maturities of long-term debt not subject to compromise subsequent to
December 29, 1996, are as follows (in thousands):
<TABLE>
<S> <C>
1997.................................... $967
1998.................................... 514
1999.................................... 566
2000.................................... 611
2001.................................... 527
Thereafter.............................. 872
</TABLE>
The Company's debt agreements contain restrictive covenants including, but
not limited to: (a) the Company's required maintenance of minimum levels of
tangible net worth; (b) limitations regarding additional indebtedness; (c) the
Company's required maintenance of a minimum amount of fixed charges coverage;
and (d) limitations regarding liens on assets. Due to the Chapter 11
proceedings, the Company was not in compliance with certain restrictive
covenants of the Company's debt agreements at December 29, 1996. Such debt is
classified as liabilities subject to compromise in the accompanying
consolidated balance sheet at December 29, 1996.
Due to the extenuating circumstances involving both secured and unsecured
long-term debt as a result of the Chapter 11 filing, it is not practicable to
estimate the fair value of long-term debt at December 31, 1995 and at December
29, 1996.
F-11
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise at December 31, 1995 and December 29,
1996, consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Unsecured long-term debt......................... $36,000 $36,000
Accounts payable................................. 7,542 7,920
Special charge reserve........................... 9,849 13,875
State sales taxes................................ 1,657 0
Real estate and business personalty taxes........ 1,349 10
Other............................................ 512 512
------- -------
$56,909 $58,317
======= =======
</TABLE>
8. BENEFIT PLANS
RETIREMENT PLANS--
The Company has a noncontributory, defined benefit pension plan covering
substantially all operating and salaried employees. The plan provides benefits
of stated amounts based on years of service and the employee's compensation.
The Company's funding policy is consistent with the requirements of the
Employee Retirement Income Security Act of 1974. Plan assets at December 31,
1995 and December 29, 1996, are invested primarily in equity securities,
managed international equity and bond index funds and U.S. government
securities.
Net pension expense included the following components (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Service cost (benefits earned during
the period)........................ $ 1,451 $ 1,182 $ 1,594
Interest cost on projected benefit
obligation......................... 1,493 1,575 1,728
Actual return on plan assets........ (646) (5,254) (4,224)
Net amortization and deferral....... (1,368) 3,253 1,868
------- ------- -------
Net pension expense................. $ 930 $ 756 $ 966
======= ======= =======
</TABLE>
The following table sets forth the status of the plan as of December 31,
1995 and December 29, 1996: (in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested benefit obligation...................... $ 19,401 $ 19,884
Nonvested benefit obligation................... 822 767
-------- --------
Accumulated benefit obligation.................. $ 20,223 $ 20,651
======== ========
Projected benefit obligation.................... $(22,613) $(24,112)
Plan assets at fair value....................... 24,819 27,936
-------- --------
Plan assets in excess of projected benefit obli-
gation......................................... 2,206 3,824
Unrecognized net gain........................... (4,196) (6,893)
Unrecognized initial asset...................... (1,450) (1,160)
Unrecognized prior service cost................. 577 400
-------- --------
Pension liability recognized in the consolidated
balance sheets................................. $ (2,863) $ (3,829)
======== ========
</TABLE>
F-12
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unrecognized prior service cost resulted from plan amendments providing an
accelerated vesting schedule and increased benefits for certain participants
based on services rendered in prior periods. This amount is being amortized
over the average future service of employees expected to receive benefits from
the plan.
The projected benefit obligation was determined using a discount rate of
8.5% , 7.5% and 8.0% at, January 1, 1995, December 31, 1995 and December 29,
1996, respectively. The assumed rate of compensation increase was 4%, 3% and
3% in 1994, 1995 and 1996 respectively. The expected long-term rate of return
on plan assets was 9% in 1994, 1995 and 1996.
The Company also has a supplemental executive retirement plan for certain
officers. The plan provides additional benefits upon retirement. The
supplemental retirement benefit shall be paid over the officers' lifetime but
for no less than a period of 10 years following retirement. The Company
provides an annual amount necessary to amortize the total cost of the
estimated deferred compensation at retirement. Total deferred compensation
accrued for this plan at December 31, 1995 and December 29, 1996, was
$2,609,000 and $2,876,000, respectively.
The Company is the beneficiary of life insurance policies with a face amount
of $7,722,000 at December 29, 1996. Total cash surrender value of such life
insurance at December 31, 1995 and December 29, 1996 was $5,117,000 and
$5,638,000, respectively.
POSTRETIREMENT HEALTH CARE AND DENTAL BENEFITS--
Employees retiring from the Company on or after attaining age 55 that meet
certain eligibility requirements are entitled to postretirement health care
and dental benefit coverage. These benefits vary for hourly and salaried
employees and are subject to deductibles, copayment provisions and other
limitations. The Company may amend or change the plan periodically. Retirees
contribute at a fixed rate per month toward the cost of the plan.
Net periodic postretirement health care benefits cost included the following
components (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Service cost (benefits earned during
the period)......................... $ 96 $ 74 $ 78
Interest cost on accumulated
postretirement health care benefits
obligation.......................... 66 68 67
---- ---- ----
Net periodic postretirement health
care benefits cost.................. $162 $142 $145
==== ==== ====
</TABLE>
The following table sets forth the funded status of the plan, reconciled to
the accrued postretirement health care benefits recognized in the Company's
consolidated balance sheets at December 31, 1995 and December 29, 1996 (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Accumulated postretirement health care
benefits obligation:
Retirees..................................... $171 $ 146
Employees fully eligible..................... 232 270
Other active participants.................... 540 553
---- ------
Total....................................... 943 969
Unrecognized net gain (loss).................. (15) 36
---- ------
Accrued postretirement health care benefits
cost......................................... $928 $1,005
==== ======
</TABLE>
F-13
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1995, a 12.0% annual rate of increase in the per capita cost of covered
health care benefits was assumed for measurement purposes, reducing to an 8%
annual rate of increase after two years. In 1996, a 6.0% annual rate of
increase was assumed for all periods. The effect of a one percentage point
increase in the health care cost trend assumption would not have a significant
effect on the accumulated postretirement benefits obligation as of December
29, 1996 and the periodic postretirement health care benefit cost for the year
then ended. The weighted-average discount rate used in determining the
accumulated postretirement health care benefits obligation was 7.5% and 8.0%
at December 31, 1995 and December 29, 1996, respectively.
9. INCOME TAXES
The provision for (benefit from) income taxes included the following
components (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Current tax provision:
Federal............................. $ 3,940 $ 1,176 $ 1,459
State............................... 590 147 268
------- ------- -------
4,530 1,323 1,727
Deferred income taxes................ (1,568) (5,011) (3,207)
------- ------- -------
Provision for (benefit from) income
taxes............................... $ 2,962 $(3,688) $(1,480)
======= ======= =======
</TABLE>
The income tax effects of temporary differences that give rise to the
current deferred tax asset and the noncurrent net deferred tax liability as of
December 31, 1995 and December 29, 1996, were as follows (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Current deferred tax asset:
Special charge reserve............................... $ 3,673 $ 5,273
Workers' compensation................................ 1,176 1,426
Deferred franchise fees.............................. 272 259
Miscellaneous payables............................... 272 703
Accrued interest..................................... 0 242
Other................................................ 160 424
------- -------
Current deferred tax asset............................ $ 5,553 $ 8,327
======= =======
Noncurrent net deferred tax liability:
Noncurrent deferred tax asset:
Deferred compensation................................ $ 1,779 $ 2,019
Accrued pension cost................................. 1,239 1,465
Accrued postretirement benefit cost.................. 389 445
Other................................................ 189 286
------- -------
Noncurrent deferred tax asset........................ 3,596 4,215
------- -------
Noncurrent deferred tax liability:
Property, buildings and equipment.................... (6,258) (6,501)
Other................................................ (57) 0
------- -------
Noncurrent deferred tax liability.................... (6,315) (6,501)
------- -------
Noncurrent net deferred tax liability................ $(2,719) $(2,286)
======= =======
</TABLE>
F-14
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The difference between the reported income tax provision and the "expected"
tax provision (benefit) based on the current statutory federal income tax rate
is as follows (In thousands):
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Computed "expected" tax provision
(benefit)................................ $3,111 $(3,122) $(1,327)
Targeted jobs tax credits................. (444) (137) 0
State income taxes (net of federal income
tax effect).............................. 257 (340) (99)
Other, net................................ 38 (89) (54)
------ ------- -------
Reported tax provision (benefit).......... $2,962 $(3,688) $(1,480)
====== ======= =======
</TABLE>
10. LEASES
The Company leases certain buildings and equipment and a number of
restaurants (land and/or building) under noncancellable lease agreements, some
of which are subleased to third parties. The restaurant lease terms are
normally for a period of 20 years with options that permit renewals for
additional periods. Certain leases provide for additional contingent rentals
based on sales. Generally, the building portions of the restaurant leases have
been recorded as capital leases, while the land portions have been recorded as
operating leases.
The future minimum lease payments under capital and operating leases,
together with the present value of such minimum lease payments as of December
29, 1996, are summarized as follows (In thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
---- ------- ---------
<S> <C> <C>
1997.................................................... $ 720 $ 3,854
1998.................................................... 463 3,074
1999.................................................... 364 2,458
2000.................................................... 364 1,949
2001.................................................... 364 1,507
Thereafter.............................................. 1,873 5,217
------ -------
Total minimum lease payments.......................... 4,148 $18,059
=======
Less amount representing interest....................... 1,416
------
Present value of minimum lease payments including cur-
rent portion........................................... $2,732
======
</TABLE>
Rental expense under operating leases was $4,666,000, $4,715,000 and
$5,212,000 in 1994, 1995 and 1996, respectively.
Rental expense includes contingent rentals of $156,000, $117,000 and
$110,000 in 1994, 1995 and 1996, respectively.
F-15
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Direct Financing and Operating Leases/Subleases with Third Parties
The Company owns or leases from outside parties certain land and buildings
which are leased/subleased to third parties. Generally, the building portions
of the leases/subleases are treated as direct financing leases while the land
portions of the leases/subleases are treated as operating leases. The
following summarizes the components of the net investment in direct financing
leases and the minimum future rentals on operating leases/subleases as of
December 29, 1996 (In thousands):
<TABLE>
<CAPTION>
DIRECT
FINANCING OPERATING
YEAR LEASE LEASES
---- --------- ---------
<S> <C> <C>
1997.................................................. $633 $ 627
1998.................................................. 268 458
1999.................................................. 56 343
2000.................................................. 6 314
2001.................................................. 244
Thereafter............................................ 3
---- ------
Total minimum lease payments to be received......... 963 $1,989
======
Less unearned income.................................. (96)
----
Net investment in direct financing leases including
current portion...................................... $867
====
</TABLE>
Rental income under operating leases was $629,000, $626,000 and $557,000 in
1994, 1995 and 1996, respectively.
11. CONTINGENCIES
In July 1994, Krystal was named a defendant in a suit filed in the United
States District Court for the Middle District of Tennessee, in which 41
plaintiffs, who were current and former employees of Krystal, alleged
violations of the FLSA and sought back wages, liquidated damages, costs and
attorney's fees. The suit alleged that the plaintiffs were uncompensated for
time which they worked on Krystal's behalf. In February 1995, ten additional
plaintiffs, also current and former employees of Krystal, filed a separate
suit in the same court containing essentially the same allegations. As a
result, Krystal established a reserve of $2,000,000 in 1994 to cover the
claims of the plaintiffs in the two suits, the costs associated therewith, and
the claims of any other employees and the costs associated therewith.
On April 18, 1995, Krystal settled the July 1994 case by agreeing to pay
$840,000 to the plaintiffs and their counsel. By order dated August 28, 1995,
the Court in the February 1995 case provisionally granted the plaintiffs
motion for court-supervised notice of the pendency of that action to
prospective class members from among current and former employees of Krystal
for the past three years.
In the third quarter of 1995, a total of 17 additional current and former
employees of Krystal filed three additional suits in the United States
District Courts for the Northern District of Georgia, the Northern District of
Alabama and the Middle District of Florida, containing essentially the same
allegations as set forth in the July 1994 and February 1995 suits.
In light of the three suits filed against Krystal during the third quarter
of 1995 and the order entered in the February 1995 suit provisionally granting
the plaintiffs motion for court-supervised notice of the pendency of
F-16
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
that action, Krystal established an additional $10,000,000 reserve to cover an
estimate of the exposure resulting from (i) the claims of the plaintiffs in
the four pending suits, (ii) the potential for additional claims of other
current and former employees, (iii) related claims, and (iv) the costs
associated therewith.
On December 15, 1995, Krystal filed a voluntary petition under Chapter 11 of
the United States Bankruptcy Code with the Court for the purpose of completely
and finally resolving the various claims filed against the Company by current
and former employees alleging violations of the FLSA. The four pending
lawsuits filed against Krystal under the FLSA have been stayed by the
bankruptcy filing.
Subsequent to December 29, 1996, Krystal and the majority of the FLSA
plaintiffs reached a settlement providing for the payment of approximately
$13,000,000 for the FLSA claims and related legal costs. At December 29, 1996,
the Company established an additional $4,000,000 reserve related to the FLSA
claim. Management believes the accrual for employee claims of $13,875,000 at
December 29, 1996 is adequate to meet its ultimate obligation for the FLSA
claims.
The Company is party to other various legal proceedings incidental to its
business. The ultimate disposition of these matters is not presently
determinable but will not, in the opinion of management, have a material
adverse effect on the Company's financial condition or results of operations.
12. RESTRICTED STOCK AND STOCK OWNERSHIP PLANS
The Company's 1990 Restricted Stock Plan ("Restricted Stock Plan") provides
for the granting of shares of common stock to certain directors and key
employees of the Company. The number of shares that may be issued under the
Restricted Stock Plan may not exceed 1,100,000 shares. The shares issued under
the Restricted Stock Plan when issued are restricted and subject to forfeiture
under certain circumstances.
Restricted stock may not be sold or otherwise transferred, and, if
employment of the restricted stockholder terminates for any reason other than
death, normal retirement, total disability, approved early retirement, or
other approved termination, the restricted stock will be forfeited. Restricted
stock which has been forfeited may be reissued under the Restricted Stock
Plan. As to restricted stock issued before April 14, 1992, restrictions
generally lapse 15% each year. As to restricted stock issued on or after April
14, 1992, restrictions will generally lapse as to 10% of the restricted stock
between the second and third anniversary of the date of grant and then 10% per
year thereafter. However, restrictions on 430,000 shares granted to two
officers of the Company will only lapse in the event of death, normal
retirement, total disability, approved early retirement, or other approved
termination. Restrictions also terminate on the occurrence of certain events
including dissolution or change in control of the Company. The Restricted
Stock Plan provides for the issuance of additional shares to each restricted
stockholder in the event annual lapsing of the restrictions is waived. The
additional shares issued to the restricted stockholder each year is limited to
10% of the number of restricted shares for which the annual lapsing is waived.
Restricted stock has the same dividend and voting rights as other outstanding
common stock.
During 1992, the Company adopted a restricted stock plan ("Non-Employee
Director Plan") which provides for the issuance of 8,000 shares of restricted
stock to each existing non-employee director who has not previously been
awarded restricted stock. This plan provides for the issuance of an additional
800 shares of restricted stock to each non-employee director in the event
annual lapsing of the restrictions is waived. The
F-17
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
restrictions generally lapse 15% each year beginning two years after the date
of grant. summary of the Company's restricted stock activity is as follows:
<TABLE>
<CAPTION>
RESTRICTED NON-EMPLOYEE
STOCK PLAN DIRECTOR PLAN
---------- -------------
(NUMBER OF SHARES)
<S> <C> <C>
Issued at January 2, 1994........................ 958,000 16,000
Issued at an average market value of $14.00 per
share.......................................... 1,200 240
Forfeitures..................................... (8,000) 0
------- -------
Issued at January 1, 1995........................ 951,200 16,240
Issued at an average market value of $7.75 per
share.......................................... 73,200 240
Forfeitures..................................... (40,000) (16,480)
------- -------
Issued at December 31, 1995...................... 984,400 0
Issued at an average market value of $4.63 per
share.......................................... 960 0
Forfeitures..................................... (36,000) 0
------- -------
Issued at December 29, 1996...................... 949,360 0
======= =======
</TABLE>
Deferred compensation related to the restricted stock awards is recorded
based on the market value of the Company's common stock at the date of grant
and such deferred compensation is amortized to expense over the period the
restrictions lapse. Compensation expense related to the restricted stock plans
was $445,624, $254,203, and $363,688, in 1994, 1995, and 1996, respectively.
During 1994, the Company adopted a stock option plan which provides for the
issuance of up to 1,100,000 common stock options (less the number of shares of
common stock that are at any time issued and outstanding under the Restricted
Stock Plan) to key employees and non-employee directors. At December 29, 1996,
no options had been granted under this stock option plan.
Effective March 1, 1994, all employees of the Company (excluding those who
own restricted stock of the Company) who have attained age eighteen and who
have been employed for one year are eligible to participate in the Company's
employee stock purchase plan (the "ESPP"). The ESPP provides that each
participant may authorize the Company to deduct up to $3,600 of their annual
earnings and deposit such amounts with an independent custodian. The Company
will contribute an additional 15% to the first $1,800 of the participant's
deduction and deposit such amount with the custodian. The custodian causes to
be purchased, as nominee for the participants, common stock of the Company at
prevailing market prices and distributes the shares purchased to the
participants upon request. The Company's contributions under the ESPP, which
were charged to expense, were not significant in 1995 or 1996.
The Company applies APB Opinion 25 and related interpretations in accounting
for its stock-based compensation plans described above. Had compensation cost
for these plans been determined based on the provisions of SFAS No. 123, the
effect on the Company's net income and earning per share would not be
significant in 1995 or 1996.
F-18
<PAGE>
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. QUARTERLY INFORMATION (UNAUDITED)
(In thousands of dollars, except per share amounts)
FISCAL 1995
<TABLE>
<CAPTION>
EARNINGS
OPERATING NET (LOSS) PER
INCOME INCOME COMMON
REVENUES (LOSS) (LOSS) SHARE(1)
-------- --------- ------- ----------
<S> <C> <C> <C> <C>
Quarter Ended:
April 2............................ $ 58,196 $ 1,356 $ 327 $ 0.04
July 2............................. 63,501 2,818 1,215 0.16
October 1 (2)...................... 62,508 (8,365) (5,731) (0.76)
December 31 (3).................... 63,823 (1,221) (1,135) (0.15)
-------- ------- ------- ------
Total............................. $248,028 $(5,412) $(5,324) $(0.71)
======== ======= ======= ======
FISCAL 1996
<CAPTION>
EARNINGS
OPERATING NET (LOSS) PER
INCOME INCOME COMMON
REVENUES (LOSS) (LOSS) SHARE(1)
-------- --------- ------- ----------
<S> <C> <C> <C> <C>
Quarter Ended:
March 31........................... $ 57,667 $ 693 $ (746) $(0.10)
June 30............................ 60,903 2,095 426 0.06
September 29....................... 62,432 1,611 (11) 0.00
December 29 (4).................... 63,266 (473) (2,091) (0.28)
-------- ------- ------- ------
Total............................. $244,268 $ 3,926 $(2,422) $ (.32)
======== ======= ======= ======
</TABLE>
- --------
(1) The sum of quarterly earnings per share amounts may differ from annual
earnings per share because of the differences in the weighted average number
of common shares in the quarterly and annual computations.
(2) The third quarter of 1995 includes a special charge for litigation (Note
11) of $10,000,000 before income tax benefit ($6,200,000 after income tax
benefit, or $0.83 per common share).
(3) The fourth quarter of 1995 includes the provision for loss on restaurant
closings and other property write-downs of $3,911,000 before income tax
benefit ($2,425,000 after income tax benefit, or $0.32 per common share).
(4) The fourth quarter of 1996 includes a special charge for litigation (Note
11) of $4,000,000 before income tax benefit ($2,480,000 after income tax
benefit, or $0.33 per common share).
F-19
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or make any representation in connection with the offer contained
herein, other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than those to
which it relates nor does it constitute an offer to sell, or a solicitation of
an offer to buy, any security to any person in any jurisdiction in which such
offer or solicitation is not authorized, or in which the person making such
offer or solicitation is not qualified to do so, or to any person to whom it
is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as
of any time subsequent to the date hereof.
---------------
Table of Contents
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 15
The Exchange Offer........................................................ 20
The Acquisition........................................................... 27
Use of Proceeds of the Exchange Notes..................................... 28
Pro Forma Capitalization.................................................. 28
Unaudited Pro Forma Financial Information................................. 29
Selected Historical Consolidated Financial Information.................... 37
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 39
Description of Business................................................... 47
Management................................................................ 59
Security Ownership of Certain Beneficial Owners and Management of the
Company.................................................................. 61
Description of Capital Stock.............................................. 62
Description of Credit Facility............................................ 62
Description of the Notes.................................................. 63
Certain U.S. Federal Income Tax Considerations............................ 88
Plan of Distribution...................................................... 89
Legal Matters............................................................. 90
Experts................................................................... 90
Index to Financial Statements ............................................ F-1
</TABLE>
Until , 199 , all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
$ 100,000,000
[LOGO OF THE KRYSTAL COMPANY APPEARS HERE]
THE KRYSTAL COMPANY
OFFER TO EXCHANGE UP TO $100,000,000 OF ITS
10 1/4% NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR
AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF ITS OUTSTANDING 10 1/4% SENIOR NOTES
DUE 2007
---------------
PROSPECTUS
---------------
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 8 of the Company's charter provides as follows:
(a) A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for any breach of
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) for
acts or omissions not in good faith or which involved intentional misconduct
or a knowing violation of law or (iii) for distributions in violation of
Section 48-18-304 of the Tennessee Business Corporation Act. If the Tennessee
Business Corporation Act is amended after approval by the shareholders of this
article in order to authorize or permit corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Tennessee Business Corporation Act, as so amended.
Any repeal or modification of the foregoing paragraph by the shareholders of
the corporation shall not adversely effect any right or protection of a
director of the corporation existing at the time of such repeal or
modification.
(b) Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, and whether formal or
informal (hereinafter a "proceeding"), by reason of the fact that he or she is
or was a director, officer or employee of the corporation or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans
(hereinafter "indemnities") whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the corporation to the fullest
extent authorized by the Tennessee Business Corporation Act, as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the corporation to provide
broader indemnification rights than such law permitted the corporation to
provide prior to such amendment), against all judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement reasonably incurred or
suffered by such indemnities in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a director, officer or
employee and shall inure to the benefit of the indemnitee's heirs, executors
and administrators; provided, however, that, except as provided in Paragraph
8(c) hereof, with respect to proceedings to enforce a right to indemnification
hereunder, the corporation shall indemnify any such indemnitee in connection
with a proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
corporation. The right to indemnification conferred in this paragraph shall be
a contractual right and shall include the right to be paid by the corporation
the expenses incurred in defending a proceeding in advance of its final
disposition (hereinafter "advancement expenses"); provided, however, that, if
the Tennessee Business Corporation Act so requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director, officer or
employee shall be made only upon (i) delivery of written affirmation of the
indemnitee's good faith belief that any applicable standard of conduct
required by Section 48-18-502 of the Tennessee Business Corporation Act, or
any successor provision, has been met; (ii) delivery of an undertaking, by or
on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under this paragraph or otherwise (hereinafter an
"undertaking"); and (iii) a determination is made by those making the
determination that the facts then known to them would not preclude
indemnification under this charter or the Tennessee Business Corporation Act.
II-1
<PAGE>
(c) If a claim under Paragraph 8(b) is not paid in full by the corporation
within sixty days after a written claim has been received by the corporation,
except in the case of a claim for an advancement of expenses, in which case
the applicable period shall be twenty days, the indemnitee may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim. If the indemnitee is successful in whole or in part in any such
suit or in any suit brought by the corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to also be paid the expenses of prosecuting or defending such a suit.
In any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to
an advancement of expenses) it shall be a defense that the indemnitee has not
met the applicable standard of conduct set forth in Section 48-18-502 or any
successor provision of the Tennessee Business Corporation Act. In any suit by
the corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the corporation shall be entitled to such expenses upon a
final adjudication that the indemnitee has not met the applicable standard of
conduct set forth in Section 48-18-502 or any successor provision of the
Tennessee Business Corporation Act. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel or its
shareholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper under the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
Section 48-18-502 or any successor provision of the Tennessee Business
Corporation Act, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel or its shareholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has failed to meet the applicable standard of
conduct or be a defense to such suit. In any suit brought by the indemnitee to
enforce a right hereunder, or by the corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that
the indemnitee is not entitled to indemnification or advancement of expenses
under Paragraph 8(b) or otherwise shall be on the corporation.
(d) The rights to indemnification and to advancement of expenses conferred
in Paragraph 8(b) shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the corporation's Second
Amended and Restated Charter or Second Amended and Restated By-laws,
agreement, vote of shareholders or disinterested directors or otherwise. The
indemnitee's right to indemnification and advancement of expenses under
Paragraph 8(b) may but shall not be required to be evidenced by a separate
written agreement.
(e) The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the corporation would
have the power to indemnify such person against such expense, liability or
loss under the Tennessee Business Corporation Act.
(f) The corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any agent of the corporation to the fullest extent permitted by
Paragraph 8(b) with respect to the indemnification and advancement of expenses
of directors, officers and employees of the corporation.
Article VII of its bylaws provides that the Company shall have the power to
indemnify its directors to the fullest extent permitted by (a) the charter of
the corporation or (b) if such charter provision is limited or eliminated by
amendment or otherwise, by Tennessee law.
Item 21. Exhibits and Financial Statement Schedules
See Index to Exhibits.
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
II-2
<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when it
became effective.
(d) That insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, undersigned registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Chattanooga, Tennessee on
, 1997.
THE KRYSTAL COMPANY
By: /s/ Philip H. Sanford,
---------------------------------
Philip H. Sanford,
Chairman and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
hereby below constitutes and appoints Philip H. Sanford and James F. Exum,
Jr., and each of them, his true and law attorneys-in-fact and agents, with
full power of substitution resubstitution, for him and in his name, place and
stead, in any and all capacities to sign any and all amendments (including
post-effective amendments to this registration statement and all amendments
and supplements to any prospectus relating thereto and any other documents and
instruments incidental thereto, and any registration statement filed pursuant
to Rule 462 under the Securities Act of 1933, as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as full to all intents and purposes as he might or could do in
person, hereby ratifying confirming that each of said attorneys-in-fact and
agents and/or either of them, or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on , 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C> <C>
/s/ Chairman and Chief Executive , 1997
- --------------------------------- Officer Principal Executive
PHILIP H. SANFORD Officer
/s/ President, Chief Operating , 1997
- --------------------------------- Officer and Director
JAMES F. EXUM, JR.
/s/ Treasurer and Controller , 1997
- --------------------------------- (Principal Financial and
CLAY H. BUCKNER, JR. Accounting Officer)
/s/ Director , 1997
- ---------------------------------
W. A. BRYAN PATTEN
/s/ Director , 1997
- ---------------------------------
RICHARD C. PATTON
/s/ Director , 1997
- ---------------------------------
BENJAMIN R. PROBASCO
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.1 Purchase Agreement, dated as of September 18, 1997, between TKC
Acquisition Corp. and UBS Securities, LLC.
***2.1 Agreement and Plan of Merger dated July 3, 1997 by and among Port
Royal Holdings, Inc., TKC Acquisition Corp. and The Krystal Company
3.1 Charter of the Company.
3.2 By-laws of the Company.
4.1 Indenture, dated as of September 26, 1997 between TKC Acquisition
Corp. and SunTrust Bank, Atlanta, N.A.
4.2 Supplemental Indenture No. 1 dated as of September 26, 1997 between
The Krystal Company, Krystal Aviation Co., Krystal Aviation Management
Co. and SunTrust Bank, Atlanta.
4.3 Form of Exchange Note (included in Exhibit 4.1).
4.4 Registration Rights Agreement, dated as of September 26, 1997, between
TKC Acquisition Corp. and UBS Securities, LLC.
*5.1 Opinion and Consent of Miller & Martin regarding validity of the
Exchange Notes.
10.1 Credit Agreement dated as of September 26, 1997 among TKC Acquisition
Corp., to be merged with and into The Krystal Company, SunTrust Bank,
Atlanta, as agent, and Union Bank of Switzerland, New York Branch, as
syndication agent.
*21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Miller & Martin (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
*25.1 Statement of Eligibility of SunTrust Bank, Atlanta, N.A.
**27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Exchange Agent Agreement
</TABLE>
- --------
* To be filed by Amendment.
** Submitted only with the electronic filing of this document with the
Commission pursuant to Regulation S-T under the Securities Act.
*** Incorporated by reference to the Proxy Statement of the Company filed with
the Commission on September 15, 1997.
<PAGE>
EXHIBIT 1.1
TKC ACQUISITION CORP.
as the acquiror of The Krystal Company
$100,000,000
10 1/4% SENIOR NOTES DUE 2007
PURCHASE AGREEMENT
September 18, 1997
UBS Securities LLC
299 Park Avenue
New York, NY 10171-0026
Ladies and Gentlemen:
TKC Acquisition Corp., a Tennessee corporation ("TKC"), proposes to
issue and sell (the "Initial Placement") to UBS Securities, LLC (the "Initial
Purchaser") $100,000,000 principal amount of its 10 1/4% Senior Notes Due 2007
(the "Notes"). The Notes are to be issued under an indenture (the "Indenture")
to be dated as of the Closing Date (as defined below) between TKC and SunTrust
Bank, Atlanta, as trustee (the "Trustee"). The Initial Placement is to occur
concurrently with, and is conditioned upon, (i) the consummation of the
acquisition (the "Acquisition") pursuant to which Port Royal Holdings, Inc., a
Georgia corporation and 100% owner of TKC ("Holdings") will acquire The Krystal
Company, Inc., a Tennessee corporation ("Krystal"), from its existing
shareholders, pursuant to a merger agreement dated as of July 3, 1997 (the
"Merger Agreement") whereby TKC will merge with and into Krystal (the "Merger"),
following which Krystal will be the surviving corporation although all shares of
capital stock of Krystal will, in consummation of the Merger, be canceled and
the outstanding shares of capital stock of TKC will become the shares of capital
stock of the surviving corporation and the other consequences of the Merger
shall be as described in the Articles of Merger, a copy of which has been
furnished to you (any reference in this agreement to the "Company" being
understood to refer to (a) TKC prior to the Merger and (b) Krystal as the
surviving corporation after the Merger), (ii) the initial borrowings under the
Credit Agreement, to be executed and delivered on or prior to the date on which
the Notes are issued (the "Credit Agreement") among the Company, Holdings as
guarantor thereunder, and SunTrust Bank, Atlanta as agent and lender and the
other lenders named therein and (iii) the receipt by the Company of a $35
million equity contribution (the "Equity Contribution") from Holdings. This
Agreement, the registration rights agreement, to be dated the Closing Date,
between the Initial Purchaser and the Company (the "Registration Rights
Agreement"), the Indenture, the Merger Agreement and the Credit Agreement are
hereinafter collectively referred to as the "Transaction Documents."
<PAGE>
The sale of the Notes to the Initial Purchaser will be made without
registration of the Notes under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon certain exemptions from the registration
requirements of the Securities Act. You have advised the Company that you will
offer and sell the Notes purchased by you hereunder in accordance with Section 4
hereof as soon as you deem advisable.
In connection with the sale of the Notes, the Company has prepared a
preliminary offering memorandum, dated August 28, 1997 (the "Preliminary
Memorandum"), and a final offering memorandum, dated September 18, 1997 (the
"Final Memorandum"). Each of the Preliminary Memorandum and the Final
Memorandum sets forth certain information concerning the Company and the Notes.
The Company hereby confirms that it has authorized the use of the Preliminary
Memorandum and the Final Memorandum, and any amendment or supplement thereto, in
connection with the offer and sale of the Notes by the Initial Purchaser.
Unless stated to the contrary, all references herein to the Final Memorandum are
to the Final Memorandum at the Execution Time (as defined below) and are not
meant to include any amendment or supplement, or any information incorporated by
reference therein, subsequent to the Execution Time.
1. Representations and Warranties. The Company represents and
------------------------------
warrants to the Initial Purchaser as set forth below in this Section 1.
(a) The Preliminary Memorandum, at the date thereof, did not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Final Memorandum, at the
date hereof, does not and at the Closing Date will not (and any amendment
or supplement thereto, at the date thereof and at the Closing Date, will
not), contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
--------
however, that the Company makes no representation or warranty as to the
-------
information contained in or omitted from the Preliminary Memorandum or the
Final Memorandum, or any amendment or supplement thereto, to the extent
such information was furnished in writing to the Company by or on behalf of
the Initial Purchaser specifically for inclusion therein.
(b) No holder of securities of the Company will be entitled to have
such securities registered under the registration statements required to be
filed by the Company pursuant to the Registration Rights Agreement other
than as expressly permitted thereby.
(c) Neither the Company nor any of its Affiliates (as defined in Rule
501(b) of Regulation D under the Securities Act ("Regulation D")), nor any
person acting on its or their behalf (other than the Initial Purchaser or
any of its Affiliates, as to whom the Company makes no representation or
warranty) has, directly or indirectly, made offers or sales of any
security, or solicited offers to buy any security, under circumstances that
would require the registration of the Notes under the Securities Act.
2
<PAGE>
(d) Neither the Company nor any of its Affiliates, nor any person
acting on its or their behalf (other than the Initial Purchaser or any of
its Affiliates, as to whom the Company makes no representation or warranty)
has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with any offer or sale
of the Notes.
(e) Neither the Company nor any of its Affiliates has (i) taken,
directly or indirectly, any action designed to cause or result in, or that
has constituted or that might reasonably be expected to constitute,
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Notes; or (ii) paid or agreed to
pay to any person any compensation for soliciting another to purchase any
securities of the Company (except as contemplated by this Agreement).
(f) The Notes satisfy the eligibility requirements of Rule 144A(d)(3)
under the Securities Act.
(g) Neither the Company nor any of its Affiliates has directly or
through any agent or other person acting on its or their behalf (other than
the Initial Purchaser or any Affiliate of the Initial Purchaser, as to
which no representation is made) engaged in any directed selling efforts
(as that term is defined in Regulation S under the Securities Act
("Regulation S")) with respect to the Notes; the Company and its
------------
Affiliates and any person acting on its or their behalf (other than the
Initial Purchaser or any Affiliate of the Initial Purchaser, as to which no
representation is made) have complied with the offering restrictions
requirement of Regulation S; provided that no representation is made as to
the Initial Purchaser or any Affiliate of the Initial Purchaser.
(h) The Company has not engaged or retained any person, other than
the Initial Purchaser, to act as a financial advisor, underwriter or
placement agent in connection with the issuance of the Notes and, except
for the discount and expenses payable to the Initial Purchaser in
connection with the issuance of the Notes as described in the Final
Memorandum, no person has the right to receive a material amount of
financial advisory, underwriting, placement, finder's or similar fees in
connection with, or as a result of, the issuance of the Notes and the
purchase of the Notes by the Initial Purchaser or the consummation of the
other transactions contemplated hereby.
(i) It is not necessary in connection with the offer, sale and
delivery of the Notes in the manner contemplated by this Agreement and the
Final Memorandum to register the Notes under the Securities Act or to
qualify the Indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act").
(j) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended (the "Investment Company
Act").
(k) Each of Krystal and TKC as of the date hereof is, and the Company
as of the Closing Date will be, validly existing as a corporation in good
standing under the laws of the State of Tennessee, with full power
(corporate and other) to own or lease its
3
<PAGE>
properties, conduct its business as described in the Final Memorandum and
enter into each Transaction Document to which it is a party and to carry
out all the terms and provisions of each Transaction Document to be carried
out by it, and is, or will be on or before the Closing Date, duly qualified
to do business as a foreign corporation and in good standing under the laws
of each jurisdiction that requires such qualification wherein it owns or
leases properties or conducts business, except in such jurisdictions in
which the failure to so qualify would not have a Material Adverse Effect.
As used herein, the term "Material Adverse Effect" means (i) a material
adverse change in, or a material adverse effect upon, the operations,
business, properties, condition (financial or otherwise) or prospects of
Krystal, the Company and their subsidiaries taken as a whole; (ii) a
material impairment of the ability of Krystal or the Company to perform any
of their material obligations under the Transaction Documents or the Notes
and to avoid any event of default; or (iii) a material adverse effect upon
the legality, validity, binding effect or enforceability against Krystal or
the Company of any material provision of any Transaction Document or the
Notes, in each case giving effect to the Acquisition. The Company has one
wholly-owned subsidiary, Krystal Aviation Co. Krystal Aviation Co. has one
wholly-owned subsidiary, Krystal Aviation Management Co.
(l) On the Closing Date, the capital stock of the Company will
consist of 100 shares of authorized common stock, without par value, of
which 100 shares will be issued and outstanding and all of which will be
owned beneficially and of record by Holdings free and clear of any liens
except for the pledge thereof to the lenders under the Credit Agreement.
(m) All of the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. There are no shares of capital stock held in the treasury of
the Company. The Company does not and will not on the Closing Date have
outstanding any (i) securities convertible or exchangeable for its capital
stock, (ii) rights to subscribe for or to purchase any of its capital stock
or options providing for the purchase of, or agreements providing for the
issuance (contingent or otherwise) of, or any calls, commitments or claims
of any character relating to, its capital stock.
(n) This Agreement has been duly authorized by all necessary
corporate action of the Company, has been duly executed and delivered by
the Company and constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, (i)
subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and other laws affecting creditors'
rights generally from time to time in effect ("Bankruptcy Law") and the
application of equitable principles in any action, legal or equitable
("Equity") and (ii) except to the extent that rights to indemnity and
contribution thereunder may be limited by federal or state securities laws
or the public policy underlying such laws. Each of the other Transaction
Documents has been, or will be on or before the Closing Date, duly
authorized by all necessary corporate action of the Company, has been, or
will be on
4
<PAGE>
before the Closiing Date, duly executed and delivered by the Company, and
constitutes, or will constitute on or before the Closing Date, a legal,
valid and binding obligation of the Company, enforceable against the
Company, in accordance with its terms, (i) subject, as to enforcement of
remedies, to applicable Bankruptcy Law and Equity and (ii) except to the
extent that rights to indemnity and contribution thereunder may be limited
by federal or state securities laws or the public policy underlying such
laws. The descriptions of the Indenture, the Registration Rights Agreement,
the Credit Agreement and the Notes contained in the Final Memorandum fairly
and accurately summarize the Indenture, the Registration Rights Agreement,
the Credit Agreement and the Notes in all material respects.
(o) The Notes have been duly and validly authorized by all necessary
corporate action of the Company for issuance and sale pursuant to this
Agreement and, when executed, authenticated (assuming due authentication by
the Trustee), issued and delivered in accordance with the provisions of the
Indenture and paid for by the Initial Purchaser as provided in this
Agreement, will constitute the legal, valid and binding obligations of the
Company, entitled to the benefits of the Indenture and enforceable against
the Company in accordance with their terms, subject, as to enforcement of
remedies, to applicable Bankruptcy Law and Equity.
(p) (A) The issuance, offering and sale of the Notes to the Initial
Purchaser by the Company pursuant to this Agreement and the compliance by
the Company with the other provisions of this Agreement, (B) the compliance
by the Company with the other Transaction Documents, and (C) the
consummation of the other transactions herein and therein contemplated (i)
do not require the consent, approval, authorization, registration,
qualification or order of or with any court or governmental agency or body,
except such as have been obtained (including, without limitation, under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Hart-Scott-Rodino Act")) and such as may be required under state
securities or blue sky laws or under the Securities Act or the Trust
Indenture Act in connection with a registration under the Securities Act
pursuant to the Registration Rights Agreement or (ii) do not conflict with,
result in a breach or violation of, or constitute a default under the
charter documents or by-laws of the Company or any of the terms and
provisions of any indenture, mortgage, deed of trust, loan agreement, note,
license, permit, certificate, contract, lease or other agreement or
instrument to which the Company is a party or by which the Company or any
of its properties or assets is bound or any statute, judgment, decree,
order, rule or regulation of any court, regulatory body, administrative
agency, governmental body or arbitrator applicable to the Company, in each
case giving effect to the Acquisition.
(q) The historical financial statements (including the notes thereto)
of Krystal included in the Final Memorandum comply as to form in all
material respects with the requirements applicable to registration
statements on Form S-1 under the Securities Act and fairly present in all
material respects the financial position of Krystal and the results of
operations and cash flows as of the dates and periods therein specified.
Such
5
<PAGE>
financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved. Since the date of the most recent financial statements included
in the Final Memorandum, except as described therein, (i) neither Krystal
nor the Company has incurred any liabilities or obligations, direct or
contingent, or entered into or agreed to enter into any transactions or
contracts (written or oral) not in the ordinary course of business which
liabilities, obligations, transactions or contracts would, individually or
in the aggregate, have a Material Adverse Effect, (ii) neither Krystal nor
the Company has purchased any of its outstanding capital stock, nor
declared, paid or otherwise made any dividend or distribution of any kind
on its capital stock and (iii) there has not been any material change in
the capital stock or long-term indebtedness of Krystal or the Company. The
unaudited pro forma financial statements of the Company included in the
Final Memorandum comply as to form in all material respects with the
requirements of the Securities Act; the pro forma adjustments have been
properly applied to the historical amounts in the compilation of such pro
forma statements; the assumptions described in the notes to such pro forma
statements provide a reasonable basis for presenting the significant direct
effects of the transactions contemplated therein; and such pro forma
adjustments give appropriate effect to those adjustments, in each case, in
accordance with Regulation S-X under the Securities Act ("Regulation S-X").
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(s) The Company is not now, and after giving effect to the issuance
of the Notes, the execution, delivery and performance of the Transaction
Documents and the consummation of the transactions contemplated thereby,
will not be (i) insolvent, (ii) left with unreasonably small capital with
which to engage in its anticipated businesses or (iii) incurring debts
beyond its ability to pay such debts as they become due. The Company is not
in liquidation, administration or receivership nor has any petition been
presented for the winding-up of the Company.
(t) All debts of, claims against, liens on or interests in Krystal (a
"Claim") that arose at any time prior to the entry of the Order Confirming
Second Amended and Restated Plan of Reorganization Filed by Krystal, dated
as of April 10, 1997 by the United States Bankruptcy Court for the Eastern
District of Tennessee have been paid or discharged and the holder of any
such Claim is forever barred from asserting such Claim against the Company
or its assets or property or, if not so paid or discharged and permanently
barred, all such Claims, in the aggregate will not require payments in
excess of $3.0 million. The Second Amended and Restated Plan of
Reorganization filed
6
<PAGE>
by Krystal in the United States Bankruptcy Court for the Eastern District
of Tennessee has been confirmed and fully consummated and is not subject to
appeal, revocation or modification.
(u) (i) No ERISA Event (as defined below) has occurred during the
five-year period preceding the Closing Date, or is reasonably expected to
occur and no condition or event currently exists or currently is expected
to occur that could result in any such ERISA Event. The aggregate
Underfunding (as defined below) with respect to all Plans (as defined
below) which have any Underfunding does not exceed $2.0 million. No Lien in
favor of the PBGC or a Plan has arisen and no such Lien is reasonably
expected to arise.
(ii) Neither Krystal, the Company nor any other ERISA
Affiliate has at any time contributed to, or had an obligation to
contribute to, any Multiemployer Plan or Multiple Employer Plan (each
as defined below).
(iii) No labor dispute, strike, slowdown or work stoppage
with the employees of Krystal or the Company or any of their
subsidiaries exists or, to the best knowledge of the Company, is
threatened or imminent which is likely to result in a Material Adverse
Effect.
(iv) No event has occurred or failed to occur with respect
to a Plan sponsored, maintained or contributed to by Krystal, the
Company or an ERISA Affiliate that is reasonably likely to have a
Material Adverse Effect.
As used herein, the following terms shall have the respective meaning
ascribed to each below.
"Code" means the United States Internal Revenue Code of 1986,
as amended, and the regulations promulgated and the rulings issued
thereunder.
"ERISA" means the United States Employee Retirement Income
Security Act of 1974, as amended, and the regulations promulgated and
rulings issued thereunder.
"ERISA Affiliate" at any time, means each trade or business
(whether or not incorporated) that would be treated as a single
employer together with Krystal or the Company under Title IV of ERISA
or Section 414(b), (c), (m) or (o) of the Code.
"ERISA Event" means (i) the occurrence of a "reportable
event" described in Section 4043 of ERISA (other than those events as
to which the required 30-day notice is waived under regulations
promulgated by the PBGC), or (ii) the provision or filing of a notice
of intent to terminate or the taking of any other action that could
reasonably be expected to result in the termination of a Plan subject
to Title IV of ERISA (other than in a standard termination within
7
<PAGE>
the meaning of Section 4041 of ERISA) or the treatment of a Plan
amendment as a distress termination under Section 4041 of ERISA, or
(iii) the institution of proceedings to terminate a Plan or to appoint
a trustee to administer a Plan by the Pension Benefit Guaranty
Corporation, or (iv) the existence of any "accumulated funding
deficiency" or "liquidity shortfall" (within the meaning of Section
302 of ERISA or Section 412 of the Code), whether or not waived, or
the filing of an application pursuant to Section 412(e) of the Code or
Section 304 of ERISA for any extension of an amortization period, or
(v) the occurrence of any transaction which might reasonably be
expected to constitute grounds for the imposition of liability under
Section 4069 of ERISA.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA.
"Multiple Employer Plan" means an employee benefit plan
described in Section 4063 of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation or any
person or entity succeeding to any or all of its functions under
ERISA.
"Plan" means an employee benefit plan, other than a
Multiemployer Plan, with respect to which Krystal or the Company could
be subject to any liability under Title IV of ERISA, Section 302 of
ERISA or Section 412 of the Code.
"Underfunding" means, with respect to any Plan, the excess,
if any, of the "projected benefit obligations" (within the meaning of
Statement of Financial Accounting Standards 87 and based on the
actuarial assumptions used in the Company's most recent financial
statements) under such Plan over the fair market value of the assets
held under the Plan.
(v) (i) Except as otherwise disclosed in the Final Memorandum, the
Company is, or after giving effect to the Acquisition will be, in
compliance with all applicable laws, statutes, ordinances, rules,
regulations, orders, judgments, decisions, decrees, standards, and
requirements ("Legal Requirements") relating to: human health and safety;
pollution; management, disposal or release of any chemical substance,
product or waste; and protection, cleanup, remediation or corrective action
relating to the environment or natural resources ("Environmental Law");
(ii) Except as otherwise disclosed in the Final Memorandum,
the Company has obtained and is in compliance, or on or before the
Closing Date will have obtained and be in compliance, with the
conditions of all permits, authorizations, licenses, approvals,
authorizations, and variances necessary under any Environmental Law
for the continued conduct of the business of the Company in the manner
contemplated following the Acquisition ("Environmental Permits");
8
<PAGE>
(iii) Except as otherwise disclosed in the Final Memorandum,
there are no conditions or circumstances, including but not limited to
pending changes in any Environmental Law (of which the Company has
knowledge after due inquiry and investigation) or Environmental
Permit, that are likely to interfere with the conduct of the business
of the Company in the manner contemplated following the Acquisition or
which would interfere with compliance with any Environmental Law or
Environmental Permit; and
(iv) Except as otherwise disclosed in the Final Memorandum,
there are no conditions or circumstances at, or arising out of, the
business, assets and properties of Krystal or the Company or any
formerly leased, operated or owned businesses, assets or properties of
Krystal or the Company, including but not limited to on-site or off-
site disposal or release of any chemical substance, product or waste,
which may give rise to: (A) liabilities or obligations for any
cleanup, remediation or corrective action under any Environmental Law;
(B) claims arising under any Environmental Law for personal injury,
property damage, or damage to natural resources; (C) liabilities or
obligations incurred to enable Krystal or the Company or any
subsidiary of Krystal or the Company to comply with any Environmental
Law; or (D) fines or penalties arising under any Environmental Law;
except in each case for any noncompliance or conditions or circumstances
that, singly or in the aggregate, would not result in a Material Adverse
Effect.
(w) The Company carries insurance in such amounts and covering such
risks as in its reasonable determination is adequate for the conduct of its
business and the value of its properties.
(x) No legal or governmental proceedings or investigations are
pending to which Krystal or the Company is a party or to which the property
of Krystal or the Company is subject that are not described in the Final
Memorandum, and no such proceedings or investigations, to the best
knowledge of the Company, have been threatened against Krystal or the
Company or with respect to any of their respective properties, except in
each case for such proceedings or investigations that, if the subject of an
unfavorable decision, ruling or finding, would not, singly or in the
aggregate, result in a Material Adverse Effect.
(y) After giving effect to the Acquisition, the Company will own or
otherwise possess, the right to use all patents, trademarks, service marks,
trade names and copyrights, all applications and registrations for each of
the foregoing, and all other proprietary rights and confidential
information used in the conduct of the Company's business as contemplated
following the Acquisition; and the Company has not received any notice, and
is not otherwise aware, of any infringement of or conflict with the rights
of any third party with respect to any of the foregoing which, singly or in
the
9
<PAGE>
aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a Material Adverse Effect.
(z) The Company possesses, or after giving effect to the Acquisition
will possess, all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct the Company's business as contemplated following the Acquisition,
except where the failure to possess such certificates, authorizations or
permits, singly or in the aggregate, would not have a Material Adverse
Effect, and the Company has not received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a Material Adverse Effect.
(aa) Each of the Company and Krystal has filed all necessary federal,
state and foreign income and franchise tax returns and has paid all taxes
shown as due thereon; except as to taxes being contested in good faith, or
where the failure to pay any such taxes would not, individually or in the
aggregate, have a Material Adverse Effect; other than tax deficiencies
which the Company or Krystal is contesting in good faith and for which the
Company or Krystal, as the case may be, has provided adequate reserves in
accordance with generally accepted accounting principles, there is no tax
deficiency that has been asserted against the Company or Krystal which
would reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect.
(bb) The proceeds from the issuance and sale of the Notes will be
used solely for the purposes specified in the Final Memorandum. None of
such proceeds will be used for the purpose of purchasing or carrying any
Margin Stock with the meaning of the applicable provisions of Regulation G,
T, U or X, or for the purpose of reducing or retiring any indebtedness
which was originally incurred to purchase or carry any Margin Stock or for
any other purpose which might constitute this transaction a "purpose
credit" within the meaning of the applicable provisions of Regulation G, T,
U or X. The issuance and sale of the Notes as contemplated in the Final
Memorandum and the application of the proceeds thereof by the Company will
comply with Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System.
Each certificate signed by any officer of the Company and delivered to
the Initial Purchaser or its counsel shall be deemed to be a representation and
warranty by the Company to the Initial Purchaser as to the matters covered
thereby.
2. Purchase and Sale. Subject to the terms and conditions and in
-----------------
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company, at a purchase price equal to 97% of the principal
amount thereof, plus accrued interest, if any, from the Issue Date (as defined
in the Indenture) to the Closing Date, $100,000,000 in principal amount of
Notes.
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<PAGE>
3. Delivery and Payment. Delivery of and payment for the Notes
--------------------
shall be made at 10:00 AM, New York City time, on September 26, 1997, which date
and time may be postponed by agreement between the Initial Purchaser and the
Company (such date and time of delivery and payment for the Notes being herein
called the "Closing Date"). Delivery of the Notes shall be made to the Initial
Purchaser against payment by the Initial Purchaser of the purchase price thereof
to or upon the order of the Company by intrabank transfer payable in same day
funds or such other manner of payment as may be agreed by the Company and the
Initial Purchaser. Delivery of the Notes shall be made at such location as the
Initial Purchaser shall reasonably designate at least one business day in
advance of the Closing Date and payment for the Notes shall be made at the
office of Long, Aldridge & Norman, LLP ("Counsel for the Company"), 303
Peachtree Street, Suite 5300, Atlanta, Georgia 30308. Certificates for the Notes
shall be registered in such names and in such denominations as the Initial
Purchaser may request not less than two full business days in advance of the
Closing Date.
The Company agrees to have the Notes available for inspection,
checking and packaging by the Initial Purchaser in Atlanta, Georgia, not later
than 1:00 PM on the business day prior to the Closing Date.
4. Offering of Notes. The Initial Purchaser represents and warrants
-----------------
to and agrees with the Company that:
(a) It has not offered or sold, and will not offer or sell, any Notes
except (i) to those it reasonably believes to be qualified institutional
buyers (as defined in Rule 144A under the Securities Act) ("QIBs"), (ii) to
other institutional "accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) of Regulation D) who provide to it and to the Company a
letter in the form of Exhibit A hereto or (iii) outside the United States
to persons other than U.S. persons in reliance upon Regulation S. In
connection with each sale pursuant to clause (i) above, the Initial
Purchaser has taken or will take reasonable steps to ensure that the
purchaser of such Notes is aware that such sale is being made in reliance
on Rule 144A.
(b) Neither it nor any person acting on its behalf has made or will
make offers or sales of the Notes by means of any form of general
solicitation or general advertising (within the meaning of Regulation D).
5. Agreements. The Company agrees with the Initial Purchaser that:
----------
(a) The Company will furnish to the Initial Purchaser and to Cleary,
Gottlieb, Steen & Hamilton ("Counsel for the Initial Purchaser"), without
charge, during the period referred to in paragraph (c) below, as many
copies of the Final Memorandum and any amendments and supplements thereto
as they may reasonably request. The Company will pay the expenses of
printing or other production of all documents relating to the offering of
the Notes and will reimburse the Initial Purchaser for payment of the
required PORTAL filing fee.
11
<PAGE>
(b) The Company will not amend or supplement the Final Memorandum
prior to the completion of the distribution of the Notes by the Initial
Purchaser, without the prior written consent of the Initial Purchaser.
(c) If at any time prior to the completion of the sale of the Notes
acquired by the Initial Purchaser pursuant to this Agreement (as determined
by the Initial Purchaser), any event occurs as a result of which the Final
Memorandum, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading, or if it should be necessary to amend or
supplement the Final Memorandum to comply with applicable law, the Company
will promptly notify the Initial Purchaser of the same and, subject to the
requirements of paragraph (b) of this Section 5, will prepare and provide
to the Initial Purchaser pursuant to paragraph (a) of this Section 5 an
amendment or supplement that will correct such statement or omission or
effect such compliance.
(d) The Company will arrange for the qualification of the Notes for
sale by the Initial Purchaser under the laws of such jurisdictions as the
Initial Purchaser may designate and will maintain such qualifications in
effect so long as required for the sale of the Notes by the Initial
Purchaser. The Company will promptly advise the Initial Purchaser of the
receipt by the Company of any notification with respect to the suspension
of the qualification of the Notes for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose.
(e) The Company, whenever it publishes or makes available to the
public (by filing with any regulatory authority or securities exchange or
by publishing a press release or otherwise) any information that could
reasonably be expected to be material in the context of the issue of Notes
under this Agreement, shall promptly notify the Initial Purchaser as to the
nature of such information or event. The Company will likewise notify the
Initial Purchaser of (i) any decrease in the rating of the Notes or any
other debt securities of the Company by any nationally recognized
statistical rating organization (as defined in Rule 436(g)(2) under the
Securities Act) or (ii) any notice given of any intended or potential
decrease in any such rating or of a possible change in any such rating that
does not indicate the direction of the possible change, as soon as the
Company becomes aware of any such decrease or notice. The Company will
also deliver to the Initial Purchaser, as soon as available and without
request, copies of its latest annual report and quarterly statement and any
report of its auditors thereon.
(f) The Company will not, and will not permit any of its Affiliates
to, resell any Notes that have been acquired by any of them, other than
pursuant to an effective registration statement under the Securities Act.
(g) Except as contemplated in the Registration Rights Agreement,
neither the Company nor any of its Affiliates, nor any person acting on its
or their behalf (other than the Initial Purchaser or any of its Affiliates,
as to whom the Company expresses
12
<PAGE>
no opinion) will, directly or indirectly, make offers or sales of any
security, or solicit offers to buy any security, under circumstances that
would require the registration of the Notes under the Securities Act.
(h) Neither the Company, nor any of its Affiliates, nor any person
acting on its or their behalf (other than the Initial Purchaser or any of
its Affiliates, as to whom the Company expresses no opinion) will engage in
any form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with any offer or sale of the Notes.
(i) So long as any of the Notes are "restricted securities" within
the meaning of Rule 144(a)(3) under the Securities Act, the Company will
provide to each holder of such restricted securities and to each
prospective purchaser (as designated by such holder) of such restricted
securities, upon the request of such holder or prospective purchaser, any
information required to be provided by Rule 144A(d)(4) under the Securities
Act. This covenant is intended to be for the benefit of the holders, and
the prospective purchasers designated by such holders, from time to time of
such restricted securities.
(j) The Company will cooperate with the Initial Purchaser and use its
best efforts to permit the Notes that are sold to QIBs to be eligible for
clearance and settlement through The Depository Trust Company.
(k) The Company will conduct its operations in a manner that will not
subject the Company to registration as an investment company under the
Investment Company Act.
6. Conditions to the Obligations of the Initial Purchaser. The
------------------------------------------------------
obligations of the Initial Purchaser to purchase the Notes shall be subject to
the accuracy in all material respects of the representations and warranties on
the part of the Company contained herein at the date and time that this
Agreement is executed and delivered by the parties hereto (the "Execution Time")
and the Closing Date, to the accuracy of the statements of the Company made in
any certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) The Company shall have furnished to the Initial Purchaser the
opinion of Counsel for the Company, dated the Closing Date, in form and
substance satisfactory to the Initial Purchaser to the effect set forth in
Exhibit B hereto.
(b) The Initial Purchaser shall have received from Counsel for the
Initial Purchaser such opinion or opinions, dated the Closing Date, with
respect to the issuance and sale of the Notes, the Final Memorandum (as
amended or supplemented at the Closing Date) and other related matters as
the Initial Purchaser may reasonably require, and the Company shall have
furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass upon such matters.
13
<PAGE>
(c) The Company shall have furnished to the Initial Purchaser a
certificate of the Company, signed by Philip H. Sanford, dated the Closing
Date, to the effect that the signer of such certificate has carefully
examined the Final Memorandum, any amendment or supplement to the Final
Memorandum, this Agreement and the Credit Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date,
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied hereunder at
or prior to the Closing Date;
(ii) since the date of the most recent financial statements
included in the Final Memorandum, there has been no change or
development or event involving a prospective change constituting a
Material Adverse Effect, except as set forth in or contemplated by the
Final Memorandum (exclusive of any amendment or supplement thereto);
and
(iii) all conditions to borrowings under the Credit Agreement
have been satisfied or waived.
(d) At the Execution Time and at the Closing Date, Arthur Andersen
shall have furnished to the Initial Purchaser a letter or letters, dated
respectively as of the Execution Time and as of the Closing Date, in form
and substance satisfactory to the Initial Purchaser, confirming that they
are independent public accountants within the meaning of Rule 101 of the
Code of Professional Conduct of the American Institute of Certified Public
Accountants (the "AICPA") and stating in effect that:
(i) on the basis of a reading of the latest unaudited financial
information of Krystal made available by the Company; carrying out
certain specified procedures (but not an examination in accordance
with generally accepted auditing standards) that would not necessarily
reveal matters of significance with respect to the comments set forth
in such letter; a reading of the minutes of the meetings of the
stockholders, directors and committees of the board of directors of
Krystal; and inquiries of certain officials of Krystal who have
responsibility for financial and accounting matters of Krystal, as to
transactions and events subsequent to June 29, 1997, nothing came to
their attention that caused them to believe that with respect to the
period subsequent to June 29, 1997, there were at a specified date not
more than five business days prior to the date of the letter, any
changes in the capital stock, increases in the long-term debt or
decreases in consolidated net current assets or the total
shareholder's equity of Krystal as compared with the amounts shown on
the June 29, 1997 balance sheet of Krystal included in the Final
Memorandum, or for the period from June 29, 1997 to such specified
date there were any decreases, as compared with the corresponding
period in the preceding year, in total revenues, operating income,
14
<PAGE>
income before provisions for income taxes and extraordinary items, net
income before extraordinary items and net income, except in all
instances for changes or decreases set forth in such letter, in which
case the letter shall be accompanied by an explanation by the Company
as to the significance thereof unless said explanation is not deemed
necessary by the Initial Purchaser;
(ii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of Krystal and the Company) set forth in
the Final Memorandum, including without limitation the information set
forth under the captions "Summary of Offering Memorandum," "Summary
Historical Consolidated Financial Information," "Risk Factors," "The
Acquisition," "Use of Proceeds," "Pro Forma Capitalization,"
"Unaudited Pro Forma Consolidated Financial Information," "Selected
Historical Consolidated Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," and "Description of Business", in the Final Memorandum
agrees with the accounting records of Krystal and the Company,
excluding any questions of legal interpretation; and
(iii) as to pro forma financial information,
(A) they have read the unaudited pro forma financial
information included in the Final Memorandum;
(B) they have inquired of certain officials of Krystal and
the Company who have responsibility for financial and accounting
matters as to the basis for their determination of the pro forma
adjustments and whether the unaudited pro forma financial statements
included in the Final Memorandum comply as to form in all material
respects with the applicable accounting requirements of Rule 11-02 of
Regulation S-X;
(C) they have compared the historical financial information
included in the unaudited pro forma balance sheet and the unaudited
pro forma income statement in the Final Memorandum with the historical
information for Krystal and found them to be in agreement;
(D) they have proved the arithmetic accuracy of the
application of the pro forma adjustments to the financial amounts in
the unaudited pro forma financial statements; and
(E) they have performed certain other specified procedures
as a result of which they determined that certain pro forma
information of an accounting, financial, or statistical nature set
forth in the Final Memorandum, including without limitation the
information set forth under the captions "Summary of Offering
Memorandum," "Summary Unaudited Pro Forma
15
<PAGE>
Consolidated Financial Information," "Risk Factors," "Pro Forma
Capitalization," and "Unaudited Pro Forma Consolidated Financial
Information" in the Final Memorandum agrees to or can be derived from
the pro forma financial statements of Krystal and the Company or the
analysis completed in the preparation of such pro forma financial
statements, excluding any questions of legal interpretation.
All references in this Section 6(d) to the Final Memorandum shall be
deemed to include any amendment or supplement thereto at the date of the
letter or letters.
(e) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Final Memorandum, there shall not have
been (i) any change or decrease specified in the letter or letters referred
to in paragraph (d) of this Section 6, or (ii) any change, or any
development involving a prospective change, in or affecting the business or
properties of the Company, giving effect to the Acquisition, the effect of
which, in any case referred to in clause (i) or (ii) above, is, in the
judgment of the Initial Purchaser, so material and adverse as to make it
impractical or inadvisable to market the Notes as contemplated by the Final
Memorandum.
(f) Subsequent to the respective dates as of which information is
given in the Final Memorandum and giving effect to the Acquisition, (i) the
Company shall not have incurred any material liability or obligation,
direct or contingent, or entered into any material transaction not in the
ordinary course of business; (ii) the Company shall not have purchased any
of its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; and (iii) there
shall not have been any material change in the capital stock of the Company
or in the short-term debt or long-term debt of the Company, except in each
case as described in or contemplated by the Final Memorandum.
(g) Subsequent to the Execution Time, there shall not have been any
decrease in the rating of the Notes by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g)
under the Securities Act) or any notice given of any intended or potential
decrease in any such rating or of a possible change in any such rating that
does not indicate the direction of the possible change.
(h) Each of the Transaction Documents (including any amendments
thereto) shall have been duly authorized, executed and delivered by each of
the parties thereto, and the Initial Purchaser shall have received copies
of each such Transaction Document (including any amendments thereto) as so
executed and delivered in the form provided to the Initial Purchaser on or
before the date hereof except for changes approved by the Initial Purchaser
or changes which do not materially affect the rights or obligations of the
Company.
(i) All conditions to borrowings under the Credit Agreement shall
have been satisfied and not waived, the initial borrowings under the Credit
Agreement shall have occurred concurrently with the closing of the sale of
the Notes hereunder as
16
<PAGE>
contemplated in the Final Memorandum and all representations and warranties
of the Company contained in the Credit Agreement shall be true and correct
in all material respects on the Closing Date as if made on the Closing
Date.
(j) On the Closing Date, there shall be no less than $8.0 million of
additional availability under the Credit Agreement (as defined in the
Indenture), after giving effect to the Acquisition and any borrowings under
the Credit Agreement.
(k) All applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act with respect to the consummation of the
Acquisition shall have expired or otherwise been terminated, and the
Acquisition shall have been consummated as contemplated in the Merger
Agreement on the Closing Date.
(l) All of the conditions to closing contained in the Merger
Agreement shall have been satisfied and not waived and all representations
and warranties of the Company contained in the Merger Agreement shall be
true and correct in all material respects on the Closing Date as if made on
the Closing Date. The Equity Contribution shall have been made
concurrently with the sale of the Notes in the same manner as described in
the Final Memorandum.
(m) The Company shall have been advised by the National Association
of Securities Dealers, Inc. (the "NASD") that the Notes have been
designated PORTAL-eligible securities in accordance with the rules and
regulations of the NASD relating to trading in the Private Offerings,
Resales and Trading through Automated Linkages Market (the "PORTAL
Market").
(n) Prior to the Closing Date, the Company shall have furnished to
the Initial Purchaser such further information, certificates and documents
as the Initial Purchaser may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects satisfactory in form and
substance to the Initial Purchaser and Counsel for the Initial Purchaser, this
Agreement and all obligations of the Initial Purchaser hereunder may be canceled
at the Closing Date by the Initial Purchaser. Notice of such cancellation shall
be given to the Company in writing or by telephone or by telegraph confirmed in
writing.
The documents required to be delivered by this Section 6 will be
delivered at the office of Counsel for the Company on the Closing Date.
7. Reimbursement of Expenses; Fees. The Company will (i) whether or
-------------------------------
not the sale of the Notes provided for herein is consummated, pay all expenses
incident to the performance of its obligations under the offering documents,
including the fees and disbursements of its accountants and counsel, the cost of
printing or other production and delivery of the Preliminary Memorandum, the
Final Memorandum, all amendments thereof
17
<PAGE>
and supplements thereto, each Transaction Document and all other documents
relating to the offering of the Notes, the cost of preparing, printing,
packaging and delivering the Notes, the fees and disbursements, including fees
of counsel incurred in compliance with Section 5(d), the fees and disbursements
of the Trustee and the fees of any agency that rates the Notes, the fees and
expenses, if any, incurred in connection with the admission of the Notes for
trading in the PORTAL Market and (ii) only in the event the sale of the Notes
provided for herein is not consummated, reimburse the Initial Purchaser as
requested for all reasonable out-of-pocket expenses (including reasonable legal
fees and expenses) incurred by the Initial Purchaser in connection with the
proposed purchase and resale of the Notes.
8. Indemnification and Contribution. (a) The Company agrees to
--------------------------------
indemnify and hold harmless, to the fullest extent permitted by law, the Initial
Purchaser, the directors, officers, employees and agents of the Initial
Purchaser and each person who controls the Initial Purchaser within the meaning
of either the Securities Act or the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Securities Act, the Exchange Act or other Federal
or state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Preliminary Memorandum, the Final Memorandum
or any information provided by the Company to any holder or prospective
purchaser of Notes pursuant to Section 5(i), or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and agrees to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
-------- -------
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made in the Preliminary
Memorandum or the Final Memorandum, or in any amendment thereof or supplement
thereto, made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Initial Purchaser specifically
for inclusion therein; and, provided, further, that the Company will not be
-------- -------
liable in any such case if a copy of the Preliminary Memorandum or the Final
Memorandum (including any amendment or supplement thereto delivered to the
Initial Purchaser prior to the date such Preliminary Memorandum or Final
Memorandum was sent or given to such purchaser) was not sent or given by or on
behalf of the Initial Purchaser to such person at or prior to the written
confirmation of the sale of Notes to such person, and if the Preliminary
Memorandum or Final Memorandum (including any amendment or supplement thereto
delivered to the Initial Purchaser prior to the date such Preliminary Memorandum
or Final Memorandum was sent or given to such purchaser) cured the defect giving
rise to such losses, claims, damages, liabilities or expenses. This indemnity
agreement will be in addition to any liability that the Company may otherwise
have.
18
<PAGE>
(b) The Initial Purchaser agrees to indemnify and hold harmless the
Company, its directors, officers, employees, agents and each person who controls
the Company within the meaning of either the Securities Act or the Exchange Act,
to the same extent as the foregoing indemnity from the Company to the Initial
Purchaser, but only with reference to written information furnished to the
Company by or on behalf of the Initial Purchaser specifically for inclusion in
the Preliminary Memorandum or the Final Memorandum (or in any amendment or
supplement thereto). This indemnity agreement will be in addition to any
liability that the Initial Purchaser may otherwise have. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page and under the headings "Transfer Restrictions" and "Plan of Distribution"
in the Preliminary Memorandum and the Final Memorandum constitute the only
information furnished in writing by or on behalf of the Initial Purchaser for
inclusion in the Preliminary Memorandum or the Final Memorandum (or in any
amendment or supplement thereto).
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party except as set
forth below); provided, however, that such counsel shall be satisfactory to
-------- -------
the indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the indemnified
party shall have the right to employ separate counsel (including local counsel),
and the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party (it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for such indemnified persons), (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An
19
<PAGE>
indemnifying party or an indemnified party will not, without the prior written
consent (which shall not be unreasonably withheld) of the indemnified parties or
the indemnifying parties, as the case may be, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties or the
indemnifying parties, as the case may be, are actual or potential parties to
such claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party or indemnifying party, as the
case may be, from all liability arising out of such claim, action, suit or
proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable or insufficient to hold harmless an indemnified
party for any reason, the Company, on the one hand, and the Initial Purchaser,
on the other, agree to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which the
Company, on the one hand, and the Initial Purchaser, on the other, may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Company, on the one hand, and by the Initial Purchaser, on the
other, from the offering of the Notes; provided, however, that in no case shall
-------- -------
the Initial Purchaser be responsible for any amount in excess of the purchase
discount or commission applicable to the Notes purchased by the Initial
Purchaser hereunder. If the allocation provided by the immediately preceding
sentence is unavailable for any reason, the Company, on the one hand, and the
Initial Purchaser, on the other, shall contribute in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company, on the one hand, and of the Initial Purchaser, on the
other, in connection with the statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. Benefits received
by the Company shall be deemed to be equal to the total net proceeds from the
offering (before deducting expenses), and benefits received by the Initial
Purchaser shall be deemed to be equal to the total purchase discounts and
commissions received by the Initial Purchaser from the Company in connection
with the purchase of the Notes hereunder. Relative fault shall be determined by
reference to, among other things, whether any alleged untrue statement or
omission relates to information provided by the Company or the Initial Purchaser
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Initial Purchaser agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation that does not take account of the equitable considerations referred
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities, expenses or judgments referred to in the
immediately preceding paragraph shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified person in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls the Initial Purchaser within the meaning of either the Securities Act
or the Exchange Act and each director, officer, employee and agent of the
Initial
20
<PAGE>
Purchaser shall have the same rights to contribution as the Initial Purchaser,
and each person who controls the Company within the meaning of either the
Securities Act or the Exchange Act and each officer, director, employee and
agent of the Company shall have the same rights to contribution as the Company,
subject in each case to the applicable terms and conditions of this paragraph
(d).
9. Termination. This Agreement shall be subject to termination by
-----------
notice given to the Company prior to delivery of and payment for the Notes, if
prior to such time there shall have occurred (i) any change in the market for
debt similar in nature to the Notes or (ii) any disruption of or change in
financial, banking or capital market conditions generally, the effect of which,
in any case referred to in clause (i) or (ii) above, is, in the judgment of the
Initial Purchaser, so material or adverse as to make it impracticable or
inadvisable to proceed with the offering or delivery of the Notes as
contemplated by the Final Memorandum.
10. Representations and Indemnities to Survive. The respective
------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Initial Purchaser set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of the Initial Purchaser or the Company
or any of the officers, directors or controlling persons referred to in Section
8 hereof, and will survive delivery of and payment for the Notes. The
provisions of Sections 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.
11. Notices. All communications hereunder will be in writing and
-------
effective only on receipt, and, if sent to the Initial Purchaser, will be
mailed, delivered or telecopied and confirmed to it at 299 Park Avenue, New
York, NY 10171-0026, Telecopy No.: (212) 821-5778, Attention: Caroline Sykes;
or, if sent to the Company, will be mailed, delivered or telecopied and
confirmed to them at One Union Square, Chattanooga, TN 37402, Attention: Philip
H. Sanford.
12. Successors. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto and their respective successors and assigns and
the officers and directors and controlling persons referred to in Section 8
hereof, and, except as expressly set forth in Section 5(i) hereof, nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person, firm, corporation or other entity any legal or equitable
right, remedy or claim under or in respect to this Agreement or any provisions
herein contained. No purchaser of Notes from the Initial Purchaser shall be
deemed to be a successor merely by reason of such purchase.
13. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
14. Business Day. For purposes of this Agreement, "business day"
------------
means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on
which banking
21
<PAGE>
institutions in The City of New York, New York are authorized or obligated by
law, executive order or regulation to close.
15. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed to be an original, but all such
counterparts will together constitute one and the same instrument.
22
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this Agreement and your acceptance shall represent a binding agreement between
the Company and the Initial Purchaser.
Very truly yours,
TKC ACQUISITION CORP.
By: __________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
UBS SECURITIES LLC
By: /s/ Jeff Benjamin
----------------------
Name: Jeff Benjamin
----------------------
Title: Managing Director
----------------------
By: /s/ Jean Smith
----------------------
Name: Jean Smith
----------------------
Title: Managing Director
----------------------
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this Agreement and your acceptance shall represent a binding agreement between
the Company and the Initial Purchaser.
Very truly yours,
TKC ACQUISITION CORP.
By: /s/ Phillip H. Sandford
--------------------------
Name: Phillip H. Sandford
Title: President
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
UBS SECURITIES LLC
By: _______________________
Name:
Title:
By: _______________________
Name:
Title:
<PAGE>
EXHIBIT A
Form of Investment Letter
-------------------------
for Institutional Accredited Investors
--------------------------------------
[**], 1997
UBS Securities LLC
299 Park Avenue
New York, NY 10171-0026
TKC Acquisition Corp.
c/o Long, Aldridge & Norman LLC
303 Peachtree Street
Atlanta, GA 30308
Attention: Briggs Tobin
Re: Purchase of $________ Principal Amount
of 10 1/4% Senior Notes Due 2007
(the "Notes"), of TKC Acquisition Corp. ("TKC) as the acquiror of the
TKC, Krystal Company which will become the obligor on the notes (together
with the "Company")____________________________________________________ __
-------
Ladies and Gentlemen:
In connection with our purchase of the Notes we confirm that:
1. We understand that the Notes are not being and will not be
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and are being sold to us in a transaction that is exempt from the registration
requirements of the Securities Act.
2. We acknowledge that (a) neither the Company, nor the Initial
Purchaser (as defined in the Offering Memorandum dated September 18, 1997
relating to the Notes (the "Final Memorandum")) nor any person acting on behalf
of the Company or the Initial Purchaser has made any representation to us with
respect to the Company or the offer or sale of any Notes and (b) any information
we desire concerning the Company and the Notes or any other matter relevant to
our decision to purchase the Notes (including a copy of the Final Memorandum) is
or has been made available to us.
3. We have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment in
the Notes, and we are (or
A-1
<PAGE>
any account for which we are purchasing under paragraph 5 below is) an
institutional "accredited investor" (within the meaning of Rule 501(a)(1), (2),
(3) or (7) of Regulation D under the Securities Act) (an "IAI") able to bear the
economic risk of investment in the Notes.
4. We understand that the minimum principal amount of Notes that may
be purchased by an IAI is $250,000.
5. We are acquiring the Notes for our own account (or for accounts as
to which we exercise sole investment discretion and have authority to make, and
do make, the statements contained in this letter) and not with a view to any
distribution of the Notes, subject, nevertheless, to the understanding that the
disposition of our property will at all times be and remain within our control.
6. We understand that (a) the Notes will be in registered form only
and that any certificates delivered to us in respect of the Notes will bear a
legend substantially to the following effect:
"This Note has not been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and this Note may not be offered,
sold, pledged or otherwise transferred except pursuant to an effective
registration statement or in accordance with an applicable exemption
from the registration requirements of the Securities Act (subject to
the delivery of such evidence, if any, required under the indenture
pursuant to which this Note is issued) and in accordance with any
applicable securities laws of any state of the United States or any
other jurisdiction."
7. We agree that in the event that at some future time we wish to
dispose of any of the Notes, we will not do so unless such disposition is made
in accordance with any applicable securities laws of any state of the United
States and:
(a) the Notes are sold in compliance with Rule 144(k) under the
Securities Act; or
(b) the Notes are sold in compliance with Rule 144A under the
Securities Act; or
(c) the Notes are sold in compliance with Rule 904 of Regulation S
under the Securities Act; or
(d) the Notes are sold pursuant to an effective registration
statement under the Securities Act; or
A-2
<PAGE>
(e) the Notes are sold to the Company or an affiliate (as defined in
Rule 501(b) of Regulation D) of the Company; or
(f) the Notes are disposed of in any other transaction that does not
require registration under the Securities Act, and we theretofore have
furnished to the Company or its designee an opinion of counsel experienced
in securities law matters to such effect or such other documentation as the
Company or its designee may reasonably request.
8. We understand that the Company and UBS Securities LLC, as the
Initial Purchaser, and other persons will rely upon the truth and accuracy of
the statements set forth herein, and we agree that if any of such statements are
no longer true or accurate, we will promptly so notify the Company and UBS
Securities LLC
Very truly yours,
By ______________________
(Authorized Officer)
A-3
<PAGE>
EXHIBIT B
LEGAL OPINION
-------------
(i) Each of Krystal and the Company is duly incorporated, validly
existing and in good standing under the laws of Tennessee and has all requisite
corporate power and authority to own or lease its properties and to conduct its
business as described in the Final Memorandum and to execute, deliver and
perform its obligations under the Transaction Documents to which it is a party
and to consummate the transactions contemplated thereby. Each of Krystal and
the Company is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions where the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
(ii) The Company has the authorized, issued and outstanding
capitalization set forth in the Final Memorandum; all of the outstanding shares
of capital stock of the Company have been duly authorized and validly issued,
are fully paid and nonassessable and were not issued in violation of any
preemptive or similar rights; all of the outstanding shares of capital stock of
the Company are owned beneficially and of record directly by Holdings free and
clear of all perfected security interests (except for the pledge thereof to the
lenders under the Credit Facility) and, to the knowledge of such counsel, free
and clear of all other liens, encumbrances, equities and claims or restrictions
on transferability (other than those imposed by the Securities Act and the
securities or "Blue Sky" laws of certain jurisdictions) or voting.
(iii) Except as set forth in or contemplated by the Final Memorandum
and Section 2(c) of this Agreement, (A) no options, warrants or other rights to
purchase from the Company or the Guarantors shares of capital stock or ownership
interests in the Company or the Guarantors are outstanding, (B) no agreements or
other obligations to issue, or other rights to convert, any obligation into, or
exchange any securities for, shares of capital stock or ownership interests in
the Company or the Guarantors are outstanding and (C) no holder of securities of
the Company or the Guarantors is entitled to have such securities registered
under a registration statement filed by the Company and the Guarantors pursuant
to the Registration Rights Agreement.
(iv) The Indenture has been duly and validly authorized, executed and
delivered by the Company and the Guarantors and (assuming the due authorization,
execution and delivery thereof by the Trustee) constitutes the valid and legally
binding agreement of each of the Company and the Guarantors, enforceable against
the Company and the Guarantors in accordance with its terms, except that the
enforcement thereof may be subject to Bankruptcy Law and Equity.
(v) The Initial Notes are in the form contemplated by the Indenture.
The Initial Notes have each been duly and validly authorized, executed and
delivered by the Company and, when duly paid for by the Initial Purchaser in
accordance with the terms of this Agreement (assuming the due authorization,
execution and delivery of the Indenture by the
B-1
<PAGE>
Trustee and due authentication and delivery of the Initial Notes by the Trustee
in accordance with the Indenture), will constitute the valid and legally binding
obligations of the Company and the Guarantors (in respect of their guarantees
thereof), entitled to the benefits of the Indenture, and enforceable against the
Company and the Guarantors (in respect of their guarantees thereof) in
accordance with their terms, except that the enforcement thereof may be subject
to Bankruptcy Law and Equity.
(vi) The New Notes have been duly and validly authorized by the
Company, and when the New Notes have been duly executed and delivered by the
Company in accordance with the terms of the Registration Rights Agreement and
the Indenture (assuming the due authorization, execution and delivery of the
Indenture by the Trustee and due authentication and delivery of the New Notes by
the Trustee in accordance with the Indenture), will constitute the valid and
legally binding obligations of the Company and the Guarantors (in respect of
their guarantees thereof), entitled to the benefits of the Indenture, and
enforceable against the Company and the Guarantors (in respect of their
guarantees thereof) in accordance with their terms, except that the enforcement
thereof may be subject to Bankruptcy Law and Equity.
(vii) The Registration Rights Agreement has been duly and validly
authorized, executed and delivered by the Company and the Guarantors and
(assuming due authorization, execution and delivery thereof by the Initial
Purchaser) will constitute the valid and legally binding agreement of the
Company and the Guarantors, enforceable against the Company and the Guarantors
in accordance with its terms, except that (A) the enforcement thereof may be
subject to Bankruptcy Law and Equity and (B) any rights to indemnity or
contribution thereunder may be limited by federal and state securities laws and
public policy considerations.
(viii) This Agreement and the consummation by the Company and the
Guarantors of the transactions contemplated hereby have been duly and validly
authorized, executed and delivered by the Company and the Guarantors.
(ix) The Indenture, the Notes, the Guarantees, the Registration
Rights Agreement and the other Transaction Documents conform in all material
respects to the descriptions thereof contained in the Final Memorandum.
(x) No legal or governmental proceedings are pending or, to the
knowledge of such counsel, threatened to which the Company or the Guarantors is
a party or to which the property or assets of the Company or the Guarantors is
subject which, if determined adversely to the Company or the Guarantors, could
reasonably be expected to result, individually or in the aggregate, in a
Material Adverse Effect, or which seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge the issuance or sale of the Notes to be
sold hereunder or the consummation of the other transactions described in the
Final Memorandum under the caption "Use of Proceeds." To the knowledge of such
counsel, there are no legal or governmental proceedings involving or affecting
the Company or the Guarantors or any of their respective properties or assets
which would be required to be described in a prospectus filed pursuant to the
Securities Act that are not described in the Final Memorandum, nor are
B-2
<PAGE>
there any material contracts or other documents which would be required to be
described in a prospectus pursuant to the Securities Act that are not described
in the Final Memorandum.
(xi) None of the Company or the Guarantors is (i) in violation of
its certificate of incorporation or bylaws, (ii) to the knowledge of such
counsel, in breach or violation of any statute, judgment, decree, order, rule or
regulation applicable to any of them or any of their respective properties or
assets, except for any such breach or violation which could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect,
or (iii) in breach or default a default under) or in violation of any of the
terms or provisions of any indenture, mortgage, deed of trust, lease or other
agreement or instrument to which the Company or each of the Guarantors is a
party or by which the Company or each of the Guarantors or any of their
respective properties are bound known to such counsel, except in each case for
any such breach, default, violation or event which could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
(xii) The execution, delivery and performance of this Agreement, the
Indenture, the Registration Rights Agreement and the consummation of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance and sale of the Notes to the Initial Purchaser) will not conflict with
or constitute or result in a breach or a default under (or an event which with
notice or passage of time or both would constitute a default under) or violation
of any of (i) the certificate of incorporation or bylaws of the Company and the
Guarantors, (ii) the terms or provisions of any indenture, mortgage, deed of
trust, lease or other agreement or instrument to which the Company or each of
the Guarantors is a party or by which the Company or each of the Guarantors or
any of their respective properties are bound known to such counsel or (iii)
(assuming compliance with all applicable state securities or "Blue Sky" laws and
assuming the accuracy of the representations and warranties of the Initial
Purchaser in Section 4 hereof) any statute, judgment, decree, order, rule or
regulation applicable to the Company or the Guarantors any of their respective
properties or assets.
(xiii) No consent, approval, authorization or order of any
governmental authority is required for the issuance and sale by the Company of
the Initial Notes to the Initial Purchaser or the consummation by the Company
and the Guarantors of the other transactions contemplated hereby, except such as
may be required under Blue Sky laws, as to which such counsel need express no
opinion, and those which have previously been obtained.
(xiv) Neither the Company nor any of the Guarantors is an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended without taking into
account the number of holders of securities of the Company, the Guarantors or
any company "controlling" any of them. Neither the Company nor any of the
Guarantors is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
B-3
<PAGE>
(xv) No registration under the Securities Act of the Notes is
required in connection with the sale of the Notes to the Initial Purchaser as
contemplated by this Agreement and the Final Memorandum or in connection with
the initial resale of the Notes by the Initial Purchaser in accordance with
Section 4 of this Agreement, and prior to the commencement of the Exchange Offer
(as defined in the Registration Rights Agreement) or the effectiveness of the
Shelf Registration Statement (as defined in the Registration Rights Agreement),
the Indenture is not required to be qualified under the Trust Indenture Act of
1939, as amended, in each case assuming (i) (A) that the purchasers who buy such
Notes in the initial resale thereof are qualified institutional buyers as
defined in Rule 144A promulgated under the Securities Act ("QIBs") or accredited
----
investors as defined in Rule 501(a) (1), (2), (3) or (7) promulgated under the
Securities Act ("Institutional Accredited Investors") or (B) that the offer or
----------------------------------
sale of the Notes is made in an offshore transaction as defined in Regulation S,
(ii) the accuracy of the Initial Purchaser's representations in Section 4 and
those of the Company contained in this Agreement regarding the absence of a
general solicitation in connection with the sale of such Notes to the Initial
Purchaser and the initial resale thereof and (iii) the due performance by the
Initial Purchaser of the agreements set forth in Section 4 hereof.
(xvi) None of the consummation of the transactions contemplated by
this Agreement, the sale, issuance, execution or delivery of the Notes will
violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve
System.
At the time the foregoing opinion is delivered, such counsel shall
additionally state that they have participated in conferences with officers and
other representatives of the Company and Krystal, representatives of the
independent public accountants for the Company and for Krystal, representatives
of the Initial Purchaser and counsel for the Initial Purchaser, at which
conferences the contents of the Final Memorandum and related matters were
discussed, and, although it has not independently verified and is not passing
upon and assumes no responsibility for the accuracy, completeness or fairness of
the statements contained in the Final Memorandum (except to the extent specified
in subsection (ix) or (x) above), no facts have come to its attention which lead
it to believe that the Final Memorandum, on the date thereof or at the Closing
Date, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading (it being understood that such firm need express no opinion with
respect to the financial statements and related notes thereto and the other
financial, statistical and accounting data included in the Final Memorandum).
The opinions described in this Exhibit B shall be rendered to the
Initial Purchaser at the request of the Company and shall so state therein.
References to the Final Memorandum in this Exhibit B shall include any amendment
or supplement thereto prepared in accordance with the provisions of this
Agreement at the Closing Date.
B-4
<PAGE>
EXHIBIT 3.1
CHARTER
OF
TKC ACQUISITION CORP.
The undersigned, an individual, does hereby act as incorporator in adopting
the following Charter for the purpose of organizing a corporation for profit,
pursuant to the provisions of the Tennessee Business Corporation Act.
FIRST: The corporate name for the corporation (hereinafter called the
------
"Corporation") is TKC ACQUISITION CORP.
SECOND: The number of shares which the Corporation is authorized to issue
-------
is One Hundred (100), all of which are without par value and are of the same
class and are to be Common shares.
THIRD: The street address and zip code of the initial registered office
------
of the Corporation in the State of Tennessee is 500 Tallan Building, Two Union
Square, Chattanooga, County of Hamilton, Tennessee 37402-2571.
The name of the initial registered agent of the Corporation at the
said registered office is Corporation Service Company.
FOURTH: The name and the address and zip code of the incorporator are:
-------
Name: Address:
----- --------
Claire A. Addlestone, Esq. 303 Peachtree Street
Suite 5300
Atlanta, Georgia 30308
FIFTH: The street address and zip code of the initial principal office of
------
the Corporation are:
c/o Briggs L. Tobin, Esq.
303 Peachtree Street
Suite 5300
Atlanta, Georgia 30308
SIXTH: The Corporation is for profit.
------
SEVENTH: The Corporation shall, to the fullest extent permitted by the
--------
provisions of the Tennessee Business Corporation Act, as the same may be amended
or supplemented, indemnify any and all persons whom it shall have power to
indemnify under said provisions from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said provisions, and
the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any Bylaw,
<PAGE>
vote of shareholders or disinterested directors, or otherwise, both as to action
in his official capacity and action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
EIGHTH: The personal liability of the directors of the Corporation is
-------
eliminated to the fullest extent permitted by the provisions of the Tennessee
Business Corporation Act, as the same may be amended and supplemented.
NINTH: The duration of the Corporation shall be perpetual.
------
TENTH: The number of initial directors of the Corporation is one (1), and
------
the name and the address and zip code of the initial director are:
Name: Address:
----- --------
Philip H. Sanford c/o Briggs L. Tobin, Esq.
303 Peachtree Street
Suite 5300
Atlanta, Georgia 30308
Signed on June 26, 1997.
/s/ Claire A. Addlestone
----------------------------------
Claire A. Addlestone, Incorporator
<PAGE>
BYLAWS
OF
TKC ACQUISITION CORP.
ARTICLE 1.
SHAREHOLDERS MEETINGS
Section 1.1. Annual Meetings. Annual meetings of shareholders shall be
---------------
held each year at a time and place selected by the Board of Directors for the
purposes of electing the directors of the Company and transacting such other
business as properly may be brought before the meeting.
Section 1.2. Special Meetings. Special meetings of the shareholders, for
----------------
any purpose or purposes, unless otherwise prescribed by law or by the Charter,
shall be held upon the call of the Board of Directors, the Chairman, the Chief
Executive Officer, or shareholders owning capital stock of the Company
representing at least ten percent (10%) of the votes of all capital stock of the
Company entitled to vote at such meeting. Special meetings of shareholders shall
be held on such date and at such time and place, within or without the State of
Tennessee, as may be fixed from time to time by the person or persons calling
such meetings. The date, time and place of all meetings shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof. If no
designation is made, the place of the meeting shall be the principal business
offices of the corporation.
Section 1.3. Notices. Written or printed notice of each shareholders'
-------
meeting stating the place, date and hour of the meeting shall be given to each
shareholder of record entitled to vote thereat by, or at the direction of, the
Chief Executive Officer, the Secretary or the officer or person calling such
meeting not less than ten (10) nor more than sixty (60) days before the date of
the meeting. If said notice is for a shareholders' meeting other than an annual
meeting, it shall in addition state the purpose or purposes for which said
meeting is called, and the business transacted at such meeting shall be limited
to the matters so stated in said notice and any matters reasonably related
thereto. If an annual or special shareholders' meeting is adjourned to a
different date, time, or place, notice of the new date, time, or place need not
be given if the new date, time, or place is
<PAGE>
announced at the meeting before adjournment. However, if a new record date for
the adjourned meeting is or must be fixed under Section 1.5 herein, notice of
the adjourned meeting must be given to persons who are shareholders as of the
new record date.
Section 1.4. Record Date. The Board of Directors, in order to determine
-----------
the shareholders entitled to notice of or to vote at any meeting of the
shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or to receive payment of any dividend or
other distribution or allotment of any rights, or to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, may fix in advance a record date that may not be more
than seventy (70) days before the meeting or action requiring a determination of
shareholders. Only such shareholders as shall be shareholders of record on the
date fixed shall be entitled to such notice of or to vote at such meeting or any
adjournment thereof, or to receive payment of any such dividend or other
distribution or allotment of any rights, or to exercise any such rights in
respect of stock, or to take any such other lawful action, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation after
any such record date fixed as aforesaid. The record date shall apply to any
adjournment of the meeting except that the Board of Directors shall fix a new
record date for the adjourned meeting if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting. If the Board of
Directors fails to fix a record date, the record date shall be fixed in the
manner provided in the Tennessee Business Corporation Act.
Section 1.5. Voting Lists. The officer or agent who has charge of the
------------
stock transfer books of the Company shall prepare, at least ten (10) days before
every meeting of shareholders, a complete list of the shareholders entitled to
vote thereat arranged in alphabetical order and showing the address and the
number of shares registered in the name of each shareholder. Such list shall be
open to the examination of any such shareholder, for any purpose germane to the
meeting, during ordinary business hours for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held and at the registered
office of the Company. The list shall also be produced and kept at
2
<PAGE>
the time and place of the meeting during the whole time thereof, and may be
inspected by any shareholder who is present. The original stock transfer books
shall be a prima facie evidence as to who are the shareholders entitled to
examine such list or transfer books or to vote at any meeting of shareholder.
Failure to comply with the requirements of this section shall not affect the
validity of any action taken at said meeting.
Section 1.6. Quorum. Subject to any express provision of law or the
------
Charter, a majority of the votes entitled to be cast by all shares voting
together as a group shall constitute a quorum for the transaction of business at
all meetings of the shareholders. Whenever a class of shares or series of shares
is entitled to vote as a separate voting group on a matter, a majority of the
votes entitled to be cast by each voting group so entitled shall constitute a
quorum for purposes of action on any matter requiring such separate voting. Once
a share is represented, either in person or by proxy, for any purpose at a
meeting other than solely to object to holding a meeting or transacting business
at the meeting, it is deemed present for quorum purposes for the remainder of
the meeting and for any adjournment of that meeting unless a new record date is
set for the adjourned meeting.
Section 1.7. Adjournment of Meetings. The holders of a majority of the
-----------------------
voting shares represented at a meeting, or the Chairman of the Board, whether or
not a quorum is present, shall have the power to adjourn the meeting from time
to time, without notice other than announcement at the meeting. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting.
Section 1.8. Vote Required. When a quorum exists, action on a matter
-------------
(other than the election of directors) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Charter, a bylaw authorized by the Charter or
express provision of law requires a grater number of affirmative votes. Unless
otherwise provided in the Charter, directors are elected by a plurality of
3
<PAGE>
the votes cast by the shares entitled to vote in the election at a meeting at
which a quorum is present.
Section 1.9. Voting Entitlement of Shares. Unless otherwise provided in
----------------------------
the Charter, each shareholder, at every meeting of the shareholders, shall be
entitled to cast one vote, either in person or by written proxy, for each share
standing in his or her name on the books of the corporation as of the record
date. A shareholder may vote his or her shares in person or by proxy. An
appointment of proxy is effective when received by the Secretary of the Company
or other officer or agent authorized to tabulate votes and is valid for eleven
(11) months unless a longer period is expressly provided in the appointment of
proxy form. An appointment of proxy is revocable by the shareholder unless the
appointment form conspicuously states that it is irrevocable and the appointment
is coupled with an interest.
Section 1.10. Action by Shareholders Without a Meeting. Action required or
----------------------------------------
permitted by the Tennessee Business Corporation Act to be taken at a
shareholders' meeting may be taken without a meeting. If all shareholders
entitled to vote on the action consent to taking such action without a meeting,
the affirmative vote of the number of shares that would be necessary to
authorize or take such action at a meeting is the act of the shareholders. The
action must be evidenced by one or more written consents describing the action
taken, signed by each shareholder entitled to vote on the action, in one or more
counterparts, indicating each signing shareholder's vote or abstention on the
action, and delivered to the corporation for inclusion in the minutes or filing
with the corporate records.
ARTICLE 2.
BOARD OF DIRECTORS
Section 2.1. General Powers. Subject to the Charter, bylaws approved by
--------------
the shareholders and any lawful agreement between the shareholders, all
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the corporation managed under the direction of, the
Board of Directors.
Section 2.2. Number and Tenure. The Board of Directors shall consist of
-----------------
not less than one (1) member, the exact number of
4
<PAGE>
directors to be fixed from time to time by resolution of the Board of Directors
or the Shareholders. Directors shall be elected at the annual meeting of
shareholders and their terms shall expire at the next annual meeting of
shareholders; provided, however, that despite the expiration of a director's
term he or she shall continue to serve until a successor is duly elected and
qualified or until there is a decrease in the number of directors.
Section 2.3. Qualifications of Directors. Directors shall be natural
---------------------------
persons who have attained the age of 25 years but need not be residents of the
State of Tennessee. All directors shall be shareholders or the Chief Executive
Officer or President of the corporation.
Section 2.4. Vacancy on the Board. A vacancy on the Board of Directors may
--------------------
be filled by majority vote of the remaining directors.
Section 2.5. Committees. The Board of Directors may, by resolution,
----------
designate from among its members one or more committees. Each committee shall
consist of one or more directors, except that committees appointed to take
action with respect to indemnification of directors, directors' conflicting
interest transactions or derivative proceedings shall consist of two or more
directors qualified to serve pursuant to the Tennessee Business Corporation Act.
Any such committee, to the extent specified by the Board of Directors, Charter,
or bylaws, shall have and may exercise all of the powers and authority of the
Board of Directors, except that no such committee may (1) approve or propose to
the shareholders action that the Tennessee Business Corporation Act requires to
be approved by the shareholders, (2) fill vacancies on the Board of Directors or
any of its committees, (3) amend the Charter, (4) adopt, amend or repeal bylaws
or (5) approve a plan of merger.
Section 2.6. Meetings. The Board of Directors shall meet annually, without
--------
notice, immediately following and at the same place as the annual meeting of
shareholders. Regular meetings of the Board of Directors or any committee may be
held between annual meetings without notice at such time and at such place,
within or without the State of Tennessee, as from time to time shall be
determined by the Board of Directors or committee, as the case may be, but in
any event no less frequently than quarterly. The
5
<PAGE>
Chairman or any two (2) directors may call a special meeting of the directors at
any time by giving each director two (2) days notice. Such notice may be given
orally or in writing. If given in writing, it is effective when received or five
days after its deposit in the mail if mailed with first-class postage pre-paid
and correctly addressed. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting need be specified h the notice or any
waiver of notice.
Section 2.7. Quorum and Voting. At all meetings of the Board of Directors
-----------------
or any committee thereof, a majority of the directors then in office shall
constitute a quorum for the transaction of business. The affirmative vote of a
majority of the directors present at any meeting at which there is a quorum at
the time of such act shall be the act of the Board of Directors or of the
committee, except as might be otherwise specifically provided by statute or by
the Charter or bylaws.
Section 2.8. Action Without Meeting. Action required or permitted by the
----------------------
Tennessee Business Corporation act to be taken at a meeting of the Board of
Directors may be taken without a meeting. If all directors consent to taking
such action without a meeting, the affirmative vote of the number of directors
that would be necessary to authorize or take such action at a meeting is the act
of the Board of Directors. The action must be evidence by one or more written
consents describing the action taken, signed by each director in one or more
counterparts, indicating each signing director's vote or abstention on the
action, and included in the minutes or filed with the corporate records
reflecting the action taken. Action taken under this paragraph is effective when
the last director signs the consent, unless the consent specifies a different
effective date.
Section 2.9. Remote Participation in a Meeting. Unless otherwise
---------------------------------
restricted by the Charter or the bylaws, any meeting of the Board of Directors
may be conducted by the use of any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
Section 2.10. Compensation of Directors. The Board of Directors may fix
-------------------------
the compensation of the directors for their
6
<PAGE>
services as directors. No provision of these bylaws shall be construed to
preclude any director from serving the corporation in any other capacity and
receiving compensation therefore.
Section 2.11. Removal of Directors by Shareholders. Any one or more
------------------------------------
directors may be removed from office, with or without cause, at any meeting of
shareholders with respect to which notice of such purpose has been given. A
removed director's successor may be elected at the same meeting or time to serve
the unexpired term.
ARTICLE 3.
NOTICES
Section 3.1. Notice. Whenever, under the provisions of the Charter or of
------
these bylaws or by law, notice is required to be given to any director or
shareholder, it shall not be construed to require personal notice, but such
notice may be given in writing, by mail, or by telegram, telex or facsimile
transmission and such notice shall be deemed to be effective when received, or
when delivered, properly addressed, to the addressee's last known principal
place of business or residence, or three (3) days after the same shall be
deposited in the United States mail if mailed with first-class postage prepaid
and correctly addressed or on the date shown on the return receipt, if sent by
registered or certified mail, and the receipt is signed by or on behalf of the
addressee. Notice to any director or shareholder may also be oral if oral notice
is reasonable under the circumstances. If these forms of personal notice are
impractical, notice may be communicated by a newspaper of general circulation in
the area where published, or by radio, television, or other form of public
broadcast communication.
ARTICLE 4.
OFFICERS
Section 4.1. Appointment. At each annual meeting of directors, the Board
-----------
of Directors shall elect a Chief Executive Officer, a President, and a
Secretary. The Chairman of the Board shall have the authority to appoint such
other officers as he shall deem necessary, who shall exercise such powers and
perform such duties, not inconsistent with the Charter and these bylaws, as
7
<PAGE>
shall be determined from time to time by the Board of Directors or the Chairman.
Any number of offices may be held by the same person unless the Charter or these
bylaws otherwise provide. The appointment of an officer does not itself create
contract rights.
Section 4.2. Resignation and Removal of Officers. An officer may resign at
-----------------------------------
any time by delivering notice to the corporation and such resignation is
effective at the time specified in the notice or, if no time is specified, when
the notice is delivered. The Chairman of the Board may remove any officer at any
time with or without cause, subject to ratification by the Board of Directors.
Section 4.3. Vacancies. Any vacancy in office resulting from any cause may
---------
be filled by the Board of Directors or by any officer authorized by these bylaws
to appoint such officer.
Section 4.4. Powers and Duties. Each officer has the authority and shall
-----------------
perform the duties set forth below or, to the extent consistent with these
bylaws, the duties prescribed by the Board of Directors or by direction of an
officer authorized by the Board of Directors to prescribe the duties of other
officers.
(a) Chief Executive Officer. Except as otherwise provided in these
-----------------------
bylaws or by the Board of Directors, the Chief Executive Officer of the
corporation shall be responsible for the administration of the corporation,
including general supervision of the policies of the corporation and general and
active management of the financial affairs of the corporation. He or she shall
have the power to make and execute contracts on behalf of the corporation and
to delegate such power to others. He or she also shall have such powers and
perform such duties as are specifically imposed on him or her by law and as may
be assigned to him or her by the Board of Directors. The Chief Executive Officer
shall, at each regular meeting of the Board of Directors and at such other times
as the Board of Directors shall request, report to the Board of Directors
concerning the business and operations of the corporation.
(b) President. Any officer designated as President shall be the Chief
---------
Operating Officer of the Corporation, and shall have such powers and perform
such duties as a specifically imposed on him or her by law and as may be
assigned to him or her by the Board
8
<PAGE>
of Directors, the Chairman, the Chief Executive Officer, or these bylaws.
(c) Vice Presidents or Executive Vice Presidents. The Vice Presidents
--------------------------------------------
or Executive Vice Presidents, if any, shall perform such duties, not
inconsistent with the Charter or these bylaws, as vice presidents customarily
perform and shall perform such other duties and shall exercise such other
powers, not inconsistent with the articles or incorporation or these bylaws, as
the Chief Executive Officer or the Board of Directors may from time to time
designate. The Vice President or Executive Vice President, in the absence or
disability or at the direction of the Chief Executive Officer, shall perform the
duties and exercise the powers of the Chief Executive Officer. If the
corporation has more than one Vice President, the one designated as the
Executive Vice President by the Board of Directors shall act in lieu of the
Chief Executive Officer, or, in the absence of any such designation, then the
Vice President first elected shall act in lieu of the Chief Executive Officer.
(d) Secretary. The Secretary shall attend all meetings of the
---------
shareholders and all meetings of the Board of Directors and shall record all
votes and minutes of all proceedings in books to be kept for that purpose, and
shall perform like duties for the standing committees when required. He or she
shall have custody of the corporate seal of the corporation, shall have the
authority to affix the same to any instrument the execution of which on behalf
of the corporation under its seal is duly authorized and shall attest to the
same by his or her signature whenever required. The Board of Directors may give
general authority to any other officer to affix the seal of the corporation and
to attest to the same by his or her signature. The Secretary shall give, or
cause to be given, any notice required to be given of any meetings of the
shareholders, the Board of Directors and of the standing committees when
required. The Secretary shall cause to be kept such books and records as the
Board of Directors, the Chairman of the Board or the Chief Executive Officer may
require and shall cause to be prepared, recorded, transferred, issued, sealed
and canceled certificates of stock as required by the transactions of the
corporation and its shareholders. The Secretary shall attend to such
correspondence and shall perform such other duties as may be incident to the
office of a Secretary of a corporation or as may be assigned to him or her by
9
<PAGE>
the Board of Directors, the Chairman of the Board or the Chief Executive
Officer.
(e) Treasurer. Except as otherwise provided in these bylaws or by the
---------
Board of Directors, any officer designated as Treasurer shall be charged with
the management of . financial affairs of the corporation. He or she shall
perform such duties, not inconsistent with the Charter or these bylaws, as
treasurers usually perform and shall perform such other duties and shall
exercise such other powers, not inconsistent with the Charter or these bylaws,
as the Board of Directors, the Chairman of the Board or the Chief Executive
Officer may from time to time designate and shall render to the Chairman of the
Board, the Chief Executive Officer and to the Board of Directors, whenever
requested, an account of the financial condition of the corporation. Without
limiting the generality of the foregoing, the Treasurer shall, at e&ch regular
meeting of the Board of Directors, report to the directors concerning the
Company's financial condition, and shall prepare and deliver to each director an
unaudited balance sheet as of the last day of the calendar month immediately
preceding the month during which the meeting is held, together with unaudited
statements of income and cash flow for the three most recently completed
calendar months.
(f) Assistant Vice President. Assistant Secretary and Assistant
------------------------
Treasurer. Any person designated as Assistant Vice President, Assistant
Secretary and Assistant Treasurer, in the absence or disability of any Vice
President, the Secretary or the Treasurer, respectively, shall perform the
duties and exercise the powers of those offices, and, in general, they shall
perform such other duties as shall be assigned to them by the Board of Directors
or by the person appointing them. Specifically the Assistant Secretary may affix
the corporate seal to all necessary documents and attest the signature of any
officer of the corporation.
Section 4.5. Delegation of Authority. In case of the absence of any
-----------------------
officer of the corporation or for any other reason that the Board of Directors
may deem sufficient, the Board of Directors may delegate, for the time being,
any or all of the powers or duties of such officer to any other officer,
assistant officer or to any director.
10
<PAGE>
ARTICLE 5.
CAPITAL STOCK
Section 5.1. Share Certificates. Unless the Charter or these bylaws
------------------
provide otherwise, the Board of Directors may authorize the issue of some or all
of the shares of any or all of its classes or series with or without
certificates. Unless the Tennessee Business Corporation Act provides otherwise,
there shall be no differences in the rights and obligations of shareholders
based on whether or not their shares are represented by certificates.
In the event that the Board of Directors authorizes shares with
certificates, each certificate representing shares of stock of the corporation
shall be in such form as shall be approved by the Board of Directors and shall
set forth upon the face thereof the name of the corporation and that it is
organized under the laws of the State of Tennessee, the name of the person to
whom the certificate is issued, and the number and class of shares and the
designation of the series, if any, the certificate represents. The Board of
Directors may designate any one or more officers to sign each share certificate,
either manually or by facsimile. In the absence of such designation, each share
certificate must be signed by the Chief Executive Officer or a Vice President
and the Secretary or an Assistant Secretary. If the person who signed a share
certificate, either manually or in facsimile, no longer holds office when the
certificate is issued, the certificate is nevertheless valid.
Section 5.2. Record of Shareholders. The corporation or an agent
----------------------
designated by the Board of Directors shall maintain a record of the
corporation's shareholders in a form that permits preparation of a list of names
and addresses of all shareholders, in alphabetical order by class or shares
showing the number and class of shares held by each shareholder.
Section 5.3. Lost Certificates. In the event that a share certificate
-----------------
is lost, stolen or destroyed, the Board of Directors may direct that a new
certificate be issued in place of such certificate. When authorizing the issue
of a new certificate, the Board of Directors may require such proof of loss as
it may deem appropriate as a condition precedent to the issuance thereof,
including a requirement that the owner of such lost, stolen or
11
<PAGE>
destroyed certificate, or his or her legal representative, advertise the same in
such manner as the Board of Directors shall require and/or that he or she give
the corporation a bond in such sum as the Board of Directors may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5.4. Transfers of Shares. Transfers of shares of the capital
-------------------
stock of the corporation shall be made only upon the books of the corporation by
the registered holder thereof, or by his or her duly authorized attorney, or
with a transfer clerk or transfer agent appointed as provided in Section 5.5
hereof, and, in the case of a share represented by certificate, on surrender of
the certificate or certificates for such shares properly endorsed and the
payment of all taxes thereon.
Section 5.5. Transfer Agents and Registrars. The Board of Directors
------------------------------
may establish such other regulations as it deems appropriate governing the
issue, transfer, conversion and registration of stock certificates, including
appointment of transfer agents, clerks or registrars.
ARTICLE 6.
INDEMNIFICATION AND INSURANCE
Section 6.1. Indemnification of Directors. Each person who was, is,
----------------------------
or is threatened to be, made a party to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, formal or informal, any appeals
therefrom, and any inquiry or investigation that could lead to such an action,
suit or proceeding (hereinafter a "Proceeding"), by reason of the fact he or
she, or a person of whom he or she is a legal representative, is or was a
director of the corporation, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Tennessee Business
Corporation Act, as the same exists or may hereafter be amended (the "Code"),
against any and all costs, charges and expenses (including attorneys' and
others' fees), judgments, taxes, fines, penalties, and amounts paid or to be
paid in settlement actually and reasonably incurred or suffered by such director
in connection with any Proceeding. Such indemnification shall continue as to a
director who has ceased to be a director and
12
<PAGE>
shall inure to the benefit of the director's heirs, executors and
administrators. The right to indemnification under these bylaws shall be a
contract right and shall include the right to be paid by the corporation the
expenses actually and reasonably incurred by the director in advance of the
final disposition of a Proceeding; provided, however, that if the Code so
requires, the payment of expenses incurred by a director in advance of the final
disposition of a Proceeding shall be made only upon delivery to the corporation
by the director of (i) a written affirmation of his good faith belief that he is
entitled to indemnification and advancement of expenses and (ii) a written
undertaking, executed personally or on his or her behalf, to repay all amounts
advanced if it is ultimately determined that he or she is not entitled to
indemnification for such expenses under these bylaws or otherwise. The
indemnification and advancement of expenses provided by, or granted pursuant to,
these bylaws shall not be deemed exclusive of any other right to which those
seeking indemnification may be entitled under the Charter or any law, bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
serving as a director. Any repeal or amendment of this Article 6 by the
shareholders of the corporation or by changes in applicable law shall, to the
extent permitted by applicable law, be prospective only, and shall not adversely
affect the indemnification of any person who may be indemnified at the time of
such repeal or amendment.
Section 6.2. Officers. Employees and Agents. The corporation may
--------
indemnify and advance expenses to officers, employees and agents of the
corporation to the same extent as directors of the corporation.
Section 6.3. Insurance. The corporation may purchase and maintain
---------
insurance, at its expense, on behalf of an individual who is or was a director,
officer, employee or agent of the corporation or who, while a director, officer,
employee or agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, against liability asserted against
or incurred by him or her in any such capacity or arising from his or her status
as a director, offer, employee or agent, whether or not the corporation would
have power
13
<PAGE>
to indemnify him or her against the same liability under this Article 6.
ARTICLE 7.
GENERAL PROVISIONS
Section 7.1. Seal. The corporation may have a seal, which shall be in
----
such form as the Board of Directors may from time to time determine. In the
event that the use of the seal is at any time inconvenient, the signature of an
officer of the corporation, followed by the word "Seal" enclosed in parenthesis,
shall be deemed the seal of the corporation.
Section 7.2. Voting Shares in Other Corporations. In the absence of
-----------------------------------
other arrangements by the Board of Directors, shares of stock issued by another
corporation whether or not owned or controlled by the corporation, whether in a
fiduciary capacity or otherwise, may be voted by the Chief Executive Offer or
any Vice President, in the absence of action by the Chief Executive Officer, in
the same order as they preside in the absence of the Chief Executive Officer,
or, in the absence of action by the Chief Executive Officer or any Vice
President, by any other officer of the corporation, and such person may execute
the aforementioned powers by executing proxies and written waivers and consents
on behalf of the corporation.
Section 7.3. Amendment of Bylaws. These bylaws may be amended or
-------------------
repealed and new bylaws may be adopted at any time by the affirmative vote of a
majority of the directors then in office or by the affirmative vote of the
holders of a majority of the issued and outstanding shares of the Company.
ARTICLE 8.
EMERGENCY BYLAWS
Section 8.1. Emergency Bylaws. This Article shall be operative during
----------------
any emergency resulting from some catastrophic event that prevents a quorum of
the Board of Directors or any committee thereof from being readily assembled (an
"emergency"), notwithstanding any different or conflicting provisions set forth
elsewhere in these bylaws or in the Charter. To the extent not
14
<PAGE>
inconsistent with the provisions of this Article, the bylaws set forth elsewhere
herein and the provisions of the Charter shall remain in effect during such
emergency, and upon termination of such emergency, the provisions of this
Article shall cease to be operative.
Section 8.2. Meetings. During any emergency, a meeting of the Board
--------
of Directors or any committee thereof may be called by any director, or by the
Chief Executive Officer, any Vice President, the Secretary or the Treasurer (the
"Designated Officers") of the corporation. Notice of the time and place of the
meeting shall be given by any available means of communication by the person
calling the meeting to such of the directors and/or designated officers as may
be feasible to reach. Such notice shall be given at such time in advance of the
meeting as, in the judgment of the person calling the meeting, circumstances
permit.
Section 8.3. Quorum. At any meeting of the Board of Directors or any
------
committee thereof called in accordance with this Article, the presence or
participation of two directors, one director and a designated officer, or two
designated officers shall constitute a quorum for the transaction of business.
Section 8.4. Bylaws. At any meeting called in accordance with this
------
Article, the Board of Directors or committee thereof, as the case may be, may
modify, amend or add to the provisions of this Article so as to make any
provision that may be practical or necessary for the circumstance of the
emergency.
Section 8.5. Liability. Corporate action taken in good faith in
---------
accordance with the emergency bylaws may not be used to impose liability on a
director, officer, employee or agent of the corporation.
Section 8.6. Repeal or Change. The provisions of this Article shall
----------------
be subject to repeal or change by further action of the Board of Directors or by
action of shareholders, but no such repeal or change shall modify the provisions
of the immediately proceeding Section of this Article with regard to action
taken prior to the time of such repeal or change.
Adopted _______________, 1997.
15
<PAGE>
EXHIBIT 4.1
________________________________________________________________________________
TKC ACQUISITION CORP.
as the Acquiror of
The Krystal Company; and
$100,000,000
10 1/4% SENIOR NOTES DUE 2007
_________________________________________
INDENTURE
Dated as of September 26, 1997
_________________________________________
SUNTRUST BANK, ATLANTA
as Trustee
________________________________________________________________________________
<PAGE>
CROSS-REFERENCE TABLE
Reconciliation and tie between the Trust Indenture Act
of 1939, as amended, and the Indenture, dated as of
September 26, 1997.
<TABLE>
<CAPTION>
TRUST
INDENTURE
ACT INDENTURE
SECTION SECTION
- -------- --------
<S> <C>
(S)310(a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(a)(5) 7.10
(b) 7.08; 7.10
(c) N.A.
(S)311(a) 7.11
(b) 7.11
(c) N.A.
(S)312(a) 7.06(a); 7.06(b)
(b) 7.06(c)
(c) 7.06(d)
(S)313(a) 7.06(e)
(b) 7.06(f)
(c) 7.06(f)
(d) 7.06(g) 4.17; 4.20
(S)314(a) 7.06(g) N.A.
(b) 7.06(g) 11.03
(c)(1) 7.06(g) 11.03
(c)(2) 7.06(g) N.A.c(3)
(d) N.A.
(e) 11.04
(f) 4.20
(S)315(a) 7.01(b)
(b) 7.05
(c) 7.01(a)
(d) 7.01(c)
(e) 6.10
(S)316(a) 2.08
(a)(1)(A) 6.05
(a)(1)(B) 6.04
(a)(2) N.A.
(b) 6.07
(c) 9.05(b)
(S)317(a)(1) 6.03
(a)(2) 6.08
(b) 2.04
(S)318(a) 11.01
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed
to be part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01. Definitions................................................... 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act............. 21
SECTION 1.03. Rules of Construction......................................... 22
SECTION 1.04. Form of Documents Delivered to Trustee........................ 22
SECTION 1.05. Acts of Holders............................................... 22
SECTION 1.06. Satisfaction and Discharge.................................... 23
ARTICLE II
THE NOTES
SECTION 2.01. Form and Dating............................................... 24
SECTION 2.02. Execution and Authentication.................................. 27
SECTION 2.03. Registrar and Paying Agent.................................... 28
SECTION 2.04. Paying Agent to Hold Money in Trust........................... 29
SECTION 2.05 Global Notes.................................................. 29
SECTION 2.06. Transfer and Exchange......................................... 30
SECTION 2.07. Replacement Notes............................................. 36
SECTION 2.08. Outstanding Notes............................................. 37
SECTION 2.09. Temporary Notes............................................... 37
SECTION 2.10. Cancellation.................................................. 38
SECTION 2.11. Payment of Interest: Interest Rights Preserved................ 38
SECTION 2.12. Computation of Interest....................................... 39
SECTION 2.13. Persons Deemed Owners......................................... 39
SECTION 2.14. CUSIP Numbers................................................. 39
ARTICLE III
REDEMPTION
SECTION 3.01. Notice to Trustee............................................. 39
SECTION 3.02. Selection of Notes to be Redeemed............................. 40
SECTION 3.03. Notice of Redemption.......................................... 40
SECTION 3.04. Effect of Notice of Redemption................................ 41
SECTION 3.05. Deposit of Redemption Price................................... 41
SECTION 3.06. Notes Redeemed in Part........................................ 41
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV
COVENANTS
SECTION 4.01. Payment of Notes.............................................. 42
SECTION 4.02. Maintenance of Office or Agency............................... 42
SECTION 4.03. Money for the Note Payments to be Held in Trust............... 43
SECTION 4.04. Corporate Existence........................................... 43
SECTION 4.05. Maintenance of Property....................................... 43
SECTION 4.06. Payment of Taxes and Other Claims............................. 44
SECTION 4.07. Repurchase at the Option of Holders upon a Change of Control.. 44
SECTION 4.08. Limitation on Asset Sales..................................... 46
SECTION 4.09. Limitation on Incurrence of Indebtedness and Issuance of
Preferred Stock.............................................. 50
SECTION 4.10. Limitation on Restricted Payments............................. 50
SECTION 4.11. Limitation on Liens........................................... 53
SECTION 4.12. Sale and Leaseback Transactions............................... 53
SECTION 4.13. Limitation on Ownership of and Liens on Capital Stock......... 53
SECTION 4.14. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries....................................... 54
SECTION 4.15. Limitation on Layering Debt................................... 55
SECTION 4.16. Transactions with Affiliates.................................. 55
SECTION 4.17. Reports....................................................... 56
SECTION 4.18. Payments for Consent, Waiver or Amendment..................... 56
SECTION 4.19. Waiver of Stay Extension or Usury Laws........................ 56
SECTION 4.20. Compliance Certificate: Notice of Default or Event of Default. 56
SECTION 4.21. Investment Company Act........................................ 57
SECTION 4.22. Further Instruments and Acts.................................. 57
ARTICLE V
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
SECTION 5.01. Merger, Consolidation or Sale of Assets....................... 57
SECTION 5.02. Successor Corporation Substituted............................. 58
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default............................................. 59
SECTION 6.02. Acceleration.................................................. 60
SECTION 6.03 Other Remedies................................................ 61
SECTION 6.04. Waiver of Past Defaults....................................... 61
SECTION 6.05. Control by Majority........................................... 62
SECTION 6.06. Limitation on Suits........................................... 62
SECTION 6.07. Rights of Holders to Receive Payment.......................... 62
SECTION 6.08. Trustee May File Proofs of Claim.............................. 63
SECTION 6.09. Priorities.................................................... 63
SECTION 6.10. Undertaking for Costs......................................... 64
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 6.11. Waiver of Stay or Extension Laws.............................. 64
SECTION 6.12. Trustee May Enforce Claims Without Possession of the Notes.... 64
SECTION 6.13. Restoration of Rights and Remedies............................ 64
SECTION 6.14. Rights and Remedies Cumulative................................ 64
SECTION 6.15. Delay or Omission Not Waiver.................................. 65
ARTICLE VII
TRUSTEE
SECTION 7.01. Duties of Trustee............................................. 65
SECTION 7.02. Rights of Trustee............................................. 66
SECTION 7.03. Individual Rights of Trustee.................................. 66
SECTION 7.04. Trustee's Disclaimer.......................................... 67
SECTION 7.05. Notice of Defaults............................................ 67
SECTION 7.06. Preservation of Information. Reports by Trustee to Holders... 67
SECTION 7.07. Compensation and Indemnity.................................... 68
SECTION 7.08. Replacement of Trustee........................................ 69
SECTION 7.09. Successor Trustee by Merger................................... 71
SECTION 7.10. Eligibility; Disqualification................................. 71
SECTION 7.11. Preferential Collection of Claims Against Company............. 72
ARTICLE VIII
DEFEASANCE
SECTION 8.01. Company's Option to Effect Legal Defeasance or Covenant
Defeasance.................................................... 72
SECTION 8.02. Legal Defeasance and Discharge................................ 72
SECTION 8.03. Covenant Defeasance........................................... 73
SECTION 8.04. Conditions to Legal Defeasance or Covenant Defeasance......... 74
SECTION 8.05. Deposited Money and U.S. Government Obligations to be Held
in Trust; Miscellaneous Provisions........................... 75
SECTION 8.06. Reinstatement................................................. 75
ARTICLE IX
AMENDMENTS
SECTION 9.01. Without Consent of Holders.................................... 76
SECTION 9.02. With Consent of Holders....................................... 77
SECTION 9.03. Effect of Supplemental Indentures............................. 78
SECTION 9.04. Compliance with Trust Indenture Act........................... 78
SECTION 9.05. Revocation and Effect of Consents and Waivers................. 78
SECTION 9.06. Notation on or Exchange of Notes.............................. 78
SECTION 9.07. Trustee to Execute Supplemental Indentures.................... 78
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE X
NOTE GUARANTEES; RELEASE OF NOTE GUARANTEES;
SECTION 10.01. Note Guarantees.............................................. 79
SECTION 10.02. Obligations of Guarantors Unconditional...................... 81
SECTION 10.03. Limitation of Guarantor's Liability.......................... 82
SECTION 10.04. Release of Note Guarantees................................... 82
SECTION 10.05. Application of Certain Terms and Provisions to Guarantors.... 82
SECTION 10.06. Additional Guarantors........................................ 83
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls................................. 83
SECTION 11.02. Notices...................................................... 83
SECTION 11.03. Certificate and Opinion as to Conditions Precedent........... 84
SECTION 11.04. Statements Required in Certificate or Opinion................ 84
SECTION 11.05. Rules by Trustee, Paying Agent and Registrar................. 84
SECTION 11.06. Payments on Business Days.................................... 84
SECTION 11.07. Governing Law, Submission to Jurisdiction.................... 84
SECTION 11.08. No Recourse Against Others................................... 86
SECTION 11.09. Successors................................................... 86
SECTION 11.10. Counterparts................................................. 86
SECTION 11.11. Table of Contents. Headings.................................. 86
SECTION 11.12. Severability................................................. 86
SECTION 11.13. Further Instruments and Acts................................. 86
</TABLE>
iv
<PAGE>
INDENTURE, dated as of September 26, 1997, between TKC ACQUISITION CORP., a
Tennessee corporation (the "Company") and SUNTRUST BANK, ATLANTA, a Georgia
banking corporation, as trustee hereunder (the "Trustee").
RECITALS
The Company has duly authorized the creation and issue of its 10 1/4%
Senior Notes Due 2007 (the "Initial Notes") of substantially the tenor and
amount hereinafter set forth and to provide therefor and for, if and when issued
in exchange for the Initial Notes pursuant to the Indenture and the Registration
Rights Agreement, the Company's 10 1/4% Senior Notes Due 2007 (the "Exchange
Notes," and together with the Initial Notes, the "Notes"), the Company has duly
authorized the execution and delivery of this Indenture.
All things necessary to make the Notes, when executed by the Company
and authenticated and delivered by the Trustee hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid instrument of the Company, in accordance with their respective terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in
consideration of the premises and the purchase of the Initial Notes by the
Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01. Definitions. For all purposes of this Indenture,
-----------
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Acquired Indebtedness" means, with respect to any specified Person,
---------------------
(i) any Indebtedness or Disqualified Stock of any other Person existing at the
time such other Person is merged with or into or becomes a Subsidiary of such
specified Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging with or into
or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured
by a Lien encumbering any asset acquired by such specified Person, and in either
case for purposes of this Indenture shall be deemed to be incurred by such
specified Person at the time such other Person is merged with or into or becomes
a Subsidiary of such specified Person or at the time such asset is acquired by
such specified Person, as the case may be.
1
<PAGE>
"Act" when used with respect to any Holder, has the meaning set forth
---
in Section 1.05 hereof.
"Additional Interest" has the meaning set forth in the Registration
-------------------
Rights Agreement.
"Affiliate" of any specified Person means (i) any other Person
---------
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person or (ii) any other Person who is a
director or executive officer of (a) such specified Person or (b) any Person
described in the preceding clause (i). For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of any class, or any series of
any class, of equity securities of a Person, whether or not voting, shall be
deemed to be control.
"Affiliate Transaction" has the meaning set forth in Section 4.16.
---------------------
"Agent Bank" means Sun Trust Bank, Atlanta and its successors under
----------
the Credit Agreement.
"Agent Members" has the meaning set forth in Section 2.05(a) hereof.
-------------
"Asset Sale" means with respect to any Person, the sale, lease,
----------
conveyance or other disposition, that does not constitute a Restricted Payment
or an Investment, by such Person of any of its assets (including, without
limitation, by way of a Sale and Leaseback Transaction and including the
issuance, sale or transfer of any Equity Interests in any Subsidiary of the
Company) other than to the Company (including the receipt of proceeds of
insurance paid on account of the loss of or damage to any asset and awards of
compensation for any asset taken by condemnation, eminent domain or similar
proceeding, and including the receipt of proceeds of business interruption
insurance), in each case, in one or a series of related transactions; provided,
that notwithstanding the foregoing, the term "Asset Sale" shall not include:
(i) the sale, lease, conveyance, disposition or other transfer of
all or substantially all of the assets of the Company, in accordance with
Section 5.01 hereof;
(ii) the sale or lease of equipment, inventory, accounts receivable
or other assets in the ordinary course of business consistent with past
practice;
(iii) a transfer of assets by the Company to a Wholly-Owned
Subsidiary of the Company or by a Wholly-Owned Subsidiary of the Company to the
Company or to another Wholly-Owned Subsidiary of the Company;
(iv) an issuance of Equity Interests by a Wholly-Owned Subsidiary of
the Company to the Company or to another Wholly-Owned Subsidiary of the Company;
2
<PAGE>
(v) the issuance by the Company of shares of its Capital Stock; or
(vi) the sale or other disposition of cash or Cash Equivalents.
"Asset Sale Offer" has the meaning set forth in Section 4.08(d)
----------------
hereof.
"Asset Sale Offer Amount" has the meaning set forth in Section 4.08(d)
-----------------------
hereof.
"Asset Sale Purchase Date" has the meaning set forth in Section
------------------------
4.08(e)(ii) hereof.
"Bankruptcy Law" means Title 11, United States Code, or any other
--------------
applicable federal, state or foreign bankruptcy, insolvency or similar law as
now or hereafter constituted.
"Board" means the Board of Directors of the Company or any committee
-----
thereof duly authorized to act on behalf of such Board.
"Board Resolution" means a duly adopted resolution of the Board in
----------------
full force and effect at the time of determination and certified as such by the
Secretary or an Assistant Secretary of the Company.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
------------
Friday that is not a day on which banking institutions in the Borough of
Manhattan, The City of New York are authorized or obligated by law, executive
order or regulation to close.
"Capital Lease Obligation" means, at the time any determination
------------------------
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, capital stock,
-------------
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalent" means:
---------------
(i) securities issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof) having maturities not more than twelve months from the date of
acquisition;
(ii) U.S. dollar denominated (or foreign currency fully hedged) time
deposits, certificates of deposit, Eurodollar time deposits or Eurodollar
certificates of deposit of (a) any domestic commercial bank of recognized
standing having capital and surplus in excess of $500 million or (b) any bank
whose short-term commercial paper rating from S&P is at least A-1 or the
equivalent thereof or from Moody's is at least P-1 or the equivalent thereof
(any such bank being
3
<PAGE>
an "Approved Lender"), in each case with maturities of not more than twelve
months from the date of acquisition; and
(iii) commercial paper issued by any Approved Lender (or by the
parent company thereof) or any variable rate notes issued by, or guaranteed by,
any domestic corporation rated A-2 (or the equivalent thereof) or better by S&P
or P-2 (or the equivalent thereof) or better by Moody's and maturing within
twelve months of the date of acquisition.
"Certificated Notes" means Notes in certificated form.
------------------
"Change of Control" means such time as either:
-----------------
(i) prior to the initial Public Equity Offering by the Company or
the Parent of its common stock, the Permitted Shareholders cease to be, directly
or indirectly, the beneficial owners in the aggregate, of more than 50% of the
voting power of the Voting Stock of the Company and of the Parent, in each case
on a fully-diluted basis, after giving effect to the conversion and exercise of
all outstanding warrants, options and other securities of the Company or the
Parent, as the case may be, convertible into or exercisable for Voting Stock of
the Company or the Parent, as the case may be (whether or not such securities
are then currently convertible or exercisable); or
(ii) after the initial Public Equity Offering by the Company or the
Parent of its common stock, (a) any "person" or "group" (within the meaning of
Section 13(d) or 14(d) of the Exchange Act) (other than one or more of the
Permitted Shareholders) has become, directly or indirectly, the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), by way of merger, consolidation
or otherwise, of 35% or more of the voting power of the Voting Stock of the
Company or the Parent in each case on a fully-diluted basis, after giving effect
to the conversion and exercise of all outstanding warrants, options and other
securities of the Company or the Parent, as the case may be, convertible into or
exercisable for Voting Stock of the Company or the Parent, as the case may be
(whether or not such securities are then currently convertible or exercisable)
and (b) such person or group is or becomes, directly or indirectly, the
beneficial owner of a greater percentage of the voting power of the Voting Stock
of the Company or of the Parent, as the case may be, calculated on such fully-
diluted basis, than the percentage then beneficially owned by the Permitted
Shareholders; or
(iii) the Company or the Parent merges with or into another Person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person merges with or into
the Company or the Parent, in any such event pursuant to a transaction in which
the outstanding Voting Stock of the Company or the Parent is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (x) the outstanding Voting Stock of the Company or the Parent
is converted into or exchanged for (1) Voting Stock (other than Disqualified
Stock) of the surviving or transferee corporation and/or (2) cash, securities
and other property in an amount which could be paid by the Company as a
Restricted Payment under this Indenture and (y) immediately after such
4
<PAGE>
transaction no "person" or "group" (within the meaning of Section 13(d) and
14(d) of the Exchange Act) (other than one or more of the Permitted
Shareholders) is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of (1) 35% or more of the voting power of the Voting
Stock of the surviving or transferee corporation on a fully diluted basis, after
giving effect to the conversion and exercise of all outstanding warrants,
options and other securities of such surviving or transferee corporation,
convertible into or exercisable for Voting Stock of such surviving or transferee
corporation (whether or not such securities are then currently convertible or
exercisable) and (2) a greater percentage of the voting power of the Voting
Stock of such surviving or transferee corporation calculated on such fully
diluted basis, than the percentage then beneficially owned by the Permitted
Shareholders; or
(iv) during any period of two consecutive calendar years,
individuals who at the beginning of such period constituted either the board of
directors of the Company or of the Parent, as the case may be, together with any
new members of such board of directors (a) whose election by such board of
directors or whose nomination for election by the stockholders of the Company or
the stockholders of the Parent, as the case may be, was approved by a vote of a
majority of the members of such board of directors then still in office who
either were directors at the beginning of such period or whose election or
nomination for election was previously so approved or (b) elected by the
Permitted Shareholders, cease for any reason to constitute a majority of the
directors of the Company or of the Parent, as the case may be, then in office.
"Change of Control Offer" has the meaning set forth in Section 4.07(a)
-----------------------
hereof.
"Change of Control Payment Date" has the meaning set forth in Section
------------------------------
4.07(a) hereof.
"Change of Control Purchase Price" has the meaning set forth in
--------------------------------
Section 4.07(a) hereof.
"clearing agency" has the meaning set forth in Section 3(a)(23) of the
---------------
Exchange Act.
"Commission" means the United States Securities and Exchange
----------
Commission, as from time to time constituted, created under the Exchange Act,
or, if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Company" means the party named as such in the preamble to this
-------
Indenture until a successor replaces it pursuant to the applicable provisions
hereof and, thereafter, means such successor.
"Company Order" means a written order signed in the name of the
-------------
Company by (i) the Chairman of the Board, Chief Executive Officer, President,
Chief Operating Officer or any
5
<PAGE>
Vice President of the Company and (ii) the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Consolidated EBITDA" means, with respect to any Person for any
-------------------
period, the sum of, without duplication, (i) the Consolidated Net Income of such
Person and its Subsidiaries for such period, plus (ii) the Fixed Charges for
such period, plus (iii) amortization of deferred financing charges for such
period, plus (iv) provision for taxes based on income or profits for such period
(to the extent such income or profits were included in computing Consolidated
Net Income for such period), plus (v) consolidated depreciation, amortization
and other noncash charges of such Person and its Subsidiaries required to be
reflected as expenses on the books and records of such Person, minus (vi) cash
payments with respect to any nonrecurring, noncash charges previously added back
pursuant to clause (v), and excluding (vii) the impact of foreign currency
translations. Notwithstanding the foregoing, the provision for taxes based on
the income or profits of, and the depreciation and amortization and other
noncash charges of, a Subsidiary of a Person shall be added to Consolidated Net
Income to compute Consolidated EBITDA only to the extent (and in the same
proportion) that the Net Income of such Subsidiary was included in calculating
the Consolidated Net Income of such Person and only if a corresponding amount
would be permitted at the date of determination to be dividended to such Person
by such Subsidiary without any prior governmental approval (that has not been
obtained), and without direct or indirect restriction pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
-----------------------
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly-Owned Subsidiary thereof, (ii) the Net
Income of any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, and (iv) the cumulative effect
of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
----------------------
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups subsequent
to the date of the Indenture in
6
<PAGE>
the book value of any asset owned by such Person or a consolidated Subsidiary of
such Person (other than purchase accounting adjustments made, in connection with
any acquisition of any entity that becomes a consolidated Subsidiary of such
Person after the date of the Indenture, to the book value of the assets of such
entity), (y) all investments as of such date in unconsolidated Subsidiaries and
in Persons that are not Subsidiaries (except, in each case, Permitted
Investments), and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Tangible Assets" means, with respect to any Person,
--------------------------------
the total amount of assets of such Person and its Subsidiaries (less applicable
depreciation, amortization and other valuable reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in accordance with GAAP), after deducting
therefrom all goodwill, copyrights, customer lists, tradenames, trademarks,
patents, unamortized debt discount and expense and other like intangibles, all
as set forth on the most recently available consolidated balance sheet of the
Person and its consolidated Subsidiaries, prepared in accordance with GAAP.
"Corporate Trust Office" means the principal office of the Trustee at
----------------------
which at any particular time its corporate trust business shall be principally
administered, which office is, at the date of execution of this Indenture, 58
Edgewood Avenue, Room 400A, Atlanta, Georgia, Attention: Corporate Trust
Administration.
"Covenant Defeasance" has the meaning set forth in Section 8.03
-------------------
hereof.
"Credit Agreement" means that certain Credit Agreement, dated as of
----------------
the date of this Indenture, by and among the Company and SunTrust Bank, Atlanta
as Agent Bank, and the lenders parties thereto, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, increased, renewed,
refunded, replaced, restated or refinanced in whole or in part from time to
time.
"Custodian" means any receiver, trustee, assignee, liquidator,
---------
custodian or similar official under any Bankruptcy Law.
"Default" means any event that is, or with the passage of time or the
-------
giving of notice or both would be, an Event of Default.
"Defaulted Interest" has the meaning set forth in Section 2.11 hereof.
------------------
"Depositary" means The Depository Trust Company, its nominees, and
----------
their respective successors.
"Disqualified Stock" means (a) with respect to any Person, Capital
------------------
Stock of such Person that, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable), or upon the happening
of any event matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the Holder
7
<PAGE>
thereof, in whole or in part, on or prior to the date which is one year after
the date on which the Notes mature and (b) with respect to any Subsidiary of
such Person (including with respect to any Subsidiary of the Company), any
Capital Stock.
"Eligible Assets" means another business or any substantial part of
---------------
another business or other long-term assets (including, without limitation, new
restaurant locations), in each case, in, or used or useful in, the same or a
similar line of business as the Company (exclusive of Krystal Aviation Co. and
Krystal Aviation Management Co.) was engaged in on the date of the Indenture or
any reasonable extensions or expansions thereof (including the Capital Stock of
another Person engaged in such business, provided such other Person is, or
immediately after giving effect to any such acquisition shall become, a Wholly-
Owned Subsidiary of the Company).
"Equity Interests" means Capital Stock and all warrants, options or
----------------
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock), whether outstanding prior
to, on or after the date of this Indenture.
"Event of Default" has the meaning set forth in Section 6.01 hereof.
----------------
"Excess Proceeds" has the meaning set forth in Section 4.08(c) hereof.
---------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
"Exchange Certificated Notes" has the meaning set forth in Section
---------------------------
2.01(d) hereof.
"Exchange Global Note" has the meaning set forth in Section 2.01(d)
--------------------
hereof.
"Exchange Notes" has the meaning set forth in the Recitals hereto and
--------------
more particularly means any of the Notes authenticated and delivered under this
Indenture pursuant to the Registered Exchange Offer.
"Exempt Affiliate Transactions" means (a) transactions between or
-----------------------------
among the Company and/or its Wholly-Owned Subsidiaries, (b) advances to officers
of the Company or any Subsidiary of the Company in the ordinary course of
business to provide for the payment of reasonable expenses incurred by such
persons in the performance of their responsibilities to the Company or such
Subsidiary or in connection with any relocation, (c) fees and compensation paid
to and indemnity provided on behalf of directors, officers or employees of the
Company or any Subsidiary of the Company in the ordinary course of business, (d)
any employment agreement that is in effect on the date of this Indenture and any
such agreement entered into by the Company or a Subsidiary of the Company after
the date of this Indenture in the ordinary course of business of the Company or
such Subsidiary and (e) any Restricted Payment that is not prohibited by Section
4.10 hereof.
"Exempt Asset Sale" means an Asset Sale on or after the date of this
-----------------
Indenture the Net Proceeds of which plus the Net Proceeds of all other Asset
Sales made in the same fiscal year (but, in all cases, after the date of this
Indenture) do not exceed $2.5 million.
8
<PAGE>
"Existing Indebtedness" means the Indebtedness of the Company and its
---------------------
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of this Indenture, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
---------------------------
period, the ratio of the Consolidated EBITDA of such Person and its Subsidiaries
for such period to the Fixed Charges of such Person and its Subsidiaries for
such period. In the event that the Company or any of its Subsidiaries incurs,
assumes, guarantees or repays or redeems any Indebtedness (other than revolving
credit borrowings) or issues or redeems preferred stock subsequent to the
commencement of the four-quarter reference period for which the Fixed Charge
Coverage Ratio is being calculated but on or prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee, repayment or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. For purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
EBITDA for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, (ii) the Consolidated EBITDA attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the
-------------
sum, without duplication, of (i) the consolidated interest expense of such
Person and its Subsidiaries for such period (net of any interest income)
including, without limitation, amortization of original issue discount, noncash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations, but excluding amortization of deferred
financing charges for such period and (ii) the consolidated interest expense of
such Person and its Subsidiaries that was capitalized during such period, and
(iii) any interest expense on Indebtedness of another Person that is guaranteed
by such Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such guarantee or Lien is
called upon) and (iv) the product of (a) all cash dividend payments (and noncash
dividend payments in the case of a Person that is a Subsidiary) on any series of
preferred stock of such Person payable to a party other than the Company or a
Wholly-Owned Subsidiary, multiplied by (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax
9
<PAGE>
rate for taxes based on the income or profits of such Person, expressed as a
decimal, on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession of the United States, that are applicable to the circumstances as of
the date of determination; provided that, except as specifically provided in
-------- ----
this Indenture, all calculations made for purposes of determining compliance
with the covenants set forth in Article IV and Section 5.01 of this Indenture
shall use GAAP as in effect on the date of this Indenture for financial
statements for fiscal years ending on or after December 31, 1996.
"Global Notes" means the Initial Global Note and the Exchange Global
------------
Note.
"guarantee" means a guarantee (other than by endorsement of negotiable
---------
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means each Subsidiary of the Company formed or acquired
---------
(and each other Person that becomes a Subsidiary of the Company) after the date
of this Indenture, provided that any Person constituting a Guarantor as
--------
described above shall cease to constitute a Guarantor when its guarantee is
released in accordance with the terms of this Indenture.
"Hedging Obligations" means, with respect to any Person, the
-------------------
obligations of such Person entered into in the ordinary course of business under
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements and other similar financial agreements or arrangements
designed to protect such Person against, or manage the exposure of such Person
to, fluctuations in interest rates.
"Holder" means (i) in the case of any Certificated Note, the Person in
------
whose name such Certificated Note is registered on the Note Register and (ii) in
the case of any Global Note, the Depositary.
"incur" shall have the meaning specified in Section 4.09(a) hereof.
-----
"Indebtedness" means, with respect to any Person, any indebtedness of
------------
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations, or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable
incurred in the ordinary course of business, if and to the extent any of the
foregoing indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all indebtedness of others
10
<PAGE>
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included,
indebtedness of others that is guaranteed by such Person that is recourse to
such Person or that is otherwise its legal liability.
"Indenture" means this instrument as originally executed or as it may
---------
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof;
and shall include, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument, and any such supplemental indenture,
respectively.
"independent financial advisor" means a nationally recognized
-----------------------------
investment banking firm that is, in the reasonable judgment of the Board,
qualified to perform the task for which such firm has been engaged and
disinterested and independent with respect to the Company.
"Initial Certificated Notes" has the meaning set forth in Section
--------------------------
2.01(c) hereof.
"Initial Global Note" has the meaning set forth in Section 2.01(c)
-------------------
hereof.
"Initial Notes" has the meaning set forth in the Recitals hereto and,
-------------
more particularly, means any of the Notes authenticated and delivered under this
Indenture other than pursuant to the Registered Exchange Offer or in exchange
for Exchange Notes.
"Initial Purchaser" means UBS Securities LLC.
-----------------
"Institutional Accredited Investors" means institutional "accredited
----------------------------------
investors," as defined in Rule 501(a)(l), (2), (3) or (7) under the Securities
Act, other than Qualified Institutional Buyers.
"Interest Payment Date" means each semiannual interest payment date on
---------------------
April 1 and October 1 of each year, commencing April 1, 1998, in respect of the
Notes.
"Investments" means, with respect to any Person, all investments by
-----------
such Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or other extensions of credit or capital contributions to other Persons
(by means of any transfer of cash or other property but excluding advances to
officers of the type specified in clause (b) of the definition of Exempt
Affiliate Transactions), or any purchases, acquisitions for consideration of
Indebtedness, Equity Interests or other securities or ownership by such Person
of any Capital Stock, bonds, notes, debentures or other securities (including,
without limitation, any interests in a partnership or joint venture) issued or
owned by any other Person, and all other items that are or would be classified
as investments on a balance sheet prepared in accordance with GAAP; provided
that an acquisition by the Company for consideration consisting of common equity
securities of the Company shall not be deemed to be an Investment.
"Legal Defeasance" has the meaning set forth in Section 8.02 hereof.
----------------
11
<PAGE>
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
----
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Maturity" means, when used with respect to a Note, the date on which
--------
the principal of such Note becomes due and payable as provided therein or in
this Indenture, whether on the date specified in such Note as the fixed date on
which the principal of such Note is due and payable, on the Change of Control
Payment Date or Asset Sale Purchase Date, or by declaration of acceleration,
call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc., or if Moody's
-------
Investors Service, Inc. shall cease rating the specified debt securities and
such ratings business with respect thereto shall have been transferred to a
successor Person, such successor Person; provided that if Moody's Investors
--------
Service, Inc. ceases rating the specified debt securities and its ratings
business with respect thereto shall not have been transferred to any successor
Person or such successor Person is S&P, then "Moody's" shall mean any other
nationally recognized rating agency (other than S&P) that rates the specified
debt securities and that shall have been designated by the Company in an
Officer's Certificate.
"Net Income" means, with respect to any Person for any period, the net
----------
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to Sale and Leaseback Transactions) or
(b) the disposition of any securities by such Person or any of its Subsidiaries
or the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
------------
Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
noncash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions), taxes paid or payable as a
result thereof, and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Non-U.S. Person" means any Person who is not a "U.S. person," as
---------------
defined in Rule 902(o) under the Securities Act.
"Note Guarantee" means the guarantee of the Notes by each Guarantor
--------------
under Article X hereof.
12
<PAGE>
"Note Register" has the meaning set forth in Section 2.03 hereof.
-------------
"Notes" has the meaning set forth in the Recitals hereto and more
-----
particularly means any of the Notes authenticated and delivered under this
Indenture.
"Obligations" means any principal, interest, penalties, premiums,
-----------
fees, indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by (i) the Chairman
---------------------
of the Board, the Chief Executive Officer, President, Chief Operating Officer or
any Vice President of the Company and (ii) the Chief Financial Officer, the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
the Company, and delivered to the Trustee, which certificate shall comply with
the provisions of Section 11.04 hereof; provided that any Officers' Certificate
-------- ----
delivered pursuant to the first paragraph of Section 4.20 hereof shall be signed
by the Chief Executive Officer or the Chief Financial Officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel (who
------------------
may be counsel to the Company or the Trustee) who is acceptable to the Trustee,
which opinion shall comply with the provisions of Section 11.04 hereof; provided
--------
that any Opinion of Counsel delivered pursuant to Section 8.04 hereof shall not
- ----
be rendered by an employee of the Company or any of its Subsidiaries.
"Parent" means Port Royal Holdings, Inc., a Georgia corporation and
------
100% owner of the Company.
"pari passu," as applied to the ranking of any Indebtedness of a
---- -----
Person in relation to other Indebtedness of such Person, means that each such
Indebtedness either (i) is not subordinate in right of payment to any
Indebtedness or (ii) is subordinate in right of payment to the same Indebtedness
as is the other, and is so subordinate to the same extent, and is not
subordinate in right of payment to each other or to any Indebtedness as to which
the other is not so subordinate.
"Paying Agent" means any Person authorized by the Company to make
------------
payments premium, if any, or interest with respect to the Notes on behalf of the
Company.
"Permitted Indebtedness" means
----------------------
(i) the incurrence by the Company of Indebtedness under the Credit
Agreement and the incurrence by Subsidiaries of the Company of guarantees
thereof in an aggregate principal amount at any time outstanding (with letters
of credit being deemed to have a principal amount equal to the maximum potential
liability of the Company and its Subsidiaries thereunder) not to exceed $25.0
million, less the aggregate amount of all Net Proceeds of Asset Sales applied to
permanently reduce the outstanding amount or the commitments with respect to
such Indebtedness pursuant to the covenant described in Section 4.08 hereof;
13
<PAGE>
(ii) the incurrence by the Company and any Guarantors of
Indebtedness represented by the Notes and the Note Guarantees;
(iii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations (whether or not incurred
pursuant to Sale and Leaseback Transactions), mortgage financings or Purchase
Money Obligations, in each case incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement of property
used in the business of the Company or such Subsidiary (provided that such
Indebtedness is incurred within 180 days of the date such property is purchased
or the date on which such construction of or improvement to such property is
commenced) or any Permitted Refinancing Indebtedness thereof (provided that the
requirements of clause (ii) of the definition of Permitted Refinancing
Indebtedness need not be met for the purposes of this clause (iii)) in an
aggregate principal amount at any time outstanding not to exceed the greater of
(x) $15.0 million or (y) 10.0% of Consolidated Net Tangible Assets;
(iv) the incurrence by the Company of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund, any Indebtedness permitted under
the Fixed Charge Coverage Ratio Test described in the covenant set forth in
Section 4.09 hereof;
(v) the incurrence by the Company or any of its Wholly-Owned
Subsidiaries of intercompany Indebtedness between or among the Company and any
of its Wholly-Owned Subsidiaries or between or among any Wholly-Owned
Subsidiaries; provided, however, that (a) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a Person
other than the Company or a Wholly-Owned Subsidiary of the Company and (b) any
sale or other transfer of any such Indebtedness to a Person that is not either
the Company or a Wholly-Owned Subsidiary of the Company shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be;
(vi) the incurrence by the Company of Hedging Obligations; and
(vii) the incurrence by the Company of Indebtedness (in addition to
Indebtedness permitted by any other clause of this paragraph) in an aggregate
principal amount at any time outstanding not to exceed $10.0 million plus the
aggregate amount of all Net Proceeds of Asset Sales applied to permanently
reduce the outstanding amount or commitments with respect to Indebtedness under
the Credit Agreement pursuant to the covenant described in Section 4.08 hereof.
"Permitted Investments" means:
---------------------
(i) any Investments in the Company;
(ii) any Investments in Cash Equivalents;
(iii) Investments made as a result of the receipt of noncash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.08 hereof.
14
<PAGE>
(iv) Investments in property or assets to be used in any line of
business in which the Company or any of its Subsidiaries was engaged on the date
of this Indenture or any reasonable extensions or expansions thereof; and
(v) Investments in Wholly-Owned Subsidiaries of the Company and any
entity that (a) is engaged in the same or a similar line of business as the
Company or any of its Subsidiaries was engaged in on the date of this Indenture
or any reasonable extensions or expansions thereof, and (b) as a result of such
Investment, becomes a Wholly-Owned Subsidiary of the Company.
"Permitted Liens" means with respect to any Person,
---------------
(i) pledges or deposits by such person under workmen's compensation
laws, unemployment insurance laws or similar legislation, or good faith deposits
in connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits of cash or United
States government bonds to secure surety or appeal bonds to which such Person is
a party, or deposits as security for contested taxes or for the payment of rent,
in each case incurred in the ordinary course of business;
(b) Liens imposed by law, such as carriers', warehousemen's and
mechanic's Liens, in each case for sums not yet due or being contested in good
faith by appropriate proceedings; or other Liens arising out of judgments or
awards against such Person with respect to which such Person shall be proceeding
with an appeal or other proceedings for review;
(c) Liens for property taxes not yet subject to penalties for non-
payment or which are being contested in good faith and by appropriate
proceedings;
(d) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters of credit
do not constitute Indebtedness;
(e) survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, licenses, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or liens
incidental to the conduct of the business of such Person or the ownership of its
properties which were not incurred in connection with Indebtedness and which do
not in the aggregate materially adversely affect the value of said properties or
materially impair their use in the operation of the business of such Person;
(f) Liens securing Indebtedness (including Indebtedness described
in clause (iii) of the definition of Permitted Indebtedness) incurred to finance
the construction, purchase or lease of, or repairs, improvements or additions
to, property; provided, however, that the Lien may not extend to any other
property owned by the Company or any Subsidiary at the time the Lien is
incurred, and the Indebtedness secured by the Lien may not be issued more than
180 days after the later of the acquisition or construction of the property
subject to the Lien;
15
<PAGE>
(g) Liens to secure Indebtedness described in clause (i) of the
definition of Permitted Indebtedness;
(h) Liens existing on the date of this Indenture; (i) Liens on
property or shares of stock of a Person at the time such Person becomes a
Subsidiary; provided, however, that any such Lien may not extend to any other
property owned by the Company or any Subsidiary;
(j) Liens on property at the time the Company or a Subsidiary
acquires the property including any acquisition by means of a merger or
consolidation with or into the Company or a Subsidiary; provided, however, that
the Liens may not extend to any other property owned by the Company or any
Subsidiary;
(k) Liens securing Indebtedness or other obligations of a
Subsidiary owing to the Company or a Wholly-Owned Subsidiary;
(l) Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted to be under this Indenture, secured by a Lien
on the same property securing such Hedging Obligations; and
(m) Liens to secure any refinancing, refunding, extension, renewal
or replacement (or successive refinancings, refundings, extensions, renewals or
replacements) as a whole, or in part, of any Indebtedness secured by any Lien
referred to in the foregoing clauses (f), (h), (i) and (j); provided, however,
that (x) such new Lien shall be limited to all or part of the same property that
secured the original Lien (plus improvements on such property) and (y) the
Indebtedness secured by such Lien at such time is not increased to any amount
greater than the sum of (A) the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under clauses (f), (h), (i) or
(j) at the time the original Lien became a Permitted Lien under the Indenture
and (B) an amount necessary to pay any fees and expenses, including premiums,
related to such refinancing, refunding, extension, renewal or replacement.
Clause (m) shall not be deemed to limit the provisions of clauses (a) through
(e), (g) or (k).
"Permitted Refinancing Indebtedness" means any Indebtedness of the
----------------------------------
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that:
--------
(i) the principal amount of such Permitted Refinancing Indebtedness
does not exceed the principal amount of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith);
(ii) such Permitted Refinancing Indebtedness has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of; and is subordinated in
16
<PAGE>
right of payment to, the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(iv) such Indebtedness is incurred either by the Company or by the
Subsidiary of the Company that is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Shareholders" means (i) those Persons who "beneficially
----------------------
own" (as such term is defined in Rules 13d-3 and 13d-5 under the Exchange Act)
Voting Stock of the Parent as of the Issue Date; (ii) the spouses parents,
siblings, descendants (including children or grandchildren) of such Persons;
(iii) in the event of the incompetence or death of any of the Persons described
in clause (i) or (ii), such Person's estate, executor, administrator, committee
or other personal representative in each case who at any particular date shall
beneficially own or have the right to acquire, directly or indirectly, Voting
Stock of the Parent; (iv) any trusts created for the sole benefit of the Persons
described in clause (i),(ii) or (iii) or any trust for the benefit of such trust
or (v) any Person of which any of the Persons described in clause (i), (ii) or
(iii) (x) "beneficially owns" (as such term is defined in Rules 13d-3 and 13d-5
under the Exchange Act) on a fully-diluted basis all of the Voting Stock of such
Person or (y) is the sole trustee or general partner, or otherwise has the sole
power to manage the business and affairs, of such Person.
"Person" means any individual, corporation, limited or general
------
partnership, joint venture, association, joint stock company, trust, limited
liability company, unincorporated organization, or government or any agency or
political subdivision thereof.
"Private Placement Legend" means the legend in the form set forth in
------------------------
Section 2.01(e)(i) hereof.
"pro forma" means, with respect to any calculation made or required to
---------
be made pursuant to the terms hereof, a calculation in accordance with Article
11 of Regulation S-X promulgated under the Securities Act (to the extent
applicable), as interpreted in good faith by the Board after consultation with
the independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board after consultation with the
independent certified public accountants of the Company, as the case may be.
"Property" means, with respect to any Person, any interest of such
--------
Person in any kind of property or asset, whether real, personal or mixed,
tangible or intangible, excluding Capital Stock in any other Person.
"Public Equity Offering" means an underwritten primary public offering
----------------------
of the common stock of the Company or of the common stock of the Parent pursuant
to an effective registration statement filed with the Commission in accordance
with the Securities Act (whether alone or in conjunction with a secondary public
offering).
"Purchase Agreement" means the purchase agreement relating to the
------------------
Notes, dated September 18, 1997, between the Company and the Initial Purchaser.
17
<PAGE>
"Purchase Money Obligations" of any Person means any obligations of
--------------------------
such Person to any seller or any other Person incurred or assumed to finance the
construction and/or acquisition of real or personal property to be used in the
business of such Person or any of its Subsidiaries in an amount that is not more
than 100% of the cost of such property, and incurred within 180 days after the
date of such construction or acquisition (excluding accounts payable to trade
creditors incurred in the ordinary course of business).
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
---
"Record Date" means, for the interest payable on any Interest Payment
-----------
Date, the date specified in Section 2.11 hereof.
"Redemption Date" means, when used with respect to any Note or part
---------------
thereof to be redeemed hereunder, the date fixed for redemption of such Notes
pursuant to the terms of the Notes and this Indenture.
"Redemption Price" means, when used with respect to any Note or part
----------------
thereof to be redeemed hereunder, the price fixed for redemption of such Note
pursuant to the terms of the Notes and this Indenture, plus accrued and unpaid
interest thereon, if any, and Additional Interest, if any, to the Redemption
Date.
"Registered Exchange Offer" has the meaning set forth in the
-------------------------
Registration Rights Agreement.
"Registrar" has the meaning set forth in Section 2.03 hereof.
---------
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement relating to the Notes, dated September 26, 1997, between the Company
and the Initial Purchaser, in substantially the form of Exhibit J hereto.
"Regulation D" means Regulation D under the Securities Act (including
------------
any successor regulation thereto), as it may be amended from time to time.
"Regulation S" means Regulation S under the Securities Act (including
------------
any successor regulation thereto), as it may be amended from time to time.
"Regulation S-X" means Regulation S-X under the Securities Act
--------------
(including any successor regulation thereto), as it may be amended from time to
time.
"Representative" means the trustee, agent or representative (if any)
--------------
for an issue of Senior Indebtedness or, if no such trustee, agent or
representative exists, the holder thereof.
"Resolution" means a copy of a resolution certified by the secretary
----------
or an assistant secretary of the Company to have been duly adopted by the Board
and to be in full force and effect on the date of such certification, delivered
to the Trustee.
"Restricted Payment" has the meaning set forth in Section 4.10 hereof.
------------------
18
<PAGE>
"Rule 144" means Rule 144 under the Securities Act (including any
--------
successor regulation thereto), as it may be amended from time to time.
"Rule 144A" means Rule 144A under the Securities Act (including any
---------
successor regulation thereto), as it may be amended from time to time.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill
---
Corporation, or, if Standard & Poor's Ratings Group shall cease rating the
specified debt securities and such ratings business with respect thereto shall
have been transferred to a successor Person, such successor Person; provided
--------
that if Standard & Poor's Ratings Group ceases rating the specified debt
- ----
securities and its ratings business with respect thereto shall not have been
transferred to any successor Person or such successor Person is Moody's, then
"S&P" shall mean any other nationally recognized rating agency (other than
Moody's) that rates the specified debt securities and that shall have been
designated by the Company in an Officers' Certificate.
"Sale and Leaseback Transaction" means any direct or indirect
------------------------------
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Subsidiary of any property, whether owned by
the Company or any Subsidiary as of the date of the Indenture or later acquired,
which has been or is to be sold or transferred by the Company or such Subsidiary
to such Person or to any other Person from whom funds have been or are to be
advanced by such Person on the security of such property.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Senior Bank Debt" means the Obligations outstanding under the Credit
----------------
Agreement.
"Senior Indebtedness" means, with respect to the Company, (i) the
-------------------
Notes, (ii) the Senior Bank Debt and (iii) any other Indebtedness permitted to
be incurred by the Company under the terms of this Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is subordinated in right of payment to any Indebtedness for money borrowed.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include (w) any liability for federal, state, local or other taxes owed
or owing by the Company, (x) any Indebtedness of the Company to any of its
Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness
to the extent that it is incurred in violation of this Indenture (other than
Senior Bank Debt incurred in accordance with the terms of the Credit Agreement
as in effect on the date of the initial issuance of the Notes). "Senior
Indebtedness" means, with respect to any Guarantor, any guarantee by such
Guarantor of Senior Indebtedness of the Company.
"Shelf Registration Statement" has the meaning set forth in the
----------------------------
Registration Rights Agreement.
"Special Record Date" means a date fixed by the Trustee pursuant to
-------------------
Section 2.11 for the payment of Defaulted Interest.
19
<PAGE>
"Stated Maturity" means, with respect to any security, the date
---------------
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred), and, when used with respect
to any installment of interest on such security, the fixed date on which such
installment of interest is due and payable.
"Subsidiary" means, with respect to any Person, (i) any corporation,
----------
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Temporary Notes" has the meaning set forth in Section 2.09 hereof.
---------------
"trade payables" means, with respect to any Person, any accounts
--------------
payable or any Indebtedness or monetary obligation to trade creditors created,
assumed or guaranteed by such Person arising in the ordinary course of business
of such Person in connection with the acquisition of goods or services.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
-------------------
(S)(S) 77aaa-771(bbb) as in effect on the date of this Indenture except as
required by Section 9.04 hereof or if the Indenture is qualified under the Trust
Indenture Act, then as of the date of such qualification; provided that in the
--------
event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939, as so amended.
"Trust Officer" means any officer or assistant officer of the Trustee
-------------
(or a successor trustee) assigned by the Trustee (or a successor trustee) to
administer this Indenture.
"Trustee" means the party named as such in the preamble to this
-------
Indenture until a successor replaces it in accordance with the provisions of
this Indenture and, thereafter, means such successor Trustee.
"U.S. Government Obligations" means:
---------------------------
(i) securities that are (a) direct obligations of the United States
of America for the payment of which the full faith and credit of the United
States of America is pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof; and
20
<PAGE>
(ii) depositary receipts issued by a bank (as defined in Section
3(a)(2) of the Securities Act) as custodian with respect to any U.S. Government
Obligation which is specified in clause (i) above and held by such bank for the
account of the holder of such depositary receipt, or with respect to any
specific payment of principal or interest on any U.S. Government Obligation
which is so specified and held, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
or interest of the U.S. Government Obligation evidenced by such depositary
receipt.
"Voting Stock" of a corporation means all classes of Capital Stock of
------------
such corporation then outstanding and normally entitled to vote in the election
of directors.
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payments at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly-Owned Subsidiary" of any Person means a Subsidiary of such
-----------------------
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly-Owned Subsidiaries of such Person.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
(a) This Indenture is expressly made subject to the Trust Indenture Act as if
this Indenture were, on the Date hereof, subject to the Trust Indenture Act
under the provisions of such statute and such provisions are incorporated by
reference in this Indenture.
(b) Whenever this Indenture refers to a provision of the Trust
Indenture Act, the provision is incorporated by reference in and made a part of
this Indenture. The following Trust Indenture Act terms incorporated by
reference in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, the
Guarantors, or other obligors on the Notes, if any.
21
<PAGE>
All other Trust Indenture Act terms used or incorporated by reference
in this Indenture that are defined by the Trust Indenture Act, defined by Trust
Indenture Act reference to another statute or defined by Commission rule have
the meanings assigned to them therein.
SECTION 1.03. Rules of Construction. Unless the context otherwise
---------------------
requires:
(a) the words "herein," "hereof' and "hereunder," and other words of
similar import, refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(b) "or" is not exclusive;
(c) "including" means "including without limitation";
(d) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP; and
(e) when used with respect to the Notes, the term "principal amount"
shall mean the principal amount thereof at the Stated Maturity of such
principal amount.
SECTION 1.04. Form of Documents Delivered to Trustee. In any case
--------------------------------------
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
Any certificate or opinion of an officer of the Company or any
Guarantor may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or opinion
or Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or officers
of the Company, or such Guarantor, as the case may be, stating that the
information with respect to such factual matters is in the possession of the
Company, or such Guarantor, as the case may be, unless such officer or counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.05. Acts of Holders. (a) Any request, demand,
---------------
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken
22
<PAGE>
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 7.01) conclusive in favor of the Trustee, the
Company, and the Guarantors, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by an acknowledgment of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than such signer's
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of the signer's authority. The fact and date of the execution
of any such instrument or writing, or the authority of the person executing the
same, may also be proved in any other manner which the Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register, and
the ownership of beneficial interests in the Global Note shall be proved by the
records of the Depositary.
(d) The Trustee may require such additional proof of any matter
referred to in this Section as it may reasonably request under the
circumstances.
SECTION 1.06. Satisfaction and Discharge. This Indenture shall cease
--------------------------
to be of further effect (except as to the rights of Holders under Sections 2.06,
2.07, 2.09, 4.02, 4.03 and 4.04 hereof) and the Trustee, on receipt of a Company
Order requesting such action and at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when (a) either (i) all outstanding Notes have been delivered to the Trustee for
cancellation or (ii) such Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust for
the purpose an amount sufficient to pay and discharge the entire indebtedness on
such Notes, for principal, premium, if any, and interest and Additional
Interest, if any, to the date of such deposit together with irrevocable
instructions from the Company in form and substance satisfactory to the Trustee
directing the Trustee to apply such funds to the payment thereof; (b) the
Company has paid or caused to be paid all other sums payable hereunder by the
Company; and (c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all factual and legal
conditions precedent, respectively, herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Section 1.06, the obligations of the Company and any Guarantors to the
Trustee under Section 7.07 hereof, and, if money shall have been deposited with
the Trustee
23
<PAGE>
in trust for the Holders pursuant to this Section 1.06, the obligations of the
Trustee under this Section 1.06 and Section 4.03 hereof shall survive.
All money deposited with the Trustee pursuant to this Section 1.06
shall be held in trust and applied by it, in accordance with the provisions of
the Notes and this Indenture, to the payment, either directly or through any
Paying Agent, to the Persons entitled thereto, of the principal, premium, if
any, and interest and Additional Interest, if any, for the payment of which such
money has been deposited with the Trustee. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with this
Section 1.06 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's and any Guarantors'
obligations under this Indenture and the Notes shall be revived and reinstated
as though no deposit had occurred pursuant to this Section 1.06 until such time
as the Trustee or Paying Agent is permitted to apply all such money or U.S.
Government Obligations in accordance with this Section 1.06; provided, that if
--------
the Company or any Guarantors have made any payment on any Notes because of the
reinstatement of its obligations, the Company or such Guarantors, as the case
may be, shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the cash or U.S. Government Obligations held by the
Trustee or Paying Agent.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charges imposed on or assessed against the U.S. Government Obligations
deposited pursuant to this Section 1.06 or on the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of outstanding Notes.
ARTICLE II
THE NOTES
SECTION 2.01. Form and Dating. (a) The Initial Notes and the
---------------
certificate of authentication of the Trustee thereon shall be substantially in
the form of Exhibit A or Exhibit B hereto, as applicable, which are hereby
incorporated in and expressly made a part of this Indenture. The Exchange Notes
and the certificate of authentication of the Trustee thereon shall be
substantially in the form of Exhibit C or Exhibit D hereto, as applicable, which
are hereby incorporated in and expressly made a part of this Indenture.
(b) The Notes may have such letters, numbers or other marks of
identification and such legends and endorsements, stamped, printed, lithographed
or engraved thereon, (i) as the Company may deem appropriate and as are not
inconsistent with the provisions of this Indenture, (ii) as may be required to
comply with this Indenture, any law or any rule of any securities exchange on
which the Notes may be listed and (iii) as may be necessary to conform to
customary usage. Each Note shall be dated the date of its authentication by the
Trustee. The Notes shall be issued only in fully registered form, without
coupons, in denominations of $1,000 and integral multiples thereof; provided
--------
that Initial Certificated Notes originally purchased by or transferred to
Institutional Accredited Investors shall be subject to a minimum denomination of
$250,000. Definitive Notes shall be typed, printed, lithographed or engraved or
produced by any combination of such methods or produced in any other manner
permitted by the rules of any
24
<PAGE>
securities exchange on which such Notes may be listed, all as determined by the
officers of the Company executing such Notes, as evidenced by their execution of
such Notes.
(c) Initial Notes offered and sold to QIBs in reliance on Rule 144A as
provided in the Purchase Agreement shall be issued initially in the form of a
single, permanent global note in definitive, fully registered form, without
coupons, substantially in the form set forth in Exhibit A hereto and shall bear
the legends set forth in Section 2.01(e)(i), Section 2.01(e)(ii) and Section
2.0l(e)(iii) hereof (the "Initial Global Note") or in the form of an Initial
Certificated Note (as defined below). Notwithstanding any other provision of
this Indenture, at the written request of the Holder of such Initial
Certificated Note to the Company and the Trustee, the Company shall execute and
the Trustee shall authenticate in exchange for such Initial Certificated Note an
Initial Global Note in like aggregate principal amount and deliver such Initial
Global Note pursuant to the instructions of such Holder. Upon issuance, such
Initial Global Note shall be registered in the name of the Depositary or its
nominee, duly executed by the Company and authenticated by the Trustee as
hereinafter provided and deposited on behalf of the purchasers of the Initial
Notes represented thereby with the Trustee at its Corporate Trust Office, as
custodian for the Depositary. Owners of beneficial interests in the Initial
Global Note shall be entitled to receive physical delivery of Certificated Notes
pursuant to Section 2.06(b)(ii). Initial Notes offered and sold to
Institutional Accredited Investors as provided in the Purchase Agreement shall
be issued in the form of a note in definitive, fully registered form, without
coupons, substantially in the form set forth in Exhibit B hereto and shall bear
the legend set forth in Section 2.01(e)(i) hereof, except as provided in Section
2.06(a) (such Notes together with interests in the Initial Global Note that are
subsequently transferred or exchanged pursuant to Sections 2.06(b)(ii),
2.06(b)(iii), 2.06(b)(iv) or 2.06(c), the "Initial Certificated Notes"). Upon
issuance, any such Initial Certificated Note shall be duly executed by the
Company and authenticated by the Trustee as hereinafter provided. Upon transfer
of any Initial Certificated Note to a QIB pursuant to Section 2.06(b)(i) hereof,
such Initial Certificated Note may be exchanged for a beneficial interest in the
Initial Global Note, except as provided in Section 2.06(c).
(d) If the Initial Global Note is tendered in a Registered Exchange
Offer, it shall be exchanged for a single, permanent global note in definitive,
fully registered form, without coupons, substantially in the form set forth in
Exhibit C hereto and shall bear the legends set forth in Section 2.01(e)(ii) and
Section 2.01(e)(iv) hereof (the "Exchange Global Note"). Upon issuance, such
Exchange Global Note shall be registered in the name of the Depositary or its
nominee, duly executed by the Company and authenticated by the Trustee as
hereinafter provided and deposited on behalf of the beneficial owners of the
Exchange Notes represented thereby in accordance with the procedures of the
Depositary.
If Initial Certificated Notes are tendered in a Registered Exchange
Offer, they will be exchanged for Certificated Notes in definitive, fully
registered form, without coupons and without legends, substantially in the form
set forth in Exhibit D hereto ("Exchange Certificated Notes"). Upon issuance,
any such Exchange Certificated Note shall be duly executed by the Company and
authenticated by the Trustee as hereinafter provided.
At the option of the Holder thereof, Exchange Notes may be held either
in the form of a beneficial interest in the Exchange Global Note or as Exchange
Certificated Notes.
25
<PAGE>
(e) The following legends shall appear on each Global Note and each
Certificated Note as indicated below:
(i) Except as provided in Section 2.06(a) hereof; the Initial
Global Note and each Initial Certificated Note shall bear the following
legend (the "Private Placement Legend") on the face thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED
UNDER THE INDENTURE PURSUANT TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER JURISDICTION.
(ii) Each Global Note shall bear the following legend on the face
thereof:
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY TO TKC ACQUISITION CORP. OR A SUCCESSOR THEREOF OR THE REGISTRAR
FOR REGISTRATION OF TRANSFER OR EXCHANGE AND ANY NOTE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
(iii) The Initial Global Note shall bear the following legend on the
face thereof:
TRANSFER OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, AND NOT IN
PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF INTERESTS IN THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.06 OF THE INDENTURE, DATED AS OF SEPTEMBER 26, 1997, AMONG TKC
ACQUISITION CORP., AS ISSUER AND SUNTRUST BANK, ATLANTA, AS TRUSTEE, PURSUANT TO
WHICH THIS NOTE WAS ISSUED.
(iv) The Exchange Global Note shall bear the following legend on the
face thereof:
26
<PAGE>
TRANSFER OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, AND NOT IN
PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE.
SECTION 2.02. Execution and Authentication. The Notes may be
----------------------------
issued in two series, a series of Initial Notes and a series of Exchange Notes.
The aggregate principal amount of Notes outstanding at any time shall not exceed
$100,000,000 except as provided in Section 2.07 hereof. The Notes shall be
executed on behalf of the Company by its Chief Executive Officer, President,
Chief Operating Officer, Treasurer or any Vice President, under its corporate
seal reproduced or imprinted on the Notes by facsimile or otherwise, and shall
be attested by the Company's Secretary or one of its Assistant Secretaries, in
each case by manual or facsimile signature.
The Notes shall be authenticated by manual signature of an authorized
signatory of the Trustee and shall not be valid for any purpose unless so
authenticated.
In case any officer of the Company whose signature shall have been
placed upon any of the Notes shall cease to be such officer of the Company
before authentication of such Notes by the Trustee and the issuance and delivery
thereof, such Notes may, nevertheless, be authenticated by the Trustee and
issued and delivered with the same force and effect as though such Person had
not ceased to be such officer of the Company.
The Trustee shall, upon receipt of a Company Order requesting such
action, authenticate (a) Initial Notes for original issue up to the aggregate
principal amount not to exceed $100,000,000 outstanding at any given time, or
(b) Exchange Notes for issue pursuant to a Registered Exchange Offer for Initial
Notes in a principal amount equal to the principal amount of Initial Notes
exchanged in such Registered Exchange Offer. Such Company Order shall specify
the amount of Notes to be authenticated and the date on which, in the case of
clause (a) above, the Initial Notes or, in the case of clause (b) above, the
Exchange Notes, are to be authenticated and shall further provide instructions
concerning registration, amounts for each Holder and delivery.
Upon the occurrence of any event specified in Section 2.06(c) hereof,
the Company shall execute and the Trustee shall authenticate and make available
for delivery to each beneficial owner identified by the Depositary, in exchange
for such beneficial owner's interest in the Initial Global Note or Exchange
Global Note, as the case may be, Initial Certificated Notes or Exchange
Certificated Notes, as the case may be, representing Notes theretofore
represented by the Initial Global Note or Exchange Global Note, as the case may
be.
A Note shall not be valid or entitled to any benefits under this
Indenture or obligatory for any purpose unless executed by the Company and
authenticated by the manual signature of one of the authorized signatories of
the Trustee as provided herein. Such signature upon any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered under this Indenture and is entitled to the benefits
of this Indenture.
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The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Notes. Unless limited by the terms of such
appointment, an authenticating agent may authenticate the Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. Any authenticating agent of the
Trustee shall have the same rights hereunder as any Registrar or Paying Agent.
Notwithstanding the foregoing, if any Note shall have been
authenticated and delivered hereunder but never issued and sold by the Company,
and the Company shall deliver such Note to the Trustee for cancellation as
provided in Section 2.10 together with a written statement (which need not
comply with Section 1.04 and need not be accompanied by an Opinion of Counsel)
stating that such Note has never been issued and sold by the Company, for all
purposes of this Indenture such Note shall be deemed never to have been
authenticated and delivered hereunder and shall not be entitled to the benefits
of this Indenture.
SECTION 2.03. Registrar and Paying Agent. The Company shall
--------------------------
maintain, pursuant to Section 4.02 hereof, an office or agency where the Notes
may be presented for registration of transfer or for exchange (the "Registrar"),
an office or agency where Notes may be presented for payment (the "Paying
Agent") and an office or agency where notices and demands to or upon the Company
in respect of the Notes and this Indenture may be served.
The Company shall cause to be kept at such office a register (the
"Note Register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Notes and of
transfers of Notes entitled to be registered or transferred as provided herein.
The Trustee, at its Corporate Trust Office, is initially appointed Registrar for
the purpose of registering Notes and transfers of Notes as herein provided. The
Company may, upon written notice to the Trustee, change the designation of the
Trustee as Registrar and appoint another Person to act as Registrar for purposes
of this Indenture. If any Person other than the Trustee acts as Registrar, the
Trustee shall have the right at any time, upon reasonable notice, to inspect or
examine the Note Register and to make such inquiries of the Registrar as the
Trustee shall in its discretion deem necessary or desirable in performing its
duties hereunder.
The Company shall enter into an appropriate agency agreement with any
Person designated by the Company as Registrar or Paying Agent that is not a
party to this Indenture, which agreement shall incorporate the provisions of the
Trust Indenture Act and shall implement the provisions of this Indenture that
relate to such Registrar or Paying Agent. Prior to the designation of any such
Person, the Company shall, by written notice (which notice shall include the
name and address of such Person), inform the Trustee of such designation. The
Company initially appoints the Trustee, at its Corporate Trust Office, as Paying
Agent and agent for service of demands and notices in connection with the Notes,
until such time as the Trustee has resigned or a successor has been appointed.
If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall
act as such.
Subject to Section 2.06 hereof, upon surrender for registration of
transfer of any Note at an office or agency of the Company designated for such
purpose, the Company shall execute, and the Trustee shall authenticate and make
available for delivery, in the name of the
28
<PAGE>
designated transferee or transferees, one or more new Initial Notes or Exchange
Notes, as the case may be, of any authorized denomination or denominations, of
like tenor and aggregate principal amount, all as requested by the transferor.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company, the Trustee or the Registrar)
be duly endorsed, or be accompanied by a duly executed instrument of transfer in
form satisfactory to the Company, the Trustee and the Registrar, by the Holder
thereof or such Holder's attorney duly authorized in writing.
SECTION 2.04. Paying Agent to Hold Money in Trust. Prior to
-----------------------------------
10:00 a.m. New York City time on each due date of the principal, premium, if
any, or any payment of interest or Additional Interest, if any, with respect to
any Note, the Company shall deposit with the Paying Agent a sum sufficient to
pay such principal, premium, if any, or interest or Additional Interest, if any,
when so becoming due.
The Company shall require each Paying Agent (other than the Trustee)
to agree in writing that such Paying Agent shall hold in trust for the benefit
of Holders or the Trustee all money held by such Paying Agent for the payment of
principal, premium, if any, or interest or Additional Interest, if any, with
respect to the Notes, shall notify the Trustee of any default by the Company in
making any such payment and at any time during the continuance of any such
default, upon the written request of the Trustee, shall forthwith pay to the
Trustee all sums held in trust by such Paying Agent.
The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed by such Paying
Agent. Upon complying with this Section 2.04, the Paying Agent shall have no
further liability for the money delivered to the Trustee.
SECTION 2.05 Global Notes. (a) So long as a Global Note is
------------
registered in the name of the Depositary or its nominee, members of, or
participants in, the Depositary ("Agent Members") shall have no rights under
this Indenture with respect to the Global Note held on their behalf by the
Depositary or the Trustee as its custodian, and the Depositary may be treated by
the Company, any Guarantor, the Trustee and any agent of the Company, any
Guarantor or the Trustee as the absolute owner of such Global Note for all
purposes. Notwithstanding the foregoing, nothing herein shall (i) prevent the
Company, any Guarantor, the Trustee or any agent of the Company, any Guarantor
or the Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or (ii) impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder.
(b) The Holder of a Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in such Global Note through Agent Members, to take any action which a
Holder is entitled to take under this Indenture or the Notes.
29
<PAGE>
(c) Whenever, as a result of an optional redemption of Notes by the
Company, a Change of Control Offer, an Asset Sale Offer, a Registered Exchange
Offer or an exchange for Certificated Notes pursuant to the provisions of
Section 2.06(b) or Section 2.06(c) hereof; a Global Note is redeemed,
repurchased or exchanged in part, such Global Note shall be surrendered by the
Holder thereof to the Trustee who shall cause an adjustment to be made to
Schedule A thereof so that the principal amount of such Global Note will be
equal to the portion of such Global Note not redeemed, repurchased or exchanged
and shall thereafter return such Global Note to such Holder, provided that each
--------
such Global Note shall be in a principal amount of $1,000 or an integral
multiple thereof.
SECTION 2.06. Transfer and Exchange. (a) By its acceptance of
---------------------
any Initial Note represented by a certificate bearing the Private Placement
Legend, each Holder of, and beneficial owner of an interest in, such Initial
Note acknowledges the restrictions on transfer of such Initial Note set forth in
the Private Placement Legend and agrees that it will transfer such Initial Note
only in accordance with the Private Placement Legend. Upon the registration of
transfer, exchange or replacement of an Initial Note not bearing the Private
Placement Legend, the Trustee shall deliver an Initial Note or Initial Notes
that does not or do not bear the Private Placement Legend. Upon the transfer,
exchange or replacement of an Initial Note bearing the Private Placement Legend,
the Trustee shall deliver an Initial Note or Initial Notes bearing the Private
Placement Legend, unless such legend may be removed from such Note as provided
in this Section 2.06(a). If the Private Placement Legend has been removed from
an Initial Note, as provided herein, no other Initial Note issued in exchange
for all or any part of such Initial Note shall bear such legend, unless the
Company has reasonable cause to believe that such other Initial Note represents
a "restricted security" within the meaning of Rule 144 and instructs the Trustee
in writing to cause a legend to appear thereon. Each Initial Note shall bear
the Private Placement Legend unless and until:
(i) a transfer of such Initial Note is made pursuant to an
effective Shelf Registration Statement, in which case the Private Placement
Legend shall be removed from such Initial Note so transferred at the
request of the Holder; or
(ii) there is delivered to the Company such satisfactory
evidence, which may include an opinion of independent counsel licensed to
practice law in the State of New York, as may reasonably be requested by
the Company confirming that neither such legend nor the restrictions on
transfer set forth therein are required to ensure that transfers of such
Initial Note will not violate the registration and prospectus delivery
requirements of the Securities Act; provided that the Trustee shall not be
--------
required to determine (but may rely on a determination made by the Company
with respect to) the sufficiency of any such evidence; and upon provision
of such evidence, the Trustee shall authenticate and deliver in exchange
for such Initial Note, an Initial Note or Initial Notes (representing the
same aggregate principal amount of the Initial Note being exchanged)
without such legend.
(b) Special Transfer Provisions. The following provisions of this
---------------------------
paragraph (b) are applicable only to Initial Notes bearing the Private Placement
Legend:
30
<PAGE>
(i) Transfers to QIBs. If the Holder of an Initial Certificated
-----------------
Note wishes to transfer such Initial Certificated Note to a QIB pursuant to
Rule 144A, such Holder may, subject to the rules and procedures of the
Depositary, cause the exchange of such Initial Certificated Note for an
equivalent beneficial interest in the Initial Global Note. Upon receipt by
the Trustee, as Registrar, at its Corporate Trust Office of (A) such
Initial Certificated Note, duly endorsed as provided herein, (B)
instructions from such Holder directing the Trustee, as Registrar, to
credit or cause to be credited a beneficial interest in the Initial Global
Note equal to the principal amount of the Initial Certificated Note to be
exchanged, such instructions to contain information regarding the
participant account with the Depositary to be credited with such increase
and (C) a certificate in the form of Exhibit E attached hereto from the
transferor, then the Trustee, as Registrar, shall cancel or cause to be
canceled such Initial Certificated Note and shall instruct the Depositary
to increase or cause to be increased such Initial Global Note by the
aggregate principal amount of the beneficial interest in the Initial
Certificated Note to be exchanged and to credit or cause to be credited to
the account of the Person specified in such instructions a beneficial
interest in the Initial Global Note equal to the principal amount of the
Initial Certificated Note so canceled;
(ii) Transfers to Institutional Accredited Investors and Exchange
------------------------------------------------------------
of Interests in Global Notes.
----------------------------
(A) If a Holder of a beneficial interest in the Initial Global
Note deposited with the Depositary or the Trustee as custodian for the
Depositary wishes at any time to transfer its interest in such Initial
Global Note to an Institutional Accredited Investor or to exchange
such interest for an Initial Certificated Note evidencing such
interest, such Holder may, subject to the rules and procedures of the
Depositary, cause the transfer or exchange of such interest for one or
more Initial Certificated Notes of any authorized denomination or
denominations and of the same aggregate principal amount. Upon
receipt by the Trustee, as Registrar, at its Corporate Trust Office of
(I) instructions from the Depositary directing the Trustee, as
Registrar, to authenticate and deliver one or more Initial
Certificated Notes of the same aggregate principal amount as the
beneficial interest in the Initial Global Note to be transferred or
exchanged, such instructions to contain the name or names of the
designated transferee or transferees, if any, the authorized
denomination or denominations of the Initial Certificated Notes to be
so issued and appropriate delivery instructions and (II) in the case
of a transfer, (x) a certificate in the form of Exhibit F attached
hereto from the transferor, (y) a certificate in the form of Exhibit G
attached hereto from the transferee and (z) such other certifications,
legal opinions or other information as the Company or the Trustee may
reasonably require to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, then the Trustee, as
Registrar, will instruct the Depositary to reduce or cause to be
reduced such Initial Global Note by the aggregate principal amount of
the beneficial interest therein to be exchanged or transferred and to
debit or cause to be debited from the account of the Person making
such exchange or transfer the beneficial interest in the Initial
Global Note
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<PAGE>
that is being exchanged or transferred, and concurrently with such
reduction and debit the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Initial Certificated Notes of
the same aggregate principal amount in accordance with the
instructions referred to above; and
(B) if a Holder of an Initial Certificated Note wishes to
transfer such Note to an Institutional Accredited Investor, such
Holder may, subject to the restrictions on transfer set forth herein
and in such Initial Certificated Note, cause the exchange of such
Initial Certificated Note for one or more Initial Certificated Notes
of any authorized denomination or denominations and of the same
aggregate principal amount. Upon receipt by the Trustee, as
Registrar, at its Corporate Trust Office of (I) such Initial
Certificated Note, duly endorsed as provided herein, (II) instructions
from such Holder directing the Trustee, as Registrar, to authenticate
and deliver one or more Initial Certificated Notes of the same
aggregate principal amount as the Initial Certificated Notes to be
exchanged, such instructions to contain the name or names of the
designated transferee or transferees, the authorized denomination or
denominations of the Initial Certificated Notes to be so issued and
appropriate delivery instructions, (III) a certificate in the form of
Exhibit F attached hereto from the transferor, (IV) a certificate in
the form of Exhibit G attached hereto from the transferee and (V) such
other certifications, legal opinions or other information as the
Company or the Trustee may reasonably require to confirm that such
transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the
Securities Act, then the Trustee, as Registrar, shall cancel or cause
to be canceled such Initial Certificated Note and concurrently
therewith, the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Initial Certificated Notes of
the same aggregate principal amount, in accordance with the
instructions referred to above;
(iii) Transfers to Non-U.S. Persons. (A) If a Holder of a
-----------------------------
beneficial interest in the Initial Global Note deposited with the
Depositary or the Trustee as custodian for the Depositary wishes at
any time to transfer its interest in such Initial Global Note to a
Non-U.S. Person pursuant to Regulation S who wishes to take delivery
thereof in the form of a Certificated Note, such Holder may, subject
to the rules and procedures of the Depositary, cause the exchange of
such interest for one or more Initial Certificated Notes of any
authorized denomination or denominations and of the same aggregate
principal amount. Upon receipt by the Trustee, as Registrar, at its
Corporate Trust Office of (I) instructions from the Depositary
directing the Trustee, as Registrar, to authenticate and deliver one
or more Initial Certificated Notes of the same aggregate principal
amount as the beneficial interest in the Initial Global Note to be
exchanged, such instructions to contain the name or names of the
designated transferee or transferees, the authorized denomination or
denominations of the Initial Certificated Notes to be so issued and
appropriate delivery instructions, (II) a certificate in the form of
Exhibit H attached hereto from the transferor, (III) a certificate in
the form of Exhibit I attached hereto from the transferee and (IV)
such other certifications,
32
<PAGE>
legal opinions or other information as the Company or the Trustee may
reasonably require to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, then the Trustee, as
Registrar, will instruct the Depositary to reduce or cause to be
reduced such Initial Global Note by the aggregate principal amount of
the beneficial interest therein to be exchanged and to debit or cause
to be debited from the account of the Person making such transfer the
beneficial interest in the Initial Global Note that is being
transferred, and concurrently with such reduction and debit the
Company shall execute, and the Trustee shall authenticate and deliver,
one or more Initial Certificated Notes of the same aggregate principal
amount in accordance with the instructions referred to above; and
(B) if a Holder of an Initial Certificated Note wishes to
transfer such Note to a Non-U.S. Person pursuant to Regulation S who
wishes to take delivery thereof in the form of a Certificated Note,
such Holder may, subject to the restrictions on transfer set forth
herein and in such Initial Certificated Note, cause the exchange of
such Initial Certificated Note for one or more Initial Certificated
Notes of any authorized denomination or denominations and of the same
aggregate principal amount. Upon receipt by the Trustee, as
Registrar, at its Corporate Trust Office of (I) such Initial
Certificated Note, duly endorsed as provided herein, (II) instructions
from such Holder directing the Trustee, as Registrar, to authenticate
and deliver one or more Initial Certificated Notes of the same
aggregate principal amount as the Initial Certificated Notes to be
exchanged, such instructions to contain the name or names of the
designated transferee or transferees, the authorized denomination or
denominations of the Initial Certificated Notes to be so issued and
appropriate delivery instructions, (III) a certificate in the form of
Exhibit H attached hereto from the transferor, (IV) a certificate in
the form of Exhibit I attached hereto from the transferee and (V) such
other certifications, legal opinions or other information as the
Company or the Trustee may reasonably require to confirm that such
transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the
Securities Act, then the Trustee, as Registrar, shall cancel or cause
to be canceled such Initial Certificated Note and concurrently
therewith, the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Initial Certificated Notes of
the same aggregate principal amount, in accordance with the
instructions referred to above;
(iv) Transfers Pursuant to Other Exemptions. (A) If a Holder of
--------------------------------------
a beneficial interest in the Initial Global Note deposited with the
Depositary or the Trustee as custodian for the Depositary wishes at
any time to transfer its interest in such Initial Global Note pursuant
to another applicable exemption from the registration requirements of
the Securities Act, such Holder may, subject to the rules and
procedures of the Depositary, cause the exchange of such interest for
one or more Initial Certificated Notes of any authorized denomination
or denominations and of the same aggregate principal amount. Upon
receipt by the Trustee, as Registrar, at its Corporate Trust Office of
(I) instructions from the
33
<PAGE>
Depositary directing the Trustee, as Registrar, to authenticate and
deliver one or more Initial Certificated Notes of the same aggregate
principal amount as the beneficial interest in the Initial Global Note
to be exchanged, such instructions to contain the name or names of the
designated transferee or transferees, the authorized denomination or
denominations of the Initial Certificated Notes to be so issued and
appropriate delivery instructions and (II) such certifications, legal
opinions or other information as the Company or the Trustee may
reasonably require to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, then the Trustee, as
Registrar, will instruct the Depositary to reduce or cause to be
reduced such Initial Global Note by the aggregate principal amount of
the beneficial interest therein to be exchanged and to debit or cause
to be debited from the account of the Person making such transfer the
beneficial interest in the Initial Global Note that is being
transferred, and concurrently with such reduction and debit the
Company shall execute, and the Trustee shall authenticate and deliver,
one or more Initial Certificated Notes of the same aggregate principal
amount in accordance with the instructions referred to above; and
(B) if a Holder of an Initial Certificated Note wishes to
transfer such Initial Certificated Note pursuant to another applicable
exemption from the registration requirements of the Securities Act,
such Holder may, subject to the restrictions on transfer set forth
herein and in such Initial Certificated Note, cause the exchange of
such Initial Certificated Note for one or more Initial Certificated
Notes of any authorized denomination or denominations and of the same
aggregate principal amount. Upon receipt by the Trustee, as
Registrar, at its Corporate Trust Office of (I) such Initial
Certificated Note, duly endorsed as provided herein, (II) instructions
from such Holder directing the Trustee, as Registrar, to authenticate
and deliver one or more Initial Certificated Notes of the same
aggregate principal amount as the Initial Certificated Notes to be
exchanged, such instructions to contain the name or names of the
designated transferee or transferees, the authorized denomination or
denominations of the Initial Certificated Notes to be so issued and
appropriate delivery instructions and (III) such certifications, legal
opinions or other information as the Company or the Trustee may
reasonably require to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, then the Trustee, as
Registrar, shall cancel or cause to be canceled such Initial
Certificated Note and concurrently therewith, the Company shall
execute, and the Trustee shall authenticate and deliver, one or more
Initial Certificated Notes of the same aggregate principal amount, in
accordance with the instructions referred to above.
The Company shall deliver to the Trustee, and the Trustee shall retain for two
years, copies of all documents received pursuant to this Section 2.06(b). The
Company shall have the right to inspect and make copies of all such documents at
any reasonable time upon the giving of reasonable written notice to the Trustee.
34
<PAGE>
(c) The Initial Global Note or Exchange Global Note, as the case may
be, shall be exchanged by the Company for one or more Initial Certificated Notes
or Exchange Certificated Notes, as the case may be, if (i) the Depositary has
notified the Company that it is unwilling or unable to continue as, or ceases to
be, a clearing agency registered under Section 17A of the Exchange Act and a
successor to the Depositary registered as a clearing agency under Section 17A of
the Exchange Act is not able to be appointed by the Company within 90 calendar
days, or (ii) the Depositary is at any time unwilling or unable to continue as
Depositary and a successor to the Depositary is not able to be appointed by the
Company within 90 calendar days, or (iii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in the form
of Certificated Notes. If an Event of Default occurs and is continuing, the
Company shall, at the request of the Holder thereof, exchange all or part of the
Initial Global Note or Exchange Global Note, as the case may be, for one or more
Initial Certificated Notes or Exchange Certificated Notes, as the case may be;
provided that the principal amount of each of such Initial Certificated Notes or
- --------
Exchange Certificated Notes, as the case may be, and such Global Note, after
such exchange, shall be $1,000 or an integral multiple thereof. Whenever a
Global Note is exchanged as a whole for one or more Initial Certificated Notes
or Exchange Certificated Notes, as the case may be, it shall be surrendered by
the Holder thereof to the Trustee for cancellation. Whenever a Global Note is
exchanged in part for one or more Initial Certificated Notes or Exchange
Certificated Notes, as the case may be, it shall be surrendered by the Holder
thereof to the Trustee and the Trustee shall make the appropriate notations
thereon pursuant to Section 2.05(c) hereof. All Initial Certificated Notes or
Exchange Certificated Notes, as the case may be, issued in exchange for a Global
Note or any portion thereof shall be registered in such names, and delivered, as
the Depositary shall instruct the Trustee. Any Initial Certificated Notes
issued pursuant to this Section 2.06(c) shall include the Private Placement
Legend, except as set forth in Section 2.06(a) hereof.
(d) Any Initial Notes that are presented to the Registrar for exchange
pursuant to a Registered Exchange Offer shall be exchanged for Exchange Notes of
equal principal amount upon surrender to the Registrar of the Initial Notes to
be exchanged in accordance with the terms of the Registered Exchange Offer;
provided that the Initial Notes so surrendered for exchange are accompanied by a
- --------
letter of transmittal and duly endorsed or accompanied by a written instrument
of transfer in form satisfactory to the Company, the Trustee and the Registrar
and duly executed by the Holder thereof or such Holder's attorney who shall be
duly authorized in writing to execute such document on behalf of such Holder.
Whenever any Initial Notes are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver to the surrendering
Holder thereof, Exchange Notes in the same aggregate principal amount as the
Initial Notes so surrendered.
(e) A Holder may transfer a Note only upon the surrender of such Note
for registration of transfer. No such transfer shall be effected until, and the
transferee shall succeed to the rights of a Holder only upon, final acceptance
and registration of the transfer in the Note Register by the Registrar. When
Notes are presented to the Registrar with a request to register the transfer of,
or to exchange, such Notes, the Registrar shall register the transfer or make
such exchange as requested if the requirements for such transactions and any
applicable requirements hereunder are satisfied. To permit registrations of
transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Certificated Notes at the Registrar's request.
35
<PAGE>
(f) The Company shall not be required to make and the Registrar need
not register the transfer or exchange of Certificated Notes or portion thereof
selected for redemption (except, in the case of a Certificated Note to be
redeemed in part, the portion of such Note not to be redeemed) for a period of
15 calendar days before a selection of Notes to be redeemed.
(g) No service charge shall be made for any registration of transfer
or exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes (other than in respect of
a Registered Exchange Offer, except as provided in the Registration Rights
Agreement).
(h) All Notes issued upon any registration of transfer or exchange
pursuant to the terms of this Indenture will evidence the same debt and will be
entitled to the same benefits under this Indenture as the Notes surrendered for
such registration of transfer or exchange.
(i) Any Holder of a Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Note may be
effected only through a book-entry system maintained by such Holder (or its
agent), and that ownership of a beneficial interest in the Notes represented
thereby shall be required to be reflected in book-entry form. Transfers of a
Global Note shall be limited to transfers in whole and not in part, to the
Depositary, its successors, and their respective nominees. Interests of
beneficial owners in a Global Note shall be transferred in accordance with the
rules and procedures of the Depositary (or its successors), which shall, in the
case of the Initial Global Note, include restrictions designed to ensure that
the beneficial owners of such Initial Global Note are QIBs.
SECTION 2.07. Replacement Notes. If any mutilated Note is
-----------------
surrendered to the Trustee, the Company shall execute and upon its written
request the Trustee shall authenticate and make available for delivery, in
exchange for any such mutilated Note, a new Note containing identical provisions
and of like principal amount, bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Note and
(ii) such security or indemnity as may be required by either of them to save
either of them and any agent of each of them harmless, then, in the absence of
notice to the Company or the Trustee that such Note has been acquired by a bona
fide purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and make available for delivery, in lieu of any such destroyed,
lost or stolen Note, a new Note containing identical provisions and of like
principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section 2.07, the Company
may require the payment by the Holder of a sum sufficient to cover any tax or
other governmental
36
<PAGE>
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section 2.07 in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section 2.07 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.08. Outstanding Notes. Notes outstanding at any time
-----------------
are all Notes authenticated by the Trustee except for those canceled by it,
those delivered to it for cancellation, those paid pursuant to Section 2.07
hereof and those described in this Section 2.08 as not outstanding. A Note does
not cease to be outstanding because the Company or an Affiliate of the Company
holds such Note.
If a Note is replaced pursuant to Section 2.07 hereof; it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that such replaced Note is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or Maturity date money sufficient to pay
all principal, premium, if any, and interest and Additional Interest, if any,
payable on that date with respect to the Notes (or portions thereof) to be
redeemed or maturing, as the case may be, then on and after that date such Notes
(or such portions thereof) shall cease to be outstanding and interest on them
shall cease to accrue.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent or any amendment,
modification or other change to this Indenture, Notes held or beneficially owned
by the Company, any Subsidiary of the Company or any of their respective
Affiliates or by agents of any of the foregoing shall be disregarded, except
that for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent or any amendment, modification
or other change to this Indenture, only Notes which a Trust Officer actually
knows are so owned shall be so disregarded. Notes so owned which have been
pledged in good faith shall not be disregarded if the pledgee establishes to the
satisfaction of the Trustee such pledgee's right so to act with respect to the
Notes and that the pledgee is not the Company, any Subsidiary of the Company or
any of their respective Affiliates or any of their agents.
SECTION 2.09. Temporary Notes. Pending the preparation of
---------------
definitive Notes, the Company may execute, and the Trustee shall authenticate,
temporary notes ("Temporary Notes") which are printed, lithographed, or
otherwise produced, substantially of the tenor of the definitive Notes in lieu
of which they are issued and with such appropriate insertions, omissions,
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substitutions and other variations as the officer executing the Notes may
reasonably determine, as conclusively evidenced by such officer's execution of
such Notes.
If Temporary Notes are issued, the Company shall cause definitive
Notes to be prepared without unreasonable delay. After the preparation of
definitive Notes, the Temporary Notes shall be exchangeable for definitive Notes
upon surrender of the Temporary Notes to the Trustee, without charge to the
Holder. Until so exchanged, Temporary Notes will evidence the same debt and
will be entitled to the same benefits under this Indenture as the definitive
Notes in lieu of which they have been issued.
SECTION 2.10. Cancellation. The Company at any time may deliver
------------
Notes to the Trustee for prompt cancellation. The Registrar and the Paying
Agent shall forward to the Trustee any Notes surrendered to them for
registration of transfer, exchange, purchase or payment. The Trustee shall
cancel all Notes surrendered for registration of transfer, exchange, purchase,
payment or cancellation and shall return such canceled Notes to the Company.
The Company may not issue new Notes to replace Notes it has redeemed or paid or
that have been delivered to the Trustee for cancellation.
SECTION 2.11. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Note which is payable, and is punctually paid or duly provided
for, on any Interest Payment Date shall be paid to the Person in whose name such
Note is registered at the close of business on the Record Date for such interest
payment, which shall be the March 15 or September 15 (whether or not a Business
Day) immediately preceding such Interest Payment Date.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the registered Holder on the
relevant Record Date, and, except as hereinafter provided, such Defaulted
Interest, and any interest payable on such Defaulted Interest, may be paid by
the Company, at its election, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest,
and any interest payable on such Defaulted Interest, to the Persons in whose
names the Notes are registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the amount
of Defaulted Interest proposed to be paid on the Notes and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as provided in this Section 2.11(a). Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 calendar days and not less than 10
calendar days prior to the date of the proposed payment and not less than 10
calendar days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be sent, first-class mail,
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postage prepaid, to each Holder at such Holder's address as it appears in the
Note Register, not less than 10 calendar days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor having been mailed as aforesaid, such Defaulted Interest shall be
paid to the Persons in whose names the Notes are registered at the close of
business on such Special Record Date and shall no longer be payable pursuant to
the following clause (b); or
(b) The Company may make payment of any Defaulted Interest, and any
interest payable on such Defaulted Interest, on the Notes in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, if, after notice given by the Company to the Trustee of the proposed
payment pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section 2.11, each Note
delivered under this Indenture upon registration of transfer of, or in exchange
for, or in lieu of, any other Note, shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Note.
SECTION 2.12. Computation of Interest. Interest on the Notes
-----------------------
shall be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 2.13. Persons Deemed Owners. Prior to the due
---------------------
presentation for registration of transfer of any Note, the Company, the Trustee,
the Paying Agent, the Registrar or any co-registrar may deem and treat the
person in whose name such Note is registered as the absolute owner of such Note
for the purpose of receiving payment of principal of, premium, if any, and
interest and Additional Interest, if any, on such Note and for all other
purposes whatsoever, whether or not such Note is overdue, and none of the
Company, the Trustee, the Paying Agent, the Registrar or any co-Registrar shall
be affected by notice to the contrary.
SECTION 2.14. CUSIP Numbers. The Company, in issuing the Notes,
-------------
may use a "CUSIP" number for each series of Notes and, if so, the Trustee shall
use the relevant CUSIP number in any notices to Holders as a convenience to such
Holders; provided that any such notice may state that no representation is made
--------
as to the correctness or accuracy of the CUSIP number printed in the notice or
on the Notes and that reliance may be placed only on the other identification
numbers printed on the Notes. The Company shall promptly notify the Trustee of
any change in any CUSIP number used.
ARTICLE III
REDEMPTION
SECTION 3.01. Notice to Trustee. If the Company elects to redeem
-----------------
Notes pursuant to the optional redemption provisions thereof it shall notify the
Trustee in writing of the Redemption Date and the principal amount of Notes to
be redeemed. The Company shall give each such notice to the Trustee at least 45
calendar days prior to the Redemption Date unless the
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Trustee consents to a shorter period. Such notice shall be accompanied by an
Officers' Certificate and an Opinion of Counsel from the Company to the effect
that such redemption will comply with any conditions to such redemption set
forth herein and in the Notes.
SECTION 3.02. Selection of Notes to be Redeemed. If less than
---------------------------------
all the Notes are to be redeemed at any time, the Trustee shall select the Notes
to be redeemed on a pro rata basis; provided that no Notes of $1,000 or less
--- ---- --------
shall be redeemed in part. In selecting Notes to be redeemed pursuant to this
Section 3.02, the Trustee shall make such adjustments, reallocations and
eliminations as it shall deem proper so that the principal amount of each Note
to be redeemed shall be $1,000 or an integral multiple thereof, by increasing,
decreasing or eliminating any amount less than $1,000 which would be allocable
to any Holder. Provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption. The Trustee
shall notify the Company promptly of the Notes or portions of Notes to be
redeemed.
SECTION 3.03. Notice of Redemption. At least 30 calendar days
--------------------
but not more than 60 calendar days before a Redemption Date, the Company shall
send or cause to be sent a notice of redemption, by first class mail, postage
prepaid, to Holders of Notes to be redeemed at the addresses of such Holders as
they appear in the Note Register.
The notice shall identify the Notes to be redeemed (including CUSIP
number) and shall state:
(a) the Redemption Date;
(b) the Redemption Price (and shall specify the portion of such
Redemption Price that constitutes the amount of accrued and unpaid interest and
Additional Interest to be paid, if any);
(c) the name and address of the Paying Agent;
(d) that the Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(e) if any Global Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the Redemption
Date, the Global Note, with a notation on Schedule A thereof adjusting the
principal amount thereof to be equal to the unredeemed portion, will be returned
to the Holder thereof;
(f) if any Certificated Note is being redeemed in part, the portion
of the principal amount of such Note to be redeemed and that, after the
Redemption Date, a new Certificated Note or Certificated Notes in principal
amount equal to the unredeemed portion will be issued;
(g) if fewer than all the outstanding Notes are to be redeemed, the
identification and principal amounts of the particular Notes to be redeemed;
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(h) that, unless the Company defaults in making the redemption
payment, interest on the Notes (or portions thereof) called for redemption shall
cease and such Notes (or portions thereof) shall cease to accrue interest on and
after the Redemption Date;
(i) the paragraph of the Notes pursuant to which the Notes are being
called for redemption; and
(j) any other information necessary to enable Holders to comply with
the notice of redemption.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section 3.03 in a timely manner and in no event less than 37 calendar days prior
to the Redemption Date.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
------------------------------
redemption is mailed, Notes called for redemption shall become due and payable
on the Redemption Date and at the Redemption Price stated in such notice. Upon
surrender to the Paying Agent, such Notes shall be paid at the Redemption Price
stated in such notice. Failure to give notice or any defect in the notice to
any Holder shall not affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. On or prior to 10:00
---------------------------
a.m., New York City time, on each Redemption Date, the Company shall deposit
with the Paying Agent (or, if the Company, one of its Subsidiaries or any of
their Affiliates is the Paying Agent, the Paying Agent shall segregate and hold
in trust for the benefit of the Holders) money, in federal or other immediately
available funds, sufficient to pay the Redemption Price on all Notes or portions
thereof to be redeemed on that date other than Notes or portions of Notes called
for redemption on such date which have been delivered by the Company to the
Trustee for cancellation.
So long as the Company complies with the preceding paragraph and the
other provisions of this Article III, interest on the Notes or portions thereof
to be redeemed on the applicable Redemption Date shall cease to accrue from and
after such date and such Notes or portions thereof shall be deemed not to be
entitled to any benefit under this Indenture except to receive payment of the
Redemption Price on the Redemption Date (subject to the right of each Holder of
record on the relevant Record Date to receive interest due on the relevant
Interest Payment Date). If any Note called for redemption shall not be so paid
upon surrender for redemption, then, from the Redemption Date until such
Redemption Price is paid, interest shall be paid on the unpaid principal and
premium and, to the extent permitted by law, on any accrued but unpaid interest
thereon, in each case at the rate prescribed therefor by such Notes.
SECTION 3.06. Notes Redeemed in Part. (a) Upon surrender and
----------------------
cancellation of a Certificated Note that is redeemed in part, the Company shall
issue and the Trustee shall authenticate and make available for delivery to the
surrendering Holder (at the Company's expense) a new Certificated Note equal in
principal amount to the unredeemed portion of the Certificated Note surrendered
and canceled, provided that each such Certificated Note shall be in a principal
-------- ----
amount of $1,000 or an integral multiple thereof.
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(b) Upon surrender of a Global Note that is redeemed in part, the
Paying Agent shall forward such Global Note to the Trustee who shall make a
notation on Schedule A thereof to reduce the principal amount of such Global
Note to an amount equal to the unredeemed portion of such Global Note, as
provided in Section 2.05(c) hereof.
ARTICLE IV
COVENANTS
SECTION 4.01. Payment of Notes. The Company shall promptly pay
----------------
the principal of, premium, if any, and interest and Additional Interest, if any,
on the Notes on the dates and in the manner provided in the Notes and in this
Indenture. Principal, premium, interest and overdue Additional Interest shall
be considered paid on the date due if, on such date, the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal, premium, interest and Additional Interest then due.
To the extent lawful, the Company shall pay interest on overdue
principal, overdue premium, Defaulted Interest and Additional Interest (without
regard to any applicable grace period) at the interest rate borne on the Notes.
The Company's obligation pursuant to the previous sentence shall apply whether
such overdue amount is due at its Stated Maturity, as a result of the Company's
obligations pursuant to Sections 3.05, Section 4.07 or Section 4.08 hereof, or
otherwise.
All payments with respect to a Global Note or a Certificated Note
(including principal, premium, if any, interest and Additional Interest, if any)
the Holders of whom have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
account or (in the case of a Global Note) accounts specified by the Holders
thereof or, if no such account is specified, by sending via first-class mail,
postage prepaid, a check to each such Holder's registered address.
SECTION 4.02. Maintenance of Office or Agency. The Company shall
-------------------------------
maintain in the Borough of Manhattan, The City of New York, an office or agency
where Notes may be presented or surrendered for payment, where Notes may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served, which office shall be initially the Corporate Trust Office. The Company
shall give prompt written notice to the Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall
fail to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee, and
the Company hereby appoints the Trustee its agent to receive all presentations,
surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes may
be presented or surrendered for any or all of such purposes, and may from time
to time rescind such designations; provided that no such designation or
--------
rescission shall in any manner relieve the Company of its
42
<PAGE>
obligation to maintain an office or agency in The City of New York for such
purposes. The Company shall give prompt written notice to the Trustee of any
such designation and any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03 hereof.
SECTION 4.03. Money for the Note Payments to be Held in Trust.
-----------------------------------------------
If the Company, any Subsidiary of the Company or any of their respective
Affiliates shall at any time act as Paying Agent with respect to the Notes, such
Paying Agent shall, on or before each due date of the principal of, premium, if
any, or interest or Additional Interest, if any, on any of the Notes, segregate
and hold in trust for the benefit of the Persons entitled thereto money
sufficient to pay the principal, premium, if any, or interest or Additional
Interest, if any, so becoming due until such money shall be paid to such Persons
or otherwise disposed of as herein provided, and shall promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents with respect
to the Notes, it shall, prior to 10:00 a.m. New York City time on each due date
of the principal of, premium, if any, or interest or Additional Interest, if
any, on any of the Notes, deposit with a Paying Agent a sum sufficient to pay
the principal, premium, if any, or interest or Additional Interest, if any, so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest or Additional Interest, if any,
and (unless such Paying Agent is the Trustee) the Paying Agent shall promptly
notify the Trustee of the Company's action or failure so to act.
SECTION 4.04. Corporate Existence. Subject to the provisions of
-------------------
Article V hereof, the Company shall do or cause to be done all things necessary
to preserve and keep in full force and effect the corporate existence, rights
(charter and statutory) and franchises of the Company and each of its
Subsidiaries; provided that the Company and any such Subsidiary shall not be
--------
required to preserve the corporate existence of any such Subsidiary or any such
right or franchise if the Board shall determine that the preservation thereof is
no longer desirable in the conduct of the business of the Company and that the
loss thereof is not disadvantageous in any material respect to the Holders.
SECTION 4.05. Maintenance of Property. The Company shall cause
-----------------------
all Property used or useful in the conduct of its business or the business of
any of its Subsidiaries to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment and shall cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as, in the judgment of the Company, may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided that nothing in this Section 4.05 shall prevent
--------
the Company from discontinuing the operation or maintenance of any of such
Property if such discontinuance is, in the judgment of the Company, desirable in
the conduct of its business or the business of any of its Subsidiaries and not
disadvantageous in any material respect to the Holders.
43
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SECTION 4.06. Payment of Taxes and Other Claims. The Company
---------------------------------
shall pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (a) all taxes, assessments and governmental charges levied or
imposed upon the Company or any of its Subsidiaries or upon the income, profits
or Property of the Company or any of its Subsidiaries and (b) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a Lien
upon the Property of the Company or any of its Subsidiaries; provided that the
--------
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP or other appropriate provision
has been made.
SECTION 4.07. Repurchase at the Option of Holders upon a Change of
----------------------------------------------------
Control. (a) Upon the occurrence of a Change of Control, each Holder shall
- -------
have the right to require the Company to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described in Section 4.07(b) hereof (the "Change of Control Offer") at an
offer price (the "Change of Control Purchase Price") in cash equal to 101% of
the principal amount of such Notes (or portions thereof) to be redeemed plus
accrued and unpaid interest and Additional Interest, if any, thereon to the date
of purchase (the "Change of Control Payment Date") (subject to the right of each
Holder of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date).
(b) Within 30 calendar days after the date of any Change of Control,
the Company, or the Trustee at the request and expense of the Company, shall
send to each Holder by first class mail, postage prepaid, a notice prepared by
the Company describing the transaction or transactions that constitute the
Change of Control and stating:
(i) that a Change of Control has occurred and a Change of Control
Offer is being made pursuant to this Section 4.07, and that all Notes that
are timely tendered will be accepted for payment;
(ii) the Change of Control Purchase Price, and the Change of Control
Payment Date, which date shall be a Business Day no earlier than 30
calendar days nor later than 60 calendar days subsequent to the date such
notice is mailed;
(iii) that any Notes or portions thereof not tendered or accepted for
payment will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the Change
of Control Purchase Price with respect thereto, all Notes or portions
thereof accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest from and after the Change of Control Payment Date;
(v) that any Holder electing to have any Notes or portions thereof
purchased pursuant to a Change of Control Offer will be required to tender
such Notes, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of such Notes
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completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the third Business Day preceding the Change of
Control Payment Date;
(vi) that any Holder shall be entitled to withdraw such election if
the Paying Agent receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment Date, a
facsimile transmission or letter, setting forth the name of the Holder, the
principal amount of Notes delivered for purchase, and a statement that such
Holder is withdrawing such Holder's election to have such Notes or portions
thereof purchased pursuant to the Change of Control Offer;
(vii) that any Holder electing to have Notes purchased pursuant to
the Change of Control Offer must specify the principal amount that is being
tendered for purchase, which principal amount must be $1,000 or an integral
multiple thereof;
(viii) if Certificated Notes have been issued, that any Holder of
Certificated Notes whose Certificated Notes are being purchased only in
part will be issued new Certificated Notes equal in principal amount to the
unpurchased portion of the Certificated Note or Notes surrendered, which
unpurchased portion will be equal in principal amount to $1,000 or an
integral multiple thereof;
(ix) that the Trustee will return to the Holder of a Global Note
that is being purchased in part, such Global Note with a notation on
Schedule A thereof adjusting the principal amount thereof to be equal to
the unpurchased portion of such Global Note; and
(x) any other information necessary to enable any Holder to tender
Notes and to have such Notes purchased pursuant to this Section 4.07.
If the Company requests that the Trustee provide such notice, the
Company shall provide the Trustee with the information required by this Section
4.07(b) in a timely manner and in no event more than 23 calendar days after the
date of such Change of Control.
(c) On the Change of Control Payment Date, the Company shall, (i)
accept for payment all Notes or portions thereof properly tendered pursuant to
the Change of Control Offer, (ii) irrevocably deposit with the Paying Agent, by
10:00 a.m., New York City time, on such date, in immediately available funds, an
amount equal to the Change of Control Purchase Price in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so tendered together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. Subject to the provisions of Section 4.01 hereof, the Paying Agent
shall promptly send by first class mail, postage prepaid, to each Holder of
Notes so accepted for payment the Change of Control Purchase Price for such
Notes or portions thereof. The Company shall publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date. For purposes of this Section 4.07, the Trustee shall act
as the Paying Agent.
(d) Upon surrender and cancellation of a Certificated Note that is
purchased in part pursuant to the Change of Control Offer, the Company shall
promptly issue and the Trustee
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shall authenticate and deliver to the surrendering Holder of such Certificated
Note a new Certificated Note equal in principal amount to the unpurchased
portion of such surrendered Certificated Note; provided that each such new
--------
Certificated Note shall be in a principal amount of $1,000 or an integral
multiple thereof.
Upon surrender of a Global Note that is purchased in part pursuant to
a Change of Control Offer, the Paying Agent shall forward such Global Note to
the Trustee who shall make a notation on Schedule A thereof to reduce the
principal amount of such Global Note to an amount equal to the unpurchased
portion of such Global Note, as provided in Section 2.05(c) hereof.
(e) The Company shall comply with the requirements of Section 14(e)
of, and Rule 14e-1 under, the Exchange Act and any other securities laws or
regulations to the extent such laws and regulations are applicable in connection
with the purchase of Notes pursuant to a Change of Control Offer.
SECTION 4.08. Limitation on Asset Sales. (a) The Company shall
-------------------------
not, and shall not permit any of its Subsidiaries to, directly or indirectly,
engage in an Asset Sale (except an Exempt Asset Sale) unless:
(i) the Company (or such Subsidiary) receives consideration at the
time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of, and in the case of a lease of assets,
a lease providing for rent and other conditions which are no less favorable
to the Company (or such Subsidiary) in any material respect than the then
prevailing market conditions (as determined in each case by the Board,
whose determination shall be conclusive if made in good faith and evidenced
by a Board Resolution set forth in an Officers' Certificate delivered to
the Trustee); and
(ii) at least 85% (100% in the case of lease payments) of the
consideration therefor received by the Company or such Subsidiary is in the
form of cash or Cash Equivalents.
(b) The Company may apply, and may permit its Subsidiaries to apply,
Net Proceeds of an Asset Sale (other than an Exempt Asset Sale), at its option,
in each case within 180 days after the consummation of such an Asset Sale:
(i) to permanently reduce Senior Indebtedness (and to
permanently reduce the commitments, if any, with respect thereto);
(ii) to acquire Eligible Assets or to reimburse the Company or
its Subsidiaries for expenditures previously made to acquire Eligible
Assets, provided that any such expenditures were made not more than 180
--------
days prior to the consummation of such Asset Sale and were made in
contemplation of such Asset Sale and for the purpose of replacing the
assets to be disposed of in such Asset Sale; or
(iii) to reimburse the Company or its Subsidiaries for
expenditures made, and costs incurred, to repair, rebuild, replace or
restore property subject to loss,
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damage or taking to the extent that the Net Proceeds consist of insurance
proceeds received on account of such loss, damage or taking.
Pending the final application of any such Net Proceeds, the Company may invest
such Net Proceeds temporarily in Cash Equivalents or apply such Net Proceeds to
reduce amounts outstanding under the Credit Agreement.
(c) Any Net Proceeds from Asset Sales (other than Exempt Asset Sales)
that are not applied as provided in paragraph (b) of this Section 4.08 within
180 days after the consummation of such an Asset Sale will be deemed to
constitute "Excess Proceeds."
(d) When the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company will be required to make an offer to all Holders (an "Asset
Sale Offer"), to purchase, on a pro rata basis, the principal amount of Notes
equal in amount to the Excess Proceeds (and not just the amount thereof that
exceeds $5.0 million) (the "Asset Sale Offer Amount"), at a purchase price in
cash in an amount equal to 100% of the principal amount thereof plus accrued and
unpaid interest and Additional Interest thereon to the date of purchase (subject
to the right of each Holder of record on the relevant Record Date to receive
interest due on the relevant Interest Payment Date), in accordance with the
procedures set forth in this Indenture, and in accordance with the following
standards:
(i) If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased on a pro rata basis, based on the principal amount of
--------
Notes tendered, with such adjustments as may be deemed appropriate by the
Trustee, so that only Notes in denominations of $1,000 or integral
multiples thereof shall be purchased.
(ii) If the aggregate principal amount of Notes tendered pursuant to
such Asset Sale Offer is less than the Excess Proceeds, the Company may use
any remaining Excess Proceeds following the completion of the Asset Sale
Offer for general corporate purposes (subject to the other provisions of
this Indenture).
Upon completion of an Asset Sale Offer, the amount of Excess Proceeds then
required to be otherwise applied in accordance with this covenant shall be reset
to zero, subject to any subsequent Asset Sale.
(e) Within 30 calendar days after the date the amount of Excess
Proceeds exceeds $5.0 million, the Company, or the Trustee at the request and
expense of the Company, shall send to each Holder by first-class mail, postage
prepaid, a notice prepared by the Company stating:
(i) that an Asset Sale Offer is being made pursuant to this
Section 4.08 and that all Notes that are timely tendered will be accepted
for payment, subject to proration if the amount of Excess Proceeds is less
than the aggregate principal amount of all Notes timely tendered pursuant
to the Asset Sale Offer;
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(ii) the Asset Sale Offer Amount, the amount of Excess
Proceeds that are available to be applied to purchase tendered Notes, and
the date Notes are to be purchased pursuant to the Asset Sale Offer (the
"Asset Sale Purchase Date"), which date shall be a Business Day no earlier
than 30 calendar days nor later than 60 calendar days subsequent to the
date such notice is mailed;
(iii) that any Notes or portions thereof not tendered or
accepted for payment will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the
Asset Sale Offer Amount with respect thereto, all Notes or portions thereof
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest from and after the Asset Sale Purchase Date;
(v) that any Holder electing to have any Notes or portions
thereof purchased pursuant to the Asset Sale Offer will be required to
surrender such Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of such Notes completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the
third Business Day preceding the Asset Sale Purchase Date;
(vi) that any Holder shall be entitled to withdraw such
election if the Paying Agent receives, not later than the close of business
on the second Business Day preceding the Asset Sale Purchase Date, a
facsimile transmission or letter, setting forth the name of the Holder, the
principal amount of Notes delivered for purchase, and a statement that such
Holder is withdrawing such Holder's election to have such Notes or portions
thereof purchased pursuant to the Asset Sale Offer;
(vii) that any Holder electing to have Notes purchased pursuant
to the Asset Sale Offer must specify the principal amount that is being
tendered for purchase, which principal amount must be $1,000 or an integral
multiple thereof;
(viii) if Certificated Notes have been issued hereunder, that
any Holder of Certificated Notes whose Certificated Notes are being
purchased only in part will be issued new Certificated Notes equal in
principal amount to the unpurchased portion of the Certificated Note or
Notes surrendered, which unpurchased portion will be equal in principal
amount to $1,000 or an integral multiple thereof;
(ix) that the Trustee will return to the Holder of a Global
Note that is being purchased in part, such Global Note with a notation on
Schedule A thereof adjusting the principal amount thereof to be equal to
the unpurchased portion of such Global Note; and
(x) any other information necessary to enable any Holder to
tender Notes and to have such Notes purchased pursuant to this Section
4.08.
If the Company requests that the Trustee provide such notice, the
Company shall provide the Trustee with the information required by this Section
4.08(e) in a timely manner and
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in no event more than 23 calendar days after the date the amount of Excess
Proceeds exceeds $5.0 million.
(f) On the Asset Sale Payment Date, the Company shall (i) accept for
payment any Notes or portions thereof properly tendered and selected for
purchase pursuant to the Asset Sale Offer and Section 4.08(e) hereof; (ii)
irrevocably deposit with the Paying Agent, by 10:00 a.m., New York City time, on
such date, in immediately available funds, an amount equal to the Asset Sale
Offer Amount in respect of all Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee the Notes so accepted together
with an Officers' Certificate listing the Notes or portions thereof tendered to
the Company and accepted for payment. Subject to the provisions of Section
4.01, the Paying Agent shall promptly send by first class mail, postage prepaid,
to each Holder of Notes so accepted for payment the Asset Sale Offer Amount for
such Notes or portions thereof. The Company shall publicly announce the results
of the Asset Sale Offer on or as soon as practicable after the Asset Sale
Purchase Date. For purposes of this Section 4.08, the Trustee shall act as the
Paying Agent.
(g) Upon surrender and cancellation of a Certificated Note that is
purchased in part, the Company shall promptly issue and the Trustee shall
authenticate and deliver to the surrendering Holder of such Certificated Note, a
new Certificated Note equal in principal amount to the unpurchased portion of
such surrendered Certificated Note; provided that each such new Certificated
--------
Note shall be in a principal amount of $1,000 or an integral multiple thereof.
(h) Upon surrender of a Global Note that is purchased in part, the
Paying Agent shall forward such Global Note to the Trustee who shall make a
notation on Schedule A thereof to reduce the principal amount of such Global
Note, as provided in Section 2.05(c) hereof.
(i) Upon completion of an Asset Sale Offer (including payment of the
Asset Sale Purchase Price for accepted Notes), any surplus Excess Proceeds that
were the subject of such offer shall cease to be Excess Proceeds, and the
Company may then use such amounts for general corporate purposes (subject to
other provisions of this Indenture).
(j) If at any time any non-cash consideration received by the Company
or any Subsidiary of the Company in connection with any Asset Sale is converted
into or sold or otherwise disposed of for cash, then such conversion or
disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Proceeds thereof shall be applied in accordance with this Section 4.08.
(k) The provisions of this Section 4.08 shall not apply to a
transaction consummated in compliance with the provisions of Section 5.01
hereof. In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction permitted by Section 5.01 hereof, the successor
corporation shall be deemed to have sold the properties and assets of the
Company and its Subsidiaries not so transferred for purposes of this covenant,
and shall comply with the provisions of this covenant with respect to such
deemed sale as if it were an Asset Sale. In
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addition, the fair market value of such properties and assets of the Company and
its Subsidiaries deemed to be sold shall be deemed to be Net Proceeds for
purposes of this Section 4.08.
(l) The Company may use Net Proceeds from Exempt Asset Sales for
general corporate purposes (subject to the other provisions of this Indenture).
(m) Notwithstanding the foregoing, the Company will not, and will not
permit any Subsidiary to, directly or indirectly, make any Asset Sale of any of
the Capital Stock of a Subsidiary except pursuant to an Asset Sale of all of the
Capital Stock of such Subsidiary.
(m) The Company shall comply with the requirements of Section 14(e)
of, and Rule I 4e- 1 under, the Exchange Act and any other securities laws or
regulations, to the extent such laws and regulations are applicable in
connection with the purchase of Notes pursuant to an Asset Sale Offer.
SECTION 4.09. Limitation on Incurrence of Indebtedness and Issuance
-----------------------------------------------------
of Preferred Stock. (a) The Company shall not, and shall not permit any of its
- ------------------
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Indebtedness) other than Permitted Indebtedness and the Company shall not issue
any Disqualified Stock and shall not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that the Company may incur
-------- -------
Indebtedness (including Acquired Indebtedness) and the Company may issue shares
of Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least 2.0 to 1.0 with respect to any incurrence on or before
September 30, 2000, or 2.50 to 1.0 with respect to any incurrence
thereafter, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued,
as the case may be, at the beginning of such four-quarter period; and
(ii) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
SECTION 4.10. Limitation on Restricted Payments. (a) The Company shall
---------------------------------
not, and shall not permit any of its Subsidiaries to, directly or indirectly :
(i) declare or pay any dividend or make any distribution of any
kind or character (whether in cash, securities or other property) on
account of any class of the Company's or any of its Subsidiaries' Equity
Interests or to holders thereof (including, without limitation, any payment
to stockholders of the Company in connection with a merger or consolidation
involving the Company), other than (a) dividends or distributions payable
solely in Equity Interests (other than Disqualified Stock) of the Company
or (b)
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dividends or distributions payable solely to the Company or any Wholly-
Owned Subsidiary of the Company;
(ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company, any Subsidiary of the Company, or any
other Affiliate of the Company (other than any such Equity Interests owned
by the Company or any Wholly-Owned Subsidiary of the Company);
(iii) make any principal payment on, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness of the
Company or any Guarantor that is pari passu with or subordinated to the
Notes or the Note Guarantees prior to any scheduled repayment date,
mandatory sinking fund payment date or final maturity date (other than the
Notes), other than through the purchase, redemption or acquisition by the
Company of Indebtedness of the Company or any of its Subsidiaries through
the issuance in exchange therefor of Equity Interests (other than
Disqualified Stock) of the Company;
(iv) make any Investment (other than Permitted Investments); or
(v) make any payments to any Affiliate of the Company as
compensation for management services, except through the issuance of Equity
Interests (other than Disqualified Stock) of the Company
(all such payments and other actions set forth in clauses (i) through (v)
above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(I) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof;
(II) at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, the
Company would have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth under Section 4.09(a) hereof; and
(III) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments declared or made by the
Company and its Subsidiaries on or after the date of this Indenture
(excluding Restricted Payments permitted by Sections 4.10(b)(ii),
4.10(b)(iii), 4.10(b)(iv), 4.10(b)(v) and 4.10(b)(vi) hereof), is less
than the sum of (i) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing after the date of the Indenture to
the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net cash proceeds received by the
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Company from the issue or sale after the date of this Indenture of
Equity Interests of the Company or of debt securities of the Company
that have been converted into such Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of the
Company and other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock).
(b) The foregoing clauses (II) and (III) of Section 4.10(a) will not
prohibit:
(i) the payment of any dividend on any class of Capital Stock
of the Company or any Subsidiary of the Company within 60 days after the
date of declaration thereof, if on the date on which such dividend was
declared such payment would have complied with the provisions of this
Indenture; or
(ii) any dividend on shares of Capital Stock payable solely in
shares of Capital Stock (other than Disqualified Stock); or
(iii) any dividend or other distribution payable from a
Subsidiary to the Company or any Wholly-Owned Subsidiary; or
(iv) the making of any Investment in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); provided, that any net cash proceeds that are utilized
for any such Investment, and any Net Income resulting therefrom, shall be
excluded from clause (III) of Section 4.10(a) hereof; or
(v) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out
of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Equity Interests of the Company (other
than any Disqualified Stock); provided that any net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other
acquisition, and any Net Income resulting therefrom, shall be excluded from
clause (III) of Section 4.10(a) hereof; or
(vi) the defeasance, redemption or repurchase of pari passu or
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness or the substantially concurrent sale
(other than to a Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock); provided, that any net cash
proceeds that are utilized for any such defeasance, redemption or
repurchase, and any Net Income resulting therefrom, shall be excluded from
clause (III) of Section 4.10(a) hereof; or
(vii) the repurchase of shares of Capital Stock of the Company
in connection with repurchase provisions under employee stock option and
stock purchase agreements or other agreements to compensate management
employees of the Company to the extent such payments do not exceed $1.0
million in the aggregate.
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(d) The amount of all Restricted Payments (other than cash) shall be
the fair market value (as determined by the Board, whose determination shall be
conclusive if evidenced by a Board Resolution set forth in an Officer's
Certificate delivered to the Trustee) on the date of the Restricted Payment of
the asset(s) proposed to be transferred by the Company or such Subsidiary, as
the case may be, pursuant to the Restricted Payment. 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, setting
forth the basis upon which the calculations required by this Section 4.10 were
computed and accompanied by such Board Resolution, which calculations may be
based upon the Company's latest available financial statements.
SECTION 4.11. Limitation on Liens. Unless the Notes and the Note
-------------------
Guarantees are equally and ratably secured, the Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any of its assets, now owned or hereafter
acquired, securing any Indebtedness other than Permitted Liens; provided that,
if such Indebtedness is by its terms expressly subordinate to the Notes or the
Note Guarantees, the Lien securing such subordinate or junior Indebtedness shall
be subordinate and junior to the Lien securing the Notes or the Note Guarantees
with the same relative priority as such subordinated or junior Indebtedness
shall have with respect to the Notes or the Note Guarantees.
SECTION 4.12. Sale and Leaseback Transactions. The Company shall
-------------------------------
not, and shall not cause or permit any of its Subsidiaries to, enter into any
Sale and Leaseback Transaction. Notwithstanding the foregoing, the Company or
any Subsidiary may enter into a Sale and Leaseback Transaction if:
(a) after giving pro forma effect to any such Sale and Leaseback
Transaction, the Company shall be in compliance with Sections 4.09 and 4.11
hereof;
(b) the gross cash proceeds of such Sale and Leaseback Transaction are
at least equal to the fair market value of such property (as determined by the
Board, whose determination shall be conclusive if made in good faith and
evidenced by a Board Resolution);
(c) the aggregate rent payable by the Company in respect of such Sale
and Leaseback Transaction is not in excess of the fair market rental value of
the property leased pursuant to such Sale and Leaseback Transaction; and
(d) the Company shall apply the net cash proceeds of the sale as
provided in Section 4.08 hereof; to the extent required therein.
SECTION 4.13. Limitation on Ownership of and Liens on Capital
-----------------------------------------------
Stock. The Company (a) shall not permit any Person (other than the Company or
- -----
any Wholly-Owned Subsidiary of the Company) to own any Capital Stock of any
Subsidiary of the Company, and (b) shall not permit any Subsidiary of the
Company to issue Capital Stock (except to the Company or to a Wholly-Owned
Subsidiary) or create, incur, assume or suffer to exist any Lien thereon, in
each case except:
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(i) directors' qualifying shares;
(ii) Capital Stock issued prior to the time such Person became
a Subsidiary of the Company, provided that such Capital Stock was not
issued in anticipation of such transaction;
(iii) if such Subsidiary merges with another Subsidiary of the
Company;
(iv) if such Subsidiary ceases to be a Subsidiary of the
Company (as a result of the sale of 100% of the shares of such Subsidiary,
the Net Proceeds from which are applied in accordance with Section 4.08
hereof);
(v) Liens on Capital Stock of any Subsidiary of the Company to
secure Indebtedness incurred under the Credit Agreement; or
(vi) Liens on Capital Stock of any Subsidiary of the Company
granted in accordance with the provisions of Section 4.11 hereof.
SECTION 4.14. Limitation on Dividends and Other 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
Subsidiary of the Company to:
(a) pay dividends or make any other distributions to the Company or
any of its Subsidiaries on its Capital Stock or with respect to any other
interest or participation in, or measured by, its profits; or
(b) pay any Indebtedness or other obligation owed to the Company or
any of its Subsidiaries; or
(c) make loans or advances to the Company or any of its Subsidiaries;
or
(d) sell, lease or transfer any of its properties or assets to the
Company or any of its Subsidiaries; or
(e) grant liens or security interests on its assets in favor of the
Holders of Notes; or
(f) guarantee the obligations of the Company evidenced by the Notes
or any renewals, refinancings, exchanges, refundings or extensions thereof,
except for such encumbrances or restrictions existing under or by reason of:
(i) this Indenture and the Notes;
(ii) the Credit Agreement as in effect on the Closing Date;
(iii) applicable law;
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(iv) any instrument governing Acquired Indebtedness or Capital
Stock of a Person acquired by the Company or any of its Subsidiaries as in
effect at the time of such acquisition (except to the extent such Acquired
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, provided that the
--------
Consolidated EBITDA of such Person is not taken into account in determining
whether such acquisition was permitted by the terms of this Indenture;
(v) any document or instrument governing Indebtedness incurred
pursuant to clause (iii) of the definition of Permitted Indebtedness;
provided that any such restriction contained therein relates only to the
--------
asset or assets constructed or acquired in connection therewith; or
(v) Permitted Refinancing Indebtedness of Indebtedness
described in clause (ii) and clause (iv) of this Section 4.14(f), provided
--------
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in
the agreements governing the Indebtedness being refinanced.
SECTION 4.15. Limitation on Layering Debt. Neither the Company nor any
---------------------------
Subsidiary may, directly or indirectly, in any event Incur any Indebtedness
which by its terms (or by the terms of any agreement governing such
Indebtedness) is expressly subordinated to any other Indebtedness of the Company
or such Subsidiary, as the case may be, unless such Indebtedness is also by its
terms (or by the terms of any agreement governing such Indebtedness) made
expressly subordinate to the Notes to the same extent and in the same manner,
and so long as, such Indebtedness is subordinated pursuant to subordination
provisions that are no more favorable to the holders of any other Indebtedness
of the Company or such Subsidiary, as the case may be.
SECTION 4.16. Transactions with Affiliates. The Company shall not, and
----------------------------
shall not permit any of its Subsidiaries to, enter into or suffer to exist any
transaction or a series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate (each of the foregoing, an "Affiliate Transaction"), other than Exempt
Affiliate Transactions, unless:
(a) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Subsidiary with a
Person that is not an Affiliate; and
(b) the Company delivers to the Trustee (i) with respect to any
Affiliate Transaction entered into after the date of this Indenture involving
aggregate consideration in excess of $2.5 million, a Board Resolution duly
adopted by a committee of independent Directors of the Company, as set forth in
an Officer's Certificate, certifying that such Affiliate Transaction complies
with clause (a) above and (ii) with respect to any Affiliate Transaction
involving aggregate consideration equal to or greater than $10.0 million, a
written opinion issued by an
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independent financial advisor of national standing that such Affiliate
Transaction is fair to the Company or such Subsidiary, as the case may be, from
a financial point of view.
SECTION 4.17. Reports. Whether or not required by the rules and
-------
regulations of the Commission, so long as any Notes are outstanding, the Company
furnish to the Holders of Notes and file with the Trustee, within 15 days after
it is or would have been required to file such with the Commission all
information, documents and reports specified in Section 13 and Section 15(d) of
the Exchange Act. In addition, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information, documents and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors. In addition, the
Company has agreed that, for so long as any Notes remain outstanding, it will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information specified in Rule 144A(d)(4) under the
Securities Act. The Company also shall comply with the other provisions of
Section 314(a) of the Trust Indenture Act.
SECTION 4.18. Payments for Consent, Waiver or Amendment. Neither
-----------------------------------------
the Company nor any of its Subsidiaries shall, directly or indirectly, pay or
cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder for or as an inducement to any consent, waiver or
amendment of any terms or provisions of the Notes, unless such consideration is
offered to be paid or agreed to be paid to all Holders of the Notes which so
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or amendment.
SECTION 4.19. Waiver of Stay, Extension or Usury Laws. The Company and
---------------------------------------
the Guarantors will not at any time, to the extent that they may lawfully not do
so, insist upon, or plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay or extension law or any usury law or other law that
would prohibit or forgive the Company or the Guarantors from paying all or any
portion of the principal of or premium, if any, or interest or Additional
Interest, if any, on the Notes as contemplated herein, wherever enacted, now or
at any time hereafter in force, or that may affect the covenants or the
performance of this Indenture; and, to the extent that they may lawfully do so,
the Company and the Guarantors hereby expressly waive all benefit or advantage
of any such law and expressly agree that they will not hinder, delay or impede
the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been enacted.
SECTION 4.20. Compliance Certificate: Notice of Default or Event of
-----------------------------------------------------
Default. (a) The Company shall deliver to the Trustee within 120 calendar
- -------
days after the end of each fiscal year of the Company ending after the date
hereof, an Officers' Certificate stating whether or not, to the best knowledge
of such officer, the Company has complied with all conditions and covenants
under this Indenture, and, if the Company shall be in Default, specifying all
such Defaults and the nature thereof of which such officer may have knowledge.
For the purposes of this Section 4.20(a), compliance shall be
determined without regard to any period of grace or requirement of notice under
this Indenture.
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(b) The Company shall deliver written notice to the Trustee
immediately upon any executive officer of the Company becoming aware of the
occurrence of any event which constitutes, or with the giving of notice or the
lapse of time or both would constitute, a Default or Event of Default,
describing such Default or Event of Default, its status and what action the
Company is taking or proposes to take with respect thereto.
(c) So long as not contrary to the then-current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.17 hereof shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article IV or Article V hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
SECTION 4.21. Investment Company Act. None of the Company or its
----------------------
Subsidiaries shall become an investment company subject to registration under
the Investment Company Act of 1940, as amended.
SECTION 4.22. Further Instruments and Acts. Upon request of the
----------------------------
Trustee, the Company shall execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE V
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
SECTION 5.01. Merger, Consolidation or Sale of Assets. The
---------------------------------------
Company shall not, and shall not permit any Subsidiary of the Company to, in a
single transaction or series of related transactions, consolidate or merge with
or into (other than the consolidation or merger of a Wholly-Owned Subsidiary of
the Company with another Wholly-Owned Subsidiary of the Company or into the
Company) (whether or not the Company or such Subsidiary is the surviving
corporation), or directly and/or indirectly through its Subsidiaries sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of the properties or assets of the Company and its Subsidiaries (determined on a
consolidated basis for the Company and its Subsidiaries taken as a whole) in one
or more related transactions to, another corporation, Person or entity unless:
(a) either (i) the Company, in the case of a transaction involving
the Company, or such Subsidiary, in the case of a transaction involving a
Subsidiary of the Company, is the surviving corporation or (ii) in the case of a
transaction involving the Company or a Guarantor, the entity or the Person
formed by or surviving any such consolidation or merger (if other than the
Company or such Guarantor) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States of America, any state thereof or
the District of Columbia and expressly assumes all
57
<PAGE>
the obligations of the Company under the Notes and this Indenture or such
Guarantor under the relevant Note Guarantee and this Indenture, as the case may
be, pursuant to a supplemental indenture in a form reasonably satisfactory to
the Trustee;
(b) immediately prior to or after such transaction no Default or
Event of Default shall have occurred and/or be continuing;
(c) in the case of a transaction involving the Company, the Company
or, if other than the Company, the entity or Person formed by or surviving any
such consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (i) will have
Consolidated Net Worth immediately after the transaction equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the
transaction, and (ii) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in Section 4.09 hereof;
(d) if, as a result of any such transaction, property or assets of
the Company or a Guarantor would become subject to a Lien securing Indebtedness
not excepted from the provisions of this Indenture described in Section 4.11
hereof, the Company, any such Guarantor or the surviving entity, as the case may
be, shall have secured the Notes and the relevant Note Guarantee, as required by
such provisions; and
(e) the Company shall have delivered to the Trustee, an Officers'
Certificate and, except in the case of a merger of a Subsidiary of the Company
into the Company or into a Wholly-Owned Subsidiary of the Company, an Opinion of
Counsel, each stating that such consolidation, merger, conveyance, lease or
disposition and any supplemental indenture with respect thereto, comply with all
of the terms of this Section 5.01 and that all conditions precedent herein
provided relating to such transaction or series of transactions have been
complied with.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of the
Company the Capital Stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
SECTION 5.02. Successor Corporation Substituted. Upon any
---------------------------------
consolidation with, or merger by the Company with and into, any other
corporation, or any sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the Property of the Company and its
Subsidiaries taken as a whole in accordance with Section 5.01 hereof, the
successor corporation formed by such consolidation or into which the Company is
merged, or the Person to which such sale, conveyance, assignment, transfer,
lease, conveyance or other disposition is made, shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person has been named
as the Company herein; and thereafter the predecessor corporation shall be
relieved
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of all obligations and covenants under this Indenture and the Notes, except for
------
the obligation to pay the principal of, premium, if any, and interest or
Additional Interest, if any, on the Notes.
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default. The term "Event of Default,"
-----------------
wherever used herein with respect to the Notes, means any one of the following
events (whatever the reason for such event, and whether it shall be voluntary or
involuntary, or be effected by operation of law, pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the Company fails to make any payment of interest on, or
Additional Interest with respect to, any Note when the same becomes due and
payable and such failure continues for a period of 30 calendar days; or
(b) the Company fails to make any payment of the principal or of
premium, if any, on any Note when the same becomes due and payable at Maturity;
or
(c) the Company fails to observe or perform any covenant, condition
or agreement on the part of the Company to be observed or performed pursuant to
Sections 4.07, 4.08, 4.09, 4.10, 4.13 and 5.01 hereof; or
(d) the Company fails to comply with any of its other agreements or
covenants in provisions of the Notes or this Indenture and such failure
continues for 30 days after written notice by the Trustee or Holders of at least
25% of the aggregate principal amount of the Notes outstanding; or
(e) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of this Indenture, which default (i) is caused by a failure to
pay principal of such Indebtedness at final maturity thereof (after giving
effect to applicable grace periods) (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness as to which there has been a Payment
Default or the maturity of which has been so accelerated, exceeds in the
aggregate $5.0 million; or
(f) a final judgment or final judgments for the payment of money not
covered by insurance are entered by a court or courts of competent jurisdiction
against the Company or any of its Subsidiaries and such judgment or judgments
remain undischarged for a period (during which execution shall not be
effectively stayed) of 60 days, provided that the aggregate of all such
--------
undischarged judgments exceeds $5.0 million; or
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(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Subsidiary of the
Company in an involuntary case or proceeding under any Bankruptcy Law or (ii) a
decree or order (A) adjudging the Company or any Subsidiary of the Company a
bankrupt or insolvent, or (B) approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of, or in respect of, the
Company or any Subsidiary of the Company under any Bankruptcy Law, or (C)
appointing a Custodian of the Company or any Subsidiary of the Company or of any
substantial part of the Property of the Company or any Subsidiary of the
Company, or (D) ordering the winding-up or liquidation of the affairs of the
Company or any Subsidiary of the Company, and in each case, the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive calendar days; or
(h) (i) the commencement by the Company or any Subsidiary of the
Company of a voluntary case or proceeding under any Bankruptcy Law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent; or (ii) the
consent by the Company or any Subsidiary of the Company to the entry of a decree
or order for relief in respect of the Company or any Subsidiary of the Company
in an involuntary case or proceeding under any Bankruptcy Law or to the
commencement of any bankruptcy or insolvency case or proceeding against the
Company or any Subsidiary of the Company; or (iii) the filing by the Company or
any Subsidiary of the Company of a petition or answer or consent seeking
reorganization or relief under any Bankruptcy Law; or (iv) the consent by the
Company or any Subsidiary of the Company to the filing of such petition or to
the appointment of or taking possession by a Custodian of the Company or any
Subsidiary of the Company or of any substantial part of the Property of the
Company or any Subsidiary of the Company, or (v) the making by the Company or
any Subsidiary of the Company of an assignment for the benefit of creditors; or
(vi) the admission by the Company or any Subsidiary of the Company in writing of
its inability to pay its debts generally as they become due; or (vii) the
approval by stockholders of the Company or any Subsidiary of the Company of any
plan or proposal for the liquidation or dissolution of the Company or any
Subsidiary of the Company; or (viii) the taking of corporate action by the
Company or any Subsidiary of the Company in furtherance of any such action; or
(i) the Note Guarantee of any Guarantor is held in any judicial
proceeding to be unenforceable or invalid or ceases for any reason to be in full
force and effect (other than in accordance with the terms of this Indenture) or
any Guarantor or any Person acting on behalf of any Guarantor denies or
disaffirms such Guarantor's obligations under its Note Guarantee (other than by
reason of a release of such Guarantor from its Note Guarantee in accordance with
the terms of this Indenture).
SECTION 6.02. Acceleration. If an Event of Default (other than an
------------
Event of Default specified in Section 6.01(g) or Section 6.01(h)) occurs and is
continuing, then and in every such case the Trustee by notice to the Company, or
the Holders of at least 25% in aggregate principal amount of all of the then
outstanding Notes by written notice to the Company and the Trustee may declare
the unpaid principal of and any accrued interest on all the Notes then
outstanding to be immediately due and payable. Upon such declaration the
principal and interest shall be due and payable immediately (together with any
premium or Additional Interest, if applicable). If an Event of Default specified
in Section 6.01(g) or Section 6.01(h) hereof occurs,
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such an amount shall ipso facto become and be immediately due and payable
----------
without any declaration or other act on the part of the Trustee or any Holder.
The Holders of a majority in aggregate principal amount of the then
outstanding Notes by written notice to the Trustee and the Company may rescind
and annul such acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest, premium or Additional Interest that
have become due solely because of the acceleration) have been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
SECTION 6.03. Other Remedies. The Company covenants that if an
--------------
Event of Default specified in Section 6.01(a) or Section 6.01(b) occurs the
Company shall, upon demand of the Trustee, pay to the Trustee, for the benefit
of the Holders, the whole amount then due and payable on the Notes for principal
(and premium, if any) and interest (and Additional Interest, if any) and, to the
extent that payment of such interest shall be legally enforceable, interest upon
the overdue principal (and premium, if any) and upon Defaulted Interest (and
Additional Interest, if any) at the rate or rates prescribed therefor in the
Notes; and, in addition thereto, such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents,
counsel, accountants, experts and other consultants and all other amounts due to
the Trustee pursuant to Section 7.07 hereof.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company, each Guarantor or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the Property of the Company, each Guarantor or any other obligor upon
the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 6.04. Waiver of Past Defaults. The Holders of not less
-----------------------
than a majority in principal amount of the outstanding Notes by notice to the
Trustee may, on behalf of the Holders of all the Notes, waive any existing
Default or Event of Default and its consequences under this Article VI, except a
continuing Default or Event of Default (a) in the payment of the principal of,
premium, if any, or interest or Additional Interest, if any, on any Note (except
a payment default resulting from an acceleration that has been rescinded), or
(b) in respect of a covenant or provision hereof which under Section 9.02 hereof
cannot be modified or amended without the consent of the Holder of each
outstanding Note. Any such waiver may (but need not) be given in connection
with a tender offer or exchange offer for the Notes.
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SECTION 6.05. Control by Majority. The Holders of not less than
-------------------
a majority in principal amount of the outstanding Notes shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee; provided that:
--------
(a) such direction shall not be in conflict with any rule of law or
with this Indenture or unduly prejudicial to the rights of other Holders and
would not subject the Trustee to personal liability, and
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.06. Limitation on Suits. No Holder shall have any right to
-------------------
institute any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Notes;
(b) the Holders of not less than 25% in principal amount of the
outstanding Notes shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder;
(c) such Holder or Holders have offered to the Trustee security or
indemnity satisfactory to the Trustee in its reasonable discretion against the
costs, expenses and liabilities to be incurred in compliance with such request;
(d) the Trustee for 30 calendar days after its receipt of such
notice, request and offer of security or indemnity has failed to institute any
such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Holders of a majority in
principal amount of the outstanding Notes;
in any event, it being understood and intended that no one or more Holders shall
have any right in any manner whatever by virtue of, or by availing of any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all Holders.
SECTION 6.07. Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of principal or premium, if any, and interest and Additional
Interest, if any, on the Notes held by such Holder, on or after the respective
due dates expressed in the Notes or the Redemption Dates or purchase dates
provided for therein, or to bring suit for the enforcement of any such payment
on or after such respective dates, shall be absolute and unconditional and shall
not be impaired or affected without the consent of such Holder.
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SECTION 6.08. Trustee May File Proofs of Claim. In case of the
--------------------------------
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceedings or any voluntary or involuntary case under any Bankruptcy Law,
relative to the Company or any other obligor upon the Notes or the Property of
the Company or of such other obligor or their creditors, the Trustee
(irrespective of whether the principal of such Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company for the payment of
overdue principal or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise, (i) to file and prove a claim for the whole
amount of principal of, premium, if any, and interest and Additional Interest,
if any, owing and unpaid in respect of the Notes, to file such other papers or
documents and to take such other actions, including participating as a member or
otherwise in any official committee of creditors appointed in the matter, as may
be necessary or advisable in order to have the claims of the Trustee (including
any claim for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel and all other amounts due to the Trustee
pursuant to Section 7.07 hereof) and of the Holders allowed in such judicial
proceeding, and (ii) to collect and receive any moneys or other Property payable
or deliverable on any such claims and to distribute the same; and any Custodian,
in any such proceeding is hereby authorized by each Holder to make such payments
to the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due it
for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. Nothing contained herein shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder in any such proceeding.
SECTION 6.09. Priorities. Any money collected by the Trustee
----------
pursuant to this Article VI shall be applied in the following order, at the date
or dates fixed by the Trustee and, in case of the distribution of such money on
account of principal, premium, if any, or interest or Additional Interest, if
any, upon presentation of the Notes and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
7.07 hereof;
SECOND: To the payment of the amounts then due and unpaid for
principal of, premium, if any, and interest and Additional Interest, if
any, on the Notes, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Notes for principal,
premium, if any, and interest and Additional Interest, if any,
respectively; and
THIRD: To the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 6.09. At least 15 calendar days before such
record date, the Company shall mail to each Holder and the Trustee a notice that
states such record date, the payment date
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and amount to be paid. The Trustee may mail such notice in the name and at the
expense of the Company.
SECTION 6.10. Undertaking for Costs. All parties to this Indenture
---------------------
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or omitted by it as Trustee,
the filing by any party litigant in such suit of an undertaking to pay the costs
of such suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant in
such suit, having due regard to the merits and good faith of the claims or
defenses made by such party litigant; but the provisions of this Section shall
not apply to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in principal
amount of the outstanding Notes, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of, premium, if any, or interest or
Additional Interest, if any, on any Note on or after its Stated Maturity.
SECTION 6.11. Waiver of Stay or Extension Laws. The Company (to the
--------------------------------
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 6.12. Trustee May Enforce Claims Without Possession of the
----------------------------------------------------
Notes. All rights of action and claims under this Indenture or the Notes
- -----
may be prosecuted and enforced by the Trustee without the possession of any of
the Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name, as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Notes.
SECTION 6.13. Restoration of Rights and Remedies. If the Trustee
----------------------------------
or any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then
and in every such case the Company, the Trustee and the Holders shall, subject
to any determination in such proceeding, be restored severally and respectively
to their former positions hereunder, and thereafter all rights and remedies of
the Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 6.14. Rights and Remedies Cumulative. Except as otherwise
------------------------------
provided in Section 2.07 hereof, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and
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remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 6.15. Delay or Omission Not Waiver. No delay or omission of
----------------------------
the Trustee or of any Holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article VI or by law to the Trustee or to
the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
ARTICLE VII
TRUSTEE
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
-----------------
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and shall use the same degree of care and skill
in its exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default: (i) the
Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture and no implied covenants or obligations
shall be read into this Indenture against the Trustee; and (ii) in the absence
of bad faith on its part, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; provided that in the case of any such
--------
certificates or opinions that by any provision of this Indenture are
specifically required to be furnished to the Trustee, the Trustee shall examine
such certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, provided that: (i) this paragraph (c) shall not limit the effect of
--------
paragraph (b) of this Section 7.01; (ii) the Trustee shall not be liable for any
error of judgment made in good faith by a Trust Officer unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and (iii) the
Trustee shall not be liable with respect to any action it takes or omits to take
in good faith in accordance with a direction received by it pursuant to Section
6.05 hereof.
(d) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(e) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(f) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for
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believing that repayment of such funds or adequate indemnity against such risk
of liability is not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Article VII and to the provisions of the Trust
Indenture Act.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
-----------------
document believed by it to be genuine and to have been signed or presented by
the proper Person. Except as provided in Section 7.01(b) hereof, the Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on any
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any such agent; provided that such agent was
--------
appointed with due care by the Trustee.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided that the Trustee's conduct does not constitute willful
--------
misconduct or negligence.
(e) The Trustee shall not be charged with knowledge of any Default or
Event of Default under Sections 6.01(c), 6.01(d), 6.01(e), 6.01(f), 6.01(g),
6.01(h) or 6.01(i) hereof, of the identity of any Subsidiary or of the existence
of any Change of Control or Asset Sale unless either (i) a Trust Officer with
responsibility for the administration of this Indenture shall have actual
knowledge thereof, or (ii) the Trustee shall have received notice thereof in
accordance with Section 11.02 hereof from the Company or any Holder.
(f) The Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon.
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture or
other paper or document, but the Trustee, in its discretion may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney.
SECTION 7.03. Individual Rights of Trustee. The Trustee, any Paying
----------------------------
Agent or Registrar, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company, the
Guarantors or their Affiliates with the same rights it
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would have if it were not Trustee, Paying Agent or Registrar hereunder, as the
case may be; provided that the Trustee must in any event comply with Section
--------
7.10 and Section 7.11 hereof.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
--------------------
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Notes, it shall not be accountable for the Company's use
of the proceeds from the Notes, and it shall not be responsible (a) for any
statement of the Company in this Indenture, including the recitals contained
herein, or in any document issued in connection with the sale of the Notes or in
the Notes other than the Trustee's certificate of authentication or (b) for
compliance by the Company with the Registration Rights Agreement.
SECTION 7.05. Notice of Defaults. Within 90 calendar days after the
------------------
occurrence of any Default hereunder with respect to the Notes, the Trustee shall
transmit by mail to all Holders, as their names and addresses appear in the Note
Register, notice of such Default hereunder known to the Trustee, unless such
Default shall have been cured or waived; provided that, except in the case of a
--------
Default in the payment of the principal of (or premium, if any) or interest (or
Additional Interest) on any Note, the Trustee shall be protected in withholding
such notice if and so long as the board of directors, the executive committee or
a trust committee of directors and/or Trust Officers of the Trustee in good
faith determine that the withholding of such notice is in the interest of the
Holders.
SECTION 7.06. Preservation of Information; Reports; by Trustee to
---------------------------------------------------
Holders. (a) The Company shall furnish or cause to be furnished to the
- -------
Trustee:
(i) semiannually, not less than 10 calendar days prior to each
Interest Payment Date, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of the Record Date
immediately preceding such Interest Payment Date, and
(ii) at such other times as the Trustee may request in writing,
within 30 calendar days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than 15
calendar days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Registrar for
- -------- -------
the Notes, no such list need be furnished with respect to the Notes.
(b) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.06(a) hereof and the
names and addresses of Holders received by the Trustee in its capacity as
Registrar, if so acting. The Trustee may destroy any list furnished to it as
provided in Section 7.06(a) hereof upon receipt of a new list so furnished.
(c) Holders may communicate as provided in Section 312(b) of the
Trust Indenture Act with other Holders with respect to their rights under this
Indenture or under the Notes.
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(d) Each Holder, by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company nor the Trustee shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the Holders in accordance with this Section 7.06, regardless of
the source from which such information was derived, and that the Trustee shall
not be held accountable by reason of mailing any material pursuant to a request
made under this Section 7.06.
(e) Within 60 calendar days after December 31 of each year commencing
with the year 1997, the Trustee shall transmit by mail to all Holders, a brief
report dated as of such December 31 if and to the extent required under Section
313(a) of the Trust Indenture Act.
(f) The Trustee shall comply with Sections 313(b) and 313(c) of the
Trust Indenture Act.
(g) A copy of each report described in Sections 7.06(e) and (f)
hereof shall, at the time of its transmission to Holders, be filed by the
Trustee with each stock exchange, if any, upon which the Notes are then listed,
with the Commission and also with the Company. The Company shall promptly notify
the Trustee of any stock exchange upon which the Notes are listed.
SECTION 7.07. Compensation and Indemnity. (a) The Company shall pay
--------------------------
to the Trustee from time to time such compensation for its services as the
Company and the Trustee shall from time to time agree. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred or made by it, including costs of collection, in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents,
counsel, accountants, experts and other consultants. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust.
(b) The Company shall indemnify the Trustee for, and hold it harmless
against, any and all loss, liability, damage, claim or expense (including
reasonable attorneys' fees and expenses) arising out of or incurred by it in
connection with the acceptance or administration of the trust created by this
Indenture and the performance of its duties hereunder, except as set forth in
the next paragraph. The Trustee shall notify the Company promptly of any claim
for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend any such claim and the Trustee shall cooperate in the defense of
such claim. The Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld, conditioned or delayed.
(c) The Company need not reimburse any expense or indemnify against
any loss, liability or expense incurred by the Trustee through the Trustee's own
willful misconduct, negligence or bad faith.
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(d) To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a Lien prior to the Notes on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of, premium, if any, and interest and Additional Interest, if any, on,
particular Notes.
(e) The Company's payment obligations pursuant to this Section 7.07
shall survive the resignation or removal of the Trustee and discharge of this
Indenture. Subject to any other rights available to the Trustee under
applicable bankruptcy law, when the Trustee incurs expenses after the occurrence
of a Default specified in Section 6.01(g) or Section 6.01(h) hereof, the
expenses are intended to constitute expenses of administration under Bankruptcy
Law.
SECTION 7.08. Replacement of Trustee. (a) No resignation or removal
----------------------
of the Trustee and no appointment of a successor Trustee pursuant to this
Article VII shall become effective until the acceptance of appointment by the
successor Trustee under this Section 7.08.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 calendar days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the outstanding Notes, delivered to the Trustee
and to the Company. A successor Trustee may be appointed by Act of the Holders
with the Company's consent. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 calendar days
after the giving of notice of removal, the Trustee being removed may petition
any court of competent jurisdiction for the appointment of a successor Trustee.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 310(b) of
the Trust Indenture Act after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, unless the Trustee's duty to resign is stayed in accordance with
the provisions of Section 310(b) of the Trust Indenture Act; or
(ii) the Trustee shall cease to be eligible under Section 7.10
hereof and shall fail to resign after written request therefor by the
Company or by any such Holder; or
(iii) the Trustee shall become incapable of acting or a decree
or order for relief by a court having jurisdiction in the premises shall
have been entered in respect of the Trustee in an involuntary case under
any Bankruptcy Law; or a decree or order by a court having jurisdiction in
the premises shall have been entered for the appointment of a Custodian of
the Trustee or of its Property or affairs, or any public officer shall take
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charge or control of the Trustee or of its Property or affairs for the
purpose of rehabilitation, conservation, winding up or liquidation; or
(iv) the Trustee shall commence a voluntary case under any
Bankruptcy Law or shall consent to the appointment of or taking possession
by a Custodian of the Trustee or its Property or affairs, or shall make an
assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become due, or shall take
corporate action in furtherance of any such action,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to the Notes, or (ii) subject to Section 6.10 hereof, any
Holder who has been a bona fide Holder of a Note for at least six months may
petition, on behalf of such Holder and all others similarly situated, any court
of competent jurisdiction for the removal of the Trustee and the appointment of
a successor Trustee for the Notes. If an instrument of acceptance by a
successor Trustee shall not have been delivered to the Trustee within 30
calendar days after the giving of notice of removal, the Trustee being removed
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by or pursuant to a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by the Holders of a majority in principal amount of the outstanding
Notes delivered to the Company and the retiring Trustee, the successor Trustee
so appointed shall, forthwith upon its acceptance of such appointment in
accordance with this Section 7.08, become the successor Trustee and to that
extent replace any successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and shall
have accepted appointment in the manner hereinafter provided, any Holder that
has been a bona fide Holder for at least six months may, subject to Section 6.10
hereof, on behalf of such Holder and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such resignation, removal and appointment by first-class mail,
postage prepaid, to the Holders as their names and addresses appear in the Note
Register. Each notice shall include the name of the successor Trustee with
respect to the Notes and the address of its Corporate Trust Office.
(g) In the event of an appointment hereunder of a successor Trustee,
each such successor Trustee so appointed shall execute, acknowledge and deliver
to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign,
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transfer and deliver to such successor Trustee all Property and money held by
such former Trustee hereunder, subject to its Liens, if any, provided for in
Section 7.07 hereof.
(h) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in Section 7.08(g) hereof.
(i) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article VII and under the Trust Indenture Act.
SECTION 7.09. Successor Trustee by Merger. Any corporation into
---------------------------
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder; provided that such
--------
corporation shall be otherwise qualified and eligible under this Article VII and
under the Trust Indenture Act, without the execution or filing of any paper or
any further act on the part of any of the parties hereto. In case any Notes
shall have been authenticated, but not delivered, by the Trustee then in office,
any successor by merger, conversion or consolidation to such authenticating
Trustee may adopt such authentication and deliver the Notes so authenticated
with the same effect as if such successor Trustee had itself authenticated such
Notes. In the event that any Notes shall not have been authenticated by such
predecessor Trustee, any such successor Trustee may authenticate and deliver
such Notes, in either its own name or that of its predecessor Trustee, with the
full force and effect which this Indenture provides for the certificate of
authentication of the Trustee.
SECTION 7.10. Eligibility; Disqualification. (a) There shall at all
-----------------------------
times be a Trustee hereunder which shall be:
(i) a corporation organized and doing business under the laws of the
United States of America, any State or Territory thereof or the District of
Columbia, authorized under such laws to exercise corporate trust powers,
and subject to supervision or examination by Federal, State, Territorial or
District of Columbia authority; or
(ii) a corporation or other Person organized and doing business under
the laws of a foreign government that is permitted to act as Trustee
pursuant to a rule, regulation or order of the Commission, authorized under
such laws to exercise corporate trust powers, and subject to supervision or
examination by authority of such foreign government or a political
subdivision thereof substantially equivalent to supervision or examination
applicable to United States institutional trustees,
in either case having a combined capital and surplus of at least $50,000,000.
(b) If such Person publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 7.10, the combined capital and
surplus of such corporation shall be
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deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. Neither the Company nor any Guarantor nor any
of their respective Affiliates shall serve as Trustee hereunder. If at any time
the Trustee shall cease to be eligible to serve as Trustee hereunder pursuant to
the provisions of this Section 7.10, it shall resign immediately in the manner
and with the effect specified in this Article VII.
(c) If the Trustee has or shall acquire any "conflicting interest"
within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and
the Company shall in all respects comply with the provisions of Section 310(b)
of the Trust Indenture Act. Nothing herein shall prevent the Trustee from
filing with the Commission the application referred to in the penultimate
paragraph of Section 310(b) of the Trust Indenture Act.
SECTION 7.11. Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship listed in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent indicated therein.
ARTICLE VIII
DEFEASANCE
SECTION 8.01. Company's Option to Effect Legal Defeasance or Covenant
-------------------------------------------------------
Defeasance. The Company may elect, at its option, at any time, to have Section
- ----------
8.02 or Section 8.03 hereof applied to the outstanding Notes (in whole and not
in part) upon compliance with the conditions set forth below in this Article
VIII. Such election shall be evidenced by a Board Resolution delivered to the
Trustee and shall specify whether the Notes are being defeased to Stated
Maturity or to a specified Redemption Date determined in accordance with the
terms of this Indenture and the Notes.
SECTION 8.02. Legal Defeasance and Discharge. Upon the Company's
------------------------------
exercise under Section 8.01 hereof of its option to have this Section 8.02
applied to the outstanding Notes (in whole and not in part), the Company and the
Guarantors shall be deemed to have been discharged from their obligations with
respect to such Notes as provided in this Section 8.02 on and after the date the
conditions set forth in Section 8.04 hereof are satisfied (hereinafter called
"Legal Defeasance"). For this purpose, such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by such Notes which shall thereafter be deemed to be "outstanding"
only for the purpose of Section 8.05 hereof and the other Sections of this
Indenture referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture insofar as such Notes are
concerned (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), subject to the
following which shall survive until otherwise terminated or discharged
hereunder:
(a) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest and Additional
Interest, if any, on such Notes when payments are due from the trust referred to
below,
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(b) the Company's obligations with respect to such Notes under
Sections 2.03, 2.04, 2.06, 2.07, 2.09, 4.02, 4.03 and 4.04 hereof,
(c) the Company's obligations under the Registration Rights
Agreement,
(d) the rights, powers, trusts, duties and immunities of the Trustee
under this Indenture and the Company's obligations in connection therewith,
(e) Article III hereof, and
(f) this Article VIII.
Subject to compliance with this Article VIII, the Company may exercise
its option to have this Section 8.02 applied to the outstanding Notes (in whole
and not in part) notwithstanding the prior exercise of its option to have
Section 8.03 hereof applied to such Notes.
SECTION 8.03. Covenant Defeasance. Upon the Company's exercise under
-------------------
Section 8.01 hereof of its option to have this Section 8.03 applied to the
outstanding Notes (in whole and not in part):
(a) the Company shall be released from its obligations under
Sections 4.05 through 4.17, inclusive, and Section 5.01(c);
(b) the occurrence of any event specified in Section 6.01(c), or
Section 6.01(d) hereof, with respect to any of Section 5.01(c) or Sections 4.05
through 4.17, inclusive, shall be deemed not to be or result in an Event of
Default, in each case with respect to such Notes as provided in this Section
8.03 on and after the date the conditions set forth in Section 8.04 hereof are
satisfied (hereinafter called "Covenant Defeasance"); and
(c) the Notes shall thereafter be deemed not "outstanding" for the
purposes of any direction, waiver, consent, declaration or act of Holders (and
the consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes).
For this purpose, such Covenant Defeasance means that, with respect to
such Notes, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such specified
Section (to the extent so specified in the case of Sections 6.01(c) and 6.01(d)
hereof), whether directly or indirectly by reason of any reference elsewhere
herein to any such Section or by reason of any reference in any such Section to
any other provision herein or in any other document; but the remainder of this
Indenture and such Notes shall be unaffected thereby. In addition, upon the
Company's exercise under Section 8.01 hereof of the option applicable to this
Section 8.03 hereof, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, Sections 6.01(e) and 6.01(f) hereof shall thereafter not
constitute Events of Default.
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SECTION 8.04. Conditions to Legal Defeasance or Covenant Defeasance.
-----------------------------------------------------
The following shall be the conditions to the application of
Section 8.02 or Section 8.03 hereof to the outstanding Notes:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to the benefits of the Holders, (i) cash in United States dollars, or (ii) U.S.
Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, cash in United States
dollars, or (iii) a combination thereof, in each case sufficient, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee (or any such other qualifying trustee)
to pay and discharge, the principal of, premium, if any, and any installment of
interest and Additional Interest on the outstanding Notes on the Stated Maturity
thereof or applicable Redemption Date, as the case may be, in accordance with
the terms of this Indenture and such Notes;
(b) In the event of an election to have Section 8.02 hereof apply to
the outstanding Notes, the Company shall have delivered to the Trustee an
Opinion of Counsel in the United States reasonably acceptable to the Trustee
stating that (i) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or (ii) since the date of this Indenture,
there has been a change in the applicable Federal income tax law, in either case
(i) or (ii) to the effect that, and based thereon such opinion shall confirm
that, the Holders will not recognize income, gain or loss for Federal income tax
purposes as a result of the deposit, Legal Defeasance and discharge to be
effected with respect to such Notes and will be subject to Federal income tax on
the same amounts, in the same manner and at the same times as would be the case
if such deposit, Legal Defeasance and discharge were not to occur;
(c) In the event of an election to have Section 8.03 hereof apply to
the outstanding Notes, the Company shall have delivered to the Trustee an
Opinion of Counsel in the United States reasonably acceptable to the Trustee
stating that the Holders will not recognize income, gain or loss for Federal
income tax purposes as a result of the deposit and Covenant Defeasance to be
effected with respect to such Notes and will be subject to Federal income tax on
the same amounts, in the same manner and at the same times as would be the case
if such deposit and Covenant Defeasance were not to occur;
(d) No Default or Event of Default with respect to the outstanding
Notes shall have occurred and be continuing at the time of such deposit (other
than a Default or Event of Default resulting from the borrowing of funds (or the
granting of a Lien as security therefor) to be applied to such deposit) after
giving effect thereto or, with respect to a Default or Event of Default
specified in Section 6.01(g) or Section 6.01(h), any time on or prior to the
123rd calendar day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 123rd calendar day);
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(e) Such Legal Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest within the meaning of the Trust Indenture
Act (assuming for the purpose of this clause (e) that all Notes are in default
within the meaning of such Act);
(f) Such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, the Credit Agreement or
any other material agreement or instrument (other than the Indenture) to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound;
(g) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or the
Guarantors or with the intent of defeating, hindering, delaying or defrauding
any other creditors of the Company, the Guarantors or others;
(h) Such Legal Defeasance or Covenant Defeasance shall not result in
the trust arising from such deposit constituting an investment company within
the meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder; and
(i) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Legal Defeasance or Covenant Defeasance have been
complied with.
SECTION 8.05. Deposited Money and U.S. Government Obligations to be
-----------------------------------------------------
Held in Trust; Miscellaneous Provisions. (a) All money and U.S. Government
- ---------------------------------------
Obligations (including the proceeds thereof) deposited with the Trustee pursuant
to Section 8.04 hereof in respect of the outstanding Notes shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Notes and this Indenture, to the payment, either directly or through any such
Paying Agent as the Trustee may determine, to the Holders of such Notes, of all
sums due and to become due thereon in respect of principal and any premium and
interest and Additional Interest, but money so held in trust need not be
segregated from other funds except to the extent required by law. The Company
shall pay and indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against the U.S. Government Obligations deposited pursuant to
Section 8.04 hereof or the principal and interest received in respect thereof
other than any such tax, fee or other charge which by law is for the account of
the Holders of outstanding Notes.
(b) Anything in this Article VIII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon receipt of a
Company Order any money or U.S. Government Obligations held by it as provided in
Section 8.04 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof that would then be
required to be deposited to effect the Legal Defeasance or Covenant Defeasance,
as the case may be, with respect to the outstanding Notes.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
-------------
unable to apply any money in accordance with this Article VIII with respect to
any Notes by reason of any order
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or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the obligations under this
Indenture and such Notes from which the Company and the Guarantors have been
discharged or released pursuant to Section 8.02 or 8.03 hereof shall be revived
and reinstated as though no deposit had occurred pursuant to this Article VIII
with respect to such Notes, until such time as the Trustee or Paying Agent is
permitted to apply all money held in trust pursuant to Section 8.05 hereof with
respect to such Notes in accordance with this Article VIII; provided that if the
--------
Company makes any payment of principal of or any premium or interest or
Additional Interest on any such Note following such reinstatement of its
obligations, the Company shall be subrogated to the rights (if any) of the
Holders of such Notes to receive such payment from the money so held in trust.
ARTICLE IX
AMENDMENTS
SECTION 9.01. Without Consent of Holders. The Company, the
--------------------------
Guarantors and the Trustee may, at any time, and from time to time, without
notice to or consent of any Holder, enter into one or more indentures
supplemental hereto, in form reasonably satisfactory to the Trustee, for any of
the following purposes:
(a) to evidence the succession of another Person to the Company and
the assumption by such successor of the covenants of the Company herein and
contained in the Notes; or
(b) to add to the covenants of the Company, for the benefit of the
Holders of all of the Notes, or to surrender any right or power herein conferred
upon the Company; or
(c) to add any additional Events of Default; or
(d) to provide for uncertificated Notes in addition to or in place of
Certificated Notes; or
(e) to evidence and provide for the acceptance of appointment
hereunder of a successor Trustee; or
(f) to secure the Notes; or
(g) to cure any ambiguity herein, or to correct or supplement any
provision hereof which may be inconsistent with any other provision hereof or to
add any other provisions with respect to matters or questions arising under this
Indenture; provided that such actions shall not adversely affect the interests
--------
of the Holders in any material respect; or
(h) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act; or
(i) to evidence the agreement or acknowledgment of a Subsidiary that
it is a Guarantor for all purposes under this Indenture (including, without
limitation, Article X hereof).
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SECTION 9.02. With Consent of Holders. (a) With the consent of the
-----------------------
Holders of not less than a majority in principal amount of the outstanding
Notes (which consent may, but need not, be given in connection with any tender
offer or exchange offer for the Notes), by Act of said Holders delivered to the
Company and the Trustee, the Company, the Guarantors and the Trustee may enter
into one or more indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders
(including Sections 4.07 and 4.08 hereof); provided that no such supplemental
--------
indenture shall, without the consent of the Holder of each outstanding Note:
(i) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver; or
(ii) reduce the principal of or premium on or change the Stated
Maturity of any Note or alter or waive any of the provisions with respect
to the redemption of the Notes, except as provided above with respect to
Sections 4.07 and 4.08 hereof; or
(iii) reduce the rate of or change the time for payment of interest,
including Defaulted Interest, on any Note; or
(iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest or Additional Interest, if any, on any
Note (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the then outstanding
Notes and a waiver of the payment default that resulted from such
acceleration); or
(v) make any Note payable in money other than that stated in the
Notes; or
(vi) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders to receive payments of
principal of or premium, if any, or interest or Additional Interest, if
any, on the Notes; or
(vii) waive a redemption payment with respect to any Note (other than
a payment required by Section 4.07 or Section 4.08 hereof); or
(viii) modify the ranking or priority of the Notes or the Note
Guarantee of any Guarantor; or
(ix) release any Guarantor from any of its obligations under its
Note Guarantee or this Indenture other than in accordance with the terms of
this Indenture; or
(x) make any change in Sections 6.04 or 6.07 hereof or the
foregoing amendment and waiver provisions.
(b) It shall not be necessary for any Act of Holders under this
Section 9.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
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(c) After an amendment or supplement under this Section or a waiver
under Section 6.04 becomes effective, the Company shall mail to the Holders a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not however, in
any way impair or affect the validity of any such amended or supplemented
indenture or waiver.
SECTION 9.03. Effect of Supplemental Indentures. Upon the
---------------------------------
execution of any supplemental indenture under this Article IX, this Indenture
shall be modified in accordance therewith, and such supplemental indenture shall
form a part of this Indenture for all purposes; and every Holder of a Note
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.
SECTION 9.04. Compliance with Trust Indenture Act. Every
-----------------------------------
amendment or supplement to this Indenture or the Notes shall comply with the
Trust Indenture Act as then in effect.
SECTION 9.05. Revocation and Effect of Consents and Waivers. (a)
---------------------------------------------
A consent to an amendment, supplement or a waiver by a Holder of a Note shall
bind the Holder and every subsequent Holder of such Note or portion of such Note
that evidences the same debt as the consenting Holder's Note, even if notation
of the consent or waiver is not made on such Note; provided that any such Holder
--------
or subsequent Holder may revoke the consent or waiver as to such Holder's Note
or portion of such Note if the Trustee receives the notice of revocation before
the date the amendment, supplement or waiver becomes effective. After an
amendment, supplement or waiver becomes effective pursuant to this Article IX,
it shall bind every Holder.
(b) The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Holders at such record
date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
calendar days after such record date.
SECTION 9.06. Notation on or Exchange of Notes. If a supplemental
--------------------------------
indenture changes the terms of a Note, the Trustee may require the Holder
thereof to deliver such Note to the Trustee. The Trustee may place an
appropriate notation on such Note regarding the changed terms and return it to
the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for such Note shall issue and the Trustee shall authenticate
a new Note that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Note shall not affect the validity of such amendment
or supplement.
SECTION 9.07. Trustee to Execute Supplemental Indentures. The
------------------------------------------
Trustee shall execute any supplemental indenture authorized pursuant to this
Article IX if such supplemental indenture does not adversely affect the rights,
duties, liabilities or immunities of the Trustee. If it does, the Trustee may,
but shall not be required to, execute such supplemental indenture. In
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executing any supplemental indenture, the Trustee shall be entitled to receive
indemnity reasonably satisfactory to it and to receive, and (subject to Section
7.01 hereof) shall be fully protected in relying upon, an Officers' Certificate
(which need only cover the matters set forth in clause (a) below) and an Opinion
of Counsel provided by the Company stating that:
(a) such supplemental indenture is authorized or permitted by this
Indenture and that all conditions precedent to the execution, delivery and
performance of such supplemental indenture have been satisfied;
(b) the Company and each Guarantor have all necessary corporate power
and authority to execute and deliver the supplemental indenture and the
execution, delivery and performance of such supplemental indenture have been
duly authorized by all necessary corporate action of the Company and each
Guarantor;
(c) the execution, delivery and performance of the supplemental
indenture do not conflict with, or result in the breach of or constitute a
default under any of the terms, conditions or provisions of (i) this Indenture,
(ii) the charter documents and By-Laws of the Company or any Guarantor or (iii)
any material agreement or instrument to which the Company or any Guarantor is
subject;
(d) to the best knowledge and belief of legal counsel writing such
Opinion of Counsel, the execution, delivery and performance of the supplemental
indenture do not conflict with, or result in the breach of any of the terms,
conditions or provisions of (i) any law or regulation applicable to the Company
or any Guarantor or (ii) any material order, writ, injunction or decree of any
court or governmental instrumentality applicable to the Company or any
Guarantor;
(e) such supplemental indenture has been duly and validly executed and
delivered by the Company and each Guarantor, and this Indenture together with
such supplemental indenture constitutes a legal, valid and binding obligation of
the Company and each Guarantor enforceable against the Company and each
Guarantor in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally and general equitable principles; and
(f) this Indenture together with such amendment or supplement complies
with the Trust Indenture Act.
ARTICLE X
NOTE GUARANTEES; RELEASE OF NOTE GUARANTEES
SECTION 10.01. Note Guarantees. (a) Subject to the provisions of
---------------
this Article X, each Person who shall become a Guarantor shall, jointly and
severally, irrevocably and unconditionally Guarantee to each Holder and to the
Trustee on behalf of the Holders (i) the due and punctual payment of principal
of, premium, if any, interest and Additional Interest, if any, in full on each
Note when and as the same shall become due and payable whether at Stated
Maturity, by declaration of acceleration, in connection with a Change of Control
Offer, Asset Sale Offer or
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redemption, or otherwise, (ii) the due and punctual payment of interest on the
overdue principal of, premium, if any, interest and Additional Interest, if any,
in full on the Notes, to the extent permitted by law, and (iii) the due and
punctual performance of all other Obligations of the Company and the other
Guarantors to the Holders or the Trustee, including without limitation the
payment of fees, expenses, indemnification or other amounts, all in accordance
with the terms of the Notes and this Indenture. In case of the failure of the
Company punctually to make any such principal or interest payment or the failure
of the Company or any other Guarantor to perform any such other Obligation, each
Guarantor shall cause any such payment to be made punctually when and as the
same shall become due and payable, whether at Stated Maturity by declaration of
acceleration, in connection with a Change of Control Offer, Asset Sale Offer or
redemption or otherwise, and as if such payment were made by the Company and to
perform any such other Obligation of the Company immediately. Each Guarantor
shall agree to pay any and all expenses (including reasonable counsel fees and
expenses) incurred by the Trustee or the Holders in enforcing any rights under
these Note Guarantees. The Note Guarantees under this Article X shall be
guarantees of payment and not of collection.
(b) The Company hereby waives and each Guarantor shall waive
diligence, presentment, demand of payment, filing of claims with a court in the
event of merger, insolvency or bankruptcy of the Company or any other Guarantor,
any right to require a proceeding first against the Company or any other
Guarantor, protest or notice with respect to the Notes or the Indebtedness
evidenced thereby and all demands whatsoever, and covenants that the Note
Guarantees will not be discharged except by complete performance of the
Obligations contained in the Notes, in this Indenture and pursuant to the Note
Guarantees.
(c) Each Guarantor shall waive and relinquish:
(i) any right to require the Trustee, the Holders or the Company
(each, a "Benefited Party") to proceed against the Company, the
Subsidiaries of the Company or any other Person or to proceed against or
exhaust any security held by a Benefited Party at any time or to pursue any
other remedy in any secured party's power before proceeding against such
Guarantor;
(ii) any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other Person or Persons or the
failure of a Benefited Party to file or enforce a claim against the estate
(in administration, bankruptcy or any other proceeding) of any other Person
or Persons;
(iii) demand, protest and notice of any kind (except as expressly
required by this Indenture), including but not limited to notice of the
existence, creation or incurring of any new or additional Indebtedness or
obligation or of any action or non-action on the part of any of the
Guarantors, the Company, the Subsidiaries of the Company, any Benefited
Party, or any creditor of the Guarantors, the Company or the Subsidiaries
of the Company or on the part of any other Person whomsoever in connection
with any obligations the performance of which are hereby guaranteed;
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(iv) any defense based upon an election of remedies by a Benefited
Party, including but not limited to an election to proceed against any
Guarantor for reimbursement;
(v) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount
nor in other respects more burdensome than that of the principal;
(vi) any defense arising because of a Benefited Party's election, in
any proceeding instituted under the Bankruptcy Law, of the application of
Section 11.11(b)(2) of the Bankruptcy Law; and
(vii) any defense based on any borrowing or grant of a security
interest under Section 364 of the Bankruptcy Law.
(d) Each Guarantor shall agree that, as between such Guarantor, on the
one hand, and Holders and the Trustee, on the other hand, (i) for purposes of
the relevant Note Guarantee, the maturity of the Obligations Guaranteed by such
Note Guarantee may be accelerated as provided in Article VI, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect of
the Obligations guaranteed thereby, and (ii) in the event of any acceleration of
such Obligations (whether or not due and payable) such Obligations shall
forthwith become due and payable by such Guarantor for purposes of such Note
Guarantee.
(e) The Note Guarantees shall be continuing guarantees and shall (a)
remain in full force and effect until payment in full of all of the Company's
Obligations under this Indenture and the Notes and (b) inure to the benefit of
and be enforceable by the Trustee, the Holders and their successors, transferees
and assigns.
(f) The Note Guarantees shall continue to be effective or shall be
reinstated, as the case may be, if at any time any payment, or any part thereof,
of principal of, premium, if any, or interest or Additional Interest, if any, on
any of the Notes is rescinded or must otherwise be returned by the Holders or
the Trustee upon the insolvency, bankruptcy or reorganization of the Company or
any of the Guarantors, all as though such payment had not been made.
(g) Each Guarantor shall be subrogated to all rights of the Holders
against the Company in respect of any amounts paid by such Guarantor pursuant to
the provisions of the Note Guarantees or this Indenture; provided, however, that
-------- -------
a Guarantor shall not be entitled to enforce or to receive any payments until
the principal of, premium, if any, interest and Additional Interest, if any, on
all Notes issued hereunder shall have been paid in full.
(h) Each Guarantor shall specifically designate the relevant Note
Guarantee as Indebtedness of such Guarantor for purposes of this Indenture.
SECTION 10.02. Obligations of Guarantors Unconditional. Each
---------------------------------------
Guarantor shall agree that its Obligations hereunder are guarantees of payment
and are unconditional, irrespective of and unaffected by the validity,
regularity or enforceability of the Notes or this Indenture, or of any amendment
thereto or hereto, the absence of any action to enforce the same, the waiver or
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consent by any Holder or by the Trustee with respect to any provisions thereof
or of this Indenture, the entry of any judgment against the Company or any other
Guarantor or any action to enforce the same or any other circumstance which
might otherwise constitute a legal or equitable discharge or defense of a
guarantor.
SECTION 10.03. Limitation of Guarantor's Liability. Each Guarantor
-----------------------------------
shall confirm and by its acceptance hereof each Holder hereby confirms, that it
is the intention of all such parties that the Note Guarantee by such Guarantor
pursuant to its Note Guarantee not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar federal, state or
foreign law. To effectuate the foregoing intention, the Holders hereby
irrevocably agree and each Guarantor shall agree that the Obligations of such
Guarantor under this Article X shall be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the Obligations of such other
Guarantor under this Article X, result in the Obligations of such Guarantor
under its Note Guarantee not constituting a fraudulent transfer or conveyance
under applicable federal, state or foreign law.
SECTION 10.04. Release of Note Guarantees. In the event of a sale or
---------------------------
other disposition of all or substantially all of the assets of any Guarantor, by
way of merger, consolidation or otherwise, or a sale or other disposition of all
of the Capital Stock of any Guarantor, by way of merger, consolidation or
otherwise, such Guarantor will be released and relieved of any obligations under
its Note Guarantee; provided, in each case, that (i) such transaction is carried
--------
out pursuant to and in accordance with Section 4.08 and Section 5.01 hereof and
(ii) such Guarantor is also released from its guarantee of the Company's
Obligations under the Credit Agreement and does not guarantee any Senior
Indebtedness. Upon delivery by the Company to the Trustee of an Officers'
Certificate and Opinion of Counsel, to the effect that such sale or other
disposition was made by the Company in accordance with the provisions of this
Indenture, including without limitation Section 4.08 and Section 5.01 hereof,
the Trustee shall execute any documents reasonably required in order to evidence
the release of any such Guarantor from its obligations under its Note Guarantee.
Any Guarantor not released from its obligations under its Note
Guarantee shall remain liable for the full amount of principal of, premium, if
any, interest and Additional Interest, if any, on the Notes and for the other
Obligations of the Company, such Guarantor and any other Guarantor under this
Indenture as provided in this Article X.
SECTION 10.05. Application of Certain Terms and Provisions to
-------------- -------------------------------
Guarantors. (a) For purposes of any provision of this Indenture which
- ----------
provides for the delivery by any Guarantor of an Officers' Certificate or an
Opinion of Counsel, or both, the definitions of such terms in Section 1.01
hereof shall apply to such Guarantor as if references therein to the Company
were references to such Guarantor.
(b) Any request, direction, order or demand which by any provision of
this Indenture is to be made by any Guarantor, shall be sufficient if evidenced
by a Company Order;
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provided that the definition of such term in Section 1.01 hereof shall apply to
- --------
such Guarantor as if references therein to the Company were references to such
Guarantor.
(c) Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the Holders to
or on any Guarantor may be given or served as described in Section 11.02 hereof.
(d) Upon any demand, request or application by any Guarantor to the
Trustee to take any action under this Indenture, such Guarantor shall furnish to
the Trustee such certificates and opinions as are required in Section 11.03 and
Section 11.04 hereof as if all references therein to the Company were references
to such Guarantor.
SECTION 10.06. Additional Guarantors. The Company shall cause each
---------------------
Person that becomes a Guarantor after the date of this Indenture to execute and
deliver to the Trustee, promptly upon becoming a Guarantor, (a) a supplemental
indenture in form and substance satisfactory to the Trustee pursuant to which
such Person agrees and acknowledges that it is a Guarantor for all purposes of
this Indenture and which subjects such Person to the provisions of this
Indenture as a Guarantor, and (b) an Opinion of Counsel to the effect that such
supplemental indenture has been duly authorized and executed by such Person and
constitutes the legal, valid, binding and enforceable obligation of such Person
(subject to such customary exceptions concerning fraudulent conveyance laws,
creditors' rights and equitable principles as may be acceptable to the Trustee
in its discretion).
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls. If and to the
----------------------------
extent that any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by, or with another provision (an "incorporated provision")
included in this Indenture by operation of, Sections 310 to 318, inclusive, of
the Trust Indenture Act, such imposed duties or incorporated provision shall
control.
SECTION 11.02. Notices. (a) Any notice or communication shall be
-------
in writing and any such notice may be given by first class mail, postage prepaid
or courier service, addressed as follows: if to the Company, or any Guarantor:
to The Krystal Company, One Union Square, Chattanooga, Tennessee, 37402,
Attention: Secretary; if to the Trustee: SunTrust Bank, Atlanta, 58 Edgewood
Avenue, Room 400A, Atlanta, Georgia 30303, Attention: Corporate Trust
Administration, and any such notice or communication shall be effective when
delivered or received or, if mailed, five days after deposit in the United
States mail with proper postage for first class mail prepaid.
(b) The Company, a Guarantor or the Trustee, by notice to the others,
may designate additional or different addresses for subsequent notices or
communications. Any notice or communication mailed to a Holder shall be sent to
the Holder by first-class mail, postage prepaid, at the Holder's address as it
appears in the Note Register and shall be duly given if so
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sent within the time prescribed. Failure to mail a notice or communication to a
Holder or any defect in it shall not affect its sufficiency with respect to
other Holders. If a notice or communication is mailed to the Company, the
Trustee or a Holder in the manner provided above, it is duly given, whether or
not the addressee receives it. In case by reason of the suspension of regular
mail service or by reason of any other cause it shall be impracticable to give
notice by mail to Holders, then such notification as shall be made with the
approval of the Trustee shall constitute a sufficient notification for every
purpose hereunder.
(c) Any notice or communication delivered to the Company under the
provisions herein shall constitute notice to the Guarantors.
SECTION 11.03. Certificate and Opinion as to Conditions
----------------------------------------
Precedent. Upon any request or application by the Company to the Trustee to
take or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee upon request: (a) an Officers' Certificate stating that,
in the opinion of the signers, all conditions precedent, if any, provided for in
this Indenture relating to the proposed action have been complied with; and (b)
an Opinion of Counsel stating that, in the opinion of such counsel, all such
conditions precedent have been complied with.
SECTION 11.04. Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture (other than pursuant to Section 4.20
hereof) shall include: (a) a statement that the individual making such
certificate or opinion has read such covenant or condition; (b) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based; (c) a statement that, in the opinion of such individual, such person has
made such examination or investigation as is necessary to enable such person to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and (d) a statement as to whether or not, in the opinion of
such individual, such covenant or condition has been complied with.
SECTION 11.05. Rules by Trustee, Paying Agent and Registrar. The
--------------------------------------------
Trustee may make reasonable rules for action by or a meeting of Holders, and any
Registrar and Paying Agent may make reasonable rules for their functions;
provided that no such rule shall conflict with terms of this Indenture or the
- --------
Trust Indenture Act.
SECTION 11.06. Payments on Business Days. If a payment hereunder
-------------------------
is scheduled to be made on a date that is not a Business Day payment shall be
made on the next succeeding day that is a Business Day, and no interest shall
accrue with respect to that payment during the intervening period. If a regular
record date is a date that is not a Business Day, such record date shall not be
affected.
SECTION 11.07. Governing Law, Submission to Jurisdiction.
-----------------------------------------
(a) THIS INDENTURE, THE NOTE GUARANTEES AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
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LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
IN SAID STATE.
(b) The Company hereby (i) agrees that any suit, action or proceeding
against it arising out of or relating to this Indenture or the Notes, as the
case may be, may be instituted in any Federal or state court sitting in The City
of New York, (ii) waives, to the extent permitted by applicable law, any
objection which it may now or hereafter have to the laying of venue of any such
suit, action or proceeding, and any claim that any suit, action or proceeding in
such a court has been brought in an inconvenient forum, (iii) irrevocably
submits to the non-exclusive jurisdiction of such courts in any suit, action or
proceeding, (iv) agrees that final judgment in any such suit, action or
proceeding brought in such a court shall be conclusive and binding upon each and
may be enforced in the courts of the jurisdiction of which each is subject,
respectively, by a suit upon judgment, (v) agrees that service of process by
mail to the address specified in Section 11.02 hereof shall constitute personal
service of such process on it in any such suit, action or proceeding.
(c) It is the intention of the Company and the Trustee that the situs
of the trust created by this Indenture be, and it be administered, in the state
in which is located the principal office of the Trustee from time to time acting
under this Indenture.
(d) It is the purpose of this Indenture that there shall be no
violation of any law of any jurisdiction denying or restricting the right of
banking corporations or associations to transact business as Trustee in such
jurisdiction. It is recognized that in case of litigation under this Indenture,
and in particular in case of the enforcement thereof on Default, or in case the
Trustee deems that by reason of any present or future law of any jurisdiction it
may not exercise any of the powers, rights or remedies herein or therein granted
to the Trustee or hold title to the properties, in trust, as herein granted, or
take any other action which may be desirable or necessary in connection
therewith, the Trustee may appoint an additional individual or institution as a
separate or co-Trustee, in which event each and every remedy, power, right,
claim, demand, cause of action, immunity, estate, title, interest and lien
expressed or intended by this Indenture to be exercised by or vested in or
conveyed to the Trustee with respect thereto shall be exercisable by and vest in
such separate or co-Trustee, but only to the extent necessary to enable such
separate or co-Trustee to exercise such powers, rights and remedies, and every
covenant and obligation necessary to the exercise thereof by such separate or
co-Trustee shall run to and be enforceable by either of them.
Should any deed, conveyance or instrument in writing from the Company
be required by the separate or co-Trustee so appointed by the Trustee for more
fully and certainly vesting in and confirming to it such properties, rights,
powers, trusts, duties and obligations, any and all such deeds, conveyances and
instruments in writing shall, on request, be executed, acknowledged and
delivered by the Company. In case any separate or co-Trustee, or a successor,
shall die, become incapable of acting, resign or be removed, all the estates,
properties, rights, powers, trusts, duties and obligations of such separate or
co-Trustee, so far as permitted by law, shall vest in and be exercised by the
Trustee until the appointment of a successor to such separate or co-Trustee.
Any co-Trustee appointed by the Trustee pursuant to this Section 11.07(d) may
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be removed by the Trustee, in which case all powers, rights and remedies vested
in the co-Trustee shall again vest in the Trustee as if no such appointment of a
co-Trustee had been made.
SECTION 11.08. No Recourse Against Others. No director, officer,
--------------------------
employee, incorporator or stockholder of the Company, as such, shall have any
liability for any obligations of the Company under the Notes or this Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation, solely by reason of its status as a director, officer, employee,
incorporator or stockholder of the Company. No director, officer, employee,
incorporator or stockholder of any Guarantor, as such, shall have any liability
for any obligations of any Guarantor under its Note Guarantee or this Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation, solely by reason of its status as a director, officer, employee,
incorporator or stockholder of such Guarantor. By accepting a Note, each Holder
waives and releases all such liability (but only such liability) as part of the
consideration for issuance of such Note to such Holder.
SECTION 11.09. Successors. All agreements of the Company in this
----------
Indenture and the Notes shall bind its successors and assigns whether so
expressed or not. All agreements of the Trustee in this Indenture shall bind
its successors and assigns whether so expressed or not.
SECTION 11.10. Counterparts. This Indenture may be executed in
------------
any number of counterparts and by the parties thereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
SECTION 11.11. Table of Contents, Headings. The table of
---------------------------
contents, cross-reference table and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
SECTION 11.12. Severability. In case any provision in this
------------
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 11.13. Further Instruments and Acts. Upon request of the
----------------------------
Trustee, the Company and each Guarantor will execute and deliver such further
instruments and do such further acts as may be reasonably necessary or proper to
carry out more effectively the purposes of this Indenture.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
TKC ACQUISITION CORP.
as Issuer
By /s/ Philip H. Sanford
--------------------------------
Name: Philip H. Sanford
--------------------------
Title: Chairman and CEO
--------------------------
SUNTRUST BANK, ATLANTA,
as Trustee
By /s/ David M. Kaye
--------------------------------
Name: David M. Kaye
--------------------------
Title: Group Vice President
--------------------------
By /s/ Sandra Thompson
--------------------------------
Name: __________________________
Title:__________________________
<PAGE>
EXHIBIT A
FORM OF INITIAL GLOBAL NOTE
---------------------------
FACE OF INITIAL GLOBAL NOTE
---------------------------
TKC ACQUISITION CORP.
No. __
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY,
REQUIRED UNDER THE INDENTURE PURSUANT TO WHICH THIS NOTE IS
ISSUED) AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY TO TKC ACQUISITION CORP. OR A
SUCCESSOR THEREOF OR THE REGISTRAR FOR REGISTRATION OF TRANSFER
OR EXCHANGE AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS HAS BEEN
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFER OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, AND NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST
COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF INTERESTS IN THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION
<PAGE>
2.06 OF THE INDENTURE, DATED AS OF SEPTEMBER 26, 1997 BETWEEN TKC
ACQUISITION CORP., AS ISSUER AND SUNTRUST BANK, ATLANTA AS
TRUSTEE, PURSUANT TO WHICH THIS NOTE WAS ISSUED.
GLOBAL NOTE
REPRESENTING 10 1/4% SENIOR NOTES DUE 2007
TKC Acquisition Corp., a Tennessee corporation, for value received, hereby
promises to pay to CEDE & CO., or its registered assigns, the principal sum
indicated on Schedule A hereof, on October 1, 2007.
Interest Payment Dates: April 1 and October 1, commencing April 1, 1998.
Record Dates: March 15 and September 15.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
A-2
<PAGE>
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purposes.
IN WITNESS WHEREOF, TKC Acquisition Corp. has caused this Note to be duly
executed under its corporate seal.
TKC ACQUISITION CORP.
By:______________________________
Name: Philip H. Sanford
Title: Chief Executive Officer
Attest:________________________
Dated:________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
__________________________________
as Trustee, certifies that this is one of
the Notes referred to in the Indenture.
By:________________________________
Authorized Signatory
A-3
<PAGE>
REVERSE SIDE OF INITIAL GLOBAL NOTE
TKC ACQUISITION CORP.
GLOBAL NOTE
REPRESENTING 10 1/4% SENIOR NOTES DUE 2007
1. Indenture.
---------
This Note is one of a duly authorized issue of debt securities of the
Company (as defined below) designated as its "10 1/4% Senior Notes Due 2007"
(herein called the "Notes") limited in aggregate principal amount to
$100,000,000, issued under an indenture dated as of September 26, 1997 (as
amended or supplemented from time to time, the "Indenture") between the Company,
as issuer, and SunTrust Bank, Atlanta as trustee (the "Trustee," which term
includes any successor trustee under the Indenture). The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S)
77aaa-77bbb). The Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and such Act for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Guarantors, if any, the Trustee and each Holder and of the terms upon which the
Notes are, and are to be, authenticated and delivered. The summary of the terms
of this Note contained herein does not purport to be complete and is qualified
by reference to the Indenture. To the extent permitted by applicable law, in
the event of any inconsistency between the terms of this Note and the terms of
the Indenture, the terms of the Indenture shall control. All capitalized terms
used in this Note which are not defined herein shall have the meanings assigned
to them in the Indenture.
The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness and issue preferred stock, pay dividends or make
certain other restricted payments, incur liens, sell stock of Subsidiaries,
apply net proceeds from certain asset sales, merge or consolidate with any other
person, sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company or enter into certain
transactions with affiliates.
2. Principal and Interest.
----------------------
TKC Acquisition Corp., a Tennessee corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay the principal amount set forth on
Schedule A of this Note to the Holder hereof on October 1, 2007.
The Company shall pay interest at a rate of 10 1/4% per annum, from
September 26, 1997 or from the most recent Interest Payment Date thereafter to
which interest has been paid or duly provided for, semiannually in arrears on
April 1 and October 1 of each year, commencing on April 1, 1998, in cash, to the
Holder hereof until the principal amount hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, subject to certain exceptions provided in the
Indenture, be paid to the Person in whose name this Note (or the Note in
exchange or substitution for which this Note was
A-4
<PAGE>
issued) is registered at the close of business on the Record Date for interest
payable on such Interest Payment Date. The Record Date for any interest payment
is the close of business on March 15 or September 15, as the case may be,
whether or not a Business Day, immediately preceding the Interest Payment Date
on which such interest is payable. Any such interest not so punctually paid or
duly provided for ("Defaulted Interest") shall forthwith cease to be payable to
the Holder on such Record Date and shall be paid as provided in Section 2.11 of
the Indenture. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
Each payment of interest in respect of an Interest Payment Date will
include interest accrued through the day before such Interest Payment Date. If
an Interest Payment Date falls on a day that is not a Business Day, the interest
payment to be made on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
If this Note is exchanged in a Registered Exchange Offer prior to the
Record Date for the first Interest Payment Date following such exchange, accrued
and unpaid interest, if any, on this Note, up to but not including the date of
issuance of the Exchange Note or Exchange Notes issued in exchange for this
Note, shall be paid on the first Interest Payment Date for such Exchange Note or
Exchange Notes to the Holder or Holders of such Exchange Note or Exchange Notes
on the first Record Date with respect to such Exchange Note or Exchange Notes.
If this Note is exchanged in a Registered Exchange Offer subsequent to the
Record Date for the first Interest Payment Date following such exchange but on
or prior to such Interest Payment Date, then any such accrued and unpaid
interest with respect to this Note and any accrued and unpaid interest on the
Exchange Note or Exchange Notes issued in exchange for this Note, through the
day before such Interest Payment Date, shall be paid on such Interest Payment
Date to the Holder of this Note on such Record Date.
To the extent lawful, the Company shall pay interest on overdue
principal, overdue premium, Defaulted Interest and overdue Additional Interest
(without regard to any applicable grace period) at the interest rate borne on
this Note. The Company's obligation pursuant to the previous sentence shall
apply whether such overdue amount is due at its Stated Maturity, as a result of
the Company's obligations pursuant to Section 3.05, Section 4.07 or Section 4.08
of the Indenture, or otherwise.
3. Registration Rights, Additional Interest.
----------------------------------------
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated September 26, 1997, between the Company and
the Initial Purchaser (the "Registration Rights Agreement"), which agreement is
attached to the Indenture as Exhibit J thereto. Such benefits include the right
of the Holder to receive Additional Interest in the event of a failure on the
part of the Company to comply with certain registration covenants, as provided
in Section 4 of the Registration Rights Agreement.
A-5
<PAGE>
4. Method of Payment.
-----------------
The Company, through the Paying Agent, shall pay interest on this Note
to the registered Holder of this Note, as provided above. The Holder must
surrender this Note to a Paying Agent to collect principal payments. The
Company will pay principal, premium, if any, and interest and Additional
Interest, if any, in money of the United States of America that at the time of
payment is legal tender for payment of all debts public and private. Principal,
premium, if any, and interest and Additional Interest, if any, shall be paid by
checks, mailed to the registered Holders at their registered addresses; provided
that all payments with respect to Notes the Holders of which have given wire
transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof.
5. Paying Agent and Registrar.
--------------------------
Initially, the Trustee will act as Paying Agent and Registrar under
the Indenture. The Company may, upon written notice to the Trustee, appoint and
change any Paying Agent or Registrar. The Company or any of its Affiliates may
act as Paying Agent or Registrar; provided that if the Company or such Affiliate
--------
is acting as Paying Agent, the Company or such Affiliate shall segregate all
funds held by it as Paying Agent and hold them in trust for the benefit of the
Holders or the Trustee.
6. Note Guarantees.
---------------
There are currently no Note Guarantees. This Note may become entitled
to the benefits of future Note Guarantees to be made by each future direct or
indirect Subsidiary of the Company (each singularly, a "Guarantor" and together,
the "Guarantors"). Each Guarantor will, irrevocably and unconditionally,
jointly and severally, guarantee on a senior basis the punctual payment when
due, whether at Stated Maturity, by acceleration, in connection with a Change of
Control Offer, an Asset Sale Offer or redemption, or otherwise, of all
obligations of the Company under the Indenture and this Note, whether for
payment of principal of, premium, if any, interest or Additional Interest, if
any, on the Notes, expenses, indemnification or otherwise. A Guarantor shall be
released from its Note Guarantee upon the terms and subject to the conditions
set forth in the Indenture.
7. Redemption.
----------
The Notes are not redeemable at the option of the Company prior to
April 1, 2002. Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 calendar days' prior notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon and Additional Interest, if any, to the applicable Redemption
Date (subject to the right of each Holder of record on the relevant Record Date
to receive interest due on the relevant Interest Payment Date), if redeemed
during the twelve-month period beginning April 1 of the years indicated below:
A-6
<PAGE>
<TABLE>
<CAPTION>
YEAR Percentage
---- ----------
<S> <C>
2002 105.125%
2003 103.417%
2004 101.708%
2005 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 1, 2000, the
Company, at its option, may redeem up to 35% of the aggregate principal amount
of the Notes originally issued, in part, with the net proceeds of one or more
Public Equity Offerings made by the Company or of a capital contribution made by
the Parent to the common equity capital of the Company with the net proceeds of
one or more Public Equity Offerings made by the Parent, at a redemption price
equal to 110.25% of the aggregate principal amount thereof together with accrued
and unpaid interest and Additional Interest, if any, to the date of the
redemption payment; provided, however, that after such redemption the aggregate
-------- -------
principal amount of the Notes outstanding must equal at least 65% of the
aggregate principal amount of the Notes originally issued and provided, further,
-------- -------
that such redemption shall occur within 60 days of the date of closing of such
Public Equity Offering.
8. Notice of Redemption.
--------------------
At least 30 calendar days but not more than 60 calendar days before a
Redemption Date, the Company shall send, or cause to be sent, a notice of
redemption, by first-class mail, postage prepaid, to Holders of Notes to be
redeemed at the addresses of such Holders as they appear in the Note Register.
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed on a pro rata basis; provided that
the Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Notes that have denominations larger than
$1,000 (Notes in denominations of $1,000 or less may be redeemed only in whole).
If any Note is redeemed subsequent to a Record Date with respect to any Interest
Payment Date specified above and on or prior to such Interest Payment Date, then
any accrued interest will be paid on such Interest Payment Date to the Holder of
the Note on such Record Date. If money in an amount sufficient to pay the
Redemption Price of all Notes (or portions thereof) to be redeemed on the
Redemption Date is deposited with the Paying Agent on or before the applicable
Redemption Date and certain other conditions are satisfied, interest on the
Notes or portions thereof to be redeemed on the applicable Redemption Date will
cease to accrue.
9. Repurchase at the Option of Holders upon Change of Control.
----------------------------------------------------------
Upon the occurrence of a Change of Control, each Holder shall have the
right in accordance with the terms hereof and the Indenture to require the
Company to purchase such Holder's Notes, in whole or in part, in a principal
amount that is an integral multiple of $1,000, pursuant to a Change of Control
Offer, at a purchase price in cash equal to 101% of the principal amount of such
Notes (or portions thereof) plus accrued and unpaid interest and Additional
Interest, if any, to the Change of Control Payment Date.
A-7
<PAGE>
Within 30 calendar days after the date of any Change of Control, the
Company shall send, or cause to be sent, by first-class mail, postage prepaid, a
notice regarding the Change of Control Offer to each Holder. The Holder of this
Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Purchase Price with respect thereto, all Notes or portions thereof
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest from and after the Change of Control Payment Date.
10. Repurchase at the Option of Holders upon Asset Sale.
---------------------------------------------------
If at any time the Company or any Subsidiary engages in any Asset
Sale, as a result of which the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall, within 30 calendar days of the date the amount of
Excess Proceeds exceeds $5.0 million, use the then-existing Excess Proceeds to
make an offer to purchase from all Holders of Notes, on a pro rata basis, Notes
in an aggregate principal amount equal in amount to the then-existing Excess
Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon and Additional
Interest, if any, to the Asset Sale Purchase Date. Upon completion of an Asset
Sale Offer (including payment of the Asset Sale Purchase Price for accepted
Notes), any surplus Excess Proceeds that were the subject of such offer shall
cease to be Excess Proceeds, and the Company may then use such amounts for
general corporate purposes.
Within 30 calendar days of the date the amount of Excess Proceeds
exceeds $5.0 million, the Company shall send, or cause to be sent, by first-
class mail, postage prepaid, a notice regarding the Asset Sale Offer to each
Holder. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the Asset Sale Offer. Unless the Company defaults in the payment of the Asset
Sale Purchase Price with respect thereto, all Notes or portions thereof selected
for payment pursuant to the Asset Sale Offer will cease to accrue interest from
and after the Asset Sale Purchase Date.
11. The Global Note.
---------------
So long as this Global Note is registered in the name of the
Depository or its nominee, members of, or participants in, the Depository
("Agent Members") shall have no rights under the Indenture with respect to this
Global Note held on their behalf by the Depository or the Trustee as its
custodian, and the Depository may be treated by the Company, the Guarantors, if
any, the Trustee and any agent of the Company, the Guarantors, if any, or the
Trustee as the absolute owner of this Global Note for all purposes.
Notwithstanding the foregoing, nothing herein shall (i) prevent the Company, the
Guarantors, if any, the Trustee or any agent of the Company or the Trustee, from
giving effect to any written certification, proxy or other authorization
furnished by the Depository or (ii) impair, as between the Depository and its
Agent Members, the operation of customary practices governing the exercise of
the rights of a Holder.
A-8
<PAGE>
The Holder of this Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in this Global Note through Agent Members, to take any action which a
Holder is entitled to take under the Indenture or the Notes.
Whenever, as a result of optional redemption by the Company, a Change
of Control Offer, an Asset Sale Offer, a Registered Exchange Offer or an
exchange for Certificated Notes, this Global Note is redeemed, repurchased or
exchanged in part, this Global Note shall be surrendered by the Holder thereof
to the Trustee who shall cause an adjustment to be made to Schedule A hereof so
that the principal amount of this Global Note will be equal to the portion not
redeemed, repurchased or exchanged and shall thereafter return this Global Note
to such Holder; provided that this Global Note shall be in a principal amount of
--------
$1,000 or an integral multiple of $1,000.
12. The Registered Exchange Offer.
-----------------------------
Any Initial Notes represented by this Global Note that are presented
to the Registrar for exchange pursuant to the Registered Exchange Offer (as
defined in the Registration Rights Agreement) shall be exchanged for a Global
Note representing Exchange Notess of equal principal amount upon surrender of
this Global Note to the Registrar in accordance with the terms of the Registered
Exchange Offer and the Indenture.
13. Transfer and Exchange.
---------------------
The transfer of this Note is subject to certain restrictions,
including those to which reference is made in the Private Placement Legend. A
Holder may transfer or exchange Notes as provided in the Indenture and subject
to certain limitations therein set forth. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements or transfer documents
and to pay any taxes, fees and expenses required by law or permitted by the
Indenture.
14. Denominations.
-------------
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof of principal amount.
15. Discharge and Defeasance.
------------------------
Subject to certain conditions, the Company may, at any time, terminate
some or all of the obligations of the Company and each Guarantor, if any, under
the Notes, each Note Guarantee, if any, and the Indenture if the Company
irrevocably deposits in trust with the Trustee cash or U.S. Government
Obligations for the payment of principal, premium, if any, interest and
Additional Interest, if any, on the Notes to redemption or maturity, as the case
may be.
16. Amendment, Waiver.
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal
A-9
<PAGE>
amount of the outstanding Notes (which consent may, but need not, be given in
connection with any tender offer or exchange offer for the Notes) and (ii) any
Default and its consequences may be waived with the written consent of the
Holders of at least a majority in principal amount of the outstanding Notes.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Holder, the Company and the Trustee may amend the Indenture or the Notes (i)
to evidence the succession of another Person to the Company and the assumption
by such successor of the covenants of the Company under the Indenture and
contained in the Notes; (ii) to add to the covenants of the Company, for the
benefit of the Holders of all of the Notes, or to surrender any right or power
conferred on the Company under the Indenture; (iii) to add any additional Events
of Default; (iv) to provide for uncertificated Notes in addition to or in place
of Certificated Notes; (v) to evidence and provide for the acceptance of
appointment under the Indenture of a successor Trustee; (vi) to secure the
Notes; (vii) to cure any ambiguity in the Indenture, or to correct or supplement
any provision in the Indenture which may be inconsistent with any other
provision therein or to add any other provisions with respect to matters or
questions arising under the Indenture, provided that such actions shall not
adversely affect the interests of the Holders of Notes in any material respect;
(viii) to comply with the requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act; or
(ix) to evidence the agreement or acknowledgment of a Subsidiary that it is a
Guarantor for all purposes under the Indenture (including, without limitation,
Article X thereof).
17. Defaults and Remedies.
---------------------
Under the Indenture, Events of Default include: (i) a default for 30
days in the payment when due of interest on, or Additional Interest with respect
to, the Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Notes; (iii) failure by the Company to observe or perform certain
covenants, conditions, agreements or other provisions of the Indenture or this
Note (and, in the case of certain covenants, agreements or other provisions,
such failure has continued for 60 calendar days after written notice by the
Trustee or the Holders of at least 25% in principal amount of the Notes); (iv)
default in the payment of Indebtedness of the Company or any of its Subsidiaries
at its final maturity or acceleration of such Indebtedness in an amount in
excess of $5.0 million in the aggregate; (v) certain events of bankruptcy or
insolvency with respect to the Company or any of its Subsidiaries; (vi) certain
undischarged judgments in excess of $5.0 million in the aggregate; or (vii) the
Note Guarantee of any Guarantor being held in any judicial proceeding to be
unenforceable or invalid or ceasing for any reason to be in full force and
effect (other than in accordance with the terms of the Indenture) or any
Guarantor or any Person acting on behalf of any Guarantor denying or
disaffirming the Note Guarantee of such Guarantor.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes, subject to certain
limitations, may declare all the Notes to be immediately due and payable.
Certain events of bankruptcy or insolvency shall result in the Notes being
immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives
A-10
<PAGE>
reasonable indemnity or security. Subject to certain limitations, Holders of a
majority in principal amount of the Notes may direct the Trustee in its exercise
of any trust or power under the Indenture. The Holders of a majority in
principal amount of the then outstanding Notes, by written notice to the Trustee
and the Company, may rescind any declaration of acceleration and its
consequences if the rescission would not conflict with any judgment or decree,
and if all existing Events of Default have been cured or waived, except
nonpayment of principal, interest, premium or Additional Interest that has
become due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
18. Individual Rights of Trustee.
----------------------------
Subject to certain limitations imposed by the Trust Indenture Act, the
Trustee or any Paying Agent or Registrar, in its individual or any other
capacity, may become the owner or pledgee of Notes and may otherwise deal with
the Company, the Guarantors, if any, or its or their Affiliates with the same
rights it would have if it were not Trustee, Paying Agent or Registrar, as the
case may be, under the Indenture.
19. No Recourse Against Certain Others.
----------------------------------
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any such Guarantor under the Notes, the Note Guarantees, if
any, or the Indenture or for any claim based on, in respect of or by reason of,
such obligations or their creation, solely by reason of its status as a
director, officer, employee, incorporator or stockholder of the Company or any
such Guarantor. By accepting a Note, each Holder waives and releases all such
liability (but only such liability) as part of the consideration for issuance of
such Note to such Holder.
20. Authentication.
--------------
This Note shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Note.
21. Abbreviations.
-------------
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
22. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of Notes. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
A-11
<PAGE>
23. Governing Law.
-------------
THE INDENTURE, ANY NOTE GUARANTEES AND THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture which has in it the text of
this Note. Requests may be made to:
Port Royal Holdings, Inc.
One Union Square
Chattanooga, TN 37402
Attn: Secretary
A-12
<PAGE>
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount at maturity of this Note shall be $____________.
The following decreases/increase in the principal amount in denominations of
$1,000 or integral multiples thereof at maturity of this Note have been made:
<TABLE>
<CAPTION>
Total Principal
Amount at
Decrease in Increase in Maturity Notation
Date of Principal Principal Following such Made by
Decrease/ Amount at Amount at Decrease/ or on Behalf of
Increase Maturity Maturity Increase Trustee
- --------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
</TABLE>
A-13
<PAGE>
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Note)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
- -----------------------------
- -----------------------------
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint _________________________________ Attorney to
transfer this Note on the Security Register, with full power of substitution.
Dated: ________________
______________________________ __________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing Assignment must correspond to the Name
as written upon the face of this Note in every particular, without alteration or
any change whatsoever.
A-14
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
[_] In connection with the Change of Control Offer made pursuant to Section
4.07 of the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $_______________ ($1,000 in principal amount or an integral multiple
thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or __________________________ an amount in cash
equal to 101% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Change of Control Payment Date.
[_] In connection with the Asset Sale Offer made pursuant to Section 4.08 of
the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $________________ ($1,000 in principal amount or an integral multiple
thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or ____________________________ an amount in cash
equal to 100% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Asset Sale Purchase Date.
Dated: ________________
_____________________________ __________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
A-15
<PAGE>
EXHIBIT B
FORM OF INITIAL CERTIFICATED NOTE
---------------------------------
FACE OF INITIAL CERTIFICATED NOTE
---------------------------------
TKC ACQUISITION CORP.
No.____
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT'), AND THIS NOTE MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY,
REQUIRED UNDER THE INDENTURE PURSUANT TO WHICH THIS NOTE IS
ISSUED) AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION.
10 1/4% SENIOR NOTE DUE 2007
TKC Acquisition Corp., a Tennessee corporation, for value received,
hereby promises to pay to __________, or its registered assigns, the principal
amount of ________, on October 1, 2007.
Interest Payment Dates: April 1 and October 1, commencing April 1,
1998.
Record Dates: March 15 and September 15.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purposes.
<PAGE>
IN WITNESS WHEREOF, TKC Acquisition Corp. has caused this Note to be
duly executed under its corporate seal.
TKC ACQUISITION CORP.
By:____________________________
Name:
Title:
Attest:________________
Dated:_________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
_____________________________________________________
as Trustee, certifies that this
is one of the Notes referred to in the Indenture.
By:________________________
Authorized Signatory
B-2
<PAGE>
REVERSE SIDE OF INITIAL CERTIFICATED NOTE
TKC ACQUISITION CORP.
10 1/4% SENIOR NOTE DUE 2007
1. Indenture.
---------
This Note is one of a duly authorized issue of debt securities of the
Company (as defined below) designated as its "10 1/4% Senior Notes Due 2007"
(herein called the "Notes") limited in aggregate principal amount to
$100,000,000, issued under an indenture dated as of September 26, 1997 (as
amended or supplemented from time to time, the "Indenture") between the Company,
as issuer, and SunTrust Bank, Atlanta, as trustee (the "Trustee," which term
includes any successor trustee under the Indenture). The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S)
77aaa-77bbb). The Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and such Act for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Guarantors, if any, the Trustee and each Holder and of the terms upon which the
Notes are, and are to be, authenticated and delivered. The summary of the terms
of this Note contained herein does not purport to be complete and is qualified
by reference to the Indenture. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control. All capitalized terms used
in this Note which are not defined herein shall have the meanings assigned to
them in the Indenture.
The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness and issue preferred stock, pay dividends or make
certain other restricted payments, incur liens, sell stock of Subsidiaries,
apply net proceeds from certain asset sales, merge or consolidate with any other
person, sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company and enter into certain
transactions with affiliates.
2. Principal and Interest.
----------------------
TKC Acquisition Corp., a Tennessee corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay the principal amount of ______ to
the Holder hereof on October 1, 2007.
The Company shall pay interest at a rate of 10 1/4% per annum, from
September 26, 1997 or from the most recent Interest Payment Date thereafter to
which interest has been paid or duly provided for, semiannually in arrears on
April 1 and October 1 of each year, commencing on April 1, 1998, in cash, to the
Holder hereof until the principal amount hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, subject to certain exceptions provided in the
Indenture, be paid to the Person in whose name this Note (or the Note in
exchange or substitution for which this Note was issued) is registered at the
close of business on the Record Date for interest payable on such
B-3
<PAGE>
Interest Payment Date. The Record Date for any interest payment is the close of
business on March 15 or September 15, as the case may be, whether or not a
Business Day, immediately preceding the Interest Payment Date on which such
interest is payable. Any such interest not so punctually paid or duly provided
for ("Defaulted Interest") shall forthwith cease to be payable to the Holder on
such Record Date and shall be paid as provided in Section 2.11 of the Indenture.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Each payment of interest in respect of an Interest Payment Date will
include interest accrued through the day before such Interest Payment Date. If
an Interest Payment Date falls on a day that is not a Business Day, the interest
payment to be made on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
If this Note is exchanged in a Registered Exchange Offer, prior to the
Record Date for the first Interest Payment Date following such exchange, accrued
and unpaid interest, if any, on this Note, up to but not including the date of
issuance of the Exchange Note or Exchange Notes issued in exchange for this
Note, shall be paid on the first Interest Payment Date for such Exchange Note or
Exchange Notes to the Holder or Holders of such Exchange Note or Exchange Notes
on the first Record Date with respect to such Exchange Note or Exchange Notes.
If this Note is exchanged in a Registered Exchange Offer subsequent to the
Record Date for the first Interest Payment Date following such exchange but on
or prior to such Interest Payment Date, then any such accrued and unpaid
interest with respect to this Note and any accrued and unpaid interest on the
Exchange Note or Exchange Notes issued in exchange for this Note, through the
day before such Interest Payment Date, shall be paid on such Interest Payment
Date to the Holder of this Note on such Record Date.
To the extent lawful, the Company shall pay interest on overdue
principal, overdue premium, Defaulted Interest and overdue Additional Interest
(without regard to any applicable grace period) at the interest rate borne on
this Note. The Company's obligation pursuant to the previous sentence shall
apply whether such overdue amount is due at its Stated Maturity, as a result of
the Company's obligations pursuant to Section 3.05, Section 4.07 or Section 4.08
of the Indenture, or otherwise.
3. Registration Rights, Additional Interest.
----------------------------------------
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated September 26, 1997, between the Company and
the Initial Purchaser (the "Registration Rights Agreement"), which agreement is
attached to the Indenture as Exhibit J thereto. Such benefits include the right
of the Holder to receive Additional Interest in the event of a failure on the
part of the Company to comply with certain registration covenants, as provided
in Section 4 of the Registration Rights Agreement.
B-4
<PAGE>
4. Method of Payment.
-----------------
The Company, through the Paying Agent, shall pay interest on this Note
to the registered Holder of this Note, as provided above. The Holder must
surrender this Note to a Paying Agent to collect principal payments. The Company
will pay principal, premium, if any, and interest and Additional Interest, if
any, in money of the United States of America that at the time of payment is
legal tender for payment of all debts public and private. Principal, premium, if
any, and interest and Additional Interest, if any, shall be paid by check,
mailed to the registered Holders at their registered addresses; provided that
all payments with respect to Notes that the Holders of which have given wire
transfer instructions to the Company, will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof.
5. Paying Agent and Registrar.
--------------------------
Initially, the Trustee will act as Paying Agent and Registrar under
the Indenture. The Company may, upon written notice to the Trustee, appoint and
change any Paying Agent or Registrar. The Company or any of its Affiliates may
act as Paying Agent or Registrar; provided that if the Company or such Affiliate
--------
is acting as Paying Agent, the Company or such Affiliate shall segregate all
funds held by it as Paying Agent and hold them in trust for the benefit of the
Holders or the Trustee.
6. Note Guarantees.
---------------
There are currently no Note Guarantees. This Note may become entitled
to the benefits of future Note Guarantees to be made by each future direct or
indirect Subsidiary of the Company (each singularly, a "Guarantor" and together,
the "Guarantors"). Each Guarantor will, irrevocably and unconditionally,
jointly and severally, guarantee on a senior basis the punctual payment when
due, whether at Stated Maturity, by acceleration, in connection with a Change of
Control Offer, an Asset Sale Offer or redemption, or otherwise, of all
obligations of the Company under the Indenture and this Note, whether for
payment of principal of, premium, if any, interest or Additional Interest, if
any, on the Notes, expenses, indemnification or otherwise. A Guarantor shall be
released from its Note Guarantee upon the terms and subject to the conditions
set forth in the Indenture.
B-5
<PAGE>
7. Redemption.
----------
The Notes are not redeemable at the option of the Company prior to
April 1, 2002. Thereafter, the Notes will be subject to redemption at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
calendar days' prior notice, at the redemption prices (expressed as percentages
of principal amount) set forth below, plus accrued and unpaid interest thereon,
and Additional Interest, if any, to the applicable Redemption Date (subject to
the right of each Holder of record on the relevant Record Date to receive
interest due on the relevant Interest Payment Date), if redeemed during the
twelve-month period beginning April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR Percentage
---- ----------
<S> <C>
2002 105.125%
2003 103.417%
2004 101.708%
2005 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 1, 2000, the
Company, at its option, may redeem up to 35% of the aggregate principal amount
of the Notes originally issued, in part, with the net proceeds of one or more
Public Equity Offerings made by the Company or of a capital contribution made by
the Parent to the common equity capital of the Company with the net proceeds of
one or more Public Equity Offerings made by the Parent, at a redemption price
equal to 110.25% of the aggregate principal amount thereof together with accrued
and unpaid interest and Additional Interest, if any, to the date of the
redemption payment; provided, however, that after such redemption, the aggregate
-------- -------
principal amount of the Notes outstanding must equal at least 65% of the
aggregate principal amount of the Notes originally issued and provided, further,
-------- -------
that such redemption shall occur within 60 days of the date of closing such
Public Equity Offering.
8. Notice of Redemption.
--------------------
At least 30 calendar days but not more than 60 calendar days before a
Redemption Date, the Company shall send, or cause to be sent, a notice of
redemption, by first-class mail, postage prepaid, to Holders of Notes to be
redeemed at the addresses of such Holders as they appear in the Note Register.
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed on a pro rata basis; provided that
the Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Notes that have denominations larger than
$1,000 (Notes in denominations of $1,000 or less may be redeemed only in whole).
If any Note is redeemed subsequent to a Record Date with respect to any Interest
Payment Date specified above and on or prior to such Interest Payment Date, then
any accrued interest will be paid on such Interest Payment Date to the Holder of
the Note on such Record Date. If money in an amount sufficient to pay the
Redemption Price of all Notes (or portions thereof) to be redeemed on the
Redemption Date is deposited with the Paying Agent on or before
B-6
<PAGE>
the applicable Redemption Date and certain other conditions are satisfied,
interest on the Notes or portions thereof to be redeemed on the applicable
Redemption Date will cease to accrue.
9. Repurchase at the Option of Holders upon Change of Control.
----------------------------------------------------------
Upon the occurrence of a Change of Control, each Holder shall have the
right in accordance with the terms hereof and the Indenture to require the
Company to purchase such Holder's Notes, in whole or in part, in a principal
amount that is an integral multiple of $1,000, pursuant to a Change of Control
Offer, at a purchase price in cash equal to 101% of the principal amount of such
Notes (or portions thereof) plus accrued and unpaid interest and Additional
Interest, if any, to the Change of Control Payment Date.
Within 30 calendar days after the date of any Change of Control, the
Company shall send, or cause to be sent, by first-class mail, postage prepaid, a
notice regarding the Change of Control Offer to each Holder. The Holder of this
Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Purchase Price with respect thereto, all Notes or portions thereof
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest from and after the Change of Control Payment Date.
10. Repurchase at the Option of Holders upon Asset Sale.
---------------------------------------------------
If at any time the Company or any Subsidiary engages in any Asset
Sale, as a result of which the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall, within 30 calendar days of the date the amount of
Excess Proceeds exceeds $5.0 million, use the then-existing Excess Proceeds to
make an offer to purchase from all Holders of Notes, on a pro rata basis, Notes
in an aggregate principal amount equal in amount to the then-existing Excess
Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon and Additional
Interest, if any, to the Asset Sale Purchase Date. Upon completion of an Asset
Sale Offer (including payment of the Asset Sale Purchase Price for accepted
Notes), any surplus Excess Proceeds that were the subject of such offer shall
cease to be Excess Proceeds, and the Company may then use such amounts for
general corporate purposes. Within 30 calendar days of the date the amount of
Excess Proceeds exceeds $5.0 million, the Company shall send, or cause to be
sent, by first-class mail, postage prepaid, a notice regarding the Asset Sale
Offer to each Holder. The Holder of this Note may elect to have this Note or a
portion hereof in an authorized denomination purchased by completing the form
entitled "Option of Holder to Elect Purchase" appearing below and tendering this
Note pursuant to the Asset Sale Offer. Unless the Company defaults in the
payment of the Asset Sale Purchase Price with respect thereto, all Notes or
portions thereof selected for payment pursuant to the Asset Sale Offer will
cease to accrue interest from and after the Asset Sale Purchase Date.
11. The Registered Exchange Offer.
-----------------------------
B-7
<PAGE>
Any Initial Notes (including this Note) that are presented to the
Registrar for exchange pursuant to the Registered Exchange Offer (as defined in
the Registration Rights Agreement) shall be exchanged for Exchange Notes of
equal principal amount upon surrender of such Notes to the Registrar in
accordance with the terms of the Registered Exchange Offer and the Indenture.
12. Transfer and Exchange.
---------------------
The transfer of this Note is subject to certain restrictions,
including those to which reference is made in the Private Placement Legend. A
Holder may transfer or exchange Notes as provided in the Indenture and subject
to certain limitations therein set forth. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements or transfer documents
and to pay any taxes, fees and expenses required by law or permitted by the
Indenture. The Registrar need not register the transfer or exchange of
Certificated Notes or portions thereof selected for redemption (except, in the
case of a Certificated Note to be redeemed in part, the portion of such
Certificated Note not to be redeemed) or any Certificated Notes for a period of
15 calendar days before a selection of Notes to be redeemed.
13. Denominations.
-------------
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof of principal amount;
provided that Initial Certificated Notes originally purchased by or transferred
to Institutional Accredited Investors shall be subject to a minimum denomination
of $250,000.
14. Discharge and Defeasance.
------------------------
Subject to certain conditions, the Company may, at any time, terminate
some or all of the obligations of the Company and each Guarantor, if any, under
the Notes, each Note Guarantee, if any, and the Indenture if the Company
irrevocably deposits in trust with the Trustee cash or U.S. Government
Obligations for the payment of principal, premium, if any, interest and
Additional Interest, if any, on the Notes to redemption or maturity, as the case
may be.
15. Amendment;Waiver.
----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the outstanding Notes (which consent
may, but need not, be given in connection with any tender offer or exchange
offer for the Notes) and (ii) any Default and its consequences may be waived
with the written consent of the Holders of at least a majority in principal
amount of the outstanding Notes. Subject to certain exceptions set forth in the
Indenture, without the consent of any Holder, the Company and the Trustee may
amend the Indenture or the Notes (i) to evidence the succession of another
Person to the Company and the assumption by such successor of the covenants of
the Company under the Indenture and contained in the Notes; (ii) to add to the
covenants of the Company, for the benefit of the Holders of all of the Notes, or
to surrender any right or power conferred on the Company under the Indenture;
(iii) to add any additional
B-8
<PAGE>
Events of Default; (iv) to provide for uncertificated Notes in addition to or in
place of Certificated Notes; (v) to evidence and provide for the acceptance of
appointment under the Indenture of a successor Trustee; (vi) to secure the
Notes; (vii) to cure any ambiguity in the Indenture, or to correct or supplement
any provision in the Indenture which may be inconsistent with any other
provision therein or to add any other provisions with respect to matters or
questions arising under the Indenture, provided that such actions shall not
adversely affect the interests of the Holders of Notes in any material respect;
(viii) to comply with the requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act; or
(ix) to evidence the agreement or acknowledgment of a Subsidiary that it is a
Guarantor for all purposes under the Indenture (including, without limitation,
Article X thereof).
16. Defaults and Remedies.
---------------------
Under the Indenture, Events of Default include: (i) a default for 30
days in the payment when due of interest on, or Additional Interest with respect
to, the Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Notes; (iii) failure by the Company to observe or perform certain
covenants, conditions, agreements or other provisions of the Indenture or this
Note (and, in the case of certain covenants, agreements or other provisions,
such failure has continued for 60 calendar days after written notice by the
Trustee or the Holders of at least 25% in principal amount of the Notes); (iv)
default in the payment of Indebtedness of the Company or any of its Subsidiaries
at its final maturity or acceleration of such Indebtedness in an amount in
excess of $5.0 million in the aggregate; (v) certain events of bankruptcy or
insolvency with respect to the Company or any of its Subsidiaries; (vi) certain
undischarged judgments in excess of $5.0 million in the aggregate; or (vii) the
Note Guarantee of any Guarantor being held in any judicial proceeding to be
unenforceable or invalid or ceasing for any reason to be in full force and
effect (other than in accordance with the terms of the Indenture) or any
Guarantor or any Person acting on behalf of any Guarantor denying or
disaffirming the Note Guarantee of such Guarantor.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes, subject to certain
limitations, may declare all the Notes to be immediately due and payable.
Certain events of bankruptcy or insolvency shall result in the Notes being
immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Notes may
direct the Trustee in its exercise of any trust or power under the Indenture.
The Holders of a majority in principal amount of the then outstanding Notes, by
written notice to the Trustee and the Company, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all existing Events of Default have been cured or
waived, except nonpayment of principal, interest, premium or Additional Interest
that has become due solely because of acceleration. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.
B-9
<PAGE>
17. Individual Rights of Trustee.
----------------------------
Subject to certain limitations imposed by the Trust Indenture Act, the
Trustee or any Paying Agent or Registrar, in its individual or any other
capacity, may become the owner or pledgee of Notes and may otherwise deal with
the Company, the Guarantors, if any, or its or their Affiliates with the same
rights it would have if it were not Trustee, Paying Agent or Registrar, as the
case may be, under the Indenture.
18. No Recourse Against Certain Others.
----------------------------------
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any such Guarantor under the Notes, the Note Guarantees, if
any, or the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation, solely by reason of its status as a
director, officer, employee, incorporator or stockholder of the Company or any
such Guarantor. By accepting a Note, each Holder waives and releases all such
liability (but only such liability) as part of the consideration for issuance of
such Note to such Holder.
19. Authentication.
--------------
This Note shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Note.
20. Abbreviations.
-------------
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
21. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of Notes. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption, and reliance may be placed only on the
other identification numbers placed thereon.
B-10
<PAGE>
22. Governing Law.
-------------
THE INDENTURE, ANY NOTE GUARANTEES AND THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture which has in it the text of
this Note. Requests may be made to:
Port Royal Holdings, Inc.
One Union Square
Chattanooga, TN 37402
Attention: Secretary
B-11
<PAGE>
ASSIGNMENT
(To be executed by the registered Holder
if such Holder decsires to transfer this Note)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
- -----------------------------------
- -----------------------------------
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint _________________________________ Attorney to
transfer this Note on the Security Register, with full power of substitution.
Dated: ________________
_________________________ _________________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing Assignment must correspond to the Name
as written upon the face of this Note in every particular, without alteration or
any change whatsoever.
B-12
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
[_] In connection with the Change of Control Offer made pursuant to
Section 4.07 of the Indenture, the undersigned hereby elects to
have
[_] the entire principal amount
[_] $_______________ ($1,000 in principal amount or an integral
multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or __________________________ an amount in cash
equal to 101% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Change of Control Payment Date.
[_] In connection with the Asset Sale Offer made pursuant to Section
4.08 of the Indenture,the undersigned hereby elects to have
[_] the entire principal amount
[_] $________________ ($1,000 in principal amount or an integral
multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or ____________________________ an amount in cash
equal to 100% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Asset Sale Purchase Date.
Dated: ________________
________________________ ________________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
B-13
<PAGE>
EXHIBIT C
FORM OF EXCHANGE GLOBAL NOTE
----------------------------
FACE OF EXCHANGE GLOBAL NOTE
----------------------------
TKC ACQUISITION CORP.
No.___
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY TO TKC ACQUISITION CORP. OR A SUCCESSOR THEREOF OR THE REGISTRAR
FOR REGISTRATION OF TRANSFER OR EXCHANGE AND ANY NOTE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFER OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, AND NOT IN
PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE.
<PAGE>
GLOBAL NOTE
REPRESENTING 10 1/4% SENIOR NOTES DUE 2006
TKC Acquisition Corp., a Tennessee corporation, for value received,
hereby promises to pay to CEDE & CO., or its registered assigns, the principal
sum indicated on Schedule A hereof, on October 1, 2007.
Interest Payment Dates: April 1 and October 1, commencing April 1,
1997.
Record Dates: March 15 and September 15.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purposes.
IN WITNESS WHEREOF, TKC Acquisition Corp. has caused this Note to be
duly executed under its corporate seal.
TKC ACQUISITION CORP.
By:___________________________________
Name:
Title:
Attest:__________________
Dated:___________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
____________________________________
as Trustee, certifies that this
is one of the Notes referred to
in the Indenture.
By:_________________________________
Authorized Signatory
C-2
<PAGE>
REVERSE SIDE OF EXCHANGE GLOBAL NOTE
TKC ACQUISITION CORP.
GLOBAL NOTE
REPRESENTING 10 1/4% SENIOR NOTES DUE 2007
1. Indenture.
---------
This Note is one of a duly authorized issue of debt securities of the
Company (as defined below) designated as its "10 1/4% Senior Notes Due 2007"
(herein called the "Notes") limited in aggregate principal amount to
$100,000,000, issued under an indenture dated as of September 26, 1997 (as
amended or supplemented from time to time, the "Indenture") between the Company,
as issuer, and SunTrust Bank, Atlanta, as trustee (the "Trustee," which term
includes any successor trustee under the Indenture). The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S)
77aaa-77bbb). The Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and such Act for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Guarantors, if any, the Trustee and each Holder and of the terms upon which the
Notes are, and are to be, authenticated and delivered. The summary of the terms
of this Note contained herein does not purport to be complete and is qualified
by reference to the Indenture. To the extent permitted by applicable law, in
the event of any inconsistency between the terms of this Note and the terms of
the Indenture, the terms of the Indenture shall control. All capitalized terms
used in this Note which are not defined herein shall have the meanings assigned
to them in the Indenture.
The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness and issue preferred stock, pay dividends or make
certain other restricted payments, incur liens, sell stock of Subsidiaries,
apply net proceeds from certain asset sales, merge or consolidate with any other
person, sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company and enter into certain
transactions with affiliates.
Principal and Interest.
2. ----------------------
TKC Acquisition Corp., a Tennessee corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay the principal amount set forth on
Schedule A of this Note to the Holder hereof on October 1, 2007.
The Company shall pay interest at a rate of 10 1/4% per annum, from
September 26, 1997 or from the most recent Interest Payment Date thereafter to
which interest has been paid or duly provided for, semiannually in arrears on
April 1 and October 1 of each year, commencing on April 1, 1998, in cash, to the
Holder hereof until the principal amount hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, subject to certain exceptions provided in the
Indenture, be paid to the Person in whose name this Note (or the Note in
exchange or substitution for which this Note was
C-3
<PAGE>
issued) is registered at the close of business on the Record Date for interest
payable on such Interest Payment Date. The Record Date for any interest payment
is the close of business on March 15 or September 15, as the case may be,
whether or not a Business Day, immediately preceding the Interest Payment Date
on which such interest is payable. Any such interest not so punctually paid or
duly provided for ("Defaulted Interest") shall forthwith cease to be payable to
the Holder on such Record Date and shall be paid as provided in Section 2.11 of
the Indenture. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
Each payment of interest in respect of an Interest Payment Date will
include interest accrued through the day before such Interest Payment Date. If
an Interest Payment Date falls on a day that is not a Business Day, the interest
payment to be made on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
If this Note is issued pursuant to a Registered Exchange Offer, on or
prior to the Record Date for the first Interest Payment Date following such
exchange, accrued and unpaid interest, if any, on the equivalent principal
amount of the Initial Note in exchange for which this Note was issued, up to but
not including the date of issuance of this Note, shall be paid on the first
Interest Payment Date for this Note to the Holder of this Note on the first
Record Date with respect to this Note. If this Note is issued pursuant to a
Registered Exchange Offer, subsequent to the Record Date for the first Interest
Payment Date following such exchange but on or prior to such Interest Payment
Date, then any such accrued and unpaid interest with respect to the equivalent
principal amount of the Initial Note in exchange for which this Note was issued
and any accrued and unpaid interest on this Note through the day before such
Interest Payment Date shall be paid on such Interest Payment Date to the Holder
of such Initial Note on such Record Date.
To the extent lawful, the Company shall pay interest on overdue
principal, overdue premium, Defaulted Interest and overdue Additional Interest
(without regard to any applicable grace period) at the interest rate borne on
this Note. The Company's obligation pursuant to the previous sentence shall
apply whether such overdue amount is due at its Stated Maturity, as a result of
the Company's obligations pursuant to Section 3.05, Section 4.07 or Section 4.08
of the Indenture, or otherwise.
Method of Payment.
3. -----------------
The Company, through the Paying Agent, shall pay interest on this Note
to the registered Holder of this Note, as provided above. The Holder must
surrender this Note to a Paying Agent to collect principal payments. The
Company will pay principal, premium, if any, and interest and Additional
Interest, if any, in money of the United States of America that at the time of
payment is legal tender for payment of all debts public and private. Principal,
premium, if any, and interest and Additional Interest, if any, shall be paid by
checks, mailed to the registered Holders at their registered addresses; provided
that all payments with respect to Notes that the Holders of which have given
wire transfer instructions to the Company, will be required to be
C-4
<PAGE>
made by wire transfer of immediately available funds to the accounts specified
by the Holders thereof.
Paying Agent and Registrar.
4. --------------------------
Initially, the Trustee will act as Paying Agent and Registrar under
the Indenture. The Company may, upon written notice to the Trustee, appoint and
change any Paying Agent or Registrar. The Company or any of its Affiliates may
act as Paying Agent or Registrar; provided that if the Company or such Affiliate
--------
is acting as Paying Agent, the Company or such Affiliate shall segregate all
funds held by it as Paying Agent and hold them in trust for the benefit of the
Holders or the Trustee.
5. Note Guarantees.
---------------
There are currently no Note Guarantees. This Note may become entitled
to the benefits of future Note Guarantees to be made by each future direct or
indirect Subsidiary of the Company (each singularly, a "Guarantor" and together,
the "Guarantors"). Each Guarantor will, irrevocably and unconditionally,
jointly and severally, guarantee on a senior basis the punctual payment when
due, whether at Stated Maturity, by acceleration, in connection with a Change of
Control Offer, an Asset Sale Offer or redemption, or otherwise, of all
obligations of the Company under the Indenture and this Note, whether for
payment of principal of, premium, if any, interest or Additional Interest, if
any, on the Notes, expenses, indemnification or otherwise. A Guarantor shall be
released from its Note Guarantee upon the terms and subject to the conditions
set forth in the Indenture.
Redemption.
6. ----------
The Notes are not redeemable at the option of the Company prior to
April 1, 2002. Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 calendar days' prior notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon and Additional Interest, if any, to the applicable Redemption
Date (subject to the right of each Holder of record on the relevant Record Date
to receive interest due on the relevant Interest Payment Date), if redeemed
during the twelve-month period beginning April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002 105.125%
2003 103.417%
2004 101.708%
2005 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 1, 2000, the
Company, at its option, may redeem up to 35% of the aggregate principal amount
of the Notes originally issued, in part, with the net proceeds of one or more
Public Equity Offerings made by the Company or of a capital contribution made by
the Parent to the common equity capital of the
C-5
<PAGE>
Company with the net proceeds of one or more Public Equity Offerings made by the
Parent , at a redemption price equal to 110.25% of the aggregate principal
amount thereof together with accrued and unpaid interest and Additional
Interest, if any, to the date of the redemption payment; provided, however, that
-------- -------
after such redemption, the aggregate principal amount of the Notes outstanding
must equal at least 65% of the aggregate principal amount of the Notes
originally issued and provided, further, that such redemption shall occur within
-------- -------
60 days of the date of closing such Public Equity Offering.
7. Notice of Redemption.
--------------------
At least 30 calendar days but not more than 60 calendar days before a
Redemption Date, the Company shall send, or cause to be sent, a notice of
redemption, by first-class mail, postage prepaid, to Holders of Notes to be
redeemed at the addresses of such Holders as they appear in the Note Register.
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed on a pro rata basis; provided that
the Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Notes that have denominations larger than
$1,000 (Notes in denominations of $1,000 or less may be redeemed only in whole).
If any Note is redeemed subsequent to a Record Date with respect to any Interest
Payment Date specified above and on or prior to such Interest Payment Date, then
any accrued interest will be paid on such Interest Payment Date to the Holder of
the Note on such Record Date. If money in an amount sufficient to pay the
Redemption Price of all Notes (or portions thereof) to be redeemed on the
Redemption Date is deposited with the Paying Agent on or before the applicable
Redemption Date and certain other conditions are satisfied, interest on the
Notes or portions thereof to be redeemed on the applicable Redemption Date will
cease to accrue.
8. Repurchase at the Option of Holders upon Change of Control.
----------------------------------------------------------
Upon the occurrence of a Change of Control, each Holder shall have the
right in accordance with the terms hereof and the Indenture to require the
Company to purchase such Holder's Notes, in whole or in part, in a principal
amount that is an integral multiple of $1,000, pursuant to a Change of Control
Offer, at a purchase price in cash equal to 101% of the principal amount of such
Notes (or portions thereof) plus accrued and unpaid interest and Additional
Interest, if any, to the Change of Control Payment Date.
Within 30 calendar days after the date of any Change of Control, the
Company shall send, or cause to be sent, by first-class mail, postage prepaid, a
notice regarding the Change of Control Offer to each Holder. The Holder of this
Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Purchase Price with respect thereto, all Notes or portions thereof
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest from and after the Change of Control Payment Date.
C-6
<PAGE>
9. Repurchase at the Option of Holders upon Asset Sale.
---------------------------------------------------
If at any time the Company or any Subsidiary engages in any Asset
Sale, as a result of which the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall, within 30 calendar days of the date the amount of
Excess Proceeds exceeds $5.0 million, use the then-existing Excess Proceeds to
make an offer to purchase from all Holders of Notes, on a pro rata basis, Notes
in an aggregate principal amount equal in amount to the then-existing Excess
Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon and Additional
Interest, if any, to the Asset Sale Purchase Date. Upon completion of an Asset
Sale Offer (including payment of the Asset Sale Purchase Price for accepted
Notes), any surplus Excess Proceeds that were the subject of such offer shall
cease to be Excess Proceeds, and the Company may then use such amounts for
general corporate purposes.
Within 30 calendar days of the date the amount of Excess Proceeds
exceeds $5.0 million, the Company shall send, or cause to be sent, by first-
class mail, postage prepaid, a notice regarding the Asset Sale Offer to each
Holder. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the Asset Sale Offer. Unless the Company defaults in the payment of the Asset
Sale Purchase Price with respect thereto, all Notes or portions thereof selected
for payment pursuant to the Asset Sale Offer will cease to accrue interest from
and after the Asset Sale Purchase Date.
10. The Global Note.
---------------
So long as this Global Note is registered in the name of the
Depository or its nominee, members of, or participants in, the Depository
("Agent Members") shall have no rights under the Indenture with respect to this
Global Note held on their behalf by the Depository or the Trustee as its
custodian, and the Depository may be treated by the Company, the Guarantors, if
any, the Trustee and any agent of the Company, the Guarantors, if any, or the
Trustee as the absolute owner of this Global Note for all purposes.
Notwithstanding the foregoing, nothing herein shall (i) prevent the Company, the
Guarantors, if any, the Trustee or any agent of the Company or the Trustee, from
giving effect to any written certification, proxy or other authorization
furnished by the Depository or (ii) impair, as between the Depository and its
Agent Members, the operation of customary practices governing the exercise of
the rights of a Holder.
The Holder of this Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in this Global Note through Agent Members, to take any action which a
Holder is entitled to take under the Indenture or the Notes.
Whenever, as a result of optional redemption by the Company, a Change
of Control Offer, an Asset Sale Offer or an exchange for Certificated Notes,
this Global Note is redeemed, repurchased or exchanged in part, this Global Note
shall be surrendered by the Holder thereof to the Trustee who shall cause an
adjustment to be made to Schedule A hereof so that the principal amount of this
Global Note will be equal to the portion not redeemed, repurchased or
C-7
<PAGE>
exchanged and shall thereafter return this Global Note to such Holder; provided
--------
that this Global Note shall be in a principal amount of $1,000 or an integral
multiple of $1,000.
11. Transfer and Exchange.
---------------------
A Holder may transfer or exchange Notes as provided in the Indenture
and subject to certain limitations therein set forth. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes, fees and expenses required by law or permitted
by the Indenture.
12. Denominations.
-------------
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof of principal amount.
13. Discharge and Defeasance.
------------------------
Subject to certain conditions, the Company may, at any time, terminate
some or all of the obligations of the Company and each Guarantor, if any, under
the Notes, each Note Guarantee, if any, and the Indenture if the Company
irrevocably deposits in trust with the Trustee cash or U.S. Government
Obligations for the payment of principal, premium, if any, interest and
Additional Interest, if any, on the Notes to redemption or maturity, as the case
may be.
14. Amendment, Waiver.
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the outstanding Notes (which consent
may, but need not, be given in connection with any tender offer or exchange
offer for the Notes) and (ii) any Default and its consequences may be waived
with the written consent of the Holders of at least a majority in principal
amount of the outstanding Notes. Subject to certain exceptions set forth in the
Indenture, without the consent of any Holder, the Company and the Trustee may
amend the Indenture or the Notes (i) to evidence the succession of another
Person to the Company and the assumption by such successor of the covenants of
the Company under the Indenture and contained in the Notes; (ii) to add to the
covenants of the Company, for the benefit of the Holders of all of the Notes, or
to surrender any right or power conferred on the Company under the Indenture;
(iii) to add any additional Events of Default; (iv) to provide for
uncertificated Notes in addition to or in place of Certificated Notes; (v) to
evidence and provide for the acceptance of appointment under the Indenture of a
successor Trustee; (vi) to secure the Notes; (vii) to cure any ambiguity in the
Indenture, or to correct or supplement any provision in the Indenture which may
be inconsistent with any other provision therein or to add any other provisions
with respect to matters or questions arising under the Indenture, provided that
such actions shall not adversely affect the interests of the Holders of Notes in
any material respect; (viii) to comply with the requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act; or (ix) to evidence the agreement or acknowledgment of a
Subsidiary that it is a Guarantor for all purposes under the Indenture
(including, without limitation, Article X thereof).
C-8
<PAGE>
15. Defaults and Remedies.
---------------------
Under the Indenture, Events of Default include: (i) a default for 30
days in the payment when due of interest on, or Additional Interest with respect
to, the Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Notes; (iii) failure by the Company to observe or perform certain
covenants, conditions, agreements or other provisions of the Indenture or this
Note (and, in the case of certain covenants, agreements or other provisions,
such failure has continued for 60 calendar days after written notice by the
Trustee or the Holders of at least 25% in principal amount of the Notes); (iv)
default in the payment of Indebtedness of the Company or any of its Subsidiaries
at its final maturity or acceleration of such Indebtedness in an amount in
excess of $5.0 million in the aggregate; (v) certain events of bankruptcy or
insolvency with respect to the Company or any of its Subsidiaries; (vi) certain
undischarged judgments in excess of $5.0 million in the aggregate; or (vii) the
Note Guarantee of any Guarantor being held in any judicial proceeding to be
unenforceable or invalid or ceasing for any reason to be in full force and
effect (other than in accordance with the terms of the Indenture) or any
Guarantor or any Person acting on behalf of any Guarantor denying or
disaffirming the Note Guarantee of such Guarantor.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes, subject to certain
limitations, may declare all the Notes to be immediately due and payable.
Certain events of bankruptcy or insolvency shall result in the Notes being
immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Notes may
direct the Trustee in its exercise of any trust or power under the Indenture.
The Holders of a majority in principal amount of the then outstanding Notes, by
written notice to the Trustee and the Company, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all existing Events of Default have been cured or
waived, except nonpayment of principal, interest, premium or Additional Interest
that has become due solely because of acceleration. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.
16. Individual Rights of Trustee.
----------------------------
Subject to certain limitations imposed by the Trust Indenture Act, the
Trustee or any Paying Agent or Registrar, in its individual or any other
capacity, may become the owner or pledgee of Notes and may otherwise deal with
the Company, the Guarantors, if any, or its or their Affiliates with the same
rights it would have if it were not Trustee, Paying Agent or Registrar, as the
case may be, under the Indenture.
C-9
<PAGE>
17. No Recourse Against Certain Others.
----------------------------------
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any such Guarantor under the Notes, the Note Guarantees, if
any, or the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation, solely by reason of its status as a
director, officer, employee, incorporator or stockholder of the Company or any
such Guarantor. By accepting a Note, each Holder waives and releases all such
liability (but only such liability) as part of the consideration for issuance of
such Note to such Holder.
18. Authentication.
--------------
This Note shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Note.
19. Abbreviations.
-------------
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
20. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of Notes. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption, and reliance may be placed only on the
other identification numbers placed thereon.
21. Governing Law.
-------------
THE INDENTURE, ANY NOTE GUARANTEES AND THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture which has in it the text of
this Note. Requests may be made to:
Port Royal Holdings, Inc.
One Union Square
Chattanooga, TN 37402
Attention: Secretary
C-10
<PAGE>
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount at maturity of this Note shall be $____________.
The following decreases/increase in the principal amount in denominations of
$1,000 or integral multiples thereof at maturity of this Note have been made:
<TABLE>
<CAPTION>
Decrease in Increase in Amount at Maturity Made by
Date of Principal Amount Principal Amount Following such or on Behalf of
Decrease/Increase at Maturity at Maturity Decrease/Increase Trustee
- ----------------- ----------- ----------- ----------------- -------
<S> <C> <C> <C> <C>
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
__________________ ___________________ ___________________ ___________________ ___________________
</TABLE>
C-11
<PAGE>
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Note)
FOR VALUE RECEIVED _____________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
___________________________________
___________________________________
________________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint ________________________________ Attorney to
transfer this Note on the Security Register, with full power of substitution.
Dated:_____________________________
_____________________________ ____________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing Assignment must correspond to the Name
as written upon the face of this Note in every particular, without alteration or
any change whatsoever.
C-12
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
[_] In connection with the Change of Control Offer made pursuant to
Section 4.07 of the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $______________ ($1,000 in principal amount or an integral
multiple thereof)
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or _____________________ an amount in cash equal to
101% of the principal amount indicated in the preceding sentence plus
accrued and unpaid interest and Additional Interest thereon, if any, to the
Change of Control Payment Date.
[_] In connection with the Asset Sale Offer made pursuant to Section 4.08 of
the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $______________ ($1,000 in principal amount or an integral
multiple thereof)
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or __________________________ an amount in cash
equal to 100% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Asset Sale Purchase Date.
Dated:_______________________________
______________________________ ____________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
C-13
<PAGE>
EXHIBIT D
FORM OF EXCHANGE CERTIFICATED NOTE
----------------------------------
FACE OF EXCHANGE CERTIFICATED NOTE
----------------------------------
TKC ACQUISITION CORP.
No.__
10 1/4% SENIOR NOTE DUE 2007
TKC Acquisition Corp., a Tennessee corporation, for value received,
hereby promises to pay to ___________, or its registered assigns, the principal
amount of __________ on October 1, 2007.
Interest Payment Dates: April 1 and October 1, commencing April 1,
1998.
Record Dates: March 15 and September 15.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purposes.
IN WITNESS WHEREOF, TKC Acquisition Corp. has caused this Note to be
duly executed under its corporate seal.
TKC ACQUISITION CORP.
By:______________________________
Name:
Title:
Attest:________________________
Dated:________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
______________________________________________
as Trustee, certifies that this is one of
the Notes referred to in the Indenture.
By:________________________________
Authorized Signatory
D-2
<PAGE>
REVERSE SIDE OF EXCHANGE CERTIFICATED NOTE
------------------------------------------
TKC ACQUISITION CORP.
10 1/4% SENIOR NOTE DUE 2007
1. Indenture.
---------
This Note is one of a duly authorized issue of debt securities of the
Company (as defined below) designated as its "10 1/4% Senior Notes Due 2007"
(herein called the "Notes") limited in aggregate principal amount to
$100,000,000, issued under an indenture dated as of September 26, 1997 (as
amended or supplemented from time to time, the "Indenture") between the Company,
as issuer, and SunTrust Bank, Atlanta, as trustee (the "Trustee," which term
includes any successor trustee under the Indenture). The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S)
77aaa-77bbb). The Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and such Act for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Guarantors, if any, the Trustee and each Holder and of the terms upon which the
Notes are, and are to be, authenticated and delivered. The summary of the terms
of this Note contained herein does not purport to be complete and is qualified
by reference to the Indenture. To the extent permitted by applicable law, in
the event of any inconsistency between the terms of this Note and the terms of
the Indenture, the terms of the Indenture shall control. All capitalized terms
used in this Note which are not defined herein shall have the meanings assigned
to them in the Indenture.
The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness and issue preferred stock, pay dividends or make
certain other restricted payments, incur liens, sell stock of Subsidiaries,
apply net proceeds from certain asset sales, merge or consolidate with any other
person, sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company and enter into certain
transactions with affiliates.
2. Principal and Interest.
----------------------
TKC Acquisition Corp., a Tennessee corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay the principal amount of ________
to the Holder hereof on October 1, 2007.
The Company shall pay interest at a rate of 10 1/4% per annum, from
September 26, 1997 or from the most recent Interest Payment Date thereafter to
which interest has been paid or duly provided for, semiannually in arrears on
April 1 and October 1 of each year, commencing on April 1, 1998, in cash, to the
Holder hereof until the principal amount hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, subject to certain exceptions provided in the
Indenture, be paid to the Person in whose name this Note (or the Note in
exchange or substitution for which this Note was issued) is registered at the
close of business on the Record Date for interest payable on such
D-3
<PAGE>
Interest Payment Date. The Record Date for any interest payment is the close of
business on March 15 or September 15, as the case may be, whether or not a
Business Day, immediately preceding the Interest Payment Date on which such
interest is payable. Any such interest not so punctually paid or duly provided
for ("Defaulted Interest") shall forthwith cease to be payable to the Holder on
such Record Date and shall be paid as provided in Section 2.11 of the Indenture.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Each payment of interest in respect of an Interest Payment Date will
include interest accrued through the day before such Interest Payment Date. If
an Interest Payment Date falls on a day that is not a Business Day, the interest
payment to be made on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
If this Note is issued pursuant to a Registered Exchange Offer, on or
prior to the Record Date for the first Interest Payment Date following such
exchange, accrued and unpaid interest, if any, on the equivalent principal
amount of the Initial Note in exchange for which this Note was issued, up to but
not including the date of issuance of this Note, shall be paid on the first
Interest Payment Date for this Note to the Holder of this Note on the first
Record Date with respect to this Note. If this Note is issued pursuant to a
Registered Exchange Offer, subsequent to the Record Date for the first Interest
Payment Date following such exchange, but on or prior to such Interest Payment
Date, then any such accrued and unpaid interest with respect to the equivalent
principal amount of the Initial Note in exchange for which this Note was issued
and any accrued and unpaid interest on this Note through the day before such
Interest Payment Date shall be paid on such Interest Payment Date to the Holder
of such Initial Note on such Record Date.
To the extent lawful, the Company shall pay interest on overdue
principal, overdue premium, Defaulted Interest and overdue Additional Interest
(without regard to any applicable grace period) at the interest rate borne on
this Note. The Company's obligation pursuant to the previous sentence shall
apply whether such overdue amount is due at its Stated Maturity, as a result of
the Company's obligations pursuant to Section 3.05, Section 4.07 or Section 4.08
of the Indenture, or otherwise.
3. Method of Payment.
-----------------
The Company, through the Paying Agent, shall pay interest on this Note
to the registered Holder of this Note, as provided above. The Holder must
surrender this Note to a Paying Agent to collect principal payments. The
Company will pay principal, premium, if any, and interest and Additional
Interest, if any, in money of the United States of America that at the time of
payment is legal tender for payment of all debts public and private. Principal,
premium, if any, and interest and Additional Interest, if any, shall be paid by
check mailed to the registered Holders at their registered addresses; provided
that all payments with respect to Notes that the Holders of which have given
wire transfer instructions to the Company, will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof.
D-4
<PAGE>
4. Paying Agent and Registrar.
--------------------------
Initially, the Trustee will act as Paying Agent and Registrar under
the Indenture. The Company may, upon written notice to the Trustee, appoint and
change any Paying Agent or Registrar. The Company or any of its Affiliates may
act as Paying Agent or Registrar; provided that if the Company or such Affiliate
--------
is acting as Paying Agent, the Company or such Affiliate shall segregate all
funds held by it as Paying Agent and hold them in trust for the benefit of the
Holders or the Trustee.
5. Note Guarantees.
---------------
There are currently no Note Guarantees. This Note may become entitled
to the benefits of future Note Guarantees to be made by each future direct or
indirect Subsidiary of the Company (each singularly, a "Guarantor" and together,
the "Guarantors"). Each Guarantor will, irrevocably and unconditionally,
jointly and severally, guarantee on a senior subordinated basis the punctual
payment when due, whether at Stated Maturity, by acceleration, in connection
with a Change of Control Offer, an Asset Sale Offer or redemption, or otherwise,
of all obligations of the Company under the Indenture and this Note, whether for
payment of principal of, premium, if any, interest or Additional Interest, if
any, on the Notes, expenses, indemnification or otherwise. A Guarantor shall be
released from its Note Guarantee upon the terms and subject to the conditions
set forth in the Indenture.
6. Redemption.
----------
The Notes are not redeemable at the option of the Company prior to
April 1, 2002. Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 calendar days' prior notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon and Additional Interest, if any, to the applicable Redemption
Date (subject to the right of each Holder of record on the relevant Record Date
to receive interest due on the relevant Interest Payment Date), if redeemed
during the twelve-month period beginning April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR Percentage
---- ----------
<S> <C>
2002 105.125%
2003 103.417%
2004 101.708%
2005 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 1, 2000, the
Company, at its option, may redeem up to 35% of the aggregate principal amount
of the Notes originally issued, in part, with the net proceeds of one or more
Public Equity Offering made by the Company or of a capital contribution made by
the Parent to the common equity capital of the Company with the net proceeds of
one or more Public Equity Offerings made by the Parent, at the redemption price
equal to 110.25% of the aggregate principal amount thereof together with accrued
and unpaid interest and Additional Interest, if any, to the date of the
redemption payment;
D-5
<PAGE>
provided, however, that after such redemption, the aggregate principal amount of
- -------- -------
the Notes outstanding must equal at least 65% of the aggregate principal amount
of the Notes originally issued and provided, further, that such redemption shall
-------- -------
occur within 60 days of the date of closing such Public Equity Offering..
7. Notice of Redemption.
--------------------
At least 30 calendar days but not more than 60 calendar days before a
Redemption Date, the Company shall send, or cause to be sent, a notice of
redemption, by first-class mail, postage prepaid, to Holders of Notes to be
redeemed at the addresses of such Holders as they appear in the Note Register.
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed on a pro rata basis; provided that
the Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Notes that have denominations larger than
$1,000 (Notes in denominations of $1,000 or less may be redeemed only in whole).
If any Note is redeemed subsequent to a Record Date with respect to any Interest
Payment Date specified above and on or prior to such Interest Payment Date, then
any accrued interest will be paid on such Interest Payment Date to the Holder of
the Note on such Record Date. If money in an amount sufficient to pay the
Redemption Price of all Notes (or portions thereof) to be redeemed on the
Redemption Date is deposited with the Paying Agent on or before the applicable
Redemption Date and certain other conditions are satisfied, interest on the
Notes or portions thereof to be redeemed on the applicable Redemption Date will
cease to accrue.
8. Repurchase at the Option of Holders upon Change of Control.
----------------------------------------------------------
Upon the occurrence of a Change of Control, each Holder shall have the
right in accordance with the terms hereof and the Indenture to require the
Company to purchase such Holder's Notes, in whole or in part, in a principal
amount that is an integral multiple of $1,000, pursuant to a Change of Control
Offer, at a purchase price in cash equal to 101% of the principal amount of such
Notes (or portions thereof) plus accrued and unpaid interest and Additional
Interest, if any, to the Change of Control Payment Date.
Within 30 calendar days after the date of any Change of Control, the
Company shall send, or cause to be sent, by first-class mail, postage prepaid, a
notice regarding the Change of Control Offer to each Holder. The Holder of this
Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Purchase Price with respect thereto, all Notes or portions thereof
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest from and after the Change of Control Payment Date.
D-6
<PAGE>
9. Repurchase at the Option of Holders upon Asset Sale.
--------------------------- -----------------------
If at any time the Company or any Subsidiary engages in any Asset
Sale, as a result of which the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall, within 30 calendar days of the date the amount of
Excess Proceeds exceeds $5.0 million, use the then-existing Excess Proceeds to
make an offer to purchase from all Holders of Notes, on a pro rata basis, Notes
in an aggregate principal amount equal in amount to the then-existing Excess
Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon and Additional
Interest, if any, to the Asset Sale Purchase Date. Upon completion of an Asset
Sale Offer (including payment of the Asset Sale Purchase Price for accepted
Notes), any surplus Excess Proceeds that were the subject of such offer shall
cease to be Excess Proceeds, and the Company may then use such amounts for
general corporate purposes.
Within 30 calendar days of the date the amount of Excess Proceeds
exceeds $5.0 million, the Company shall send, or cause to be sent, by first-
class mail, postage prepaid, a notice regarding the Asset Sale Offer to each
Holder. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the Asset Sale Offer. Unless the Company defaults in the payment of the Asset
Sale Purchase Price with respect thereto, all Notes or portions thereof selected
for payment pursuant to the Asset Sale Offer will cease to accrue interest from
and after the Asset Sale Purchase Date.
10. Transfer and Exchange.
---------------------
A Holder may transfer or exchange Notes as provided in the Indenture
and subject to certain limitations therein set forth. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes, fees and expenses required by law or permitted
by the Indenture. The Registrar need not register the transfer or exchange of
Certificated Notes or portions thereof selected for redemption (except, in the
case of a Certificated Note to be redeemed in part, the portion of such
Certificated Note not to be redeemed) or any Certificated Notes for a period of
15 calendar days before a selection of Notes to be redeemed.
11. Denominations.
-------------
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof of principal amount.
D-7
<PAGE>
12. Discharge and Defeasance.
------------------------
Subject to certain conditions, the Company may, at any time, terminate
some or all of the obligations of the Company and each Guarantor, if any, under
the Notes, each Note Guarantee, if any, and the Indenture if the Company
irrevocably deposits in trust with the Trustee, cash or U.S. Government
Obligations for the payment of principal, premium, if any, interest and
Additional Interest, if any, on the Notes to redemption or maturity, as the case
may be.
13. Amendment Waiver.
----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the outstanding Notes (which consent
may, but need not, be given in connection with any tender offer or exchange
offer for the Notes) and (ii) any Default and its consequences may be waived
with the written consent of the Holders of at least a majority in principal
amount of the outstanding Notes. Subject to certain exceptions set forth in the
Indenture, without the consent of any Holder, the Company and the Trustee may
amend the Indenture or the Notes (i) to evidence the succession of another
Person to the Company and the assumption by such successor of the covenants of
the Company under the Indenture and contained in the Notes; (ii) to add to the
covenants of the Company, for the benefit of the Holders of all of the Notes, or
to surrender any right or power conferred on the Company under the Indenture;
(iii) to add any additional Events of Default; (iv) to provide for
uncertificated Notes in addition to or in place of Certificated Notes; (v) to
evidence and provide for the acceptance of appointment under the Indenture of a
successor Trustee; (vi) to secure the Notes; (vii) to cure any ambiguity in the
Indenture, or to correct or supplement any provision in the Indenture which may
be inconsistent with any other provision therein or to add any other provisions
with respect to matters or questions arising under the Indenture, provided that
such actions shall not adversely affect the interests of the Holders of Notes in
any material respect; (viii) to comply with the requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act; or (ix) to evidence the agreement or acknowledgment of a
Subsidiary that it is a Guarantor for all purposes under the Indenture
(including, without limitation, Article X thereof).
14. Defaults and Remedies.
---------------------
D-8
<PAGE>
Under the Indenture, Events of Default include: (i) a default for 30
days in the payment when due of interest on, or Additional Interest with respect
to, the Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Notes; (iii) failure by the Company to observe or perform certain
covenants, conditions, agreements or other provisions of the Indenture or this
Note (and, in the case of certain covenants, agreements or other provisions,
such failure has continued for 60 calendar days after written notice by the
Trustee or the Holders of at least 25% in principal amount of the Notes); (iv)
default in the payment of Indebtedness of the Company or any of its Subsidiaries
at its final maturity or acceleration of such Indebtedness in an amount in
excess of $5.0 million in the aggregate; (v) certain events of bankruptcy or
insolvency with respect to the Company or any of its Subsidiaries; (vi) certain
undischarged judgments in excess of $5.0 million in the aggregate; or (vii) the
Note Guarantee of any Guarantor being held in any judicial proceeding to be
unenforceable or invalid or ceasing for any reason to be in full force and
effect (other than in accordance with the terms of the Indenture) or any
Guarantor or any Person acting on behalf of any Guarantor denying or
disaffirming the Note Guarantee of such Guarantor.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes, subject to certain
limitations, may declare all the Notes to be immediately due and payable.
Certain events of bankruptcy or insolvency shall result in the Notes being
immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Notes may
direct the Trustee in its exercise of any trust or power under the Indenture.
The Holders of a majority in principal amount of the then outstanding Notes, by
written notice to the Trustee and the Company, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all existing Events of Default have been cured or
waived, except nonpayment of principal, interest, premium or Additional Interest
that has become due solely because of acceleration. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.
15. Individual Rights of Trustee.
----------------------------
Subject to certain limitations imposed by the Trust Indenture Act, the
Trustee or any Paying Agent or Registrar, in its individual or any other
capacity, may become the owner or pledgee of Notes and may otherwise deal with
the Company, the Guarantors, if any, or its or their Affiliates with the same
rights it would have if it were not Trustee, Paying Agent or Registrar, as the
case may be, under the Indenture.
16. No Recourse Against Certain Others.
----------------------------------
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any such Guarantor under the Notes, the Note Guarantees, if
any, or the Indenture or for any claim based
D-9
<PAGE>
on, in respect of, or by reason of; such obligations or their creation, solely
by reason of its status as a director, officer, employee, incorporator or
stockholder of the Company or any such Guarantor. By accepting a Note, each
Holder waives and releases all such liability (but only such liability) as part
of the consideration for issuance of such Note to such Holder.
17. Authentication.
--------------
This Note shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Note.
18. Abbreviations.
-------------
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
19. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of Notes. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption, and reliance may be placed only on the
other identification numbers placed thereon.
20. Governing Law.
-------------
THE INDENTURE, ANY NOTE GUARANTEES AND THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture which has in it the text of
this Note. Requests may be made to:
Port Royal Holdings, Inc.
One Union Square
Chattanooga, TN 37402
Attention: Secretary
D-10
<PAGE>
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Note)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
- ---------------------------------
- ---------------------------------
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint _________________________________ Attorney to
transfer this Note on the Security Register, with full power of substitution.
Dated: ________________
___________________________ _______________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing Assignment must correspond to the Name
as written upon the face of this Note in every particular, without alteration or
any change whatsoever.
D-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
[_] In connection with the Change of Control Offer made pursuant to Section
4.07 of the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $_______________ ($1,000 in principal amount or an integral multiple
thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or __________________________ an amount in cash
equal to 101% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Change of Control Payment Date.
[_] In connection with the Asset Sale Offer made pursuant to Section 4.08 of
the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $________________ ($1,000 in principal amount or an integral multiple
thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or ____________________________ an amount in cash
equal to 100% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Asset Sale Purchase Date.
Dated: ________________
______________________________ ______________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
D-12
<PAGE>
EXHIBIT E
FORM OF TRANSFER CERTIFICATE
FOR TRANSFER TO A QIB
SunTrust Bank, Atlanta
58 Edgewood Avenue, 4th Floor Annex
Atlanta, Georgia 30303
Attention: Corporate Trust Administration
Re: TKC Acquisition Corp (the "Company") 10 1/4% Senior Notes Due 2007
------------------------------------------------------------------
(the "Notes")
--- -----
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of September 26,
1997 (as amended and supplemented from time to time, the "Indenture") between
the Company, as issuer and SunTrust Bank, Atlanta, as Trustee. Capitalized
terms used but not defined herein shall have the meanings given them in the
Indenture. This letter relates to $___________ aggregate principal amount of
Notes which are held in the name of [name of transferor] (the "Transferor") to
effect the transfer of such Notes in exchange for an equivalent beneficial
interest in the Initial Global Note.
In connection with such request, and with respect to such Notes, the
Transferor does hereby certify that such Notes are being transferred in
accordance with (i) the transfer restrictions set forth in the Notes and (ii)
Rule 144A under the United States Securities Act of 1933, as amended ("Rule
144A"), to a transferee that the Transferor reasonably believes is purchasing
the Notes for its own account or an account with respect to which the transferee
exercises sole investment discretion, and the transferee, as well as any such
account, is a "qualified institutional buyer" within the meaning of Rule 144A,
in a transaction meeting the requirements of Rule 144A and in accordance with
applicable securities laws of any state of the United States or any other
jurisdiction.
E-1
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
_________________________________
[Name of Transferor]
By:______________________________
Name:
Title:
Date:____________________________
cc: Long, Aldridge & Norman LLP
303 Peachtree Street
Atlanta, Georgia 30308
Attn: Briggs Tobin
E-2
<PAGE>
EXHIBIT F
FORM OF TRANSFER CERTIFICATE FOR TRANSFER TO AN
INSTITUTIONAL ACCREDITED INVESTOR
SunTrust Bank, Atlanta
58 Edgewood Avenue, 4th Floor Annex
Atlanta, Georgia 30303
Attention: Corporate Trust Administration
Re: TKC Acquisition Corp (the "Company") 10 1/4% Senior Notes Due 2007
------------------------------------------------------------------
(the "Notes")
--- -----
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of September 26,
1997 (as amended and supplemented from time to time, the "Indenture") between
the Company, as issuer, and SunTrust Bank, Atlanta, as Trustee. Capitalized
terms used but not defined herein shall have the meanings given them in the
Indenture.
This letter relates to U.S. $___________ aggregate principal amount of
Notes which are held [in certificated form in the name of [name of transferor]
(the "Transferor")] [through the beneficial interest of [name of transferor]
(the "Transferor") in the Initial Global Note] to effect the transfer of such
Notes to an institutional "accredited investor" as defined in Rule 501(a)(1),
(2), (3) or (7) of Regulation D under the Securities Act of 1933, as amended
("Institutional Accredited Investor").
In connection with such request, and with respect to such Notes, the
Transferor does hereby certify that such Notes are being transferred (i) in
accordance with the transfer restrictions set forth in the Notes and (ii) to a
transferee that the Transferor reasonably believes is an Institutional
Accredited Investor that is acquiring at least $250,000 principal amount of
Notes for its own account or for one or more accounts as to which the transferee
exercises sole investment discretion and (iii) in accordance with applicable
securities laws of any state of the United States or any other jurisdiction.
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
___________________________________
[Name of Transferor]
By:________________________________
Name:
Title:
Date:______________________________
cc: Long, Aldridge & Norman, LLP
303 Peachtree Street
Atlanta, Georgia 30308
Attn: Briggs Tobin
F-2
<PAGE>
EXHIBIT G
FORM OF INVESTMENT LETTER
FOR INSTITUTIONAL ACCREDITED INVESTORS
SunTrust Bank, Atlanta
58 Edgewood Avenue, 4th Floor Annex
Atlanta, Georgia 30303
Attention: Corporate Trust Administration
Re: TKC Acquisition Corp (the "Company") 10 1/4% Senior Notes
---------------------------------------------------------
Due 2007 (the "Notes")
----------------------
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of September 26,
1997 (as amended and supplemented from time to time, the "Indenture") between
the Company and SunTrust Bank, Atlanta, as Trustee. Capitalized terms used but
not defined herein shall have the meanings given them in the Indenture
In connection with our proposed purchase of $____________ aggregate
principal amount of Notes, we confirm that:
1. We understand that the Notes have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and may not be
sold except as permitted in the following sentence. We understand and agree, on
our own behalf and on behalf of any accounts for which we are acting as
hereinafter stated, (x) that such Notes are being offered only in a transaction
not involving any public offering within the meaning of the Securities Act, (y)
that if we should resell, pledge or otherwise transfer such Notes within two
years after the later of the date of the original issuance of the Notes and the
last date on which the Company or any affiliate (within the meaning of Rule 144
under the Securities Act ("Rule 144")) of the Company was the owner of such
Notes (or any predecessor of such Notes), or within three months after we cease
to be an affiliate of the Company, such Notes may be resold, pledged or
transferred only (i) to the Company, (ii) so long as Notes are eligible for
resale pursuant to Rule 144A under the Securities Act ("Rule 144A") to a person
whom we reasonably believe is a "qualified institutional buyer" (as defined in
Rule 144A) ("QIB") that purchases for its own account or for the account of a
QIB to whom notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A, (iii) in an offshore transaction in accordance with
Regulation S under the Securities Act, (iv) to an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act ("Institutional Accredited Investor") that
has certified to the Company and the Trustee that it is such an accredited
investor and is acquiring the Notes for investment purposes and not for
distribution, (v) pursuant to an effective registration statement under the
Securities Act or (vi) pursuant to any other available exemption from the
registration requirements of the Securities Act, in each case in accordance with
any applicable securities laws
<PAGE>
of any state of the United States, and we will notify any purchaser of the Notes
from us of the above resale restrictions, if then applicable. We further
understand that, in connection with any transfer of the Notes by us, the Company
and the Trustee may request, and if so requested we will furnish, such
certificates, legal opinions and other information as they may reasonably
require to confirm that any such transfer complies with the foregoing
restrictions. We understand that the Notes will be issued in registered form
only and that any certificates issued will bear a legend substantially to the
effect set forth in the Indenture.
2. We are able to fend for ourselves in this transaction, we have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment and can afford the complete loss of such investment.
3. We understand that the minimum principal amount of Notes that
may be purchased by an Institutional Accredited Investor is $250,000.
4. We understand that the Company, the Trustee and others will rely
upon the truth and accuracy of the foregoing acknowledgments, representations
and agreements, and we agree that if any of the acknowledgments, representations
and warranties deemed to have been made by us by our purchase of Notes, for our
own account or for one or more accounts as to each of which we exercise sole
investment discretion, are no longer accurate, we shall promptly notify the
Company and the Trustee.
5. We are acquiring the Notes purchased by us for investment
purposes, and not for distribution, for our own account or for one or more
accounts as to each of which we exercise sole investment discretion and we are
or such account is an Institutional Accredited Investor.
G-2
<PAGE>
6. You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
_________________________________
[Name of Purchaser]
By:
_______________________________
Name:
Title:
Date:____________________________
cc: Long, Aldridge & Norman LLP
303 Peachtree Street
Atlanta, Georgia 30308
Attn: Briggs Tobin
G-3
<PAGE>
EXHIBIT H
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
TO A NON-U.S. PERSON
SunTrust Bank, Atlanta
58 Edgewood Avenue, 4th Floor Annex
Atlanta, Georgia 30303
Attention: Corporate Trust Administration
Re: TKC Acquisition Corp (the "Company") 10 1/4% Senior Notes Due 2007
------------------------------------------------------------------
(the "Notes")
--------------
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of September 26,
1997 (as amended and supplemented from time to time, the "Indenture") between
the Company, as issuer, and SunTrust Bank, Atlanta, as Trustee. Capitalized
terms used but not defined herein shall have the meanings given them in the
Indenture.
This letter relates to $_____________ aggregate principal amount of
Notes which are held [in certificated form in the name of [name of transferor]
(the "Transferor")] [through the beneficial interest of [name of transferor]
(the "Transferor") in the Initial Global Note] to effect the transfer of such
Notes in exchange for Initial Certificated Notes.
In connection with such request, the Transferor does hereby certify
that such Notes are being transferred in accordance with (i) the transfer
restrictions set forth in the Notes and (ii) Regulation S ("Regulation S") under
the United States Securities Act of 1933, as amended (the "Securities Act") and
does hereby further certify that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) the transaction was executed in, on or through the facilities of
a designated offshore securities market, and neither the Transferor,
nor any person acting on its behalf knows that the transaction was
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as
applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
In addition, if the sale is made during a Restricted Period (as
defined in Regulation S) and the provisions of Rule 903(c)(2) or (3) or Rule
904(c)(1) of Regulation S are applicable
<PAGE>
thereto, we confirm that such sale has been made in accordance with the
applicable provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1), as the case
may be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
________________________________________
[Name of Transferor]
By:_____________________________________
Name:
Title:
Date:___________________________________
cc: Long, Aldridge & Norman LLP
303 Peachtree Street
Atlanta, Georgia 30308
Attn: Briggs Tobin
H-2
<PAGE>
EXHIBIT I
FORM OF INVESTMENT LETTER
FOR REGULATION S PURCHASERS
SunTrust Bank, Atlanta
58 Edgewood Avenue, 4th Floor Annex
Atlanta, Georgia 30303
Attention: Corporate Trust Administration
Re: TKC Acquisition Corp (the "Company") 10 1/4% Senior Notes Due 2007
------------------------------------------------------------------
(the "Notes")
-------------
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of September 26,
1997 (as amended and supplemented from time to time, the "Indenture") between
the Company, as issuer, and SunTrust Bank, Atlanta, as Trustee. Capitalized
terms used but not defined herein shall have the meanings given them in the
Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of the Notes which are held [in certificated form in the name
of [name of transferor] (the "Transferor")] [through the beneficial interest of
[name of transferor] (the "Transferor") in the Initial Global Note], we hereby
certify that we are (or we will hold such Notes on behalf of) a person outside
the United States to whom the Notes could be transferred in accordance with Rule
904 of Regulation S promulgated under the United States Securities Act of 1933,
as amended.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
___________________________________
[Name of Purchaser]
By:________________________________
Name:
Title:
Date:______________________________
cc: Long, Aldridge & Norman
303 Peachtree Street
Atlanta, Georgia 30308
Attn: Briggs Tobin
<PAGE>
EXHIBIT J
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of September 26, 1997
By and Among
TKC ACQUISITION CORP.,
as acquiror of The Krystal Company
as Issuer
and
UBS SECURITIES LLC
as Initial Purchaser
================================================================================
$100,000,000
10 1/4% SENIOR NOTES DUE 2007
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
---------
September 26, 1997, by and among TKC ACQUISITION CORP., a Tennessee corporation
("TKC"), and UBS SECURITIES LLC (the "Initial Purchaser").
-----------------
WHEREAS, Port Royal Holdings Inc., a Georgia corporation and owner of
100% of the capital stock of TKC ("Holdings") intends to consummate an
acquisition pursuant to which Holdings would acquire The Krystal Company, a
Tennessee corporation ("Krystal"), from its existing shareholders through a
merger (the "Merger") of TKC with and into Krystal which will be the surviving
corporation (any references in this Agreement to the "Issuer" being understood
to refer to (i) TKC before the Merger and (ii) Krystal as the surviving
corporation after the Merger); and
WHEREAS, this Agreement is being entered into in connection with the
Purchase Agreement, dated September 18, 1997, between the Issuer and the Initial
Purchaser (the "Purchase Agreement"), which provides for the issuance and sale
------------------
(the "Initial Placement") by the Issuer to the Initial Purchaser of $100,000,000
aggregate principal amount of the Issuer's 10 1/4% Senior Notes due 2007 (the
"Notes"). In order to induce the Initial Purchaser to enter into the Purchase
- ------
Agreement, the Issuer has agreed to provide the registration rights set forth in
this Agreement for the benefit of the Initial Purchaser and its direct and
indirect transferees. The execution and delivery of this Agreement is a
condition to the obligation of the Initial Purchaser to purchase the Notes under
the Purchase Agreement;
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition
-----------
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
"Additional Interest" has the meaning set forth in Section 4 hereof.
-------------------
"Affiliate" of any specified person means (i) any other person
---------
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person or (ii) any other person who is a
director or executive officer of (a) such specified person or (b) any person
described in the preceding clause (i). For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of any class, or any series of
- --------
any class, of equity securities of a person, whether or not voting, shall be
deemed to be control.
"Closing Date" has the meaning set forth in the Purchase Agreement.
------------
"Commission" means the United States Securities and Exchange
----------
Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the Commission promulgated thereunder.
<PAGE>
"Exchange Notes" means debt securities of the Issuer identical in all
--------------
material respects to the Notes (except that the Additional Interest provisions
and the transfer restrictions pertaining to the Notes will be modified or
eliminated, as appropriate), to be issued under the Indenture.
"Exchange Offer Registration Period" means the one year period
----------------------------------
following the consummation of the Registered Exchange Offer, exclusive of any
period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement; provided, however,
-------- -------
that in the event that all resales of Exchange Notes (including, subject to the
time periods set forth herein, any resales by Exchanging Dealers) covered by
such Exchange Offer Registration Statement have been made, the Exchange Offer
Registration Statement need not thereafter remain continuously effective for
such period.
"Exchange Offer Registration Statement" means a registration statement
-------------------------------------
of the Issuer on an appropriate form under the Securities Act with respect to
the Registered Exchange Offer, all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the Initial
-----------------
Purchaser) that is a broker-dealer, electing to exchange Notes acquired for its
own account as a result of market-making activities or other trading activities
for Exchange Notes.
"Final Memorandum" means the final offering memorandum relating to the
----------------
offering of the Notes dated September 18, 1997, as supplemented and amended by
the supplemental offering memorandum dated September 25, 1997.
"Holder" means any holder from time to time of Registrable Notes or
------
Exchange Notes (including the Initial Purchaser).
"Indenture" means the indenture relating to the Notes and the Exchange
---------
Notes, to be dated as of the Closing Date, between the Issuer and SunTrust Bank,
Atlanta as trustee, as the same may be amended, supplemented, waived or
otherwise modified from time to time in accordance with the terms thereof. It
shall include the provisions of the Trust Indenture Act that are deemed to be
part of and govern the indenture.
"Initial Placement" has the meaning set forth in the preamble hereto.
-----------------
"Initial Purchaser" has the meaning set forth in the preamble hereto.
-----------------
"Losses" has the meaning set forth in Section 7(d) hereto.
------
"Majority Holders" means the Holders of a majority of the aggregate
----------------
principal amount of Registrable Notes registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment
---------------------
bankers and manager or managers that shall administer an underwritten offering
under a Shelf Registration Statement.
"Notes" has the meaning set forth in the preamble hereto.
-----
2
<PAGE>
"Prospectus" means the prospectus included in any Registration
----------
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Notes covered by such
Registration Statement, and all amendments and supplements to the Prospectus,
including post-effective amendments.
"Purchase Agreement" has the meaning set forth in the preamble hereto.
------------------
"Registered Exchange Offer" means the proposed offer to the Holders to
-------------------------
issue and deliver to such Holders, in exchange for the Notes, a like principal
amount of Exchange Notes.
"Registrable Notes" means each Note upon original issuance of the
-----------------
Notes and at all times subsequent thereto, each Exchange Note as to which
clauses (iii), (iv) or (v) of the first paragraph of Section 3 hereof are
applicable upon original issuance and at all times subsequent thereto, until in
the case of any such Note or Exchange Note, as the case may be, the earliest to
occur of (i) a Registration Statement (other than, with respect to any Exchange
Note as to which clauses (iii), (iv) or (v) of the first paragraph of Section 3
hereof are applicable, the Exchange Registration Statement) covering such Note
or Exchange Note, as the case may be, has been declared effective by the SEC and
such Note (unless such Note was not tendered for exchange by the Holder thereof)
or Exchange Note, as the case may be, has been disposed of in accordance with
such effective Registration Statement, (ii) such Note or Exchange Note, as the
case may be, is sold in compliance with Rule 144, or (iii) such Note or Exchange
Note, as the case may be, ceases to be outstanding for purposes of the
Indenture.
"Registration Statement" means any Exchange Offer Registration
----------------------
Statement or Shelf Registration Statement that covers any of the Registrable
Notes (including any Note Guarantees of each thereof) pursuant to the provisions
of this Agreement, amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto, and all material incorporated by
reference therein.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Shelf Registration" means a registration effected pursuant to Section
------------------
3 hereof.
"Shelf Registration Period" has the meaning set forth in Section 3(b)
-------------------------
hereof.
"Shelf Registration Statement" means a "shelf" registration statement
----------------------------
of the Issuer pursuant to the provisions of Section 3 hereof, which covers some
or all of the Registrable Notes, as applicable, on an appropriate form under
Rule 415 under the Securities Act, or any similar rule that may be adopted by
the Commission, all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Trustee" means the trustee with respect to the Notes or Exchange
-------
Notes, as applicable, under the Indenture.
"underwriter" means any underwriter of Registrable Notes in connection
-----------
with an offering thereof under a Shelf Registration Statement.
3
<PAGE>
2. Registered Exchange Offer; Resales of Exchange Notes by Exchanging
------------------------------------------------------------------
Dealers; Private Exchange. (a) The Issuer shall prepare and, within 60 days
- -------------------------
from the date of original issuance of the Notes, shall file with the Commission
the Exchange Offer Registration Statement with respect to the Registered
Exchange Offer. The Issuer shall use its best efforts (i) to cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act
within 150 days from the date of original issuance of the Notes, and (ii) to
consummate the Registered Exchange Offer within 180 days from the date of
original issuance of the Notes.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Issuer shall promptly commence the Registered Exchange Offer and
use its best efforts to issue on or prior to 30 days after the date on which the
Exchange Offer Registration Statement is declared effective by the Commission
Exchange Notes in exchange for all Registrable Notes tendered prior thereto in
the Registered Exchange Offer. The objective of such Registered Exchange Offer
is to enable each Holder electing to exchange Registrable Notes for Exchange
Notes (assuming that such Holder (x) is not an "affiliate" of the Issuer within
the meaning of the Securities Act, (y) is not a broker-dealer that acquired the
Registrable Notes in a transaction other than as a part of its market-making or
other trading activities and (z) if such Holder is not a broker-dealer, acquires
the Exchange Notes in the ordinary course of such Holder's business, is not
participating in the distribution of the Exchange Notes and has no arrangements
or understandings with any person to participate in the distribution of the
Exchange Notes) to resell such Exchange Notes from and after their receipt
without any limitations or restrictions under the Securities Act and without
material restrictions under the securities laws of a substantial proportion of
the several states of the United States.
(c) In connection with the Registered Exchange Offer, the Issuer
shall:
(i) mail to each Holder a copy of the Prospectus forming part of
the Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for acceptance for not
less than 30 days and not more than 45 days (or longer if required by
applicable law) after the date notice thereof is mailed to the Holders;
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of New
York; and
(iv) comply in all material respects with all applicable laws
relating to the Registered Exchange Offer.
(d) As soon as practicable after the close of the Registered Exchange
Offer, the Issuer shall:
(i) accept for exchange all Registrable Notes duly tendered and not
validly withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee for cancellation all Registrable Notes
so accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver to each
Holder Exchange Notes equal in principal amount to the Registrable Notes of
such Holder so accepted for exchange.
4
<PAGE>
(e) The Initial Purchaser and the Issuer acknowledge that, pursuant
to interpretations by the staff of the Commission of Section 5 of the Securities
Act, and in the absence of an applicable exemption therefrom, each Exchanging
Dealer is required to deliver a Prospectus in connection with a sale of any
Exchange Notes received by such Exchanging Dealer pursuant to the Registered
Exchange Offer in exchange for Registrable Notes acquired for its own account as
a result of market-making activities or other trading activities. Accordingly,
the Issuer shall:
(i) include the information set forth in Annex A hereto on the
cover of the Prospectus forming a part of the Exchange Offer Registration
Statement, in Annex B hereto in the forepart of the Exchange Offer
Registration Statement in a section setting forth details of the Registered
Exchange Offer, in Annex C hereto in the underwriting or plan of
distribution section of the Prospectus forming a part of the Exchange Offer
Registration Statement, and in Annex D hereto in the letter of transmittal
delivered pursuant to the Registered Exchange Offer; and
(ii) use its best efforts to keep the Exchange Offer Registration
Statement continuously effective under the Securities Act during the
Exchange Offer Registration Period for delivery of the prospectus included
therein by Exchanging Dealers in connection with sales of Exchange Notes
received pursuant to the Registered Exchange Offer, as contemplated by
Section 5(h) below.
(f) In the event that the Initial Purchaser determines that it is not
eligible to participate in the Registered Exchange Offer with respect to the
exchange of Registrable Notes constituting any portion of an unsold allotment,
upon the effectiveness of the Shelf Registration Statement as contemplated by
Section 3 hereof and at the request of the Initial Purchaser, the Issuer shall
issue and deliver to the Initial Purchaser, or to the party purchasing
Registrable Notes registered under the Shelf Registration Statement from the
Initial Purchaser, in exchange for such Registrable Notes, a like principal
amount of Exchange Notes. The Issuer shall use its best efforts to cause the
CUSIP Service Bureau to issue the same CUSIP number for such Exchange Notes as
for Exchange Notes issued pursuant to the Registered Exchange Offer.
3. Shelf Registration. If, (i) because of any change in law or
------------------
applicable interpretations thereof by the Commission's staff, the Issuer
determines upon advice of its outside counsel that it is not permitted to effect
the Registered Exchange Offer as contemplated by Section 2 hereof, or (ii) the
Registered Exchange Offer is not consummated within 180 days from the date of
original issuance of the Notes, or (iii) the Initial Purchaser so requests with
respect to Registrable Notes held by it as a result of the purchase of such
Registrable Note directly from the Issuer following consummation of the
Registered Exchange Offer, or (iv) any Holder (other than the Initial Purchaser)
is not eligible to participate in the Registered Exchange Offer or the Exchange
Notes such Holder would receive in the Registered Exchange Offer could only be
reoffered and resold by such Holder upon compliance with the registration and
prospectus delivery requirements of the Securities Act and the delivery of the
Prospectus contained in the Exchange Offer Registration Statement, as
appropriately amended, is not a legally available alternative, or (v) in the
case where the Initial Purchaser participates in the Registered Exchange Offer
or acquires Exchange Notes pursuant to Section 2(f) hereof, the Initial
Purchaser does not receive freely tradable Exchange Notes in exchange for Notes
constituting any portion of an unsold allotment (it being understood that, for
purposes of this Section 3, (x) the requirement that the Initial Purchaser
deliver a Prospectus containing the information required by Items 507 and/or 508
of Regulation S-K under the Securities Act in connection with sales of Exchange
Notes acquired in exchange for such Registrable Notes shall result in such
Exchange Notes being not "freely tradable" and (y) the requirement that an
Exchanging Dealer deliver a Prospectus in connection with sales of Exchange
Notes acquired in the Registered Exchange Offer in exchange for Registrable
Notes acquired as a result of market-making activities or other trading
activities shall not result in such Exchange Notes being not "freely tradable"),
the following provisions shall apply:
5
<PAGE>
(a) The Issuer shall, as promptly as practicable (but in no event
more than 60 days after so required or requested pursuant to this Section 3),
file with the Commission a Shelf Registration Statement relating to the offer
and sale of the Registrable Notes by the Holders from time to time in accordance
with the methods of distribution elected by such Holders and set forth in such
Shelf Registration Statement and Rule 415 under the Securities Act, provided,
--------
that with respect to Exchange Notes received by the Initial Purchaser in
exchange for Notes constituting any portion of an unsold allotment, the Issuer
may, if permitted by current interpretations by the Commission's staff, file a
post-effective amendment to the Exchange Offer Registration Statement containing
the information required by Regulation S-K Items 507 and/or 508, as applicable,
in satisfaction of its obligations under this paragraph (a) with respect
thereto, and any such Exchange Offer Registration Statement, as so amended,
shall be referred to herein as, and governed by the provisions herein applicable
to, a Shelf Registration Statement.
(b) The Issuer shall use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act on or
prior to 45 days after filing such Shelf Registration Statement pursuant to this
Section 3 and to keep such Shelf Registration Statement continuously effective
in order to permit the Prospectus contained therein to be usable by Holders for
a period of two years (or, if Rule 144(k) under the Securities Act is amended to
allow for resales pursuant to such Rule after a shorter period, such shorter
period) from the date the Shelf Registration Statement is declared effective by
the Commission or such shorter period that will terminate when all the
Registrable Notes covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement (in any such case, such period
being called the "Shelf Registration Period"). The Issuer shall be deemed not
to have used its best efforts to keep the Shelf Registration Statement effective
during the requisite period if it voluntarily takes any action that would result
in Holders of Registrable Notes covered thereby not being able to offer and sell
such notes during that period, unless such action is required by applicable law
and the Issuer promptly thereafter complies with the requirements of Section
5(k) hereof, if applicable.
(c) No Holder of Registrable Notes may include any of its Registrable
Notes in any Shelf Registration Statement pursuant to this Agreement unless and
until such Holder furnishes to the Issuer in writing, within 20 business days
after receipt of a request therefor, such information as the Issuer may
reasonably request for use in connection with any Shelf Registration Statement
or Prospectus or preliminary Prospectus included therein. No Holder of
Registrable Notes shall be entitled to Additional Interest pursuant to Section 4
hereof unless and until such Holder shall have used its best efforts to provide
all such reasonably requested information. Each Holder as to which any Shelf
Registration Statement is being effected agrees to furnish promptly to the
Issuer all information required to be disclosed in order to make the information
previously furnished to the Issuer by such Holder not misleading.
4. Additional Interest. If (i) either the Exchange Offer
-------------------
Registration Statement or the Shelf Registration Statement is not filed with the
Commission on or prior to the date specified for such filing in this Agreement,
(ii) either the Exchange Offer Registration Statement or the Shelf Registration
Statement has not been declared effective by the Commission on or prior to the
target date specified for such effectiveness in this Agreement (the
"Effectiveness Target Date"), (iii) the Exchange Offer has not been consummated
within 30 days after the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement or (iv) either the Exchange Offer Registration
Statement or the Shelf Registration Statement is filed and declared effective
but thereafter ceases to be effective during the applicable Exchange Offer
Registration Period or Shelf Registration Period, as the case may be (each such
event referred to in clauses (i) through (iv), a "Registration Default"), the
Issuer hereby agrees to pay additional interest ("Additional Interest") to each
Holder of Registrable Notes with respect to the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to 0.5%
per annum of the principal amount of Registrable Notes held by such Holder. The
amount of the Additional Interest
6
<PAGE>
payable to each Holder for such Registration Default will increase by an
additional 0.5% per annum of the principal amount of Registrable Notes held by
such Holder with respect to each subsequent 90-day period until such
Registration Default has been cured, up to an aggregate maximum amount of
Additional Interest of 1.0% per annum of the principal amount of Registrable
Notes for all Registration Defaults. All accrued Additional Interest will be
paid by the Issuer on each Interest Payment Date (as such term is defined in the
Indenture) to the Holders of record with respect to such Interest Payment Date
by wire transfer of immediately available funds or by federal funds check.
Additional Interest payable (a) with respect to the Registration Default
specified in clause (i) above, shall cease to accrue upon filing of the Exchange
Offer Registration Statement (and, if applicable, the Shelf Registration
Statement), (b) with respect to the Registration Default specified in clause
(ii) above, shall cease to accrue upon the effectiveness of the Exchange Offer
Registration Statement (and, if applicable, the Shelf Registration Statement),
(c) with respect to the Registration Default specified in clause (iii) above,
shall cease to accrue upon consummation of the Exchange Offer, and (d) with
respect to the Registration Default specified in clause (iv) above, shall cease
to accrue upon the filing of a post-effective amendment to the Registration
Statement that causes the Exchange Offer Registration Statement (and, if
applicable, the Shelf Registration Statement) again to be declared effective, as
the case may be. Following the cure of all Registration Defaults, the accrual
of Additional Interest will cease, and all accrued and unpaid Additional
Interest shall be paid to Holders of Registrable Notes promptly thereafter.
The Issuer shall notify the Trustee within five days after the
occurrence of each and every Registration Default. The parties hereto agree
that the Additional Interest provided for in this Section 4 constitutes a
reasonable estimate of the damages that will be incurred by Holders by reason of
any Registration Default.
5. Registration Procedures. In connection with any Shelf
-----------------------
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Issuer shall furnish to the Initial Purchaser, prior to the
filing thereof with the Commission, a copy of any Registration Statement, and
each amendment thereof and each amendment or supplement, if any, to the
Prospectus included therein and shall use its best efforts to reflect in each
such document, when so filed with the Commission, such comments as the Initial
Purchaser reasonably may propose.
(b) The Issuer shall ensure that:
(i) any Registration Statement and any amendment thereto and any
Prospectus contained therein and any amendment or supplement thereto
complies in all material respects with the Securities Act;
(ii) any Registration Statement and any amendment thereto does not,
when it becomes effective, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and
(iii) any Prospectus forming part of any Registration Statement,
including any amendment or supplement to such Prospectus, does not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
7
<PAGE>
(c) (1) The Issuer shall advise the Initial Purchaser and, in the
case of a Shelf Registration Statement, the Holders of Registrable Notes covered
thereby, and, if requested by the Initial Purchaser or any such Holder, confirm
such advice in writing:
(i) when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or any
post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the Prospectus included therein or for
additional information.
(2) During the Shelf Registration Period or the Exchange Offer
Registration Period, as applicable, the Issuer shall advise the Initial
Purchaser and, in the case of a Shelf Registration Statement, the Holders of
Registrable Notes covered thereby, and, in the case of an Exchange Offer
Registration Statement, any Exchanging Dealer that has provided in writing to
the Issuer a telephone or facsimile number and address for notices, and, if
requested by the Initial Purchaser or any such Holder or Exchanging Dealer,
confirm such advice in writing:
(i) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose;
(ii) of the receipt by the Issuer of any notification with respect
to the suspension of the qualification of the Registrable Notes included
therein for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and
(iii) of the happening of any event that requires the making of any
changes in the Registration Statement or the Prospectus so that, as of such
date, the Registration Statement or the Prospectus does not include an
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not misleading
(which advice shall be accompanied by an instruction to suspend the use of
the Prospectus until the requisite changes have been made).
Each Holder agrees by acquisition of a Registrable Note (or Exchange Note in the
case of resales of Exchange Notes by Exchanging Dealers) that, upon receipt of
any notice from the Issuer of the existence of any fact of the kind described in
paragraph (iii) above, such Holder will forthwith discontinue disposition of
Registrable Notes (or Exchange Notes in the case of resales of Exchange Notes by
Exchanging Dealers), pursuant to the applicable Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k) hereof, or until it is advised in writing by the
Issuer that the use of the Prospectus may be resumed, and has received copies of
any additional or supplemental filings that are incorporated by reference in the
Prospectus. If so directed by the Issuer, each Holder will deliver to the
Issuer (at the Issuer's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus concerning such Registrable
Notes (or Exchange Notes in the case of resales of Exchange Notes by Exchanging
Dealers) that was current at the time of receipt of such notice.
(d) The Issuer shall use its best efforts to obtain the withdrawal of
any order suspending the effectiveness of any Registration Statement at the
earliest possible time.
8
<PAGE>
(e) The Issuer shall furnish to each Holder of Registrable Notes
covered by any Shelf Registration Statement, without charge, at least one copy
of such Shelf Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Holder so requests in
writing, all exhibits thereto (including those incorporated by reference).
(f) The Issuer shall, during the Shelf Registration Period, deliver
to each Holder of Registrable Notes covered by any Shelf Registration Statement,
without charge, as many copies of the Prospectus (including each preliminary
Prospectus) included in such Shelf Registration Statement and any amendment or
supplement thereto as such Holder may reasonably request; and the Issuer
consents to the use of the Prospectus or any amendment or supplement thereto by
each of the selling Holders of Registrable Notes in connection with the offering
and sale of the Registrable Notes covered by the Prospectus or any amendment or
supplement thereto.
(g) The Issuer shall furnish to each Exchanging Dealer that so
requests, without charge, at least one copy of the Exchange Offer Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, any documents incorporated by reference therein and,
if the Exchanging Dealer so requests in writing, all exhibits thereto (including
those incorporated by reference).
(h) The Issuer shall, during the Exchange Offer Registration Period,
promptly deliver to each Exchanging Dealer, without charge, as many copies of
the Prospectus included in such Exchange Offer Registration Statement and any
amendment or supplement thereto as such Exchanging Dealer may reasonably request
for delivery in connection with a sale of Exchange Notes received by it pursuant
to the Registered Exchange Offer; and the Issuer consents to the use of the
Prospectus or any amendment or supplement thereto by any such Exchanging Dealer,
as provided in Section (2)(e) above.
(i) Prior to the Registered Exchange Offer or any other offering of
Registrable Notes pursuant to any Registration Statement, the Issuer shall
register or qualify or cooperate with the Holders of Registrable Notes included
therein and their respective counsel in connection with the registration or
qualification of such Registrable Notes for offer and sale under the securities
or blue sky laws of such states as any such Holders reasonably request in
writing and do any and all other acts or things necessary or advisable to enable
the offer and sale in such states of the Registrable Notes covered by such
Registration Statement; provided, however, that the Issuer will not be required
-------- -------
to qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not then so qualified, to file any general consent
to service of process or to take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject or
to subject itself to taxation in respect of doing business in any jurisdiction
in which it is not otherwise so subject.
(j) The Issuer shall cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Registrable Notes
to be sold pursuant to any Registration Statement free of any restrictive
legends and in denominations of $1,000 or an integral multiple thereof and
registered in such names as Holders may request prior to sales of Registrable
Notes pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) of this Section 5, the Issuer shall promptly prepare and file a
post-effective amendment to any Registration Statement or an amendment or
supplement to the related Prospectus or any other required document so that, as
thereafter delivered to purchasers of the Registrable Notes included therein,
the Prospectus will not include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
9
<PAGE>
(l) Not later than the effective date of any such Registration
Statement hereunder, the Issuer shall provide a CUSIP number for the Registrable
Notes or Exchange Notes, as the case may be, registered under such Registration
Statement, and provide the Trustee with printed certificates for such
Registrable Notes or Exchange Notes, in a form eligible for deposit with The
Depository Trust Company.
(m) The Issuer shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make generally
available to its security holders as soon as practicable after the effective
date of the applicable Registration Statement an earnings statement satisfying
the provisions of Section 11(a) of the Securities Act.
(n) The Issuer shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), in a timely
manner.
(o) The Issuer may require each Holder of Registrable Notes to be
sold pursuant to any Shelf Registration Statement to furnish to the Issuer such
information regarding the Holder and the distribution of such Registrable Notes
as the Issuer may from time to time reasonably require for inclusion in such
Registration Statement and such other information as may be necessary or
advisable in the reasonable opinion of the Issuer and its counsel, in connection
with any such Registration Statement. No Holder of Registrable Notes shall be
entitled to use a Prospectus unless and until such Holder shall have furnished
the reasonably requested information required by this Section 5(o), and shall
have committed to notify the Issuer promptly of any change in such information.
(p) The Issuer shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters, if any, and Majority
Holders reasonably agree should be included therein, and shall make all required
filings of such Prospectus supplement or post-effective amendment promptly upon
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment.
(q) In the case of any Shelf Registration Statement, the Issuer shall
enter into such agreements (including underwriting agreements in form and scope
as is customary for similar offerings of debt securities) and take all other
customary and appropriate actions in order to expedite or to facilitate the
registration or the disposition of any Registrable Notes included therein, and
in connection therewith, if an underwriting agreement is entered into, cause the
same to contain indemnification provisions and procedures no less favorable than
those set forth in Section 7 (or such other provisions and procedures acceptable
to the Majority Holders and the Managing Underwriters, if any) with respect to
all parties to be indemnified pursuant to Section 7.
(r) In the case of any Shelf Registration Statement, the Issuer
shall:
(i) make reasonably available for inspection by the Holders of
Registrable Notes to be registered thereunder, any underwriter
participating in any disposition pursuant to such Shelf Registration
Statement, and any attorney, accountant or other agent retained by the
Holders or any such underwriter, all relevant financial and other records,
pertinent corporate documents and properties of the Issuer and its
subsidiaries;
(ii) cause the Issuer's officers, directors and employees to supply
all relevant information reasonably requested by the Holders or any such
underwriter, attorney, accountant or agent in connection with any such
Registration Statement, as is customary for similar due diligence
examinations and make such representatives of the Issuer as shall be
reasonably requested by the
10
<PAGE>
Initial Purchaser available for discussion of any such Registration
Statement; provided, however, that any information that is designated in
-------- -------
writing by the Issuer, in good faith, as confidential at the time of
delivery of such information shall be kept confidential by the Holders or
any such underwriter, attorney, accountant or agent, unless such disclosure
is made in connection with a court proceeding or required by law, or such
information becomes available to the public generally or through a third
party without an accompanying obligation of confidentiality other than as a
result of a disclosure of such information by any such Holder, underwriter,
attorney, accountant or agent;
(iii) make such representations and warranties to the Holders of
Registrable Notes registered thereunder and the underwriters, if any, in
form, substance and scope, and at such time or times, as are customarily
made by issuers to underwriters in similar underwritten offerings as may be
reasonably requested by them;
(iv) obtain opinions of counsel to the Issuer and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
satisfactory to the Managing Underwriters, if any) addressed to each
selling Holder and the underwriters, if any, covering such matters and time
periods as are customarily covered in opinions requested in similar
underwritten offerings and such other matters as may be reasonably
requested by such Holders and underwriters;
(v) obtain "cold comfort" letters and updates thereof from the
independent certified public accountants of the Issuer (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Issuer or of any business acquired by the Issuer for which financial
statements and financial data are, or are required to be, included in the
Registration Statement), addressed to the underwriters, if any, and use
reasonable efforts to have such letter addressed to the selling Holders of
Registrable Notes registered thereunder (to the extent consistent with
Statement on Auditing Standards No. 72 of the American Institute of
Certified Public Accountants (AICPA) ("SAS 72")), in customary form and
covering matters and time periods of the type customarily covered in "cold
comfort" letters in connection with similar underwritten offerings, or if
the provision of such "cold comfort" letters is not permitted by SAS No. 72
or if requested by the Initial Purchaser or its counsel in lieu of a "cold
comfort" letter, an agreed-upon procedures letter under Statement on
Auditing Standards No. 35 of the AICPA, covering matters and time periods
reasonably requested by the Initial Purchaser or its counsel; and
(vi) deliver such documents and certificates as may be reasonably
requested by the Majority Holders and the Managing Underwriters, if any,
and customarily delivered in similar offerings, including those to evidence
compliance with Section 5(k) and with any conditions contained in the
underwriting agreement or other agreement entered into by the Issuer.
The foregoing actions set forth in clauses (iii), (iv), (v) and (vi)
of this Section 5(r) shall be performed at (A) the effectiveness of such Shelf
Registration Statement and each post-effective amendment thereto and (B) each
closing under any underwriting or similar agreement as and to the extent
required thereunder.
(s) The Issuer shall, if and to the extent required under the
Securities Act and/or the Trust Indenture Act and the rules and regulations
thereunder in order to register the Registrable Notes (including the Note
Guarantees, if any) under the Securities Act and qualify the Indenture under the
Trust Indenture Act, cause each Guarantor, if any, to sign any Registration
Statement and take all other action necessary to register the Note Guarantees,
if any, under the applicable Registration Statement.
11
<PAGE>
6. Registration Expenses. The Issuer shall bear all expenses
---------------------
incurred in connection with the performance of its obligations under Sections 2,
3, 4 and 5 hereof and, in the event of any Shelf Registration Statement, will
reimburse the Holders for the reasonable fees and disbursements of one firm or
counsel designated by the Majority Holders to act as counsel for the Holders in
connection therewith and, in the case of any Exchange Offer Registration
Statement, will reimburse the Initial Purchaser for the reasonable fees and
disbursements of counsel acting in connection therewith.
7. Indemnification and Contribution. (a) In connection with any
--------------------------------
Registration Statement, the Issuer agrees to indemnify and hold harmless to the
fullest extent lawful each Holder of Registrable Notes covered thereby
(including the Initial Purchaser and, with respect to any Prospectus delivery as
contemplated by Sections 2(e) and 5(h) hereof, each Exchanging Dealer) the
directors, officers, employees and agents of such Holder and each person who
controls such Holder within the meaning of either the Securities Act or the
Exchange Act, against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Securities
Act, the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in such
Registration Statement as originally filed or in any amendment thereof, or in
any preliminary Prospectus or Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage or liability (or action in respect
thereof); provided, however, that the Issuer will not be liable in any case to
-------- -------
the extent that any such loss, claim, damage or liability (A) arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with written
information furnished to the Issuer by or on behalf of any such Holder
specifically for inclusion therein or (B) are caused by an untrue statement or
omission that was contained or made in any preliminary Prospectus and corrected
in the related Prospectus or any supplement or amendment thereto and (1) any
such losses, claims, damages, liabilities or expenses suffered or incurred by
any indemnified party resulted from an action, claim or suit by any person who
purchased Registrable Notes or Exchange Notes from a Holder in the offering to
which such Prospectus relates, (2) such Holder failed to deliver or provide a
copy of such Prospectus or any such supplement or amendment thereto to such
person at or prior to the confirmation of the sale of such Registrable Notes or
Exchange Notes in any case where such delivery is required by the Securities Act
and (3) such Prospectus (as so amended and supplemented) would have cured the
defect giving rise to such loss, liability, claim, damage or expense. The
indemnification provided herein will be in addition to any liability that the
Issuer may otherwise have.
The Issuer also agrees to indemnify or contribute to the Losses of, as
provided in Section 7(d) hereof, any underwriters of Registrable Notes
registered under a Shelf Registration Statement, their employees, officers,
directors and agents and each person who controls such underwriters on the same
basis (including the proviso) as that of the indemnification of the Initial
Purchaser and the selling Holders provided in this Section 7(a) and shall, if
requested by any Holder, enter into an underwriting agreement reflecting such
agreement, as provided in Section 5(q) hereof.
(b) Each Holder of Registrable Notes covered by a Registration
Statement (including each Initial Purchaser and, with respect to any Prospectus
delivery as contemplated by Sections 2(e) and 5(h) hereof, each Exchanging
Dealer) severally and not jointly agrees to indemnify and hold harmless the
Issuer, its directors, officers, employees, agents and each person who controls
the Issuer within the meaning of
12
<PAGE>
either the Securities Act or the Exchange Act to the same extent as the
foregoing indemnity from the Issuer to each such Holder, but only with respect
to written information furnished to the Issuer by or on behalf of such Holder
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability that
any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 7, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve the
indemnifying party from liability under paragraph (a) or (b) above unless and to
the extent it did not otherwise learn of such action and such failure results in
the forfeiture by the indemnifying party of rights and defenses, and (ii) will
not, in any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint
counsel (including local counsel) of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
- -------- -------
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel (and local counsel) if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties that are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party (it being understood, however,
that the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for such indemnified persons). An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 7 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending the same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement that resulted in such Losses; provided, however, that in
-------- -------
no case shall any Initial Purchaser or any subsequent Holder of any Registrable
Note or
13
<PAGE>
Exchange Note be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission applicable to such Registrable Note, or in the
case of a Exchange Note, applicable to the Registrable Note that was
exchangeable into such Exchange Note, as set forth on the cover page of the
Final Memorandum, nor shall any underwriter be responsible for any amount in
excess of the underwriting discount or commission applicable to the notes
purchased by such underwriter under the Registration Statement that resulted in
such Losses. If the allocation provided by the immediately preceding sentence
is unavailable for any reason, the indemnifying party and the indemnified party
shall contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of such indemnifying party, on the
one hand, and such indemnified party, on the other hand, in connection with the
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Issuer shall be
deemed to be equal to the sum of (x) the total net proceeds from the Initial
Placement (before deducting expenses) as set forth on the cover page of the
Final Memorandum and (y) the total amount of Additional Interest that the Issuer
was not required to pay as a result of registering the notes covered by the
Registration Statement that resulted in such Losses. Benefits received by the
Initial Purchaser shall be deemed to be equal to the total purchase discounts
and commissions as set forth on the cover page of the Final Memorandum received
by such Initial Purchaser, and benefits received by any other Holders shall be
deemed to be equal to the incremental value of receiving Registrable Notes or
Exchange Notes, as applicable, registered under the Securities Act over the
value of receiving Registrable Notes or Exchange Notes, as applicable, not so
registered. Benefits received by any underwriter shall be deemed to be equal to
the total underwriting discounts and commissions, as set forth on the cover page
of the Prospectus forming a part of the Registration Statement that resulted in
such Losses received by such Underwriter. Relative fault shall be determined by
reference to, among other things, whether any alleged untrue statement or
omission relates to information provided by the indemnifying party, on the one
hand, or by the indemnified party, on the other hand. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities, expenses or judgments referred to above shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified person in
connection with investigating or defending any such action or claim. The
parties agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation that did not
take account of the equitable considerations referred to above. Notwithstanding
the provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person who
controls a Holder within the meaning of either the Securities Act or the
Exchange Act and each director, officer, employee and agent of such Holder shall
have the same rights to contribution as such Holder, and each person who
controls the Issuer within the meaning of either the Securities Act or the
Exchange Act, each director, officer, employee and agent of the Issuer shall
have the same rights to contribution as the Issuer, subject in each case to the
applicable terms and conditions of this paragraph (d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section
7(d), notify such party or parties from whom contribution may be sought, but the
failure to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 7(d) or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its prior
written consent; provided, however, that such written consent was not
-------- -------
unreasonably withheld.
(e) The provisions of this Section 7 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder or
the Issuer or any of the officers, directors or controlling persons referred to
in Section 7 hereof, and will survive the sale by a Holder of notes covered by a
Registration Statement.
14
<PAGE>
8. Rules 144 and 144A
------------------
The Issuer covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder in a timely manner in accordance with
the requirements of the Securities Act and the Exchange Act and, if at any time
the Issuer is not required to file such reports, it will, upon the request of
any Holder of Registrable Notes, make publicly available annual reports and such
information, documents and other reports of the type specified in Sections 13
and 15(d) of the Exchange Act. The Issuer further covenants, for so long as any
Registrable Notes remain outstanding, to make available to any Holder or
beneficial owner of Registrable Notes in connection with any sale thereof and
any prospective purchaser of such Registrable Notes from such Holder or
beneficial owner the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Registrable Notes pursuant to
Rule 144A.
9. Miscellaneous.
-------------
(a) Remedies. Each Holder, in addition to being entitled to exercise
--------
all rights provided herein, in the Indenture or in the Purchase Agreement or
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Issuer agrees that monetary
damages (including the Additional Interest contemplated hereby) would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby waives the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Issuer has not, as of the date
--------------------------
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement that conflicts with the rights granted to the Holders herein or
otherwise conflicts with the provisions hereof.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Issuer has obtained the written
consent of the Holders of at least a majority of the then-outstanding aggregate
principal amount of Registrable Notes (or, after the consummation of any
Exchange Offer in accordance with Section 2 hereof, of Exchange Notes);
provided, that, with respect to any matter that directly or indirectly affects
- -------- ----
the rights of the Initial Purchaser hereunder, the Issuer shall obtain the
written consent of the Initial Purchaser. Notwithstanding the foregoing (except
the foregoing proviso), a waiver or consent to departure from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders whose Registrable Notes are being sold pursuant to a Registration
Statement, and that does not directly or indirectly affect the rights of other
Holders, may be given by the Majority Holders, determined on the basis of notes
being sold rather than registered under such Registration Statement.
(d) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the most current address given by such
Holder to the Issuer in accordance with the provisions of this Section
9(d), which address initially is, with respect to each Holder, the address
of such Holder maintained by the Registrar under the Indenture, with a copy
in like manner to the Initial Purchaser;
15
<PAGE>
(ii) if to the Initial Purchaser, initially at UBS Securities LLP,
299 Park Avenue, New York, New York, 10171, Attention: Caroline Sykes.
(iii) if to the Issuer, Port Royal Holdings, Inc., One Union Square,
Chattanooga, Tennessee, 37402, Attention: Secretary.
All such notices and communications shall be deemed to have been duly
given when received. The Initial Purchaser, on the one hand, or the Issuer, on
the other, by notice to the other party or parties may designate additional or
different addresses for subsequent notices or communications.
(e) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the parties
hereto, including, without the need for an express assignment or any consent by
the Issuer thereto, subsequent Holders of Registrable Notes. The Issuer hereby
agrees to extend the benefits of this Agreement to any Holder of Registrable
Notes and any such Holder may specifically enforce the provisions of this
Agreement as if an original party hereto. Each future Guarantor of the Notes
shall become a party to this Agreement and all references to Guarantor hereunder
shall include such Guarantor.
(f) Counterparts. This agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED IN SAID STATE.
(i) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by law.
(j) Notes Held by the Issuer, etc. Whenever the consent or approval
------------------------------
of Holders of a specified percentage of principal amount of Registrable Notes is
required hereunder, Registrable Notes, held by the Issuer or its Affiliates
(other than subsequent Holders of Registrable Notes if such subsequent Holders
are deemed to be Affiliates solely by reason of their holdings of such
Registrable Notes) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
(k) Participation In Underwritten Registrations. No Holder may
-------------------------------------------
participate in any underwritten Shelf Registration hereunder unless such Holder
(a) agrees to sell such Holder's Registrable Notes on the basis provided in any
underwriting arrangements approved by the Issuer and the Majority Holders and
(b) completes and executes all reasonable questionnaires, powers of attorney,
indemnities, underwriting agreements, lock-up letters and other documents
required under the terms of such underwriting arrangements.
16
<PAGE>
(l) Selection of Underwriters. The Holders of Registrable Notes
-------------------------
covered by the Shelf Registration Statement who desire to do so may sell such
notes in an underwritten offering. In any such underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Majority Holders of notes
included in such offering; provided, that such investment bankers and managers
--------
must be reasonably satisfactory to the Issuer.
17
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Issuer and you.
Very truly yours,
TKC ACQUISITION CORP.
By: _______________________________
Name: Philip H. Sanford
Title: Chief Executive Officer
The foregoing Agreement is hereby
accepted as of the date first above written.
UBS SECURITIES LLC
By: ____________________________________
Name:
Title:
By: ____________________________________
Name:
Title:
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Notes where such Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date (as
defined herein) and ending on the close of business one year after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution".
A-1
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Notes, where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution".
B-1
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, starting
on the Expiration Date and ending on the close of business one year after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until ____________, 199__, all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-
dealer that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit from any such resale of
Exchange Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of one year after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Notes (including any broker-
dealers) against certain liabilities, including liabilities under the Securities
Act.
[If applicable, add information required by Regulation S-K Items 507
and/or 508.]
C-1
<PAGE>
ANNEX D
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
[_]
Name: ____________________________________________
Address: ____________________________________________
____________________________________________
The undersigned represents that it is not an affiliate of the Company,
that any Exchange Notes to be received by it will be acquired in the ordinary
course of business and that at the time of the commencement of the Exchange
Offer it had no arrangement with any person to participate in a distribution of
the Exchange Notes.
In addition, if the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of Exchange Notes. If the undersigned is a broker-dealer
that will receive Exchange Notes for its own account in exchange for Notes, it
represents that the Notes to be exchanged for Exchange Notes were acquired by it
as a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
D-1
<PAGE>
EXHIBIT 4.2
THE KRYSTAL COMPANY
as Successor to T.K.C. Acquisition Corp.
and
KRYSTAL AVIATION CO. and
KRYSTAL AVIATION MANAGEMENT CO.
as Guarantors
______________________________________________________________________________
SUPPLEMENTAL INDENTURE No. 1
Dated as of September 26, 1997
to
INDENTURE
Dated as of September 26, 1997
______________________________________________________________________________
SUNTRUST BANK, ATLANTA
AS TRUSTEE
<PAGE>
THIS SUPPLEMENTAL INDENTURE No. 1 (the "Supplemental Indenture") dated
as of September 26, 1997 among The Krystal Company, a Tennessee corporation, as
successor (the "Successor") to T.K.C. Acquisition Corp., a Tennessee
corporation, as the Company, and Krystal Aviation Co., a Tennessee corporation
and Krystal Aviation Management Co., a Tennessee corporation, as guarantors (the
"Guarantors") and Suntrust Bank, Atlanta, a Georgia banking corporation, as
Trustee.
W I T N E S S E T H:
WHEREAS, there has previously been executed and delivered to the
Trustee an Indenture (the "Indenture") dated as of September 26, 1997 among
T.K.C. Acquisition Corp., as the Company and the Trustee, providing for the
issuance of the Notes (as defined therein) of the Company;
WHEREAS, pursuant to the terms of the Agreement and Plan of Merger,
dated as of July 3, 1997, by and among T.K.C. Acquisition Corp., Port Royal
Holdings, Inc., a Georgia corporation and 100% owner of T.K.C. Acquisition Corp.
and The Krystal Company, T.K.C. Acquisition Corp. merged with and into The
Krystal Company (the "Merger");
WHEREAS, under the Indenture, the Company and the Trustee may enter
into a supplemental indenture to evidence the succession of another person to
the Company and the assumption by such successor of the covenants of the Company
contained in the Indenture and in the Notes, which supplement, pursuant to
Section 9.01 of the Indenture, does not require the consent of the Holders of
Notes;
WHEREAS, under the Indenture, the Company and the Trustee may enter
into a supplemental indenture to evidence the acknowledgment of a Subsidiary of
the Company that it is a Guarantor for all purposes under the Indenture and the
Notes, which supplement, pursuant to Section 9.01 of the Indenture, does not
require the consent of the Holders of Notes;
WHEREAS, the Successor wishes by this Supplemental Indenture to
evidence its succession to the Company and its assumption of the covenants of
the Company contained in the Indenture and the Notes;
WHEREAS. the Guarantors wish by this Supplemental Indenture to
evidence their assumption of all of the obligations of a Guarantor under the
Indenture and the Notes; and
WHEREAS, all acts and proceedings required by law and by the Indenture
to constitute this Supplemental Indenture a valid and binding agreement for the
uses and purposes set forth herein, in accordance with its terms, have been done
and taken, and the execution and delivery of this Supplemental Indenture have
been in all respects duly authorized by the Successor and the Guarantors;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Successor, the Guarantors and the Trustee hereby agree as follows:
<PAGE>
1. The Successor hereby acknowledges and agrees that it has
succeeded T.K.C. Acquisition Corp. as the Company under the Indenture and the
Notes, and does hereby assume and agree to perform each and every covenant of
the Company contained in the Indenture and the Notes and does otherwise agree to
be bound by and subject to the terms and provisions of the Indenture and the
Notes in each and every respect as if it had been initially named as the Company
therein. Without in any way limiting the generality of the foregoing, the
Successor hereby agrees to be liable for the due and punctual payment of
principal (and premium, if any) and interest (and Additional Interest) on all of
the Notes.
2. Each Guarantor hereby acknowledges and agrees that it has assumed
all of the obligations of a Guarantor under the Indenture and the Notes and does
otherwise agree to be bound by and subject to the terms and provisions of the
Indenture and the Notes in each and every respect as if each had been initially
named as a Guarantor in the Indenture and the Notes.
3. In order to further evidence the succession of the Successor to
the Company, the Successor's assumption of the covenants of the Company under
the Indenture and Notes and the assumption by the Guarantors of the obligations
of a Guarantor under the Indenture and the Notes, the forms of Notes set forth
in Exhibits A, B, C and D, respectively, to the Indenture are hereby amended by
replacing, in their entirety, such forms of Notes with the forms of Notes set
forth in Exhibits A, B, C and D, respectively, hereto. In exchange for the
Initial Certificated Note outstanding under the Indenture, the Company shall
issue, and the Trustee shall authenticate, a new Initial Global Note in
accordance with Section 2.01(c) of the Indenture.
4. The forms of transfer certificates and investment letters set
forth in Exhibits E, F, G, H and I, respectively, to the Indenture are hereby
amended by replacing, in their entirety, such certificates and letters with the
forms of transfer certificates and investment letters set forth in Exhibits E,
F, G, H and I, respectively, hereto.
5. Each Guarantor hereby represents and warrants to the Trustee that
as of the date hereof:
a. each Guarantor is a corporation validly existing and in good
standing under the laws of the State of Tennessee; and
b. no Default or Event of Default will result from the Merger
or the execution and delivery of this Supplemental Indenture.
6. The Successor hereby represents and warrants to the Trustee that
as of the date hereof:
a. the Successor is a corporation validly existing and in good
standing under the laws of the State of Tennessee; and
b. no Default or Event of Default will result from the Merger
or the execution and delivery of this Supplemental Indenture.
2
<PAGE>
6. As a condition to the entry into this Supplemental Indenture by
the parties hereto, the Successor and the Guarantors herewith deliver to the
Trustee an Opinion of Counsel (and in the case of subclause (a) below, an
Officers' Certificate) to the effect that:
a. this Supplemental Indenture is authorized or permitted by
the Indenture and all conditions precedent to the execution, delivery and
performance of this Supplemental Indenture have been satisfied;
b. each of the Successor and each Guarantor has all necessary
corporate power and authority to execute and deliver this Supplemental Indenture
and the execution, delivery and performance of this Supplemental Indenture has
been duly authorized by all necessary corporate action of the Successor and each
Guarantor;
c. the execution, delivery and performance of this Supplemental
Indenture do not conflict with, or result in the breach of or constitute a
default under any of the terms, conditions or provisions of (i) the Indenture,
(ii) the charter documents and by-laws of the Successor or either Guarantor or
(iii) any material agreement or instrument to which the Successor or either
Guarantor is subject;
d. the attorneys of the firm responsible for such matters
writing such Opinion of Counsel do not have actual knowledge that the execution,
delivery and performance of this Supplemental Indenture conflict with, or result
in the breach of any of the terms, conditions or provisions of (i) any law or
regulation applicable to the Successor or either Guarantor or (ii) any material
order, writ, injunction or decree of any court or governmental instrumentality
applicable to the Successor or either Guarantor;
e. this Supplemental Indenture has been duly and validly
executed and delivered by the Successor and each Guarantor and the Indenture
together with this Supplemental Indenture constitutes a legal, valid and binding
obligation of the Successor and each Guarantor enforceable against the Successor
and each Guarantor in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally and general equitable principles;
and
f. the Indenture together with this Supplemental Indenture
complies with the Trust Indenture Act.
7. For all purposes of this Supplemental Indenture, except as
otherwise herein expressly provided or unless the context otherwise requires:
(i) the terms and expressions used herein shall have the same meanings as
corresponding terms and expressions used in the Indenture; and (ii) the words
"herein," "hereof," and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
any particular Section of this Supplemental Indenture.
8. The Trustee accepts the amendment to the Indenture effected by
this Supplemental Indenture and agrees to execute the trust created by the
Indenture, as hereby
3
<PAGE>
amended, but only upon the terms and conditions set forth in the Indenture, as
hereby amended, including the terms and provisions defining and limiting the
liabilities and responsibilities of the Trustee, which terms and provisions
shall in like manner define and limit the Trustee's liabilities in the
performance of the trust created by the Indenture, as hereby amended, and,
without limiting the generality of the foregoing, the Trustee has no
responsibility for the correctness of the recitals of fact herein contained
which shall be taken as the statements of the Successor and each Guarantor and
makes no representations as to the validity or sufficiency of this Supplemental
Indenture and shall incur no liability or responsibility in respect of the
validity thereof.
9. Except as expressly amended hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect.
10. This Supplemental Indenture shall form a part of the Indenture
for all purposes, and every Holder of Notes heretofore or hereafter
authenticated and delivered shall be bound hereby.
11. Any notice or communication required or permitted under the
Indenture shall be given, as provided in Section 11.02 of the Indenture, and
addressed if to the Company or any Guarantor: The Krystal Company, One Union
Square, Chattanooga, Tennessee, 37402 Attention: Secretary.
12. This Supplemental Indenture may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and all of such counterparts shall together constitute one and the same
instrument.
13. This Supplemental Indenture shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be governed
by and construed in accordance with such laws.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed as of the day and year first above written.
THE KRYSTAL COMPANY
By /s/ Philip H. Sanford
---------------------------------------
Name: Philip H. Sanford
Title: Chief Executive Officer
KRYSTAL AVIATION CO.
By /s/ Philip H. Sanford
---------------------------------------
Name: Philip H. Sanford
Title: Chief Executive Officer
KRYSTAL AVIATION MANAGEMENT CO.
By /s/ Philip H. Sanford
---------------------------------------
Name: Philip H. Sanford
Title: Chief Executive Officer
SUNTRUST BANK, ATLANTA
as Trustee
By /s/ David M. Kaye
---------------------------------------
Name: David M. Kaye
Title: Group Vice President
By /s/ Sandra Thompson
---------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the day and year first above written.
THE KRYSTAL COMPANY
By /s/ Philip H. Sanford
---------------------------------------
Name: Philip H. Sanford
Title: Chief Executive Officer
KRYSTAL AVIATION CO.
By /s/ Philip H. Sanford
---------------------------------------
Name: Philip H. Sanford
Title: Chief Executive Officer
KRYSTAL AVIATION MANAGEMENT CO.
By /s/ Philip H. Sanford
---------------------------------------
Name: Philip H. Sanford
Title: Chief Executive Officer
SUNTRUST BANK, ATLANTA
as Trustee
By /s/ David M. Kaye
---------------------------------------
Name: David M. Kaye
Title: Group Vice President
By /s/ Sandra Thompson
---------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
FORM OF INITIAL GLOBAL NOTE
---------------------------
FACE OF INITIAL GLOBAL NOTE
---------------------------
THE KRYSTAL COMPANY
No. __ CUSIP No. 501148AA8
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY,
REQUIRED UNDER THE INDENTURE PURSUANT TO WHICH THIS NOTE IS
ISSUED) AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY TO THE KRYSTAL COMPANY OR A
SUCCESSOR THEREOF OR THE REGISTRAR FOR REGISTRATION OF TRANSFER
OR EXCHANGE AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS HAS BEEN
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFER OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, AND NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST
COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF INTERESTS IN THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION
<PAGE>
2.06 OF THE INDENTURE, DATED AS OF SEPTEMBER 26, 1997 AMONG TKC
ACQUISITION CORP. ("TKC") AND SUNTRUST BANK, ATLANTA AS TRUSTEE,
(AS SUPPLEMENTED BY SUPPLEMENTAL INDENTURE NO. 1 DATED AS OF
SEPTEMBER 26, 1997 AMONG THE KRYSTAL COMPANY, AS THE SUCCESSOR TO
TKC, KRYSTAL AVIATION CO. AND KRYSTAL AVIATION MANAGEMENT CO., AS
GUARANTORS AND THE TRUSTEE) PURSUANT TO WHICH THIS NOTE WAS
ISSUED.
GLOBAL NOTE
REPRESENTING 101/4% SENIOR NOTES DUE 2007
The Krystal Company, a Tennessee corporation, for value received, hereby
promises to pay to CEDE & CO., or its registered assigns, the principal sum
indicated on Schedule A hereof, on October 1, 2007.
Interest Payment Dates: April 1 and October 1, commencing April 1, 1998.
Record Dates: March 15 and September 15.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
A-2
<PAGE>
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purposes.
IN WITNESS WHEREOF, The Krystal Company has caused this Note to be duly executed
under its corporate seal.
THE KRYSTAL COMPANY
By:______________________________
Name:
Title:
Attest:________________________
Dated:_________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
__________________________________
as Trustee, certifies that this is one of
the Notes referred to in the Indenture.
By:________________________________
Authorized Signatory
A-3
<PAGE>
REVERSE SIDE OF INITIAL GLOBAL NOTE
THE KRYSTAL COMPANY
GLOBAL NOTE
REPRESENTING 101/4% SENIOR NOTES DUE 2007
1. Indenture.
---------
This Note is one of a duly authorized issue of debt securities of the
Company (as defined below) designated as its "101/4% Senior Notes Due 2007"
(herein called the "Notes") limited in aggregate principal amount to
$100,000,000, issued under an indenture dated as of September 26, 1997 (as
amended or supplemented from time to time, the "Indenture") between TKC
Acquisition Corp. ("TKC") and SunTrust Bank, Atlanta as trustee (the "Trustee,"
which term includes any successor trustee under the Indenture). Pursuant to an
agreement and plan of merger, dated as of July 3, 1997, by and among TKC, Port
Royal Holdings, Inc. and The Krystal Company, TKC merged with and into The
Krystal Company on September 26, 1997, and The Krystal Company became the
surviving corporation (the "Merger"). Immediately following the Merger, The
Krystal Company executed a supplemental indenture no. 1 ("Supplemental Indenture
No. 1"), dated as of September 26, 1997, among The Krystal Company, as the
successor to TKC, Krystal Aviation Co. and Krystal Aviation Management Co., as
guarantors (the "Guarantors") and the Trustee, under which (i) The Krystal
Company acknowledged and agreed that it had succeeded TKC as the Company under
the Indenture and the Notes, agreed to perform each and every covenant of the
Company contained in the Indenture and the Notes and agreed to be bound by and
subject to the terms and provisions of the Indenture and the Notes in each and
every respect as if it had been initially named as the Company in the Indenture
and the Notes and (ii) each of the Guarantors assumed all of the obligations of
a Guarantor under the Indenture and the Notes and agreed to be bound by and
subject to the terms and provisions of the Indenture and the Notes in each and
every respect as if each had been initially named as a Guarantor in the
Indenture and the Notes. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbb). The Notes
are subject to all such terms, and Holders of Notes are referred to the
Indenture and such Act for a statement of the respective rights, limitations of
rights, duties and immunities thereunder of the Company, the Guarantors, the
Trustee and each Holder and of the terms upon which the Notes are, and are to
be, authenticated and delivered. The summary of the terms of this Note
contained herein does not purport to be complete and is qualified by reference
to the Indenture. To the extent permitted by applicable law, in the event of
any inconsistency between the terms of this Note and the terms of the Indenture,
the terms of the Indenture shall control. All capitalized terms used in this
Note which are not defined herein shall have the meanings assigned to them in
the Indenture.
The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness and issue preferred stock, pay dividends or make
certain other restricted payments, incur liens, sell stock of Subsidiaries,
apply net proceeds from certain asset sales, merge
A-4
<PAGE>
or consolidate with any other person, sell, assign, transfer, lease, convey or
otherwise dispose of substantially all of the assets of the Company or enter
into certain transactions with affiliates.
2. Principal and Interest.
----------------------
The Krystal Company, a Tennessee corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay the principal amount set forth on
Schedule A of this Note to the Holder hereof on October 1, 2007.
The Company shall pay interest at a rate of 101/4% per annum, from
September 26, 1997 or from the most recent Interest Payment Date thereafter to
which interest has been paid or duly provided for, semiannually in arrears on
April 1 and October 1 of each year, commencing on April 1, 1998, in cash, to the
Holder hereof until the principal amount hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, subject to certain exceptions provided in the
Indenture, be paid to the Person in whose name this Note (or the Note in
exchange or substitution for which this Note was issued) is registered at the
close of business on the Record Date for interest payable on such Interest
Payment Date. The Record Date for any interest payment is the close of business
on March 15 or September 15, as the case may be, whether or not a Business Day,
immediately preceding the Interest Payment Date on which such interest is
payable. Any such interest not so punctually paid or duly provided for
("Defaulted Interest") shall forthwith cease to be payable to the Holder on such
Record Date and shall be paid as provided in Section 2.11 of the Indenture.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Each payment of interest in respect of an Interest Payment Date will
include interest accrued through the day before such Interest Payment Date. If
an Interest Payment Date falls on a day that is not a Business Day, the interest
payment to be made on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
If this Note is exchanged in a Registered Exchange Offer prior to the
Record Date for the first Interest Payment Date following such exchange, accrued
and unpaid interest, if any, on this Note, up to but not including the date of
issuance of the Exchange Note or Exchange Notes issued in exchange for this
Note, shall be paid on the first Interest Payment Date for such Exchange Note or
Exchange Notes to the Holder or Holders of such Exchange Note or Exchange Notes
on the first Record Date with respect to such Exchange Note or Exchange Notes.
If this Note is exchanged in a Registered Exchange Offer subsequent to the
Record Date for the first Interest Payment Date following such exchange but on
or prior to such Interest Payment Date, then any such accrued and unpaid
interest with respect to this Note and any accrued and unpaid interest on the
Exchange Note or Exchange Notes issued in exchange for this Note, through the
day before such Interest Payment Date, shall be paid on such Interest Payment
Date to the Holder of this Note on such Record Date.
A-5
<PAGE>
To the extent lawful, the Company shall pay interest on overdue
principal, overdue premium, Defaulted Interest and overdue Additional Interest
(without regard to any applicable grace period) at the interest rate borne on
this Note. The Company's obligation pursuant to the previous sentence shall
apply whether such overdue amount is due at its Stated Maturity, as a result of
the Company's obligations pursuant to Section 3.05, Section 4.07 or Section 4.08
of the Indenture, or otherwise.
3. Registration Rights, Additional Interest.
----------------------------------------
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated September 26, 1997, between TKC, as
predecessor to the Company, and the Initial Purchaser (the "Registration Rights
Agreement"), which agreement is attached to the Indenture as Exhibit J thereto.
Such benefits include the right of the Holder to receive Additional Interest in
the event of a failure on the part of the Company to comply with certain
registration covenants, as provided in Section 4 of the Registration Rights
Agreement.
4. Method of Payment.
-----------------
The Company, through the Paying Agent, shall pay interest on this Note
to the registered Holder of this Note, as provided above. The Holder must
surrender this Note to a Paying Agent to collect principal payments. The
Company will pay principal, premium, if any, and interest and Additional
Interest, if any, in money of the United States of America that at the time of
payment is legal tender for payment of all debts public and private. Principal,
premium, if any, and interest and Additional Interest, if any, shall be paid by
checks, mailed to the registered Holders at their registered addresses; provided
that all payments with respect to Notes the Holders of which have given wire
transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof.
5. Paying Agent and Registrar.
--------------------------
Initially, the Trustee will act as Paying Agent and Registrar under
the Indenture. The Company may, upon written notice to the Trustee, appoint and
change any Paying Agent or Registrar. The Company or any of its Affiliates may
act as Paying Agent or Registrar; provided that if the Company or such Affiliate
--------
is acting as Paying Agent, the Company or such Affiliate shall segregate all
funds held by it as Paying Agent and hold them in trust for the benefit of the
Holders or the Trustee.
6. Note Guarantees.
---------------
This Note is initially entitled to the benefits of the Note Guarantees
made by Krystal Aviation Co. and Krystal Aviation Management Co. pursuant to the
Indenture, and may thereafter be entitled to Note Guarantees made by other
Guarantors for the benefit of Holders of the Notes. Each present Guarantor has,
and each future Guarantor will, irrevocably and unconditionally, jointly and
severally, guarantee on a senior basis the punctual payment when due, whether at
Stated Maturity, by acceleration, in connection with a Change of Control Offer,
an
A-6
<PAGE>
Asset Sale Offer or redemption, or otherwise, of all obligations of the Company
under the Indenture and this Note, whether for payment of principal of, premium,
if any, interest or Additional Interest, if any, on the Notes, expenses,
indemnification or otherwise. A Guarantor shall be released from its Note
Guarantee upon the terms and subject to the conditions set forth in the
Indenture.
7. Redemption.
----------
The Notes are not redeemable at the option of the Company prior to
April 1, 2002. Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 calendar days' prior notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon and Additional Interest, if any, to the applicable Redemption
Date (subject to the right of each Holder of record on the relevant Record Date
to receive interest due on the relevant Interest Payment Date), if redeemed
during the twelve-month period beginning April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002 105.125%
2003 103.417%
2004 101.708%
2005 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 1, 2000, the
Company, at its option, may redeem up to 35% of the aggregate principal amount
of the Notes originally issued, in part, with the net proceeds of one or more
Public Equity Offerings made by the Company or of a capital contribution made by
the Parent to the common equity capital of the Company with the net proceeds of
one or more Public Equity Offerings made by the Parent, at a redemption price
equal to 110.25% of the aggregate principal amount thereof together with accrued
and unpaid interest and Additional Interest, if any, to the date of the
redemption payment; provided, however, that after such redemption the aggregate
-------- -------
principal amount of the Notes outstanding must equal at least 65% of the
aggregate principal amount of the Notes originally issued and provided, further,
-------- -------
that such redemption shall occur within 60 days of the date of closing of such
Public Equity Offering.
8. Notice of Redemption.
--------------------
At least 30 calendar days but not more than 60 calendar days before a
Redemption Date, the Company shall send, or cause to be sent, a notice of
redemption, by first-class mail, postage prepaid, to Holders of Notes to be
redeemed at the addresses of such Holders as they appear in the Note Register.
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed on a pro rata basis; provided that
the Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Notes that have denominations larger than
$1,000 (Notes in denominations of $1,000 or less may be redeemed
A-7
<PAGE>
only in whole). If any Note is redeemed subsequent to a Record Date with
respect to any Interest Payment Date specified above and on or prior to such
Interest Payment Date, then any accrued interest will be paid on such Interest
Payment Date to the Holder of the Note on such Record Date. If money in an
amount sufficient to pay the Redemption Price of all Notes (or portions thereof)
to be redeemed on the Redemption Date is deposited with the Paying Agent on or
before the applicable Redemption Date and certain other conditions are
satisfied, interest on the Notes or portions thereof to be redeemed on the
applicable Redemption Date will cease to accrue.
9. Repurchase at the Option of Holders upon Change of Control.
----------------------------------------------------------
Upon the occurrence of a Change of Control, each Holder shall have the
right in accordance with the terms hereof and the Indenture to require the
Company to purchase such Holder's Notes, in whole or in part, in a principal
amount that is an integral multiple of $1,000, pursuant to a Change of Control
Offer, at a purchase price in cash equal to 101% of the principal amount of such
Notes (or portions thereof) plus accrued and unpaid interest and Additional
Interest, if any, to the Change of Control Payment Date.
Within 30 calendar days after the date of any Change of Control, the
Company shall send, or cause to be sent, by first-class mail, postage prepaid, a
notice regarding the Change of Control Offer to each Holder. The Holder of this
Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Purchase Price with respect thereto, all Notes or portions thereof
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest from and after the Change of Control Payment Date.
10. Repurchase at the Option of Holders upon Asset Sale.
---------------------------------------------------
If at any time the Company or any Subsidiary engages in any Asset
Sale, as a result of which the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall, within 30 calendar days of the date the amount of
Excess Proceeds exceeds $5.0 million, use the then-existing Excess Proceeds to
make an offer to purchase from all Holders of Notes, on a pro rata basis, Notes
in an aggregate principal amount equal in amount to the then-existing Excess
Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon and Additional
Interest, if any, to the Asset Sale Purchase Date. Upon completion of an Asset
Sale Offer (including payment of the Asset Sale Purchase Price for accepted
Notes), any surplus Excess Proceeds that were the subject of such offer shall
cease to be Excess Proceeds, and the Company may then use such amounts for
general corporate purposes.
Within 30 calendar days of the date the amount of Excess Proceeds
exceeds $5.0 million, the Company shall send, or cause to be sent, by first-
class mail, postage prepaid, a notice regarding the Asset Sale Offer to each
Holder. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the
A-8
<PAGE>
Asset Sale Offer. Unless the Company defaults in the payment of the Asset Sale
Purchase Price with respect thereto, all Notes or portions thereof selected for
payment pursuant to the Asset Sale Offer will cease to accrue interest from and
after the Asset Sale Purchase Date.
11. The Global Note.
---------------
So long as this Global Note is registered in the name of the
Depository or its nominee, members of, or participants in, the Depository
("Agent Members") shall have no rights under the Indenture with respect to this
Global Note held on their behalf by the Depository or the Trustee as its
custodian, and the Depository may be treated by the Company, the Guarantors, the
Trustee and any agent of the Company, the Guarantors, or the Trustee as the
absolute owner of this Global Note for all purposes. Notwithstanding the
foregoing, nothing herein shall (i) prevent the Company, the Guarantors, the
Trustee or any agent of the Company, the Guarantors or the Trustee, from giving
effect to any written certification, proxy or other authorization furnished by
the Depository or (ii) impair, as between the Depository and its Agent Members,
the operation of customary practices governing the exercise of the rights of a
Holder.
The Holder of this Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in this Global Note through Agent Members, to take any action which a
Holder is entitled to take under the Indenture or the Notes.
Whenever, as a result of optional redemption by the Company, a Change
of Control Offer, an Asset Sale Offer, a Registered Exchange Offer or an
exchange for Certificated Notes, this Global Note is redeemed, repurchased or
exchanged in part, this Global Note shall be surrendered by the Holder thereof
to the Trustee who shall cause an adjustment to be made to Schedule A hereof so
that the principal amount of this Global Note will be equal to the portion not
redeemed, repurchased or exchanged and shall thereafter return this Global Note
to such Holder; provided that this Global Note shall be in a principal amount of
--------
$1,000 or an integral multiple of $1,000.
12. The Registered Exchange Offer.
-----------------------------
Any Initial Notes represented by this Global Note that are presented
to the Registrar for exchange pursuant to the Registered Exchange Offer (as
defined in the Registration Rights Agreement) shall be exchanged for a Global
Note representing Exchange Notes s of equal principal amount upon surrender of
this Global Note to the Registrar in accordance with the terms of the Registered
Exchange Offer and the Indenture.
13. Transfer and Exchange.
---------------------
The transfer of this Note is subject to certain restrictions,
including those to which reference is made in the Private Placement Legend. A
Holder may transfer or exchange Notes as provided in the Indenture and subject
to certain limitations therein set forth. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements or transfer documents
and to pay any taxes, fees and expenses required by law or permitted by the
Indenture.
A-9
<PAGE>
14. Denominations.
-------------
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof of principal amount.
15. Discharge and Defeasance.
------------------------
Subject to certain conditions, the Company may, at any time, terminate
some or all of the obligations of the Company and each Guarantor, under the
Notes, each Note Guarantee and the Indenture if the Company irrevocably deposits
in trust with the Trustee cash or U.S. Government Obligations for the payment of
principal, premium, if any, interest and Additional Interest, if any, on the
Notes to redemption or maturity, as the case may be.
16. Amendment, Waiver.
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the outstanding Notes (which consent
may, but need not, be given in connection with any tender offer or exchange
offer for the Notes) and (ii) any Default and its consequences may be waived
with the written consent of the Holders of at least a majority in principal
amount of the outstanding Notes. Subject to certain exceptions set forth in the
Indenture, without the consent of any Holder, the Company and the Trustee may
amend the Indenture or the Notes (i) to evidence the succession of another
Person to the Company and the assumption by such successor of the covenants of
the Company under the Indenture and contained in the Notes; (ii) to add to the
covenants of the Company, for the benefit of the Holders of all of the Notes, or
to surrender any right or power conferred on the Company under the Indenture;
(iii) to add any additional Events of Default; (iv) to provide for
uncertificated Notes in addition to or in place of Certificated Notes; (v) to
evidence and provide for the acceptance of appointment under the Indenture of a
successor Trustee; (vi) to secure the Notes; (vii) to cure any ambiguity in the
Indenture, or to correct or supplement any provision in the Indenture which may
be inconsistent with any other provision therein or to add any other provisions
with respect to matters or questions arising under the Indenture, provided that
such actions shall not adversely affect the interests of the Holders of Notes in
any material respect; (viii) to comply with the requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act; or (ix) to evidence the agreement or acknowledgment of a
Subsidiary that it is a Guarantor for all purposes under the Indenture
(including, without limitation, Article X thereof).
17. Defaults and Remedies.
---------------------
Under the Indenture, Events of Default include: (i) a default for 30
days in the payment when due of interest on, or Additional Interest with respect
to, the Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Notes; (iii) failure by the Company to observe or perform certain
covenants, conditions, agreements or other provisions of the Indenture or this
Note (and, in the case of certain covenants, agreements or other provisions,
such failure has continued for 60 calendar days after written notice by the
Trustee or the Holders of at least 25% in principal amount of the Notes); (iv)
default in the payment of Indebtedness of
A-10
<PAGE>
the Company or any of its Subsidiaries at its final maturity or acceleration of
such Indebtedness in an amount in excess of $5.0 million in the aggregate; (v)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Subsidiaries; (vi) certain undischarged judgments in excess of $5.0 million
in the aggregate; or (vii) the Note Guarantee of any Guarantor being held in any
judicial proceeding to be unenforceable or invalid or ceasing for any reason to
be in full force and effect (other than in accordance with the terms of the
Indenture) or any Guarantor or any Person acting on behalf of any Guarantor
denying or disaffirming the Note Guarantee of such Guarantor.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes, subject to certain
limitations, may declare all the Notes to be immediately due and payable.
Certain events of bankruptcy or insolvency shall result in the Notes being
immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Notes may
direct the Trustee in its exercise of any trust or power under the Indenture.
The Holders of a majority in principal amount of the then outstanding Notes, by
written notice to the Trustee and the Company, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all existing Events of Default have been cured or
waived, except nonpayment of principal, interest, premium or Additional Interest
that has become due solely because of acceleration. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.
18. Individual Rights of Trustee.
----------------------------
Subject to certain limitations imposed by the Trust Indenture Act, the
Trustee or any Paying Agent or Registrar, in its individual or any other
capacity, may become the owner or pledgee of Notes and may otherwise deal with
the Company, the Guarantors or its or their Affiliates with the same rights it
would have if it were not Trustee, Paying Agent or Registrar, as the case may
be, under the Indenture.
19. No Recourse Against Certain Others.
----------------------------------
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any such Guarantor under the Notes, the Note Guarantees or the
Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation, solely by reason of its status as a director,
officer, employee, incorporator or stockholder of the Company or any such
Guarantor. By accepting a Note, each Holder waives and releases all such
liability (but only such liability) as part of the consideration for issuance of
such Note to such Holder.
A-11
<PAGE>
20. Authentication.
--------------
This Note shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Note.
21. Abbreviations.
-------------
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
22. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of Notes. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
23. Governing Law.
-------------
THE INDENTURE, ANY NOTE GUARANTEES AND THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture which has in it the text of
this Note. Requests may be made to:
The Krystal Company
One Union Square
Chattanooga, TN 37402
Attention: Secretary
A-12
<PAGE>
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount at maturity of this Note shall be $100,000,000.
The following decreases/increase in the principal amount in denominations of
$1,000 or integral multiples thereof at maturity of this Note have been made:
<TABLE>
<CAPTION>
Total Principal
Decrease in Increase in Amount at Notation
Date of Principal Following such Maturity Made by
Decrease/ Amount at Amount at Decrease/ or on Behalf of
Increase Maturity Maturity Increase Trustee
- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________ _____________
</TABLE>
A-13
<PAGE>
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Note)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint _________________________________ Attorney to
transfer this Note on the Security Register, with full power of substitution.
Dated: ________________
______________________________ ___________________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing Assignment must correspond to the Name
as written upon the face of this Note in every particular, without alteration or
any change whatsoever.
A-14
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
[_] In connection with the Change of Control Offer made pursuant to
Section 4.07 of the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $_______________ ($1,000 in principal amount or an integral
multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or __________________________ an amount in cash
equal to 101% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Change of Control Payment Date.
[_] In connection with the Asset Sale Offer made pursuant to Section
4.08 of the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $________________ ($1,000 in principal amount or an integral
multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or ____________________________ an amount in cash
equal to 100% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Asset Sale Purchase Date.
Dated: ________________
_______________________________ ___________________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
A-15
<PAGE>
` EXHIBIT B
FORM OF INITIAL CERTIFICATED NOTE
---------------------------------
FACE OF INITIAL CERTIFICATED NOTE
---------------------------------
THE KRYSTAL COMPANY
No.____ CUSIP No. _________
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT'), AND THIS NOTE MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY,
REQUIRED UNDER THE INDENTURE PURSUANT TO WHICH THIS NOTE IS
ISSUED) AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION.
101/4% SENIOR NOTE DUE 2007
---------------------------
The Krystal Company, a Tennessee corporation, for value received,
hereby promises to pay to __________, or its registered assigns, the principal
amount of ________, on October 1, 2007.
Interest Payment Dates: April 1 and October 1, commencing April 1,
1998.
Record Dates: March 15 and September 15.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purposes.
<PAGE>
IN WITNESS WHEREOF, The Krystal Company has caused this Note to be
duly executed under its corporate seal.
THE KRYSTAL COMPANY
By:______________________________
Name:
Title:
Attest:___________________________
Dated: ___________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
____________________________________________________
as Trustee, certifies that this is one of
the Notes referred to in the Indenture.
By:_______________________________
Authorized Signatory
B-2
<PAGE>
REVERSE SIDE OF INITIAL CERTIFICATED NOTE
THE KRYSTAL COMPANY
101/4% SENIOR NOTE DUE 2007
1. Indenture.
---------
This Note is one of a duly authorized issue of debt securities of the
Company (as defined below) designated as its "101/4% Senior Notes Due 2007"
(herein called the "Notes") limited in aggregate principal amount to
$100,000,000, issued under an indenture dated as of September 26, 1997 (as
amended or supplemented from time to time, the "Indenture") between TKC
Acquisition Corp. ("TKC") and SunTrust Bank, Atlanta, as trustee (the "Trustee,"
which term includes any successor trustee under the Indenture). Pursuant to an
agreement and plan of merger, dated as of July 3, 1997, by and among TKC, Port
Royal Holdings, Inc. and The Krystal Company, TKC merged with and into The
Krystal Company on September 26, 1997, and The Krystal Company became the
surviving corporation (the "Merger"). Immediately following the Merger, The
Krystal Company executed a supplemental indenture no. 1 ("Supplemental Indenture
No. 1"), dated as of September 26, 1997, among The Krystal Company, as the
successor to TKC, Krystal Aviation Co. and Krystal Aviation Management Co., as
guarantors (the "Guarantors") and the Trustee, under which (i) The Krystal
Company acknowledged and agreed that it had succeeded TKC as the Company under
the Indenture and the Notes, agreed to perform each and every covenant of the
Company contained in the Indenture and the Notes and agreed to be bound by and
subject to the terms and provisions of the Indenture and the Notes in each and
every respect as if it had been initially named as the Company in the Indenture
and the Notes and (ii) each of the Guarantors assumed all of the obligations of
a Guarantor under the Indenture and the Notes and agreed to be bound by and
subject to the terms and provisions of the Indenture and the Notes in each and
every respect as if each had been initially named as a Guarantor in the
Indenture and the Notes. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbb). The Notes
are subject to all such terms, and Holders of Notes are referred to the
Indenture and such Act for a statement of the respective rights, limitations of
rights, duties and immunities thereunder of the Company, the Guarantors, the
Trustee and each Holder and of the terms upon which the Notes are, and are to
be, authenticated and delivered. The summary of the terms of this Note contained
herein does not purport to be complete and is qualified by reference to the
Indenture. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture, the
terms of the Indenture shall control. All capitalized terms used in this Note
which are not defined herein shall have the meanings assigned to them in the
Indenture.
The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness and issue preferred stock, pay dividends or make
certain other restricted payments, incur liens, sell stock of Subsidiaries,
apply net proceeds from certain asset sales, merge or consolidate with any other
person, sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company and enter into certain
transactions with affiliates.
B-3
<PAGE>
2. Principal and Interest.
----------------------
The Krystal Company, a Tennessee corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay the principal amount of ______ to
the Holder hereof on October 1, 2007.
The Company shall pay interest at a rate of 101/4% per annum, from
September 26, 1997 or from the most recent Interest Payment Date thereafter to
which interest has been paid or duly provided for, semiannually in arrears on
April 1 and October 1 of each year, commencing on April 1, 1998, in cash, to the
Holder hereof until the principal amount hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, subject to certain exceptions provided in the
Indenture, be paid to the Person in whose name this Note (or the Note in
exchange or substitution for which this Note was issued) is registered at the
close of business on the Record Date for interest payable on such Interest
Payment Date. The Record Date for any interest payment is the close of business
on March 15 or September 15, as the case may be, whether or not a Business Day,
immediately preceding the Interest Payment Date on which such interest is
payable. Any such interest not so punctually paid or duly provided for
("Defaulted Interest") shall forthwith cease to be payable to the Holder on such
Record Date and shall be paid as provided in Section 2.11 of the Indenture.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Each payment of interest in respect of an Interest Payment Date will
include interest accrued through the day before such Interest Payment Date. If
an Interest Payment Date falls on a day that is not a Business Day, the interest
payment to be made on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
If this Note is exchanged in a Registered Exchange Offer, prior to the
Record Date for the first Interest Payment Date following such exchange, accrued
and unpaid interest, if any, on this Note, up to but not including the date of
issuance of the Exchange Note or Exchange Notes issued in exchange for this
Note, shall be paid on the first Interest Payment Date for such Exchange Note or
Exchange Notes to the Holder or Holders of such Exchange Note or Exchange Notes
on the first Record Date with respect to such Exchange Note or Exchange Notes.
If this Note is exchanged in a Registered Exchange Offer subsequent to the
Record Date for the first Interest Payment Date following such exchange but on
or prior to such Interest Payment Date, then any such accrued and unpaid
interest with respect to this Note and any accrued and unpaid interest on the
Exchange Note or Exchange Notes issued in exchange for this Note, through the
day before such Interest Payment Date, shall be paid on such Interest Payment
Date to the Holder of this Note on such Record Date.
To the extent lawful, the Company shall pay interest on overdue
principal, overdue premium, Defaulted Interest and overdue Additional Interest
(without regard to any applicable grace period) at the interest rate borne on
this Note. The Company's obligation pursuant to the previous sentence shall
apply whether such overdue amount is due at its Stated Maturity, as a
B-4
<PAGE>
result of the Company's obligations pursuant to Section 3.05, Section 4.07 or
Section 4.08 of the Indenture, or otherwise.
3. Registration Rights, Additional Interest.
----------------------------------------
The Holder of this Note is entitled to the benefits of the Registration
Rights Agreement, dated September 26, 1997, between TKC, as the predecessor to
the Company, and the Initial Purchaser (the "Registration Rights Agreement"),
which agreement is attached to the Indenture as Exhibit J thereto. Such benefits
include the right of the Holder to receive Additional Interest in the event of a
failure on the part of the Company to comply with certain registration
covenants, as provided in Section 4 of the Registration Rights Agreement .
4. Method of Payment.
-----------------
The Company, through the Paying Agent, shall pay interest on this Note
to the registered Holder of this Note, as provided above. The Holder must
surrender this Note to a Paying Agent to collect principal payments. The Company
will pay principal, premium, if any, and interest and Additional Interest, if
any, in money of the United States of America that at the time of payment is
legal tender for payment of all debts public and private. Principal, premium, if
any, and interest and Additional Interest, if any, shall be paid by check,
mailed to the registered Holders at their registered addresses; provided that
all payments with respect to Notes that the Holders of which have given wire
transfer instructions to the Company, will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof.
5. Paying Agent and Registrar.
--------------------------
Initially, the Trustee will act as Paying Agent and Registrar under the
Indenture. The Company may, upon written notice to the Trustee, appoint and
change any Paying Agent or Registrar. The Company or any of its Affiliates may
act as Paying Agent or Registrar; provided that if the Company or such Affiliate
--------
is acting as Paying Agent, the Company or such Affiliate shall segregate all
funds held by it as Paying Agent and hold them in trust for the benefit of the
Holders or the Trustee.
6. Note Guarantees.
---------------
This Note is initially entitled to the benefits of the Note Guarantees
made by Krystal Aviation Co. and Krystal Aviation Management Co. pursuant to the
Indenture, and may thereafter be entitled to Note Guarantees made by other
Guarantors for the benefit of the Holders of the Notes. Each present Guarantor
has, and each future Guarantor will, irrevocably and unconditionally, jointly
and severally, guarantee on a senior basis the punctual payment when due,
whether at Stated Maturity, by acceleration, in connection with a Change of
Control Offer, an Asset Sale Offer or redemption, or otherwise, of all
obligations of the Company under the Indenture and this Note, whether for
payment of principal of, premium, if any, interest or Additional Interest, if
any, on the Notes, expenses, indemnification or otherwise. A Guarantor
B-5
<PAGE>
shall be released from its Note Guarantee upon the terms and subject to the
conditions set forth in the Indenture.
7. Redemption.
----------
The Notes are not redeemable at the option of the Company prior to
April 1, 2002. Thereafter, the Notes will be subject to redemption at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
calendar days' prior notice, at the redemption prices (expressed as percentages
of principal amount) set forth below, plus accrued and unpaid interest thereon,
and Additional Interest, if any, to the applicable Redemption Date (subject to
the right of each Holder of record on the relevant Record Date to receive
interest due on the relevant Interest Payment Date), if redeemed during the
twelve-month period beginning April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR Percentage
---- ----------
<S> <C>
2002 105.125%
2003 103.417%
2004 101.708%
2005 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 1, 2000, the
Company, at its option, may redeem up to 35% of the aggregate principal amount
of the Notes originally issued, in part, with the net proceeds of one or more
Public Equity Offerings made by the Company or of a capital contribution made by
the Parent to the common equity capital of the Company with the net proceeds of
one or more Public Equity Offerings made by the Parent, at a redemption price
equal to 110.25% of the aggregate principal amount thereof together with accrued
and unpaid interest and Additional Interest, if any, to the date of the
redemption payment; provided, however, that after such redemption, the aggregate
-------- -------
principal amount of the Notes outstanding must equal at least 65% of the
aggregate principal amount of the Notes originally issued and provided, further,
-------- -------
that such redemption shall occur within 60 days of the date of closing such
Public Equity Offering.
8. Notice of Redemption.
--------------------
At least 30 calendar days but not more than 60 calendar days before a
Redemption Date, the Company shall send, or cause to be sent, a notice of
redemption, by first-class mail, postage prepaid, to Holders of Notes to be
redeemed at the addresses of such Holders as they appear in the Note Register.
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed on a pro rata basis; provided that
the Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Notes that have denominations larger than
$1,000 (Notes in denominations of $1,000 or less may be redeemed only in whole).
If any Note is redeemed subsequent to a Record Date with respect to any Interest
Payment Date specified above and on or prior to such Interest Payment Date, then
any accrued interest will be paid on such Interest Payment Date to the Holder of
the Note on such Record
B-6
<PAGE>
Date. If money in an amount sufficient to pay the Redemption Price of all Notes
(or portions thereof) to be redeemed on the Redemption Date is deposited with
the Paying Agent on or before the applicable Redemption Date and certain other
conditions are satisfied, interest on the Notes or portions thereof to be
redeemed on the applicable Redemption Date will cease to accrue.
9. Repurchase at the Option of Holders upon Change of Control.
----------------------------------------------------------
Upon the occurrence of a Change of Control, each Holder shall have the
right in accordance with the terms hereof and the Indenture to require the
Company to purchase such Holder's Notes, in whole or in part, in a principal
amount that is an integral multiple of $1,000, pursuant to a Change of Control
Offer, at a purchase price in cash equal to 101% of the principal amount of such
Notes (or portions thereof) plus accrued and unpaid interest and Additional
Interest, if any, to the Change of Control Payment Date.
Within 30 calendar days after the date of any Change of Control, the
Company shall send, or cause to be sent, by first-class mail, postage prepaid, a
notice regarding the Change of Control Offer to each Holder. The Holder of this
Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Purchase Price with respect thereto, all Notes or portions thereof
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest from and after the Change of Control Payment Date.
10. Repurchase at the Option of Holders upon Asset Sale.
---------------------------------------------------
If at any time the Company or any Subsidiary engages in any Asset Sale,
as a result of which the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall, within 30 calendar days of the date the amount of
Excess Proceeds exceeds $5.0 million, use the then-existing Excess Proceeds to
make an offer to purchase from all Holders of Notes, on a pro rata basis, Notes
in an aggregate principal amount equal in amount to the then-existing Excess
Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon and Additional
Interest, if any, to the Asset Sale Purchase Date. Upon completion of an Asset
Sale Offer (including payment of the Asset Sale Purchase Price for accepted
Notes), any surplus Excess Proceeds that were the subject of such offer shall
cease to be Excess Proceeds, and the Company may then use such amounts for
general corporate purposes. Within 30 calendar days of the date the amount of
Excess Proceeds exceeds $5.0 million, the Company shall send, or cause to be
sent, by first-class mail, postage prepaid, a notice regarding the Asset Sale
Offer to each Holder. The Holder of this Note may elect to have this Note or a
portion hereof in an authorized denomination purchased by completing the form
entitled "Option of Holder to Elect Purchase" appearing below and tendering this
Note pursuant to the Asset Sale Offer. Unless the Company defaults in the
payment of the Asset Sale Purchase Price with respect thereto, all Notes or
portions thereof selected for payment pursuant to the Asset Sale Offer will
cease to accrue interest from and after the Asset Sale Purchase Date.
B-7
<PAGE>
11. The Registered Exchange Offer.
-----------------------------
Any Initial Notes (including this Note) that are presented to the
Registrar for exchange pursuant to the Registered Exchange Offer (as defined in
the Registration Rights Agreement) shall be exchanged for Exchange Notes of
equal principal amount upon surrender of such Notes to the Registrar in
accordance with the terms of the Registered Exchange Offer and the Indenture.
12. Transfer and Exchange.
---------------------
The transfer of this Note is subject to certain restrictions,
including those to which reference is made in the Private Placement Legend. A
Holder may transfer or exchange Notes as provided in the Indenture and subject
to certain limitations therein set forth. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements or transfer documents
and to pay any taxes, fees and expenses required by law or permitted by the
Indenture. The Registrar need not register the transfer or exchange of
Certificated Notes or portions thereof selected for redemption (except, in the
case of a Certificated Note to be redeemed in part, the portion of such
Certificated Note not to be redeemed) or any Certificated Notes for a period of
15 calendar days before a selection of Notes to be redeemed.
13. Denominations.
-------------
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof of principal amount;
provided that Initial Certificated Notes originally purchased by or transferred
to Institutional Accredited Investors shall be subject to a minimum denomination
of $250,000.
14. Discharge and Defeasance.
------------------------
Subject to certain conditions, the Company may, at any time, terminate
some or all of the obligations of the Company and each Guarantor under the
Notes, each Note Guarantee and the Indenture if the Company irrevocably deposits
in trust with the Trustee cash or U.S. Government Obligations for the payment of
principal, premium, if any, interest and Additional Interest, if any, on the
Notes to redemption or maturity, as the case may be.
15. Amendment;Waiver.
----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the outstanding Notes (which consent
may, but need not, be given in connection with any tender offer or exchange
offer for the Notes) and (ii) any Default and its consequences may be waived
with the written consent of the Holders of at least a majority in principal
amount of the outstanding Notes. Subject to certain exceptions set forth in the
Indenture, without the consent of any Holder, the Company and the Trustee may
amend the Indenture or the Notes (i) to evidence the succession of another
Person to the Company and the assumption by such successor of the covenants of
the Company under the Indenture and contained in the Notes; (ii) to add to the
covenants of the Company, for the benefit of the Holders of all of the Notes, or
to surrender
B-8
<PAGE>
any right or power conferred on the Company under the Indenture; (iii) to add
any additional Events of Default; (iv) to provide for uncertificated Notes in
addition to or in place of Certificated Notes; (v) to evidence and provide for
the acceptance of appointment under the Indenture of a successor Trustee; (vi)
to secure the Notes; (vii) to cure any ambiguity in the Indenture, or to correct
or supplement any provision in the Indenture which may be inconsistent with any
other provision therein or to add any other provisions with respect to matters
or questions arising under the Indenture, provided that such actions shall not
adversely affect the interests of the Holders of Notes in any material respect;
(viii) to comply with the requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act; or
(ix) to evidence the agreement or acknowledgment of a Subsidiary that it is a
Guarantor for all purposes under the Indenture (including, without limitation,
Article X thereof).
16. Defaults and Remedies.
---------------------
Under the Indenture, Events of Default include: (i) a default for 30
days in the payment when due of interest on, or Additional Interest with respect
to, the Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Notes; (iii) failure by the Company to observe or perform certain
covenants, conditions, agreements or other provisions of the Indenture or this
Note (and, in the case of certain covenants, agreements or other provisions,
such failure has continued for 60 calendar days after written notice by the
Trustee or the Holders of at least 25% in principal amount of the Notes); (iv)
default in the payment of Indebtedness of the Company or any of its Subsidiaries
at its final maturity or acceleration of such Indebtedness in an amount in
excess of $5.0 million in the aggregate; (v) certain events of bankruptcy or
insolvency with respect to the Company or any of its Subsidiaries; (vi) certain
undischarged judgments in excess of $5.0 million in the aggregate; or (vii) the
Note Guarantee of any Guarantor being held in any judicial proceeding to be
unenforceable or invalid or ceasing for any reason to be in full force and
effect (other than in accordance with the terms of the Indenture) or any
Guarantor or any Person acting on behalf of any Guarantor denying or
disaffirming the Note Guarantee of such Guarantor.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes, subject to certain
limitations, may declare all the Notes to be immediately due and payable.
Certain events of bankruptcy or insolvency shall result in the Notes being
immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Notes may
direct the Trustee in its exercise of any trust or power under the Indenture.
The Holders of a majority in principal amount of the then outstanding Notes, by
written notice to the Trustee and the Company, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all existing Events of Default have been cured or
waived, except nonpayment of principal, interest, premium or Additional Interest
that has become due solely because of acceleration. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.
B-9
<PAGE>
17. Individual Rights of Trustee.
----------------------------
Subject to certain limitations imposed by the Trust Indenture Act, the
Trustee or any Paying Agent or Registrar, in its individual or any other
capacity, may become the owner or pledgee of Notes and may otherwise deal with
the Company, the Guarantors or its or their Affiliates with the same rights it
would have if it were not Trustee, Paying Agent or Registrar, as the case may
be, under the Indenture.
18. No Recourse Against Certain Others.
----------------------------------
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any such Guarantor under the Notes, the Note Guarantees or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation, solely by reason of its status as a director,
officer, employee, incorporator or stockholder of the Company or any such
Guarantor. By accepting a Note, each Holder waives and releases all such
liability (but only such liability) as part of the consideration for issuance of
such Note to such Holder.
19. Authentication.
--------------
This Note shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Note.
20. Abbreviations.
-------------
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
21. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of Notes. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption, and reliance may be placed only on the
other identification numbers placed thereon.
22. Governing Law.
-------------
THE INDENTURE, ANY NOTE GUARANTEES AND THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
B-10
<PAGE>
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture which has in it the text of
this Note. Requests may be made to:
The Krystal Company
One Union Square
Chattanooga, TN 37402
Attention: Secretary
B-11
<PAGE>
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Note)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint _________________________________ Attorney to
transfer this Note on the Security Register, with full power of substitution.
Dated: ________________
___________________________ _______________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing Assignment must correspond to the Name
as written upon the face of this Note in every particular, without alteration or
any change whatsoever.
B-12
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
[_] In connection with the Change of Control Offer made pursuant to Section
4.07 of the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $_______________ ($1,000 in principal amount or an integral multiple
thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or __________________________ an amount in cash
equal to 101% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Change of Control Payment Date.
[_] In connection with the Asset Sale Offer made pursuant to Section 4.08 of
the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $________________ ($1,000 in principal amount or an integral multiple
thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or ____________________________ an amount in cash
equal to 100% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Asset Sale Purchase Date.
Dated: ________________
_______________________________ ___________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
B-13
<PAGE>
EXHIBIT C
FORM OF EXCHANGE GLOBAL NOTE
----------------------------
FACE OF EXCHANGE GLOBAL NOTE
----------------------------
THE KRYSTAL COMPANY
No. ___ CUSIP No. 501148AA8
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY TO THE KRYSTAL COMPANY OR A SUCCESSOR THEREOF OR THE REGISTRAR FOR
REGISTRATION OF TRANSFER OR EXCHANGE AND ANY NOTE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFER OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, AND NOT IN
PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE.
<PAGE>
GLOBAL NOTE
REPRESENTING 10 1/4% SENIOR NOTES DUE 2006
The Krystal Company, a Tennessee corporation, for value received,
hereby promises to pay to CEDE & CO., or its registered assigns, the principal
sum indicated on Schedule A hereof, on October 1, 2007.
Interest Payment Dates: April 1 and October 1, commencing April 1,
1997.
Record Dates: March 15 and September 15.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purposes.
IN WITNESS WHEREOF, The Krystal Company has caused this Note to be
duly executed under its corporate seal.
THE KRYSTAL COMPANY
By:______________________________
Name:
Title:
Attest:_________________________
Dated:__________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
_____________________________________________,
as Trustee, certifies that this is one of
the Notes referred to in the Indenture.
By:__________________________________________
Authorized Signatory
C-2
<PAGE>
REVERSE SIDE OF EXCHANGE GLOBAL NOTE
THE KRYSTAL COMPANY
GLOBAL NOTE
REPRESENTING 10 1/4% SENIOR NOTES DUE 2007
1. Indenture.
---------
This Note is one of a duly authorized issue of debt securities of the
Company (as defined below) designated as its "10 1/4% Senior Notes Due 2007"
(herein called the "Notes") limited in aggregate principal amount to
$100,000,000, issued under an indenture dated as of September 26, 1997 (as
amended or supplemented from time to time, the "Indenture") between TKC
Acquisition Corp. ("TKC") and SunTrust Bank, Atlanta, as trustee (the "Trustee,"
which term includes any successor trustee under the Indenture). Pursuant to an
agreement and plan of merger, dated as of July 3, 1997, by and among TKC, Port
Royal Holdings, Inc. and The Krystal Company, TKC merged with and into The
Krystal Company on September 26, 1997, and The Krystal Company became the
surviving corporation (the "Merger"). Immediately following the Merger, The
Krystal Company executed a supplemental indenture no. 1 ("Supplemental Indenture
No.1"), dated as of September 26, 1997, among The Krystal Company, as the
successor to TKC, Krystal Aviation Co. and Krystal Aviation Management Co., as
guarantors (the "Guarantors") and the Trustee, under which (i) The Krystal
Company acknowledged and agreed that it had succeeded TKC as the Company under
the Indenture and the Notes, agreed to perform each and every covenant of the
Company contained in the Indenture and the Notes and agreed to be bound by and
subject to the terms and provisions of the Indenture and the Notes in each and
every respect as if it had been initially named as the Company in the Indenture
and the Notes and (ii) each of the Guarantors assumed all of the obligations of
a Guarantor under the Indenture and the Notes and agreed to be bound by and
subject to the terms and provisions of the Indenture and the Notes in each and
every respect as if each had been initially named as a Guarantor in the
Indenture and the Notes. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbb). The Notes
are subject to all such terms, and Holders of Notes are referred to the
Indenture and such Act for a statement of the respective rights, limitations of
rights, duties and immunities thereunder of the Company, the Guarantors, the
Trustee and each Holder and of the terms upon which the Notes are, and are to
be, authenticated and delivered. The summary of the terms of this Note
contained herein does not purport to be complete and is qualified by reference
to the Indenture. To the extent permitted by applicable law, in the event of
any inconsistency between the terms of this Note and the terms of the Indenture,
the terms of the Indenture shall control. All capitalized terms used in this
Note which are not defined herein shall have the meanings assigned to them in
the Indenture.
The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness and issue preferred stock, pay dividends or make
certain other restricted payments, incur liens, sell stock of Subsidiaries,
apply net proceeds from certain asset sales, merge or consolidate with any other
person, sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company and enter into certain
transactions with affiliates.
C-3
<PAGE>
2. Principal and Interest.
----------------------
The Krystal Company, a Tennessee corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay the principal amount set forth on
Schedule A of this Note to the Holder hereof on October 1, 2007.
The Company shall pay interest at a rate of 10 1/4% per annum, from
September 26, 1997 or from the most recent Interest Payment Date thereafter to
which interest has been paid or duly provided for, semiannually in arrears on
April 1 and October 1 of each year, commencing on April 1, 1998, in cash, to the
Holder hereof until the principal amount hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, subject to certain exceptions provided in the
Indenture, be paid to the Person in whose name this Note (or the Note in
exchange or substitution for which this Note was issued) is registered at the
close of business on the Record Date for interest payable on such Interest
Payment Date. The Record Date for any interest payment is the close of business
on March 15 or September 15, as the case may be, whether or not a Business Day,
immediately preceding the Interest Payment Date on which such interest is
payable. Any such interest not so punctually paid or duly provided for
("Defaulted Interest") shall forthwith cease to be payable to the Holder on such
Record Date and shall be paid as provided in Section 2.11 of the Indenture.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Each payment of interest in respect of an Interest Payment Date will
include interest accrued through the day before such Interest Payment Date. If
an Interest Payment Date falls on a day that is not a Business Day, the interest
payment to be made on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
If this Note is issued pursuant to a Registered Exchange Offer, on or
prior to the Record Date for the first Interest Payment Date following such
exchange, accrued and unpaid interest, if any, on the equivalent principal
amount of the Initial Note in exchange for which this Note was issued, up to but
not including the date of issuance of this Note, shall be paid on the first
Interest Payment Date for this Note to the Holder of this Note on the first
Record Date with respect to this Note. If this Note is issued pursuant to a
Registered Exchange Offer, subsequent to the Record Date for the first Interest
Payment Date following such exchange but on or prior to such Interest Payment
Date, then any such accrued and unpaid interest with respect to the equivalent
principal amount of the Initial Note in exchange for which this Note was issued
and any accrued and unpaid interest on this Note through the day before such
Interest Payment Date shall be paid on such Interest Payment Date to the Holder
of such Initial Note on such Record Date.
To the extent lawful, the Company shall pay interest on overdue
principal, overdue premium, Defaulted Interest and overdue Additional Interest
(without regard to any applicable grace period) at the interest rate borne on
this Note. The Company's obligation pursuant to the previous sentence shall
apply whether such overdue amount is due at its Stated Maturity, as a
C-4
<PAGE>
result of the Company's obligations pursuant to Section 3.05, Section 4.07 or
Section 4.08 of the Indenture, or otherwise.
3. Method of Payment.
-----------------
The Company, through the Paying Agent, shall pay interest on this Note
to the registered Holder of this Note, as provided above. The Holder must
surrender this Note to a Paying Agent to collect principal payments. The
Company will pay principal, premium, if any, and interest and Additional
Interest, if any, in money of the United States of America that at the time of
payment is legal tender for payment of all debts public and private. Principal,
premium, if any, and interest and Additional Interest, if any, shall be paid by
checks, mailed to the registered Holders at their registered addresses; provided
that all payments with respect to Notes that the Holders of which have given
wire transfer instructions to the Company, will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof.
4. Paying Agent and Registrar.
--------------------------
Initially, the Trustee will act as Paying Agent and Registrar under
the Indenture. The Company may, upon written notice to the Trustee, appoint and
change any Paying Agent or Registrar. The Company or any of its Affiliates may
act as Paying Agent or Registrar; provided that if the Company or such Affiliate
--------
is acting as Paying Agent, the Company or such Affiliate shall segregate all
funds held by it as Paying Agent and hold them in trust for the benefit of the
Holders or the Trustee.
5. Note Guarantees.
---------------
This Note is initially entitled to the benefits of the Note Guarantees
made by Krystal Aviation Co. and Krystal Aviation Management Co. pursuant to the
Indenture, and may thereafter be entitled to Note Guarantees made by other
Guarantors for the benefit of the Holders of the Notes. Each Guarantor has, and
each future Guarantor will, irrevocably and unconditionally, jointly and
severally, guarantee on a senior basis the punctual payment when due, whether at
Stated Maturity, by acceleration, in connection with a Change of Control Offer,
an Asset Sale Offer or redemption, or otherwise, of all obligations of the
Company under the Indenture and this Note, whether for payment of principal of,
premium, if any, interest or Additional Interest, if any, on the Notes,
expenses, indemnification or otherwise. A Guarantor shall be released from its
Note Guarantee upon the terms and subject to the conditions set forth in the
Indenture.
6. Redemption.
----------
The Notes are not redeemable at the option of the Company prior to
April 1, 2002. Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 calendar days' prior notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon and Additional Interest, if any, to the applicable Redemption
Date (subject to the right of
C-5
<PAGE>
each Holder of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date), if redeemed during the twelve-month period
beginning April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR Percentage
---- ----------
<S> <C>
2002 105.125%
2003 103.417%
2004 101.708%
2005 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 1, 2000, the
Company, at its option, may redeem up to 35% of the aggregate principal amount
of the Notes originally issued, in part, with the net proceeds of one or more
Public Equity Offerings made by the Company or of a capital contribution made by
the Parent to the common equity capital of the Company with the net proceeds of
one or more Public Equity Offerings made by the Parent , at a redemption price
equal to 110.25% of the aggregate principal amount thereof together with accrued
and unpaid interest and Additional Interest, if any, to the date of the
redemption payment; provided, however, that after such redemption, the aggregate
-------- -------
principal amount of the Notes outstanding must equal at least 65% of the
aggregate principal amount of the Notes originally issued and provided, further,
-------- -------
that such redemption shall occur within 60 days of the date of closing such
Public Equity Offering.
7. Notice of Redemption.
--------------------
At least 30 calendar days but not more than 60 calendar days before a
Redemption Date, the Company shall send, or cause to be sent, a notice of
redemption, by first-class mail, postage prepaid, to Holders of Notes to be
redeemed at the addresses of such Holders as they appear in the Note Register.
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed on a pro rata basis; provided that
the Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Notes that have denominations larger than
$1,000 (Notes in denominations of $1,000 or less may be redeemed only in whole).
If any Note is redeemed subsequent to a Record Date with respect to any Interest
Payment Date specified above and on or prior to such Interest Payment Date, then
any accrued interest will be paid on such Interest Payment Date to the Holder of
the Note on such Record Date. If money in an amount sufficient to pay the
Redemption Price of all Notes (or portions thereof) to be redeemed on the
Redemption Date is deposited with the Paying Agent on or before the applicable
Redemption Date and certain other conditions are satisfied, interest on the
Notes or portions thereof to be redeemed on the applicable Redemption Date will
cease to accrue.
8. Repurchase at the Option of Holders upon Change of Control.
----------------------------------------------------------
Upon the occurrence of a Change of Control, each Holder shall have the
right in accordance with the terms hereof and the Indenture to require the
Company to purchase such Holder's Notes, in whole or in part, in a principal
amount that is an integral multiple of $1,000,
C-6
<PAGE>
pursuant to a Change of Control Offer, at a purchase price in cash equal to 101%
of the principal amount of such Notes (or portions thereof) plus accrued and
unpaid interest and Additional Interest, if any, to the Change of Control
Payment Date.
Within 30 calendar days after the date of any Change of Control, the
Company shall send, or cause to be sent, by first-class mail, postage prepaid, a
notice regarding the Change of Control Offer to each Holder. The Holder of this
Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Purchase Price with respect thereto, all Notes or portions thereof
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest from and after the Change of Control Payment Date.
9. Repurchase at the Option of Holders upon Asset Sale.
---------------------------------------------------
If at any time the Company or any Subsidiary engages in any Asset
Sale, as a result of which the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall, within 30 calendar days of the date the amount of
Excess Proceeds exceeds $5.0 million, use the then-existing Excess Proceeds to
make an offer to purchase from all Holders of Notes, on a pro rata basis, Notes
in an aggregate principal amount equal in amount to the then-existing Excess
Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon and Additional
Interest, if any, to the Asset Sale Purchase Date. Upon completion of an Asset
Sale Offer (including payment of the Asset Sale Purchase Price for accepted
Notes), any surplus Excess Proceeds that were the subject of such offer shall
cease to be Excess Proceeds, and the Company may then use such amounts for
general corporate purposes.
Within 30 calendar days of the date the amount of Excess Proceeds
exceeds $5.0 million, the Company shall send, or cause to be sent, by first-
class mail, postage prepaid, a notice regarding the Asset Sale Offer to each
Holder. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the Asset Sale Offer. Unless the Company defaults in the payment of the Asset
Sale Purchase Price with respect thereto, all Notes or portions thereof selected
for payment pursuant to the Asset Sale Offer will cease to accrue interest from
and after the Asset Sale Purchase Date.
10. The Global Note.
---------------
So long as this Global Note is registered in the name of the
Depository or its nominee, members of, or participants in, the Depository
("Agent Members") shall have no rights under the Indenture with respect to this
Global Note held on their behalf by the Depository or the Trustee as its
custodian, and the Depository may be treated by the Company, the Guarantors, the
Trustee and any agent of the Company, the Guarantors or the Trustee as the
absolute owner of this Global Note for all purposes. Notwithstanding the
foregoing, nothing herein shall (i) prevent the Company, the Guarantors, the
Trustee or any agent of the Company, the Guarantors or the
C-7
<PAGE>
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depository or (ii) impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder.
The Holder of this Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in this Global Note through Agent Members, to take any action which a
Holder is entitled to take under the Indenture or the Notes.
Whenever, as a result of optional redemption by the Company, a Change
of Control Offer, an Asset Sale Offer or an exchange for Certificated Notes,
this Global Note is redeemed, repurchased or exchanged in part, this Global Note
shall be surrendered by the Holder thereof to the Trustee who shall cause an
adjustment to be made to Schedule A hereof so that the principal amount of this
Global Note will be equal to the portion not redeemed, repurchased or exchanged
and shall thereafter return this Global Note to such Holder; provided that this
--------
Global Note shall be in a principal amount of $1,000 or an integral multiple of
$1,000.
11. Transfer and Exchange.
---------------------
A Holder may transfer or exchange Notes as provided in the Indenture
and subject to certain limitations therein set forth. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes, fees and expenses required by law or permitted
by the Indenture.
12. Denominations.
-------------
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof of principal amount.
13. Discharge and Defeasance.
------------------------
Subject to certain conditions, the Company may, at any time, terminate
some or all of the obligations of the Company and each Guarantor under the
Notes, each Note Guarantee, and the Indenture if the Company irrevocably
deposits in trust with the Trustee cash or U.S. Government Obligations for the
payment of principal, premium, if any, interest and Additional Interest, if any,
on the Notes to redemption or maturity, as the case may be.
14. Amendment, Waiver.
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the outstanding Notes (which consent
may, but need not, be given in connection with any tender offer or exchange
offer for the Notes) and (ii) any Default and its consequences may be waived
with the written consent of the Holders of at least a majority in principal
amount of the outstanding Notes. Subject to certain exceptions set forth in the
Indenture, without the consent of any Holder, the Company and the Trustee may
amend the Indenture or the Notes (i) to evidence the succession of another
Person to the Company and the assumption by such successor
C-8
<PAGE>
of the covenants of the Company under the Indenture and contained in the Notes;
(ii) to add to the covenants of the Company, for the benefit of the Holders of
all of the Notes, or to surrender any right or power conferred on the Company
under the Indenture; (iii) to add any additional Events of Default; (iv) to
provide for uncertificated Notes in addition to or in place of Certificated
Notes; (v) to evidence and provide for the acceptance of appointment under the
Indenture of a successor Trustee; (vi) to secure the Notes; (vii) to cure any
ambiguity in the Indenture, or to correct or supplement any provision in the
Indenture which may be inconsistent with any other provision therein or to add
any other provisions with respect to matters or questions arising under the
Indenture, provided that such actions shall not adversely affect the interests
of the Holders of Notes in any material respect; (viii) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act; or (ix) to evidence the
agreement or acknowledgment of a Subsidiary that it is a Guarantor for all
purposes under the Indenture (including, without limitation, Article X thereof).
15. Defaults and Remedies.
---------------------
Under the Indenture, Events of Default include: (i) a default for 30
days in the payment when due of interest on, or Additional Interest with respect
to, the Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Notes; (iii) failure by the Company to observe or perform certain
covenants, conditions, agreements or other provisions of the Indenture or this
Note (and, in the case of certain covenants, agreements or other provisions,
such failure has continued for 60 calendar days after written notice by the
Trustee or the Holders of at least 25% in principal amount of the Notes); (iv)
default in the payment of Indebtedness of the Company or any of its Subsidiaries
at its final maturity or acceleration of such Indebtedness in an amount in
excess of $5.0 million in the aggregate; (v) certain events of bankruptcy or
insolvency with respect to the Company or any of its Subsidiaries; (vi) certain
undischarged judgments in excess of $5.0 million in the aggregate; or (vii) the
Note Guarantee of any Guarantor being held in any judicial proceeding to be
unenforceable or invalid or ceasing for any reason to be in full force and
effect (other than in accordance with the terms of the Indenture) or any
Guarantor or any Person acting on behalf of any Guarantor denying or
disaffirming the Note Guarantee of such Guarantor.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes, subject to certain
limitations, may declare all the Notes to be immediately due and payable.
Certain events of bankruptcy or insolvency shall result in the Notes being
immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Notes may
direct the Trustee in its exercise of any trust or power under the Indenture.
The Holders of a majority in principal amount of the then outstanding Notes, by
written notice to the Trustee and the Company, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all existing Events of Default have been cured or
waived, except nonpayment of principal, interest,
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<PAGE>
premium or Additional Interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
16. Individual Rights of Trustee.
----------------------------
Subject to certain limitations imposed by the Trust Indenture Act, the
Trustee or any Paying Agent or Registrar, in its individual or any other
capacity, may become the owner or pledgee of Notes and may otherwise deal with
the Company, the Guarantors or its or their Affiliates with the same rights it
would have if it were not Trustee, Paying Agent or Registrar, as the case may
be, under the Indenture.
17. No Recourse Against Certain Others.
----------------------------------
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any such Guarantor under the Notes, the Note Guarantees or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation, solely by reason of its status as a director,
officer, employee, incorporator or stockholder of the Company or any such
Guarantor. By accepting a Note, each Holder waives and releases all such
liability (but only such liability) as part of the consideration for issuance of
such Note to such Holder.
18. Authentication.
--------------
This Note shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Note.
19. Abbreviations.
-------------
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
20. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of Notes. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption, and reliance may be placed only on the
other identification numbers placed thereon.
21. Governing Law.
-------------
THE INDENTURE, ANY NOTE GUARANTEES AND THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE
C-10
<PAGE>
LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
IN SAID STATE.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture which has in it the text of
this Note. Requests may be made to:
The Krystal Company
One Union Square
Chattanooga, TN 37402
Attention: Secretary
C-11
<PAGE>
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount at maturity of this Note shall be $____________.
The following decreases/increase in the principal amount in denominations of
$1,000 or integral multiples thereof at maturity of this Note have been made:
<TABLE>
<CAPTION>
Total Principal Notation
Decrease in Increase in Amount at Maturity Made by
Date of Principal Amount Principal Amount Following such or on Behalf of
Decrease/Increase at Maturity at Maturity Decrease/Increase Trustee
- ------------------ ------------ ----------- ----------------- -------
<S> <C> <C> <C> <C>
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
- ------------------ ------------------- ------------------- ------------------- -------------------
</TABLE>
C-12
<PAGE>
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Note)
FOR VALUE RECEIVED _____________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
- -------------------------------
- -------------------------------
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint ________________________________ Attorney to
transfer this Note on the Security Register, with full power of substitution.
Dated:__________________________
________________________________ _____________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing Assignment must correspond to the Name
as written upon the face of this Note in every particular, without alteration or
any change whatsoever.
C-13
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
[_] In connection with the Change of Control Offer made pursuant to
Section 4.07 of the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $______________ ($1,000 in principal amount or an integral multiple
thereof)
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or _____________________ an amount in cash equal to
101% of the principal amount indicated in the preceding sentence plus
accrued and unpaid interest and Additional Interest thereon, if any, to the
Change of Control Payment Date.
[_] In connection with the Asset Sale Offer made pursuant to Section
4.08 of the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $______________ ($1,000 in principal amount or an integral
multiple thereof)
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or __________________________ an amount in cash
equal to 100% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Asset Sale Purchase Date.
Dated:________________________
______________________________ ______________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
C-14
<PAGE>
EXHIBIT D
FORM OF EXCHANGE CERTIFICATED NOTE
----------------------------------
FACE OF EXCHANGE CERTIFICATED NOTE
----------------------------------
THE KRYSTAL COMPANY
No.__ CUSIP No. _________
10 1/4% SENIOR NOTE DUE 2007
The Krystal Company, a Tennessee corporation, for value received,
hereby promises to pay to ___________, or its registered assigns, the principal
amount of __________ on October 1, 2007.
Interest Payment Dates: April 1 and October 1, commencing April 1,
1998.
Record Dates: March 15 and September 15.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purposes.
IN WITNESS WHEREOF, The Krystal Company has caused this Note to be
duly executed under its corporate seal.
THE KRYSTAL COMPANY
By:_______________________________
Name:
Title:
Attest:_______________________
Dated:________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
______________________________________________
as Trustee, certifies that this is one of
the Notes referred to in the Indenture.
By:________________________________
Authorized Signatory
D-2
<PAGE>
REVERSE SIDE OF EXCHANGE CERTIFICATED NOTE
------------------------------------------
THE KRYSTAL COMPANY
10 1/4% SENIOR NOTE DUE 2007
1. Indenture.
---------
This Note is one of a duly authorized issue of debt securities of the
Company (as defined below) designated as its "10 1/4% Senior Notes Due 2007"
(herein called the "Notes") limited in aggregate principal amount to
$100,000,000, issued under an indenture dated as of September 26, 1997 (as
amended or supplemented from time to time, the "Indenture") between TKC
Acquisition Corp. ("TKC") and SunTrust Bank, Atlanta, as trustee (the "Trustee,"
which term includes any successor trustee under the Indenture). Pursuant to an
agreement and plan of merger, dated as of July 3, 1997, by and among TKC, Port
Royal Holdings, Inc. and The Krystal Company, TKC merged with and into The
Krystal Company on September 26, 1997, and The Krystal Company became the
surviving corporation (the "Merger"). Immediately following the Merger, The
Krystal Company executed a supplemental indenture no. 1 ( "Supplemental
Indenture No. 1"), dated as of September 26, 1997, among The Krystal Company, as
the successor to TKC, Krystal Aviation Co. and Krystal Aviation Management Co.,
as guarantors (the "Guarantors") and the Trustee, under which (i) The Krystal
Company acknowledged and agreed that it had succeeded TKC as the Company under
the Indenture and the Notes, agreed to perform each and every covenant of the
Company contained in the Indenture and the Notes and agreed to be bound by and
subject to the terms and provisions of the Indenture and the Notes in each and
every respect as if it had been initially named as the Company in the Indenture
and the Notes and (ii) each of the Guarantors assumed all of the obligations of
a Guarantor under the Indenture and the Notes and agreed to be bound by and
subject to the terms and provisions of the Indenture and the Notes in each and
every respect as if each had been initially named as a Guarantor in the
Indenture and the Notes. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbb). The Notes
are subject to all such terms, and Holders of Notes are referred to the
Indenture and such Act for a statement of the respective rights, limitations of
rights, duties and immunities thereunder of the Company, the Guarantors, the
Trustee and each Holder and of the terms upon which the Notes are, and are to
be, authenticated and delivered. The summary of the terms of this Note
contained herein does not purport to be complete and is qualified by reference
to the Indenture. To the extent permitted by applicable law, in the event of
any inconsistency between the terms of this Note and the terms of the Indenture,
the terms of the Indenture shall control. All capitalized terms used in this
Note which are not defined herein shall have the meanings assigned to them in
the Indenture.
The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness and issue preferred stock, pay dividends or make
certain other restricted payments, incur liens, sell stock of Subsidiaries,
apply net proceeds from certain asset sales, merge or consolidate with any other
person, sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company and enter into certain
transactions with affiliates.
D-3
<PAGE>
2. Principal and Interest.
----------------------
The Krystal Company, a Tennessee corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay the principal amount of ________
to the Holder hereof on October 1, 2007.
The Company shall pay interest at a rate of 10 1/4% per annum, from
September 26, 1997 or from the most recent Interest Payment Date thereafter to
which interest has been paid or duly provided for, semiannually in arrears on
April 1 and October 1 of each year, commencing on April 1, 1998, in cash, to the
Holder hereof until the principal amount hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, subject to certain exceptions provided in the
Indenture, be paid to the Person in whose name this Note (or the Note in
exchange or substitution for which this Note was issued) is registered at the
close of business on the Record Date for interest payable on such Interest
Payment Date. The Record Date for any interest payment is the close of business
on March 15 or September 15, as the case may be, whether or not a Business Day,
immediately preceding the Interest Payment Date on which such interest is
payable. Any such interest not so punctually paid or duly provided for
("Defaulted Interest") shall forthwith cease to be payable to the Holder on such
Record Date and shall be paid as provided in Section 2.11 of the Indenture.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Each payment of interest in respect of an Interest Payment Date will
include interest accrued through the day before such Interest Payment Date. If
an Interest Payment Date falls on a day that is not a Business Day, the interest
payment to be made on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
If this Note is issued pursuant to a Registered Exchange Offer, on or
prior to the Record Date for the first Interest Payment Date following such
exchange, accrued and unpaid interest, if any, on the equivalent principal
amount of the Initial Note in exchange for which this Note was issued, up to but
not including the date of issuance of this Note, shall be paid on the first
Interest Payment Date for this Note to the Holder of this Note on the first
Record Date with respect to this Note. If this Note is issued pursuant to a
Registered Exchange Offer, subsequent to the Record Date for the first Interest
Payment Date following such exchange, but on or prior to such Interest Payment
Date, then any such accrued and unpaid interest with respect to the equivalent
principal amount of the Initial Note in exchange for which this Note was issued
and any accrued and unpaid interest on this Note through the day before such
Interest Payment Date shall be paid on such Interest Payment Date to the Holder
of such Initial Note on such Record Date.
To the extent lawful, the Company shall pay interest on overdue
principal, overdue premium, Defaulted Interest and overdue Additional Interest
(without regard to any applicable grace period) at the interest rate borne on
this Note. The Company's obligation pursuant to the previous sentence shall
apply whether such overdue amount is due at its Stated Maturity, as a
D-4
<PAGE>
result of the Company's obligations pursuant to Section 3.05, Section 4.07 or
Section 4.08 of the Indenture, or otherwise.
3. Method of Payment.
-----------------
The Company, through the Paying Agent, shall pay interest on this Note
to the registered Holder of this Note, as provided above. The Holder must
surrender this Note to a Paying Agent to collect principal payments. The
Company will pay principal, premium, if any, and interest and Additional
Interest, if any, in money of the United States of America that at the time of
payment is legal tender for payment of all debts public and private. Principal,
premium, if any, and interest and Additional Interest, if any, shall be paid by
check mailed to the registered Holders at their registered addresses; provided
that all payments with respect to Notes that the Holders of which have given
wire transfer instructions to the Company, will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof.
4. Paying Agent and Registrar.
--------------------------
Initially, the Trustee will act as Paying Agent and Registrar under
the Indenture. The Company may, upon written notice to the Trustee, appoint and
change any Paying Agent or Registrar. The Company or any of its Affiliates may
act as Paying Agent or Registrar; provided that if the Company or such Affiliate
--------
is acting as Paying Agent, the Company or such Affiliate shall segregate all
funds held by it as Paying Agent and hold them in trust for the benefit of the
Holders or the Trustee.
5. Note Guarantees.
---------------
This Note is initially entitled to the benefits of the Note Guarantees
made by Krystal Aviation Co. and Krystal Aviation Management Co. pursuant to the
Indenture, and may thereafter be entitled to Note Guarantees made by other
Guarantors for the benefit of the Holders of the Notes. Each present Guarantor
has, and each future Guarantor will, irrevocably and unconditionally, jointly
and severally, guarantee on a senior subordinated basis the punctual payment
when due, whether at Stated Maturity, by acceleration, in connection with a
Change of Control Offer, an Asset Sale Offer or redemption, or otherwise, of all
obligations of the Company under the Indenture and this Note, whether for
payment of principal of, premium, if any, interest or Additional Interest, if
any, on the Notes, expenses, indemnification or otherwise. A Guarantor shall be
released from its Note Guarantee upon the terms and subject to the conditions
set forth in the Indenture.
6. Redemption.
----------
The Notes are not redeemable at the option of the Company prior to
April 1, 2002. Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 calendar days' prior notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon and Additional Interest, if any, to the applicable Redemption
Date (subject to the right of
D-5
<PAGE>
each Holder of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date), if redeemed during the twelve-month period
beginning April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR Percentage
---- ----------
<S> <C>
2002 105.125%
2003 103.417%
2004 101.708%
2005 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 1, 2000, the
Company, at its option, may redeem up to 35% of the aggregate principal amount
of the Notes originally issued, in part, with the net proceeds of one or more
Public Equity Offering made by the Company or of a capital contribution made by
the Parent to the common equity capital of the Company with the net proceeds of
one or more Public Equity Offerings made by the Parent, at the redemption price
equal to 110.25% of the aggregate principal amount thereof together with accrued
and unpaid interest and Additional Interest, if any, to the date of the
redemption payment; provided, however, that after such redemption, the aggregate
-------- -------
principal amount of the Notes outstanding must equal at least 65% of the
aggregate principal amount of the Notes originally issued and provided, further,
-------- -------
that such redemption shall occur within 60 days of the date of closing such
Public Equity Offering..
7. Notice of Redemption.
--------------------
At least 30 calendar days but not more than 60 calendar days before a
Redemption Date, the Company shall send, or cause to be sent, a notice of
redemption, by first-class mail, postage prepaid, to Holders of Notes to be
redeemed at the addresses of such Holders as they appear in the Note Register.
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed on a pro rata basis; provided that
the Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Notes that have denominations larger than
$1,000 (Notes in denominations of $1,000 or less may be redeemed only in whole).
If any Note is redeemed subsequent to a Record Date with respect to any Interest
Payment Date specified above and on or prior to such Interest Payment Date, then
any accrued interest will be paid on such Interest Payment Date to the Holder of
the Note on such Record Date. If money in an amount sufficient to pay the
Redemption Price of all Notes (or portions thereof) to be redeemed on the
Redemption Date is deposited with the Paying Agent on or before the applicable
Redemption Date and certain other conditions are satisfied, interest on the
Notes or portions thereof to be redeemed on the applicable Redemption Date will
cease to accrue.
8. Repurchase at the Option of Holders upon Change of Control.
----------------------------------------------------------
Upon the occurrence of a Change of Control, each Holder shall have the
right in accordance with the terms hereof and the Indenture to require the
Company to purchase such Holder's Notes, in whole or in part, in a principal
amount that is an integral multiple of $1,000,
D-6
<PAGE>
pursuant to a Change of Control Offer, at a purchase price in cash equal to 101%
of the principal amount of such Notes (or portions thereof) plus accrued and
unpaid interest and Additional Interest, if any, to the Change of Control
Payment Date.
Within 30 calendar days after the date of any Change of Control, the
Company shall send, or cause to be sent, by first-class mail, postage prepaid, a
notice regarding the Change of Control Offer to each Holder. The Holder of this
Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Purchase Price with respect thereto, all Notes or portions thereof
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest from and after the Change of Control Payment Date.
9. Repurchase at the Option of Holders upon Asset Sale.
--------------------------- -----------------------
If at any time the Company or any Subsidiary engages in any Asset
Sale, as a result of which the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall, within 30 calendar days of the date the amount of
Excess Proceeds exceeds $5.0 million, use the then-existing Excess Proceeds to
make an offer to purchase from all Holders of Notes, on a pro rata basis, Notes
in an aggregate principal amount equal in amount to the then-existing Excess
Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon and Additional
Interest, if any, to the Asset Sale Purchase Date. Upon completion of an Asset
Sale Offer (including payment of the Asset Sale Purchase Price for accepted
Notes), any surplus Excess Proceeds that were the subject of such offer shall
cease to be Excess Proceeds, and the Company may then use such amounts for
general corporate purposes.
Within 30 calendar days of the date the amount of Excess Proceeds
exceeds $5.0 million, the Company shall send, or cause to be sent, by first-
class mail, postage prepaid, a notice regarding the Asset Sale Offer to each
Holder. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the Asset Sale Offer. Unless the Company defaults in the payment of the Asset
Sale Purchase Price with respect thereto, all Notes or portions thereof selected
for payment pursuant to the Asset Sale Offer will cease to accrue interest from
and after the Asset Sale Purchase Date.
10. Transfer and Exchange.
---------------------
A Holder may transfer or exchange Notes as provided in the Indenture
and subject to certain limitations therein set forth. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes, fees and expenses required by law or permitted
by the Indenture. The Registrar need not register the transfer or exchange of
Certificated Notes or portions thereof selected for redemption (except, in the
case of a Certificated Note to be redeemed in part, the portion of such
Certificated Note not
D-7
<PAGE>
to be redeemed) or any Certificated Notes for a period of 15 calendar days
before a selection of Notes to be redeemed.
11. Denominations.
-------------
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof of principal amount.
12. Discharge and Defeasance.
------------------------
Subject to certain conditions, the Company may, at any time, terminate
some or all of the obligations of the Company and each Guarantor under the
Notes, each Note Guarantee and the Indenture if the Company irrevocably deposits
in trust with the Trustee, cash or U.S. Government Obligations for the payment
of principal, premium, if any, interest and Additional Interest, if any, on the
Notes to redemption or maturity, as the case may be.
13. Amendment Waiver.
----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the outstanding Notes (which consent
may, but need not, be given in connection with any tender offer or exchange
offer for the Notes) and (ii) any Default and its consequences may be waived
with the written consent of the Holders of at least a majority in principal
amount of the outstanding Notes. Subject to certain exceptions set forth in the
Indenture, without the consent of any Holder, the Company and the Trustee may
amend the Indenture or the Notes (i) to evidence the succession of another
Person to the Company and the assumption by such successor of the covenants of
the Company under the Indenture and contained in the Notes; (ii) to add to the
covenants of the Company, for the benefit of the Holders of all of the Notes, or
to surrender any right or power conferred on the Company under the Indenture;
(iii) to add any additional Events of Default; (iv) to provide for
uncertificated Notes in addition to or in place of Certificated Notes; (v) to
evidence and provide for the acceptance of appointment under the Indenture of a
successor Trustee; (vi) to secure the Notes; (vii) to cure any ambiguity in the
Indenture, or to correct or supplement any provision in the Indenture which may
be inconsistent with any other provision therein or to add any other provisions
with respect to matters or questions arising under the Indenture, provided that
such actions shall not adversely affect the interests of the Holders of Notes in
any material respect; (viii) to comply with the requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act; or (ix) to evidence the agreement or acknowledgment of a
Subsidiary that it is a Guarantor for all purposes under the Indenture
(including, without limitation, Article X thereof).
14. Defaults and Remedies.
---------------------
Under the Indenture, Events of Default include: (i) a default for 30
days in the payment when due of interest on, or Additional Interest with respect
to, the Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Notes; (iii) failure by the Company to observe or perform certain
covenants, conditions, agreements or other provisions of
D-8
<PAGE>
the Indenture or this Note (and, in the case of certain covenants, agreements or
other provisions, such failure has continued for 60 calendar days after written
notice by the Trustee or the Holders of at least 25% in principal amount of the
Notes); (iv) default in the payment of Indebtedness of the Company or any of its
Subsidiaries at its final maturity or acceleration of such Indebtedness in an
amount in excess of $5.0 million in the aggregate; (v) certain events of
bankruptcy or insolvency with respect to the Company or any of its Subsidiaries;
(vi) certain undischarged judgments in excess of $5.0 million in the aggregate;
or (vii) the Note Guarantee of any Guarantor being held in any judicial
proceeding to be unenforceable or invalid or ceasing for any reason to be in
full force and effect (other than in accordance with the terms of the Indenture)
or any Guarantor or any Person acting on behalf of any Guarantor denying or
disaffirming the Note Guarantee of such Guarantor.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes, subject to certain
limitations, may declare all the Notes to be immediately due and payable.
Certain events of bankruptcy or insolvency shall result in the Notes being
immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Notes may
direct the Trustee in its exercise of any trust or power under the Indenture.
The Holders of a majority in principal amount of the then outstanding Notes, by
written notice to the Trustee and the Company, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all existing Events of Default have been cured or
waived, except nonpayment of principal, interest, premium or Additional Interest
that has become due solely because of acceleration. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.
15. Individual Rights of Trustee.
----------------------------
Subject to certain limitations imposed by the Trust Indenture Act, the
Trustee or any Paying Agent or Registrar, in its individual or any other
capacity, may become the owner or pledgee of Notes and may otherwise deal with
the Company, the Guarantors or its or their Affiliates with the same rights it
would have if it were not Trustee, Paying Agent or Registrar, as the case may
be, under the Indenture.
16. No Recourse Against Certain Others.
----------------------------------
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any such Guarantor under the Notes, the Note Guarantees or the
Indenture or for any claim based on, in respect of, or by reason of; such
obligations or their creation, solely by reason of its status as a director,
officer, employee, incorporator or stockholder of the Company or any such
Guarantor. By accepting a Note, each Holder waives and releases all such
liability (but only such liability) as part of the consideration for issuance of
such Note to such Holder.
D-9
<PAGE>
17. Authentication.
--------------
This Note shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Note.
18. Abbreviations.
-------------
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
19. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of Notes. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption, and reliance may be placed only on the
other identification numbers placed thereon.
20. Governing Law.
-------------
THE INDENTURE, ANY NOTE GUARANTEES AND THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture which has in it the text of
this Note. Requests may be made to:
The Krystal Company
One Union Square
Chattanooga, TN 37402
Attention: Secretary
D-10
<PAGE>
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Note)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
- ------------------------------------
- ------------------------------------
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint _________________________________ Attorney to
transfer this Note on the Security Register, with full power of substitution.
Dated: ________________
______________________________ ____________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing Assignment must correspond to the Name
as written upon the face of this Note in every particular, without alteration or
any change whatsoever.
D-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
[_] In connection with the Change of Control Offer made pursuant to Section
4.07 of the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $_______________ ($1,000 in principal amount or an integral multiple
thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or __________________________ an amount in cash
equal to 101% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Change of Control Payment Date.
[_] In connection with the Asset Sale Offer made pursuant to Section 4.08 of
the Indenture, the undersigned hereby elects to have
[_] the entire principal amount
[_] $________________ ($1,000 in principal amount or an integral multiple
thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or ____________________________ an amount in cash
equal to 100% of the principal amount indicated in the preceding sentence
plus accrued and unpaid interest and Additional Interest thereon, if any,
to the Asset Sale Purchase Date.
Dated: ________________
_____________________________ _____________________________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
D-12
<PAGE>
EXHIBIT E
FORM OF TRANSFER CERTIFICATE
FOR TRANSFER TO A QIB
SunTrust Bank, Atlanta
58 Edgewood Avenue, 4th Floor Annex
Atlanta, Georgia 30303
Attention: Corporate Trust Administration
Re: The Krystal Company (the "Company") 10 1/4% Senior Notes Due 2007 (the
----------------------------------------------------------------------
"Notes")
-----
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of September 26,
1997 (as amended and supplemented from time to time, the "Indenture") between
TKC Acquisition Corp. ("TCK") and SunTrust Bank, Atlanta, as Trustee, and the
Supplemental Indenture No. 1 dated as of the same date among the Company, as the
successor to TKC, Krystal Aviation Co. and Krystal Aviation Management Co., as
guarantors (the "Guarantors") and the Trustee. Capitalized terms used but not
defined herein shall have the meanings given them in the Indenture. This letter
relates to $___________ aggregate principal amount of Notes which are held in
the name of [name of transferor] (the "Transferor") to effect the transfer of
such Notes in exchange for an equivalent beneficial interest in the Initial
Global Note.
In connection with such request, and with respect to such Notes, the
Transferor does hereby certify that such Notes are being transferred in
accordance with (i) the transfer restrictions set forth in the Notes and (ii)
Rule 144A under the United States Securities Act of 1933, as amended ("Rule
144A"), to a transferee that the Transferor reasonably believes is purchasing
the Notes for its own account or an account with respect to which the transferee
exercises sole investment discretion, and the transferee, as well as any such
account, is a "qualified institutional buyer" within the meaning of Rule 144A,
in a transaction meeting the requirements of Rule 144A and in accordance with
applicable securities laws of any state of the United States or any other
jurisdiction.
E-1
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
_________________________________
[Name of Transferor]
By:______________________________
Name:
Title:
Date:____________________________
cc: The Krystal Company
One Union Square
Chattanooga, TN 37402
Attention: Philip H. Sanford
E-2
<PAGE>
EXHIBIT F
FORM OF TRANSFER CERTIFICATE FOR TRANSFER TO AN
INSTITUTIONAL ACCREDITED INVESTOR
SunTrust Bank, Atlanta
58 Edgewood Avenue, 4th Floor Annex
Atlanta, Georgia 30303
Attention: Corporate Trust Administration
Re: The Krystal Company (the "Company") 10 1/4% Senior Notes Due 2007 (the
----------------------------------------------------------------------
"Notes")
-----
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of September 26,
1997 (as amended and supplemented from time to time, the "Indenture") between
TKC Acquisition Corp. ("TCK") and SunTrust Bank, Atlanta, as Trustee, and the
Supplemental Indenture No. 1 dated as of the same date among the Company, as the
successor to TKC, Krystal Aviation Co. and Krystal Aviation Management Co., as
guarantors (the "Guarantors") and the Trustee. Capitalized terms used but not
defined herein shall have the meanings given them in the Indenture.
This letter relates to U.S. $___________ aggregate principal amount of
Notes which are held [in certificated form in the name of [name of transferor]
(the "Transferor")] [through the beneficial interest of [name of transferor]
(the "Transferor") in the Initial Global Note] to effect the transfer of such
Notes to an institutional "accredited investor" as defined in Rule 501(a)(1),
(2), (3) or (7) of Regulation D under the Securities Act of 1933, as amended
("Institutional Accredited Investor").
In connection with such request, and with respect to such Notes, the
Transferor does hereby certify that such Notes are being transferred (i) in
accordance with the transfer restrictions set forth in the Notes and (ii) to a
transferee that the Transferor reasonably believes is an Institutional
Accredited Investor that is acquiring at least $250,000 principal amount of
Notes for its own account or for one or more accounts as to which the transferee
exercises sole investment discretion and (iii) in accordance with applicable
securities laws of any state of the United States or any other jurisdiction.
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
_________________________________
[Name of Transferor]
By:______________________________
Name:
Title:
Date:____________________________
cc: The Krystal Company
One Union Square
Chattanooga, TN 37402
Attention: Philip H. Sanford
F-2
<PAGE>
EXHIBIT G
FORM OF INVESTMENT LETTER
FOR INSTITUTIONAL ACCREDITED INVESTORS
SunTrust Bank, Atlanta
58 Edgewood Avenue, 4th Floor Annex
Atlanta, Georgia 30303
Attention: Corporate Trust Administration
Re: The Krystal Company (the "Company") 10 1/4% Senior Notes Due
------------------------------------------------------------
2007 (the "Notes")
----------------
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of September 26,
1997 (as amended and supplemented from time to time, the "Indenture") between
TKC Acquisition Corp. ("TCK") and SunTrust Bank, Atlanta, as Trustee, and the
Supplemental Indenture No. 1 dated as of the same date among the Company, as the
successor to TKC, Krystal Aviation Co. and Krystal Aviation Management Co., as
guarantors (the "Guarantors") and the Trustee. Capitalized terms used but not
defined herein shall have the meanings given them in the Indenture
In connection with our proposed purchase of $_______________ aggregate
principal amount of Notes, we confirm that:
1. We understand that the Notes have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be sold
except as permitted in the following sentence. We understand and agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, (x) that such Notes are being offered only in a transaction not
involving any public offering within the meaning of the Securities Act, (y) that
if we should resell, pledge or otherwise transfer such Notes within two years
after the later of the date of the original issuance of the Notes and the last
date on which the Company or any affiliate (within the meaning of Rule 144 under
the Securities Act ("Rule 144")) of the Company was the owner of such Notes (or
any predecessor of such Notes), or within three months after we cease to be an
affiliate of the Company, such Notes may be resold, pledged or transferred only
(i) to the Company, (ii) so long as Notes are eligible for resale pursuant to
Rule 144A under the Securities Act ("Rule 144A") to a person whom we reasonably
believe is a "qualified institutional buyer" (as defined in Rule 144A) ("QIB")
that purchases for its own account or for the account of a QIB to whom notice is
given that the resale, pledge or transfer is being made in reliance on Rule
144A, (iii) in an offshore transaction in accordance with Regulation S under the
Securities Act, (iv) to an institution that is an "accredited investor" as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act ("Institutional Accredited Investor") that has certified to the Company and
the Trustee that it is such an accredited investor and is acquiring the Notes
for investment purposes and not for distribution, (v) pursuant to an effective
registration statement
<PAGE>
under the Securities Act or (vi) pursuant to any other available exemption from
the registration requirements of the Securities Act, in each case in accordance
with any applicable securities laws of any state of the United States, and we
will notify any purchaser of the Notes from us of the above resale restrictions,
if then applicable. We further understand that, in connection with any transfer
of the Notes by us, the Company and the Trustee may request, and if so requested
we will furnish, such certificates, legal opinions and other information as they
may reasonably require to confirm that any such transfer complies with the
foregoing restrictions. We understand that the Notes will be issued in
registered form only and that any certificates issued will bear a legend
substantially to the effect set forth in the Indenture.
2. We are able to fend for ourselves in this transaction, we have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment and can afford the complete loss of such investment.
3. We understand that the minimum principal amount of Notes that may
be purchased by an Institutional Accredited Investor is $250,000.
4. We understand that the Company, the Trustee and others will rely
upon the truth and accuracy of the foregoing acknowledgments, representations
and agreements, and we agree that if any of the acknowledgments, representations
and warranties deemed to have been made by us by our purchase of Notes, for our
own account or for one or more accounts as to each of which we exercise sole
investment discretion, are no longer accurate, we shall promptly notify the
Company and the Trustee.
5. We are acquiring the Notes purchased by us for investment
purposes, and not for distribution, for our own account or for one or more
accounts as to each of which we exercise sole investment discretion and we are
or such account is an Institutional Accredited Investor.
G-2
<PAGE>
6. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
_______________________________
[Name of Purchaser]
By:____________________________
Name:
Title:
Date:__________________________
cc: The Krystal Company
One Union Square
Chattanooga, TN 37402
Attention: Philip H. Sanford
G-3
<PAGE>
EXHIBIT H
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
TO A NON-U.S. PERSON
SunTrust Bank, Atlanta
58 Edgewood Avenue, 4th Floor Annex
Atlanta, Georgia 30303
Attention: Corporate Trust Administration
Re: The Krystal Company (the "Company") 10 1/4% Senior Notes Due 2007 (the
----------------------------------------------------------------------
"Notes")
-----
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of September 26,
1997 (as amended and supplemented from time to time, the "Indenture") between
TKC Acquisition Corp. ("TCK") and SunTrust Bank, Atlanta, as Trustee, and the
Supplemental Indenture No. 1 dated as of the same date among the Company, as the
successor to TKC, Krystal Aviation Co. and Krystal Aviation Management Co., as
guarantors (the "Guarantors") and the Trustee. Capitalized terms used but not
defined herein shall have the meanings given them in the Indenture.
This letter relates to $_____________ aggregate principal amount of
Notes which are held [in certificated form in the name of [name of transferor]
(the "Transferor")] [through the beneficial interest of [name of transferor]
(the "Transferor") in the Initial Global Note] to effect the transfer of such
Notes in exchange for Initial Certificated Notes.
In connection with such request, the Transferor does hereby certify
that such Notes are being transferred in accordance with (i) the transfer
restrictions set forth in the Notes and (ii) Regulation S ("Regulation S") under
the United States Securities Act of 1933, as amended (the "Securities Act") and
does hereby further certify that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) the transaction was executed in, on or through the facilities of
a designated offshore securities market, and neither the Transferor,
nor any person acting on its behalf knows that the transaction was
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as
applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
<PAGE>
In addition, if the sale is made during a Restricted Period (as
defined in Regulation S) and the provisions of Rule 903(c)(2) or (3) or Rule
904(c)(1) of Regulation S are applicable thereto, we confirm that such sale has
been made in accordance with the applicable provisions of Rule 903(c)(2) or (3)
or Rule 904(c)(1), as the case may be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
_________________________________
[Name of Transferor]
By:______________________________
Name:
Title:
Date:____________________________
cc: The Krystal Company
One Union Square
Chattanooga, TN 37402
Attention: Philip H. Sanford
H-2
<PAGE>
EXHIBIT 4_4
================================================================================
REGISTRATION RIGHTS AGREEMENT
-----------------------------
Dated as of September 26, 1997
By and Among
TKC ACQUISITION CORP.,
as acquiror of The Krystal Company
as Issuer
and
UBS SECURITIES LLC
as Initial Purchaser
================================================================================
$100,000,000
10 1/4% SENIOR NOTES DUE 2007
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
---------
September 26, 1997, by and among TKC ACQUISITION CORP., a Tennessee corporation
("TKC"), and UBS SECURITIES LLC (the "Initial Purchaser").
-----------------
WHEREAS, Port Royal Holdings Inc., a Georgia corporation and owner of
100% of the capital stock of TKC ("Holdings") intends to consummate an
acquisition pursuant to which Holdings would acquire The Krystal Company, a
Tennessee corporation ("Krystal"), from its existing shareholders through a
merger (the "Merger") of TKC with and into Krystal which will be the surviving
corporation (any references in this Agreement to the "Issuer" being understood
to refer to (i) TKC before the Merger and (ii) Krystal as the surviving
corporation after the Merger); and
WHEREAS, this Agreement is being entered into in connection with the
Purchase Agreement, dated September 18, 1997, between the Issuer and the Initial
Purchaser (the "Purchase Agreement"), which provides for the issuance and sale
------------------
(the "Initial Placement") by the Issuer to the Initial Purchaser of $100,000,000
aggregate principal amount of the Issuer's 10 1/4% Senior Notes due 2007 (the
"Notes").In order to induce the Initial Purchaser to enter into the Purchase
------
Agreement, the Issuer has agreed to provide the registration rights set forth in
this Agreement for the benefit of the Initial Purchaser and its direct and
indirect transferees. The execution and delivery of this Agreement is a
condition to the obligation of the Initial Purchaser to purchase the Notes under
the Purchase Agreement;
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition
-----------
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
"Additional Interest" has the meaning set forth in Section 4 hereof.
-------------------
"Affiliate" of any specified person means (i) any other person
---------
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person or (ii) any other person who is a
director or executive officer of (a) such specified person or (b) any person
described in the preceding clause (i). For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of any class, or any series of
- --------
any class, of equity securities of a person, whether or not voting, shall be
deemed to be control.
"Closing Date" has the meaning set forth in the Purchase Agreement.
------------
"Commission" means the United States Securities and Exchange
----------
Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the Commission promulgated thereunder.
<PAGE>
"Exchange Notes" means debt securities of the Issuer identical in all
--------------
material respects to the Notes (except that the Additional Interest provisions
and the transfer restrictions pertaining to the Notes will be modified or
eliminated, as appropriate), to be issued under the Indenture.
"Exchange Offer Registration Period" means the one year period
----------------------------------
following the consummation of the Registered Exchange Offer, exclusive of any
period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement; provided, however,
-------- -------
that in the event that all resales of Exchange Notes (including, subject to the
time periods set forth herein, any resales by Exchanging Dealers) covered by
such Exchange Offer Registration Statement have been made, the Exchange Offer
Registration Statement need not thereafter remain continuously effective for
such period.
"Exchange Offer Registration Statement" means a registration statement
-------------------------------------
of the Issuer on an appropriate form under the Securities Act with respect to
the Registered Exchange Offer, all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the Initial
-----------------
Purchaser) that is a broker-dealer, electing to exchange Notes acquired for its
own account as a result of market-making activities or other trading activities
for Exchange Notes.
"Final Memorandum" means the final offering memorandum relating to the
----------------
offering of the Notes dated September 18, 1997, as supplemented and amended by
the supplemental offering memorandum dated September 25, 1997.
"Holder" means any holder from time to time of Registrable Notes or
------
Exchange Notes (including the Initial Purchaser).
"Indenture" means the indenture relating to the Notes and the Exchange
---------
Notes, to be dated as of the Closing Date, between the Issuer and SunTrust Bank,
Atlanta as trustee, as the same may be amended, supplemented, waived or
otherwise modified from time to time in accordance with the terms thereof. It
shall include the provisions of the Trust Indenture Act that are deemed to be
part of and govern the indenture.
"Initial Placement" has the meaning set forth in the preamble hereto.
-----------------
"Initial Purchaser" has the meaning set forth in the preamble hereto.
-----------------
"Losses" has the meaning set forth in Section 7(d) hereto.
------
"Majority Holders" means the Holders of a majority of the aggregate
----------------
principal amount of Registrable Notes registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment
---------------------
bankers and manager or managers that shall administer an underwritten offering
under a Shelf Registration Statement.
"Notes" has the meaning set forth in the preamble hereto.
-----
2
<PAGE>
"Prospectus" means the prospectus included in any Registration
----------
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Notes covered by such
Registration Statement, and all amendments and supplements to the Prospectus,
including post-effective amendments.
"Purchase Agreement" has the meaning set forth in the preamble hereto.
------------------
"Registered Exchange Offer" means the proposed offer to the Holders to
-------------------------
issue and deliver to such Holders, in exchange for the Notes, a like principal
amount of Exchange Notes.
"Registrable Notes" means each Note upon original issuance of the
-----------------
Notes and at all times subsequent thereto, each Exchange Note as to which
clauses (iii), (iv) or (v) of the first paragraph of Section 3 hereof are
applicable upon original issuance and at all times subsequent thereto, until in
the case of any such Note or Exchange Note, as the case may be, the earliest to
occur of (i) a Registration Statement (other than, with respect to any Exchange
Note as to which clauses (iii), (iv) or (v) of the first paragraph of Section 3
hereof are applicable, the Exchange Registration Statement) covering such Note
or Exchange Note, as the case may be, has been declared effective by the SEC and
such Note (unless such Note was not tendered for exchange by the Holder thereof)
or Exchange Note, as the case may be, has been disposed of in accordance with
such effective Registration Statement, (ii) such Note or Exchange Note, as the
case may be, is sold in compliance with Rule 144, or (iii) such Note or Exchange
Note, as the case may be, ceases to be outstanding for purposes of the
Indenture.
"Registration Statement" means any Exchange Offer Registration
----------------------
Statement or Shelf Registration Statement that covers any of the Registrable
Notes (including any Note Guarantees of each thereof) pursuant to the provisions
of this Agreement, amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto, and all material incorporated by
reference therein.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Shelf Registration" means a registration effected pursuant to Section
------------------
3 hereof.
"Shelf Registration Period" has the meaning set forth in Section 3(b)
-------------------------
hereof.
"Shelf Registration Statement" means a "shelf" registration statement
----------------------------
of the Issuer pursuant to the provisions of Section 3 hereof, which covers some
or all of the Registrable Notes, as applicable, on an appropriate form under
Rule 415 under the Securities Act, or any similar rule that may be adopted by
the Commission, all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Trustee" means the trustee with respect to the Notes or Exchange
-------
Notes, as applicable, under the Indenture.
"underwriter" means any underwriter of Registrable Notes in connection
-----------
with an offering thereof under a Shelf Registration Statement.
3
<PAGE>
2. Registered Exchange Offer; Resales of Exchange Notes by
-------------------------------------------------------
Exchanging Dealers; Private Exchange. (a) The Issuer shall prepare and, within
- ------------------------------------
60 days from the date of original issuance of the Notes, shall file with the
Commission the Exchange Offer Registration Statement with respect to the
Registered Exchange Offer. The Issuer shall use its best efforts (i) to cause
the Exchange Offer Registration Statement to be declared effective under the
Securities Act within 150 days from the date of original issuance of the Notes,
and (ii) to consummate the Registered Exchange Offer within 180 days from the
date of original issuance of the Notes.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Issuer shall promptly commence the Registered Exchange Offer and
use its best efforts to issue on or prior to 30 days after the date on which the
Exchange Offer Registration Statement is declared effective by the Commission
Exchange Notes in exchange for all Registrable Notes tendered prior thereto in
the Registered Exchange Offer. The objective of such Registered Exchange Offer
is to enable each Holder electing to exchange Registrable Notes for Exchange
Notes (assuming that such Holder (x) is not an "affiliate" of the Issuer within
the meaning of the Securities Act, (y) is not a broker-dealer that acquired the
Registrable Notes in a transaction other than as a part of its market-making or
other trading activities and (z) if such Holder is not a broker-dealer, acquires
the Exchange Notes in the ordinary course of such Holder's business, is not
participating in the distribution of the Exchange Notes and has no arrangements
or understandings with any person to participate in the distribution of the
Exchange Notes) to resell such Exchange Notes from and after their receipt
without any limitations or restrictions under the Securities Act and without
material restrictions under the securities laws of a substantial proportion of
the several states of the United States.
(c) In connection with the Registered Exchange Offer, the Issuer
shall:
(i) mail to each Holder a copy of the Prospectus forming part of
the Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for acceptance for not
less than 30 days and not more than 45 days (or longer if required by
applicable law) after the date notice thereof is mailed to the Holders;
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of New
York; and
(iv) comply in all material respects with all applicable laws
relating to the Registered Exchange Offer.
(d) As soon as practicable after the close of the Registered
Exchange Offer, the Issuer shall:
(i) accept for exchange all Registrable Notes duly tendered and
not validly withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee for cancellation all Registrable Notes
so accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver to each
Holder Exchange Notes equal in principal amount to the Registrable Notes of
such Holder so accepted for exchange.
4
<PAGE>
(e) The Initial Purchaser and the Issuer acknowledge that, pursuant
to interpretations by the staff of the Commission of Section 5 of the Securities
Act, and in the absence of an applicable exemption therefrom, each Exchanging
Dealer is required to deliver a Prospectus in connection with a sale of any
Exchange Notes received by such Exchanging Dealer pursuant to the Registered
Exchange Offer in exchange for Registrable Notes acquired for its own account as
a result of market-making activities or other trading activities. Accordingly,
the Issuer shall:
(i) include the information set forth in Annex A hereto on the
cover of the Prospectus forming a part of the Exchange Offer Registration
Statement, in Annex B hereto in the forepart of the Exchange Offer
Registration Statement in a section setting forth details of the Registered
Exchange Offer, in Annex C hereto in the underwriting or plan of
distribution section of the Prospectus forming a part of the Exchange Offer
Registration Statement, and in Annex D hereto in the letter of transmittal
delivered pursuant to the Registered Exchange Offer; and
(ii) use its best efforts to keep the Exchange Offer Registration
Statement continuously effective under the Securities Act during the
Exchange Offer Registration Period for delivery of the prospectus included
therein by Exchanging Dealers in connection with sales of Exchange Notes
received pursuant to the Registered Exchange Offer, as contemplated by
Section 5(h) below.
(f) In the event that the Initial Purchaser determines that it is
not eligible to participate in the Registered Exchange Offer with respect to the
exchange of Registrable Notes constituting any portion of an unsold allotment,
upon the effectiveness of the Shelf Registration Statement as contemplated by
Section 3 hereof and at the request of the Initial Purchaser, the Issuer shall
issue and deliver to the Initial Purchaser, or to the party purchasing
Registrable Notes registered under the Shelf Registration Statement from the
Initial Purchaser, in exchange for such Registrable Notes, a like principal
amount of Exchange Notes. The Issuer shall use its best efforts to cause the
CUSIP Service Bureau to issue the same CUSIP number for such Exchange Notes as
for Exchange Notes issued pursuant to the Registered Exchange Offer.
3. Shelf Registration. If, (i) because of any change in law or
------------------
applicable interpretations thereof by the Commission's staff, the Issuer
determines upon advice of its outside counsel that it is not permitted to effect
the Registered Exchange Offer as contemplated by Section 2 hereof, or (ii) the
Registered Exchange Offer is not consummated within 180 days from the date of
original issuance of the Notes, or (iii) the Initial Purchaser so requests with
respect to Registrable Notes held by it as a result of the purchase of such
Registrable Note directly from the Issuer following consummation of the
Registered Exchange Offer, or (iv) any Holder (other than the Initial Purchaser)
is not eligible to participate in the Registered Exchange Offer or the Exchange
Notes such Holder would receive in the Registered Exchange Offer could only be
reoffered and resold by such Holder upon compliance with the registration and
prospectus delivery requirements of the Securities Act and the delivery of the
Prospectus contained in the Exchange Offer Registration Statement, as
appropriately amended, is not a legally available alternative, or (v) in the
case where the Initial Purchaser participates in the Registered Exchange Offer
or acquires Exchange Notes pursuant to Section 2(f) hereof, the Initial
Purchaser does not receive freely tradable Exchange Notes in exchange for Notes
constituting any portion of an unsold allotment (it being understood that, for
purposes of this Section 3, (x) the requirement that the Initial Purchaser
deliver a Prospectus containing the information required by Items 507 and/or 508
of Regulation S-K under the Securities Act in connection with sales of Exchange
Notes acquired in exchange for such Registrable Notes shall result in such
Exchange Notes being not "freely tradable" and (y) the requirement that an
Exchanging Dealer deliver a Prospectus in connection with sales of Exchange
Notes acquired in the Registered Exchange Offer in exchange for Registrable
Notes acquired as a result of market-making activities or other trading
activities shall not result in such Exchange Notes being not "freely tradable"),
the following provisions shall apply:
5
<PAGE>
(a) The Issuer shall, as promptly as practicable (but in no event
more than 60 days after so required or requested pursuant to this Section 3),
file with the Commission a Shelf Registration Statement relating to the offer
and sale of the Registrable Notes by the Holders from time to time in accordance
with the methods of distribution elected by such Holders and set forth in such
Shelf Registration Statement and Rule 415 under the Securities Act, provided,
--------
that with respect to Exchange Notes received by the Initial Purchaser in
exchange for Notes constituting any portion of an unsold allotment, the Issuer
may, if permitted by current interpretations by the Commission's staff, file a
post-effective amendment to the Exchange Offer Registration Statement containing
the information required by Regulation S-K Items 507 and/or 508, as applicable,
in satisfaction of its obligations under this paragraph (a) with respect
thereto, and any such Exchange Offer Registration Statement, as so amended,
shall be referred to herein as, and governed by the provisions herein applicable
to, a Shelf Registration Statement.
(b) The Issuer shall use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act on or
prior to 45 days after filing such Shelf Registration Statement pursuant to this
Section 3 and to keep such Shelf Registration Statement continuously effective
in order to permit the Prospectus contained therein to be usable by Holders for
a period of two years (or, if Rule 144(k) under the Securities Act is amended to
allow for resales pursuant to such Rule after a shorter period, such shorter
period) from the date the Shelf Registration Statement is declared effective by
the Commission or such shorter period that will terminate when all the
Registrable Notes covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement (in any such case, such period
being called the "Shelf Registration Period"). The Issuer shall be deemed not to
have used its best efforts to keep the Shelf Registration Statement effective
during the requisite period if it voluntarily takes any action that would result
in Holders of Registrable Notes covered thereby not being able to offer and sell
such notes during that period, unless such action is required by applicable law
and the Issuer promptly thereafter complies with the requirements of Section
5(k) hereof, if applicable.
(c) No Holder of Registrable Notes may include any of its
Registrable Notes in any Shelf Registration Statement pursuant to this Agreement
unless and until such Holder furnishes to the Issuer in writing, within 20
business days after receipt of a request therefor, such information as the
Issuer may reasonably request for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No Holder of
Registrable Notes shall be entitled to Additional Interest pursuant to Section 4
hereof unless and until such Holder shall have used its best efforts to provide
all such reasonably requested information. Each Holder as to which any Shelf
Registration Statement is being effected agrees to furnish promptly to the
Issuer all information required to be disclosed in order to make the information
previously furnished to the Issuer by such Holder not misleading.
4. Additional Interest. If (i) either the Exchange Offer
-------------------
Registration Statement or the Shelf Registration Statement is not filed with the
Commission on or prior to the date specified for such filing in this Agreement,
(ii) either the Exchange Offer Registration Statement or the Shelf Registration
Statement has not been declared effective by the Commission on or prior to the
target date specified for such effectiveness in this Agreement (the
"Effectiveness Target Date"), (iii) the Exchange Offer has not been consummated
within 30 days after the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement or (iv) either the Exchange Offer Registration
Statement or the Shelf Registration Statement is filed and declared effective
but thereafter ceases to be effective during the applicable Exchange Offer
Registration Period or Shelf Registration Period, as the case may be (each such
event referred to in clauses (i) through (iv), a "Registration Default"), the
Issuer hereby agrees to pay additional interest ("Additional Interest") to each
Holder of Registrable Notes with respect to the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to 0.5%
per annum of the principal amount of Registrable Notes held by such Holder. The
amount of the Additional Interest
6
<PAGE>
payable to each Holder for such Registration Default will increase by an
additional 0.5% per annum of the principal amount of Registrable Notes held by
such Holder with respect to each subsequent 90-day period until such
Registration Default has been cured, up to an aggregate maximum amount of
Additional Interest of 1.0% per annum of the principal amount of Registrable
Notes for all Registration Defaults. All accrued Additional Interest will be
paid by the Issuer on each Interest Payment Date (as such term is defined in the
Indenture) to the Holders of record with respect to such Interest Payment Date
by wire transfer of immediately available funds or by federal funds check.
Additional Interest payable (a) with respect to the Registration Default
specified in clause (i) above, shall cease to accrue upon filing of the Exchange
Offer Registration Statement (and, if applicable, the Shelf Registration
Statement), (b) with respect to the Registration Default specified in clause
(ii) above, shall cease to accrue upon the effectiveness of the Exchange Offer
Registration Statement (and, if applicable, the Shelf Registration Statement),
(c) with respect to the Registration Default specified in clause (iii) above,
shall cease to accrue upon consummation of the Exchange Offer, and (d) with
respect to the Registration Default specified in clause (iv) above, shall cease
to accrue upon the filing of a post-effective amendment to the Registration
Statement that causes the Exchange Offer Registration Statement (and, if
applicable, the Shelf Registration Statement) again to be declared effective, as
the case may be. Following the cure of all Registration Defaults, the accrual of
Additional Interest will cease, and all accrued and unpaid Additional Interest
shall be paid to Holders of Registrable Notes promptly thereafter.
The Issuer shall notify the Trustee within five days after the
occurrence of each and every Registration Default. The parties hereto agree
that the Additional Interest provided for in this Section 4 constitutes a
reasonable estimate of the damages that will be incurred by Holders by reason of
any Registration Default.
5. Registration Procedures. In connection with any Shelf
-----------------------
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Issuer shall furnish to the Initial Purchaser, prior to the
filing thereof with the Commission, a copy of any Registration Statement, and
each amendment thereof and each amendment or supplement, if any, to the
Prospectus included therein and shall use its best efforts to reflect in each
such document, when so filed with the Commission, such comments as the Initial
Purchaser reasonably may propose.
(b) The Issuer shall ensure that:
(i) any Registration Statement and any amendment thereto and any
Prospectus contained therein and any amendment or supplement thereto
complies in all material respects with the Securities Act;
(ii) any Registration Statement and any amendment thereto does not,
when it becomes effective, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and
(iii) any Prospectus forming part of any Registration Statement,
including any amendment or supplement to such Prospectus, does not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
7
<PAGE>
(c) (1) The Issuer shall advise the Initial Purchaser and, in the
case of a Shelf Registration Statement, the Holders of Registrable Notes covered
thereby, and, if requested by the Initial Purchaser or any such Holder, confirm
such advice in writing:
(i) when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or any
post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the Prospectus included therein or for
additional information.
(2) During the Shelf Registration Period or the Exchange Offer
Registration Period, as applicable, the Issuer shall advise the Initial
Purchaser and, in the case of a Shelf Registration Statement, the Holders of
Registrable Notes covered thereby, and, in the case of an Exchange Offer
Registration Statement, any Exchanging Dealer that has provided in writing to
the Issuer a telephone or facsimile number and address for notices, and, if
requested by the Initial Purchaser or any such Holder or Exchanging Dealer,
confirm such advice in writing:
(i) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose;
(ii) of the receipt by the Issuer of any notification with respect
to the suspension of the qualification of the Registrable Notes included
therein for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and
(iii) of the happening of any event that requires the making of any
changes in the Registration Statement or the Prospectus so that, as of such
date, the Registration Statement or the Prospectus does not include an
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein (in the case of the Prospectus,
in light of the circumstances under which they were made) not misleading
(which advice shall be accompanied by an instruction to suspend the use of
the Prospectus until the requisite changes have been made).
Each Holder agrees by acquisition of a Registrable Note (or Exchange Note in the
case of resales of Exchange Notes by Exchanging Dealers) that, upon receipt of
any notice from the Issuer of the existence of any fact of the kind described in
paragraph (iii) above, such Holder will forthwith discontinue disposition of
Registrable Notes (or Exchange Notes in the case of resales of Exchange Notes by
Exchanging Dealers), pursuant to the applicable Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k) hereof, or until it is advised in writing by the
Issuer that the use of the Prospectus may be resumed, and has received copies of
any additional or supplemental filings that are incorporated by reference in the
Prospectus. If so directed by the Issuer, each Holder will deliver to the Issuer
(at the Issuer's expense) all copies, other than permanent file copies then in
such Holder's possession, of the Prospectus concerning such Registrable Notes
(or Exchange Notes in the case of resales of Exchange Notes by Exchanging
Dealers) that was current at the time of receipt of such notice.
(d) The Issuer shall use its best efforts to obtain the withdrawal
of any order suspending the effectiveness of any Registration Statement at the
earliest possible time.
8
<PAGE>
(e) The Issuer shall furnish to each Holder of Registrable Notes
covered by any Shelf Registration Statement, without charge, at least one copy
of such Shelf Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Holder so requests in
writing, all exhibits thereto (including those incorporated by reference).
(f) The Issuer shall, during the Shelf Registration Period, deliver
to each Holder of Registrable Notes covered by any Shelf Registration Statement,
without charge, as many copies of the Prospectus (including each preliminary
Prospectus) included in such Shelf Registration Statement and any amendment or
supplement thereto as such Holder may reasonably request; and the Issuer
consents to the use of the Prospectus or any amendment or supplement thereto by
each of the selling Holders of Registrable Notes in connection with the offering
and sale of the Registrable Notes covered by the Prospectus or any amendment or
supplement thereto.
(g) The Issuer shall furnish to each Exchanging Dealer that so
requests, without charge, at least one copy of the Exchange Offer Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, any documents incorporated by reference therein and,
if the Exchanging Dealer so requests in writing, all exhibits thereto (including
those incorporated by reference).
(h) The Issuer shall, during the Exchange Offer Registration
Period, promptly deliver to each Exchanging Dealer, without charge, as many
copies of the Prospectus included in such Exchange Offer Registration Statement
and any amendment or supplement thereto as such Exchanging Dealer may reasonably
request for delivery in connection with a sale of Exchange Notes received by it
pursuant to the Registered Exchange Offer; and the Issuer consents to the use of
the Prospectus or any amendment or supplement thereto by any such Exchanging
Dealer, as provided in Section (2)(e) above.
(i) Prior to the Registered Exchange Offer or any other offering of
Registrable Notes pursuant to any Registration Statement, the Issuer shall
register or qualify or cooperate with the Holders of Registrable Notes included
therein and their respective counsel in connection with the registration or
qualification of such Registrable Notes for offer and sale under the securities
or blue sky laws of such states as any such Holders reasonably request in
writing and do any and all other acts or things necessary or advisable to enable
the offer and sale in such states of the Registrable Notes covered by such
Registration Statement; provided, however, that the Issuer will not be required
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to qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not then so qualified, to file any general consent
to service of process or to take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject or
to subject itself to taxation in respect of doing business in any jurisdiction
in which it is not otherwise so subject.
(j) The Issuer shall cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Registrable Notes
to be sold pursuant to any Registration Statement free of any restrictive
legends and in denominations of $1,000 or an integral multiple thereof and
registered in such names as Holders may request prior to sales of Registrable
Notes pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) of this Section 5, the Issuer shall promptly prepare and file a
post-effective amendment to any Registration Statement or an amendment or
supplement to the related Prospectus or any other required document so that, as
thereafter delivered to purchasers of the Registrable Notes included therein,
the Prospectus will not include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
9
<PAGE>
(l) Not later than the effective date of any such Registration
Statement hereunder, the Issuer shall provide a CUSIP number for the Registrable
Notes or Exchange Notes, as the case may be, registered under such Registration
Statement, and provide the Trustee with printed certificates for such
Registrable Notes or Exchange Notes, in a form eligible for deposit with The
Depository Trust Company.
(m) The Issuer shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make generally
available to its security holders as soon as practicable after the effective
date of the applicable Registration Statement an earnings statement satisfying
the provisions of Section 11(a) of the Securities Act.
(n) The Issuer shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), in a timely
manner.
(o) The Issuer may require each Holder of Registrable Notes to be
sold pursuant to any Shelf Registration Statement to furnish to the Issuer such
information regarding the Holder and the distribution of such Registrable Notes
as the Issuer may from time to time reasonably require for inclusion in such
Registration Statement and such other information as may be necessary or
advisable in the reasonable opinion of the Issuer and its counsel, in connection
with any such Registration Statement. No Holder of Registrable Notes shall be
entitled to use a Prospectus unless and until such Holder shall have furnished
the reasonably requested information required by this Section 5(o), and shall
have committed to notify the Issuer promptly of any change in such information.
(p) The Issuer shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters, if any, and Majority
Holders reasonably agree should be included therein, and shall make all required
filings of such Prospectus supplement or post-effective amendment promptly upon
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment.
(q) In the case of any Shelf Registration Statement, the Issuer
shall enter into such agreements (including underwriting agreements in form and
scope as is customary for similar offerings of debt securities) and take all
other customary and appropriate actions in order to expedite or to facilitate
the registration or the disposition of any Registrable Notes included therein,
and in connection therewith, if an underwriting agreement is entered into, cause
the same to contain indemnification provisions and procedures no less favorable
than those set forth in Section 7 (or such other provisions and procedures
acceptable to the Majority Holders and the Managing Underwriters, if any) with
respect to all parties to be indemnified pursuant to Section 7.
(r) In the case of any Shelf Registration Statement, the Issuer
shall:
(i) make reasonably available for inspection by the Holders of
Registrable Notes to be registered thereunder, any underwriter
participating in any disposition pursuant to such Shelf Registration
Statement, and any attorney, accountant or other agent retained by the
Holders or any such underwriter, all relevant financial and other records,
pertinent corporate documents and properties of the Issuer and its
subsidiaries;
(ii) cause the Issuer's officers, directors and employees to supply
all relevant information reasonably requested by the Holders or any such
underwriter, attorney, accountant or agent in connection with any such
Registration Statement, as is customary for similar due diligence
examinations and make such representatives of the Issuer as shall be
reasonably requested by the
10
<PAGE>
Initial Purchaser available for discussion of any such Registration
Statement; provided, however, that any information that is designated in
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writing by the Issuer, in good faith, as confidential at the time of
delivery of such information shall be kept confidential by the Holders or
any such underwriter, attorney, accountant or agent, unless such disclosure
is made in connection with a court proceeding or required by law, or such
information becomes available to the public generally or through a third
party without an accompanying obligation of confidentiality other than as a
result of a disclosure of such information by any such Holder, underwriter,
attorney, accountant or agent;
(iii) make such representations and warranties to the Holders of
Registrable Notes registered thereunder and the underwriters, if any, in
form, substance and scope, and at such time or times, as are customarily
made by issuers to underwriters in similar underwritten offerings as may be
reasonably requested by them;
(iv) obtain opinions of counsel to the Issuer and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
satisfactory to the Managing Underwriters, if any) addressed to each
selling Holder and the underwriters, if any, covering such matters and time
periods as are customarily covered in opinions requested in similar
underwritten offerings and such other matters as may be reasonably
requested by such Holders and underwriters;
(v) obtain "cold comfort" letters and updates thereof from the
independent certified public accountants of the Issuer (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Issuer or of any business acquired by the Issuer for which financial
statements and financial data are, or are required to be, included in the
Registration Statement), addressed to the underwriters, if any, and use
reasonable efforts to have such letter addressed to the selling Holders of
Registrable Notes registered thereunder (to the extent consistent with
Statement on Auditing Standards No. 72 of the American Institute of
Certified Public Accountants (AICPA) ("SAS 72")), in customary form and
covering matters and time periods of the type customarily covered in "cold
comfort" letters in connection with similar underwritten offerings, or if
the provision of such "cold comfort" letters is not permitted by SAS No. 72
or if requested by the Initial Purchaser or its counsel in lieu of a "cold
comfort" letter, an agreed-upon procedures letter under Statement on
Auditing Standards No. 35 of the AICPA, covering matters and time periods
reasonably requested by the Initial Purchaser or its counsel; and
(vi) deliver such documents and certificates as may be reasonably
requested by the Majority Holders and the Managing Underwriters, if any,
and customarily delivered in similar offerings, including those to evidence
compliance with Section 5(k) and with any conditions contained in the
underwriting agreement or other agreement entered into by the Issuer.
The foregoing actions set forth in clauses (iii), (iv), (v) and (vi)
of this Section 5(r) shall be performed at (A) the effectiveness of such Shelf
Registration Statement and each post-effective amendment thereto and (B) each
closing under any underwriting or similar agreement as and to the extent
required thereunder.
(s) The Issuer shall, if and to the extent required under the
Securities Act and/or the Trust Indenture Act and the rules and regulations
thereunder in order to register the Registrable Notes (including the Note
Guarantees, if any) under the Securities Act and qualify the Indenture under the
Trust Indenture Act, cause each Guarantor, if any, to sign any Registration
Statement and take all other action necessary to register the Note Guarantees,
if any, under the applicable Registration Statement.
11
<PAGE>
6. Registration Expenses. The Issuer shall bear all expenses
---------------------
incurred in connection with the performance of its obligations under Sections 2,
3, 4 and 5 hereof and, in the event of any Shelf Registration Statement, will
reimburse the Holders for the reasonable fees and disbursements of one firm or
counsel designated by the Majority Holders to act as counsel for the Holders in
connection therewith and, in the case of any Exchange Offer Registration
Statement, will reimburse the Initial Purchaser for the reasonable fees and
disbursements of counsel acting in connection therewith.
7. Indemnification and Contribution. (a) In connection with any
--------------------------------
Registration Statement, the Issuer agrees to indemnify and hold harmless to the
fullest extent lawful each Holder of Registrable Notes covered thereby
(including the Initial Purchaser and, with respect to any Prospectus delivery as
contemplated by Sections 2(e) and 5(h) hereof, each Exchanging Dealer) the
directors, officers, employees and agents of such Holder and each person who
controls such Holder within the meaning of either the Securities Act or the
Exchange Act, against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Securities
Act, the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in such
Registration Statement as originally filed or in any amendment thereof, or in
any preliminary Prospectus or Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage or liability (or action in respect
thereof); provided, however, that the Issuer will not be liable in any case to
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the extent that any such loss, claim, damage or liability (A) arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with written
information furnished to the Issuer by or on behalf of any such Holder
specifically for inclusion therein or (B) are caused by an untrue statement or
omission that was contained or made in any preliminary Prospectus and corrected
in the related Prospectus or any supplement or amendment thereto and (1) any
such losses, claims, damages, liabilities or expenses suffered or incurred by
any indemnified party resulted from an action, claim or suit by any person who
purchased Registrable Notes or Exchange Notes from a Holder in the offering to
which such Prospectus relates, (2) such Holder failed to deliver or provide a
copy of such Prospectus or any such supplement or amendment thereto to such
person at or prior to the confirmation of the sale of such Registrable Notes or
Exchange Notes in any case where such delivery is required by the Securities Act
and (3) such Prospectus (as so amended and supplemented) would have cured the
defect giving rise to such loss, liability, claim, damage or expense. The
indemnification provided herein will be in addition to any liability that the
Issuer may otherwise have.
The Issuer also agrees to indemnify or contribute to the Losses of, as
provided in Section 7(d) hereof, any underwriters of Registrable Notes
registered under a Shelf Registration Statement, their employees, officers,
directors and agents and each person who controls such underwriters on the same
basis (including the proviso) as that of the indemnification of the Initial
Purchaser and the selling Holders provided in this Section 7(a) and shall, if
requested by any Holder, enter into an underwriting agreement reflecting such
agreement, as provided in Section 5(q) hereof.
(b) Each Holder of Registrable Notes covered by a Registration
Statement (including each Initial Purchaser and, with respect to any Prospectus
delivery as contemplated by Sections 2(e) and 5(h) hereof, each Exchanging
Dealer) severally and not jointly agrees to indemnify and hold harmless the
Issuer, its directors, officers, employees, agents and each person who controls
the Issuer within the meaning of
12
<PAGE>
either the Securities Act or the Exchange Act to the same extent as the
foregoing indemnity from the Issuer to each such Holder, but only with respect
to written information furnished to the Issuer by or on behalf of such Holder
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability that
any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 7, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve the indemnifying party from liability under paragraph (a) or
(b) above unless and to the extent it did not otherwise learn of such action and
such failure results in the forfeiture by the indemnifying party of rights and
defenses, and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. The indemnifying party shall
be entitled to appoint counsel (including local counsel) of the indemnifying
party's choice at the indemnifying party's expense to represent the indemnified
party in any action for which indemnification is sought (in which case the
indemnifying party shall not thereafter be responsible for the fees and expenses
of any separate counsel retained by the indemnified party or parties except as
set forth below); provided, however, that such counsel shall be satisfactory to
-------- -------
the indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the indemnified
party shall have the right to employ separate counsel (including local counsel),
and the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel (and local counsel) if (i) the use of counsel chosen by
the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential defendants in,
or targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties that are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party (it being understood, however,
that the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for such indemnified persons). An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 7 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending the same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement that resulted in such Losses; provided, however, that in
-------- -------
no case shall any Initial Purchaser or any subsequent Holder of any Registrable
Note or
13
<PAGE>
Exchange Note be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission applicable to such Registrable Note, or in the
case of a Exchange Note, applicable to the Registrable Note that was
exchangeable into such Exchange Note, as set forth on the cover page of the
Final Memorandum, nor shall any underwriter be responsible for any amount in
excess of the underwriting discount or commission applicable to the notes
purchased by such underwriter under the Registration Statement that resulted in
such Losses. If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the indemnifying party and the indemnified party
shall contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of such indemnifying party, on the
one hand, and such indemnified party, on the other hand, in connection with the
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Issuer shall be
deemed to be equal to the sum of (x) the total net proceeds from the Initial
Placement (before deducting expenses) as set forth on the cover page of the
Final Memorandum and (y) the total amount of Additional Interest that the Issuer
was not required to pay as a result of registering the notes covered by the
Registration Statement that resulted in such Losses. Benefits received by the
Initial Purchaser shall be deemed to be equal to the total purchase discounts
and commissions as set forth on the cover page of the Final Memorandum received
by such Initial Purchaser, and benefits received by any other Holders shall be
deemed to be equal to the incremental value of receiving Registrable Notes or
Exchange Notes, as applicable, registered under the Securities Act over the
value of receiving Registrable Notes or Exchange Notes, as applicable, not so
registered. Benefits received by any underwriter shall be deemed to be equal to
the total underwriting discounts and commissions, as set forth on the cover page
of the Prospectus forming a part of the Registration Statement that resulted in
such Losses received by such Underwriter. Relative fault shall be determined by
reference to, among other things, whether any alleged untrue statement or
omission relates to information provided by the indemnifying party, on the one
hand, or by the indemnified party, on the other hand. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities,
expenses or judgments referred to above shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified person in connection with
investigating or defending any such action or claim. The parties agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation that did not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person who controls a
Holder within the meaning of either the Securities Act or the Exchange Act and
each director, officer, employee and agent of such Holder shall have the same
rights to contribution as such Holder, and each person who controls the Issuer
within the meaning of either the Securities Act or the Exchange Act, each
director, officer, employee and agent of the Issuer shall have the same rights
to contribution as the Issuer, subject in each case to the applicable terms and
conditions of this paragraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section 7(d), notify such
party or parties from whom contribution may be sought, but the failure to so
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have under this
Section 7(d) or otherwise. No party shall be liable for contribution with
respect to any action or claim settled without its prior written consent;
provided, however, that such written consent was not unreasonably withheld.
- -------- -------
(e) The provisions of this Section 7 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder or
the Issuer or any of the officers, directors or controlling persons referred to
in Section 7 hereof, and will survive the sale by a Holder of notes covered by a
Registration Statement.
14
<PAGE>
8. Rules 144 and 144A
------------------
The Issuer covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder in a timely manner in accordance with
the requirements of the Securities Act and the Exchange Act and, if at any time
the Issuer is not required to file such reports, it will, upon the request of
any Holder of Registrable Notes, make publicly available annual reports and such
information, documents and other reports of the type specified in Sections 13
and 15(d) of the Exchange Act. The Issuer further covenants, for so long as any
Registrable Notes remain outstanding, to make available to any Holder or
beneficial owner of Registrable Notes in connection with any sale thereof and
any prospective purchaser of such Registrable Notes from such Holder or
beneficial owner the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Registrable Notes pursuant to
Rule 144A.
9. Miscellaneous.
-------------
(a) Remedies. Each Holder, in addition to being entitled to
--------
exercise all rights provided herein, in the Indenture or in the Purchase
Agreement or granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Issuer agrees that
monetary damages (including the Additional Interest contemplated hereby) would
not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Agreement and hereby waives the defense in any action
for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Issuer has not, as of the
--------------------------
date hereof, entered into, nor shall it, on or after the date hereof, enter
into, any agreement that conflicts with the rights granted to the Holders herein
or otherwise conflicts with the provisions hereof.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Issuer has obtained the written
consent of the Holders of at least a majority of the then-outstanding aggregate
principal amount of Registrable Notes (or, after the consummation of any
Exchange Offer in accordance with Section 2 hereof, of Exchange Notes);
provided, that, with respect to any matter that directly or indirectly affects
- -------- ----
the rights of the Initial Purchaser hereunder, the Issuer shall obtain the
written consent of the Initial Purchaser. Notwithstanding the foregoing (except
the foregoing proviso), a waiver or consent to departure from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders whose Registrable Notes are being sold pursuant to a Registration
Statement, and that does not directly or indirectly affect the rights of other
Holders, may be given by the Majority Holders, determined on the basis of notes
being sold rather than registered under such Registration Statement.
(d) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the most current address given by such
Holder to the Issuer in accordance with the provisions of this Section
9(d), which address initially is, with respect to each Holder, the address
of such Holder maintained by the Registrar under the Indenture, with a copy
in like manner to the Initial Purchaser;
15
<PAGE>
(ii) if to the Initial Purchaser, initially at UBS Securities LLP,
299 Park Avenue, New York, New York, 10171, Attention: Caroline Sykes.
(iii) if to the Issuer, Port Royal Holdings, Inc., One Union Square,
Chattanooga, Tennessee, 37402, Attention: Secretary.
All such notices and communications shall be deemed to have been duly
given when received. The Initial Purchaser, on the one hand, or the Issuer, on
the other, by notice to the other party or parties may designate additional or
different addresses for subsequent notices or communications.
(e) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the parties
hereto, including, without the need for an express assignment or any consent by
the Issuer thereto, subsequent Holders of Registrable Notes. The Issuer hereby
agrees to extend the benefits of this Agreement to any Holder of Registrable
Notes and any such Holder may specifically enforce the provisions of this
Agreement as if an original party hereto. Each future Guarantor of the Notes
shall become a party to this Agreement and all references to Guarantor hereunder
shall include such Guarantor.
(f) Counterparts. This agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this agreement are for convenience
--------
of reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
(i) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by law.
(j) Notes Held by the Issuer, etc. Whenever the consent or
------------------------------
approval of Holders of a specified percentage of principal amount of Registrable
Notes is required hereunder, Registrable Notes, held by the Issuer or its
Affiliates (other than subsequent Holders of Registrable Notes if such
subsequent Holders are deemed to be Affiliates solely by reason of their
holdings of such Registrable Notes) shall not be counted in determining whether
such consent or approval was given by the Holders of such required percentage.
(k) Participation In Underwritten Registrations. No Holder may
-------------------------------------------
participate in any underwritten Shelf Registration hereunder unless such Holder
(a) agrees to sell such Holder's Registrable Notes on the basis provided in any
underwriting arrangements approved by the Issuer and the Majority Holders and
(b) completes and executes all reasonable questionnaires, powers of attorney,
indemnities, underwriting agreements, lock-up letters and other documents
required under the terms of such underwriting arrangements.
16
<PAGE>
(l) Selection of Underwriters. The Holders of Registrable Notes
-------------------------
covered by the Shelf Registration Statement who desire to do so may sell such
notes in an underwritten offering. In any such underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Majority Holders of notes
included in such offering; provided, that such investment bankers and managers
--------
must be reasonably satisfactory to the Issuer.
17
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Issuer and you.
Very truly yours,
TKC ACQUISITION CORP.
By: ______________________________
Name: Philip H. Sanford
Title: Chief Executive Officer
The foregoing Agreement is hereby
accepted as of the date first above written.
UBS SECURITIES LLC
By: ____________________________________
Name:
Title:
By: ____________________________________
Name:
Title:
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Notes where such Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date (as
defined herein) and ending on the close of business one year after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution".
A-1
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Notes, where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution".
B-1
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, starting
on the Expiration Date and ending on the close of business one year after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until ____________, 199__, all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-
dealer that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit from any such resale of
Exchange Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of one year after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Notes (including any broker-
dealers) against certain liabilities, including liabilities under the Securities
Act.
[If applicable, add information required by Regulation S-K Items 507
and/or 508.]
C-1
<PAGE>
ANNEX D
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
[_]
Name: ___________________________________________________________
Address: ___________________________________________________________
___________________________________________________________
The undersigned represents that it is not an affiliate of the Company,
that any Exchange Notes to be received by it will be acquired in the ordinary
course of business and that at the time of the commencement of the Exchange
Offer it had no arrangement with any person to participate in a distribution of
the Exchange Notes.
In addition, if the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of Exchange Notes. If the undersigned is a broker-dealer
that will receive Exchange Notes for its own account in exchange for Notes, it
represents that the Notes to be exchanged for Exchange Notes were acquired by it
as a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
D-1
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Issuer and you.
Very truly yours,
TKC ACQUISITION CORP
By: /s/ Philip H. Sanford
------------------------------
Name: Philip H. Sanford
Title: Chief Executive Officer
The foregoing Agreement is hereby
accepted as of the date first above written
UBS SECURITIES LLC
By: /s/ Caroline P. Sykes
------------------------------
Name: Caroline P. Sykes
Title: Associate
<PAGE>
EXHIBIT 10.1
EXECUTION COUNTERPART
================================================================================
CREDIT AGREEMENT
dated as of September 26, 1997
among
TKC ACQUISITION CORP.,
TO BE MERGED WITH AND INTO
THE KRYSTAL COMPANY,
THE LENDERS LISTED HEREIN,
SUNTRUST BANK, ATLANTA,
as Agent
and
UNION BANK OF SWITZERLAND, NEW YORK BRANCH,
as Syndication Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I. DEFINITIONS; CONSTRUCTION............................ 2
Section 1.01. Definitions....................................... 2
Section 1.02. Accounting Terms and Determination................ 26
Section 1.03. Other Definitional Terms.......................... 26
Section 1.04. Exhibits and Schedules............................ 26
ARTICLE II. REVOLVING LOANS AND SWING RATE LOANS................ 26
Section 2.01. Revolving Loan Commitments; Use of Proceeds....... 26
Section 2.02. Swing Line Subcommitment.......................... 27
Section 2.03. Notes; Repayment of Principal; Extension of
Revolving Loan Commitments........................ 29
Section 2.04. Voluntary Reduction of Commitments................ 30
Section 2.05. L/C Subcommitment................................. 30
Section 2.06. Notice of Issuance of Letter of Credit;
Agreement to Issue................................ 31
Section 2.07. Payment of Amounts drawn under Letter of Credit... 31
Section 2.08. Payment by Lenders................................ 32
Section 2.09. Obligations Absolute.............................. 33
Section 2.10. Indemnification; Nature of Agent's Duties......... 33
ARTICLE III. GENERAL LOAN TERMS................................. 34
Section 3.01. Funding Notices................................... 34
Section 3.02. Disbursement of Funds............................. 36
Section 3.03. Interest.......................................... 37
Section 3.04. Interest Periods.................................. 38
Section 3.05. Fees.............................................. 39
Section 3.06. Voluntary Prepayments of Borrowings............... 39
Section 3.07. Payments, etc..................................... 40
Section 3.08. Interest Rate Not Ascertainable, etc.............. 42
Section 3.09. Illegality........................................ 42
Section 3.10. Increased Costs................................... 43
Section 3.11. Lending Offices................................... 44
Section 3.12. Funding Losses.................................... 45
Section 3.13. Assumptions Concerning Funding of Eurodollar
Advances.......................................... 45
Section 3.14. Apportionment of Payments......................... 45
Section 3.15. Sharing of Payments, Etc.......................... 45
Section 3.16. Capital Adequacy.................................. 46
Section 3.17. Limitation on Certain Payment Obligations
i
<PAGE>
PAGE
----
ARTICLE IV. CONDITIONS TO BORROWINGS............................ 47
Section 4.01. Conditions Precedent to Initial Loans and
Letters of Credit................................. 47
Section 4.02. Conditions to Each Loan........................... 50
ARTICLE V. REPRESENTATIONS AND WARRANTIES....................... 51
Section 5.01. Corporate Existence; Compliance with Law.......... 51
Section 5.02. Corporate Power; Authorization.................... 52
Section 5.03. Enforceable Obligations........................... 52
Section 5.04. No Legal Bar...................................... 52
Section 5.05. No Material Litigation............................ 52
Section 5.06. Investment Company Act, Etc....................... 52
Section 5.07. Margin Regulations................................ 53
Section 5.08. Compliance With Environmental Laws................ 53
Section 5.09. Insurance......................................... 54
Section 5.10. No Default........................................ 54
Section 5.11. No Burdensome Restrictions........................ 54
Section 5.12. Taxes............................................. 54
Section 5.13. Subsidiaries...................................... 54
Section 5.14. Financial Statements.............................. 55
Section 5.15. ERISA............................................. 56
Section 5.16. Patents, Trademarks, Licenses, Etc................ 57
Section 5.17. Ownership of Property............................. 57
Section 5.18. Indebtedness...................................... 57
Section 5.19. Financial Condition............................... 58
Section 5.20. Labor Matters..................................... 58
Section 5.21. Payment or Dividend Restrictions.................. 58
Section 5.22. Ownership of Acquisition Sub and Borrower......... 59
Section 5.23. Acquisition....................................... 59
Section 5.24. Continuing Business of Target; Business of........ 59
Parent
Section 5.25. Consents to Acquisition........................... 60
Section 5.26. Disclosure........................................ 60
ARTICLE VI. AFFIRMATIVE COVENANTS............................... 60
Section 6.01. Corporate Existence, Etc.......................... 60
Section 6.02. Compliance with Laws, Etc......................... 60
Section 6.03. Payment of Taxes and Claims, Etc.................. 61
Section 6.04. Keeping of Books.................................. 61
Section 6.05. Visitation, Inspection, Etc....................... 61
Section 6.06. Insurance; Maintenance of Properties.............. 61
Section 6.07. Reporting Covenants............................... 61
ii
<PAGE>
PAGE
----
Section 6.08. Financial Covenants............................... 65
Section 6.09. Notices Under Certain Other Indebtedness.......... 67
Section 6.10. Additional Credit Parties and Collateral.......... 67
ARTICLE VII. NEGATIVE COVENANTS................................. 67
Section 7.01. Indebtedness...................................... 67
Section 7.02. Liens............................................. 68
Section 7.03. Mergers, Consolidations, Etc...................... 68
Section 7.04. Investments, Loans, Dividends, Etc................ 69
Section 7.05. Asset Sales....................................... 71
Section 7.06. Sale and Leaseback Transactions................... 72
Section 7.07. Transactions with Affiliates...................... 73
Section 7.08. Changes in Business............................... 73
Section 7.09. ERISA............................................. 73
Section 7.10. Limitation on Payment Restrictions Affecting
Borrower and its Subsidiaries..................... 73
Section 7.11. Actions Under Certain Documents................... 73
Section 7.12. Additional Negative Pledges....................... 74
Section 7.13. Changes in Fiscal Year............................ 74
Section 7.14. Issuance of Stock by Subsidiaries................. 74
ARTICLE VIII. EVENTS OF DEFAULT................................. 74
Section 8.01. Payments.......................................... 74
Section 8.02. Covenants Without Notice.......................... 75
Section 8.03. Other Covenants................................... 75
Section 8.04. Representations................................... 75
Section 8.05. Non-Payments of Other Indebtedness................ 75
Section 8.06. Defaults Under Other Agreements; Change In Control
Provisions........................................ 75
Section 8.07. Bankruptcy........................................ 75
Section 8.08. ERISA............................................. 76
Section 8.09. Judgments......................................... 77
Section 8.10. Ownership of Credit Parties....................... 77
Section 8.11. Chairman of the Board of Directors of Parent
and Borrower...................................... 77
Section 8.12. Change in Control................................. 77
Section 8.13. Default Under Other Credit Documents; Merger
Agreement......................................... 77
Section 8.14. Failure of Merger and other Elements of the
Transaction....................................... 77
iii
<PAGE>
PAGE
----
ARTICLE IX. THE AGENT............................................ 78
Section 9.01. Appointment of Agent.............................. 78
Section 9.02. Authorization of Agent with Respect to the
Security Documents................................ 78
Section 9.03. Nature of Duties of Agent......................... 79
Section 9.04. Lack of Reliance on the Agent..................... 79
Section 9.05. Certain Rights of the Agent....................... 79
Section 9.06. Reliance by Agent................................. 80
Section 9.07. Indemnification of Agent.......................... 80
Section 9.08. The Agent in its Individual Capacity.............. 80
Section 9.09. Holders of Notes.................................. 80
Section 9.10. Successor Agent................................... 81
ARTICLE X. MISCELLANEOUS......................................... 81
Section 10.01. Notices........................................... 81
Section 10.02. Amendments, Etc................................... 82
Section 10.03. No Waiver; Remedies Cumulative.................... 82
Section 10.04. Payment of Expenses, Etc.......................... 82
Section 10.05. Right of Setoff................................... 84
Section 10.06. Benefit of Agreement; Assignments;
Participations.................................... 84
Section 10.07. Governing Law; Submission to Jurisdiction......... 86
Section 10.08. Independent Nature of Lenders' Rights............. 87
Section 10.09. Counterparts...................................... 87
Section 10.10. Effectiveness; Termination of Commitments;
Survival.......................................... 88
Section 10.11. Severability...................................... 88
Section 10.12. Independence of Covenants......................... 88
Section 10.13. Change in Accounting Principles, Fiscal Year or
Tax Laws.......................................... 88
Section 10.14. Intent Not To Violate Usury Laws.................. 89
Section 10.15. Headings Descriptive; Entire Agreement............ 89
iv
<PAGE>
EXHIBITS
--------
Exhibit A - Form of Revolving Note
Exhibit B - Form of Swing Line Note
Exhibit C-1 - Form of Parent Guaranty
Exhibit C-2 - Form of Subsidiary Guaranty
Exhibit D - Form of Contribution Agreement
Exhibit E - Form of Security Agreement
Exhibit F-1 - Form of Pledge and Security Agreement
Exhibit F-2 - Form of Parent Pledge and Security Agreement
Exhibit G - Form of Closing Certificate
Exhibit H-1 - Form of Borrower's Counsel Opinion
Exhibit H-2 - Form of Tennessee's Counsel Opinion
Exhibit I - Form of Compliance Certificate
Exhibit J - Form of Assignment and Acceptance Agreement
Exhibit K - Form of Trademark Security Agreement
SCHEDULES
---------
Schedule 4.01 - UCC Search Locations
Schedule 5.01 - Subsidiaries
Schedule 5.05 - Litigation
Schedule 5.08(a) - Environmental Claims
Schedule 5.08(b) - Environmental Notices
Schedule 5.10 - Defaults
Schedule 5.11 - Burdensome Restrictions
Schedule 5.12 - Taxes
Schedule 5.13 - Material Subsidiaries
Schedule 5.15 - Employee Benefit Matters
Schedule 5.16 - Patent, Trademark, License, and
Other Intellectual Property Matters
Schedule 5.17 - Ownership of Properties
Schedule 5.20 - Labor and Employment Matters
Schedule 5.21 - Dividend Restrictions
Schedule 7.01 - Existing Indebtedness
Schedule 7.02 - Existing Liens
v
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT made and entered into as of September 26, 1997,
by and among TKC ACQUISITION CORP., a Tennessee corporation (the "Acquisition
-----------
Sub") to be merged with and into THE KRYSTAL COMPANY, a Tennessee corporation
- ---
(the surviving corporation hereinafter referred to as the "Borrower"), SUNTRUST
--------
BANK, ATLANTA, a banking corporation organized under the laws of the State of
Georgia ("SunTrust"), the other banks and lending institutions listed on the
--------
signature pages hereof, and any assignees of SunTrust or such other banks and
lending institutions which become "Lenders" as provided herein (SunTrust, and
such other banks, lending institutions, and assignees referred to collectively
herein as the "Lenders"), SUNTRUST BANK, ATLANTA, in its capacity as agent for
-------
the Lenders and each successor agent for such Lenders as may be appointed from
time to time pursuant to Article IX hereof (the "Agent") and UNION BANK OF
-----
SWITZERLAND, NEW YORK BRANCH, in its capacity as syndication agent for such
Lenders (the "Syndication Agent");
----------- -----
W I T N E S S E T H:
--------------------
WHEREAS, pursuant to the terms of that certain Agreement and Plan of
Merger, dated as of July 3, 1997 (the "Merger Agreement") by and among Port
----------------
Royal Holdings, Inc., a Georgia corporation ("Parent"), the Acquisition Sub and
------
The Krystal Company, a Tennessee corporation (the "Target"), the Parent and the
------
Acquisition Sub have agreed to purchase the Target (the "Acquisition") for an
-----------
aggregate cash purchase price of approximately $108,400,000 (the "Purchase
--------
Price");
WHEREAS, pursuant to the terms of the Merger Agreement, concurrently with
the consummation of the Acquisition and the Initial Advance hereunder, the
Acquisition Sub will merge with and into the Target (the "Merger") and the
------
surviving corporation, the Borrower, shall be a wholly-owned subsidiary of the
Parent and the Borrower, by operation of law and pursuant to the terms of the
Merger Agreement, will assume all obligations of the Acquisition Sub hereunder;
WHEREAS, on the date hereof, in order to finance a portion of the Purchase
Price, the Acquisition Sub has entered into that certain Indenture, dated as of
September 26, 1997 (the "Senior Indenture") relating to those certain
----------------
$100,000,000 in aggregate principal amount 10.25% Senior Notes, due 2007 (the
"Senior Notes") with SunTrust Bank, Atlanta, as trustee (the "Trustee") for the
- ------------- -------
holders of the Senior Notes (the "Senior Noteholders") and has issued the Senior
------------------
Notes thereunder;
WHEREAS, on the date hereof, in order to finance a portion of the Purchase
Price, the Parent shall make a $35,000,000 investment in the Acquisition Sub in
the form of the purchase of common equity of the Acquisition Sub;
<PAGE>
WHEREAS, the Acquisition Sub has requested that the Lenders provide a
$25,000,000 senior secured revolving credit facility to the Borrower, the
proceeds of which shall be used initially, (i) to finance the remaining portion
of the Purchase Price, (ii) to pay certain costs and expenses incurred in
connection with the Merger, the issuance of the Senior Notes and the other
transactions described above, and (iii) to repay certain existing indebtedness
of the Target outstanding pursuant to that certain Credit Agreement, dated as of
April 22, 1997, among the Target, as Borrower, Transamerica Business Credit
Corporation and other parties thereto identified as "Lenders" therein, as
Lenders, and Transamerica Business Credit Corporation, as Agent (the "Existing
--------
Credit Agreement"), and thereafter, to fund the working capital and general
- ----------------
corporate needs of the Borrower;
WHEREAS, at the request of the Acquisition Sub, the Lenders have agreed,
effective as of the Closing Date (as such term is defined below), to provide
certain credit facilities to the Borrower on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, Acquisition Sub (and upon the initial Advance
hereunder, the Borrower), the Lenders, the Agent and the Syndication Agent
agree, upon the terms and subject to the conditions set forth herein as follows:
ARTICLE I.
DEFINITIONS; CONSTRUCTION
-------------------------
Section 1.01. Definitions. In addition to the other terms defined herein,
-----------
the following terms used herein shall have the meanings herein specified (to be
equally applicable to both the singular and plural forms of the terms defined):
"Adjusted LIBO Rate" shall mean, with respect to each Interest Period
------------------
for a Eurodollar Advance, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined pursuant to the following formula:
Adjusted LIBO Rate = LIBOR
-------------------------------
1.00 - LIBOR Reserve Percentage
As used herein, LIBOR Reserve Percentage shall mean, for any Interest Period for
a Eurodollar Advance, the reserve percentage (expressed as a decimal) equal to
the then stated maximum rate of all reserves requirements (including, without
limitation, any marginal, emergency, supplemental, special or other reserves)
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency liabilities as defined in Regulation D (or against any successor
category of liabilities as defined in Regulation D).
2
<PAGE>
"Advance" shall mean any principal amount advanced and remaining
-------
outstanding at any time as (i) the Revolving Loans, which Advances shall be made
or outstanding as Base Rate Advances or Eurodollar Advances, as the case may be,
or (ii) a Swing Line Loan, which Advances shall be made or outstanding as Swing
Rate Advances.
"Affiliate" of any Person means any other Person directly or
---------
indirectly controlling, controlled by, or under common control with, such
Person, whether through the ownership of voting securities, by contract or
otherwise. For purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by", and "under
common control with") as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person.
"Agent" shall mean SunTrust and any successor agent appointed pursuant
-----
to Section 9.10 hereto.
"Agreement" shall mean this Credit Agreement, as hereafter amended,
---------
restated, supplemented or otherwise modified from time to time.
"Applicable Commitment Fee Rate" shall mean, with respect to any
------------------------------
calculation of the Commitment Fee hereunder, (i) through December 31, 1998, one
half of one percent (0.50%) per annum, and (ii) thereafter, the percentage per
annum determined by reference to the following chart set forth below based on
Borrower's Funded Debt Coverage Ratio calculated as of the relevant
determination date in accordance with Section 6.08(b):
Funded Debt Applicable Commitment
Coverage Ratio Fee Rate
-------------- ---------------------
Less than or equal to 3.0:1.0 .20%
Greater than 3.0:1.0, but less than
or equal to 4.0:1.0 .30%
Greater than 4.0:1.0, but less than
or equal to 5.0:1.0 .40%
Greater than 5.0:1.0 .50%
Each change in the Applicable Commitment Fee Rate resulting from a change in the
Funded Debt Coverage Ratio shall be effective from and after the date that any
change in the Applicable Margin is effective. Notwithstanding the foregoing, at
any time during which Borrower has failed to deliver the financial statements
and certificates when required by Section 6.07(a), (b), and (c), as applicable,
the Applicable Commitment Fee Rate shall be .50%.
3
<PAGE>
"Applicable Margin" shall mean, (i) with respect to all Eurodollar
-----------------
Advances outstanding through December 31, 1998, two and one-half of one percent
(2.50%) per annum, (ii) with respect to all Base Rate Advances outstanding
through December 31, 1998, one half of one percent (0.50%) per annum, and (iii)
with respect to all Advances outstanding thereafter, the relevant percentage
indicated below for the Borrower's Funded Debt Coverage Ratio, as determined
quarterly, based upon the financial statements delivered to the Lenders pursuant
to Section 6.07(a) or Section 6.07(b) hereof, as the case may be in accordance
with Section 6.08(b), with such Applicable Margin to be effective with respect
to calculations based upon the financial statements delivered pursuant to
Section 6.07 as of the first day of the second Fiscal Quarter immediately
following the Fiscal Quarter for which such financial statements are delivered
(for example, the Applicable Margin effective as of the first day of the third
Fiscal Quarter shall be calculated based upon the financial statements delivered
for the first Fiscal Quarter of the Borrower):
<TABLE>
<CAPTION>
Funded Debt Applicable Margin Applicable Margin
Coverage Ratio for Eurodollar Advances for Base Rate Advances
-------------- ----------------------- ----------------------
<S> <C> <C>
Less than or equal to 3.0:1.0 1.00% 0%
Greater than 3.0:1.0, but less than
or equal to 4.0:1.0 1.75% 0%
Greater than 4.0:1.0, but less than
or equal to 5.0:1.0 2.25% 0.25%
Greater than 5.0:1.0 2.50% 0.50%
</TABLE>
Notwithstanding the foregoing, at any time during which Borrower has failed to
deliver the financial statements and certificates when required by Section
6.07(a), (b), and (c), as applicable, the Applicable Margin with respect to
Eurodollar Advances then outstanding shall be 2.50% and the Applicable Margin
with respect to Base Rate Advances shall be 0.50%.
"Asset Sale" shall mean, with respect to any Person, the sale, lease,
----------
conveyance or other disposition, that does not constitute a Restricted Payment
or an Investment, by such Person of any of its assets (including, without
limitation by way of a Sale and Leaseback Transaction and including the
issuance, sale or transfer of any Equity Interests in any Subsidiary of the
Borrower) other than to the Borrower (including the receipt of proceeds of
insurance paid on account of the loss of or damage to any asset and awards of
compensation for any asset taken by condemnation, eminent domain or similar
proceeding, and including the receipt of proceeds of business interruption
insurance), in each case, in one or a series of related transactions; provided,
that notwithstanding the foregoing, the term "Asset Sale" shall not include:
4
<PAGE>
(a) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Borrower;
(b) the sale or lease of equipment, inventory, accounts receivable or
other assets in the ordinary course of business consistent with past
practice;
(c) a transfer of assets by the Borrower to a Wholly-Owned Subsidiary
of the Borrower or by a Wholly-Owned Subsidiary of the Borrower to the
Borrower or to another Wholly-Owned Subsidiary of the Borrower;
(d) an issuance of Equity Interests by a Wholly-Owned Subsidiary of
the Borrower to the Borrower or to another Wholly-Owned Subsidiary of the
Borrower;
(e) the issuance by the Borrower of shares of its Capital Stock; or
(f) the sale or other disposition of cash or Cash Equivalents.
"Assignment and Acceptance" shall mean an assignment and acceptance
-------------------------
entered into by a Lender and an Eligible Assignee in accordance with the terms
of this Agreement and substantially in the form of Exhibit J.
---------
"Bankruptcy Code" shall mean The Bankruptcy Code of 1978, as amended
---------------
and in effect from time to time (11 U.S.C. (S)101 et seq.).
-- ---
"Base Rate" shall mean (with any change in the Base Rate to be
---------
effective as of the date of change of either of the following rates) the higher
of (i) the rate which the Agent publicly announces from time to time as its
prime lending rate, as in effect from time to time, and (ii) the Federal Funds
Rate, as in effect from time to time, plus one-half of one percent (0.50%) per
----
annum. The Agent's prime lending rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to customers; the
Agent may make commercial loans or other loans at rates of interest at, above or
below the Agent's prime lending rate.
"Base Rate Advance" shall mean an Advance made or outstanding as a
-----------------
Revolving Loan bearing interest based on the Base Rate.
"Base Rate Borrowing" shall mean a Borrowing made up of Base Rate
-------------------
Advances.
"Borrower" shall mean, upon consummation of the Merger, The Krystal
--------
Company, a Tennessee corporation, its successors and permitted assigns.
"Borrower Security Agreement" shall mean that certain Security
---------------------------
Agreement executed by the Borrower substantially in the form of Exhibit E,
---------
granting a security interest in all
5
<PAGE>
of the personal property and fixtures of the Borrower to the Agent, for the
benefit of the Lenders, either as originally executed or as hereafter amended or
modified.
"Borrowing" shall mean the incurrence by Borrower under any Facility
---------
of Advances of one Type concurrently having the same Interest Period or the
continuation or conversion of an existing Borrowing or Borrowings in whole or in
part.
"Business Day" shall mean any day excluding Saturday, Sunday and any
------------
other day on which banks are required or authorized to close in Atlanta, Georgia
and, if the applicable Business Day relates to Eurodollar Advances, any day on
- ---
which trading is not carried on by and between banks in deposits of the
applicable currency in the applicable interbank Eurocurrency market.
"Capital Expenditures" shall mean, for any fiscal period of the
--------------------
Borrower, all expenditures by the Borrower and its Subsidiaries during such
period for the acquisition or leasing of any fixed assets or improvements, or
for replacements, substitutions or additions thereto, which have a useful life
of more than one year and which are or should be reflected on the Borrower's
statement of cash flow for such period as capital expenditures in accordance
with GAAP.
"Capital Lease" shall mean, as applied to any Person, any lease of any
-------------
property (whether real, personal or mixed) by such Person as lessee which would,
in accordance with GAAP, be required to be classified and accounted for as a
capital lease on a balance sheet of such Person, other than, in the case of
Borrower or any of its Subsidiaries, any such lease under which Borrower or a
Wholly-Owned Subsidiary of Borrower is the lessor.
"Capital Lease Obligation" shall mean, with respect to any Capital
------------------------
Lease, the amount of the obligation of the lessee thereunder which would, in
accordance with GAAP, appear on a balance sheet of such lessee in respect of
such Capital Lease.
"Capital Stock" shall mean (i) in the case of a corporation, capital
-------------
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of capital stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" shall mean:
----------------
(i) securities issued or directly and fully guaranteed or insured by
the United States of America or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) having maturities not more than twelve months from the date of
acquisition;
6
<PAGE>
(ii) U.S. dollar denominated (or foreign currency fully hedged) time
deposits, certificates of deposit of (a) any domestic commercial bank of
recognized standing having capital and surplus in excess of $500 million or (b)
any bank whose short-term commercial paper rating from S&P is at least A-1 or
the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof
(any such bank being an "Approved Lender"), in each case with maturities of not
more than twelve months from the date of acquisition; and
(iii) commercial paper issued by an Approved Lender (or by the
parent company thereof) or any variable rate notes issued by, or guaranteed by,
any domestic corporation rated A-2 (or the equivalent thereof) or better by S&P
or P-2 (or the equivalent thereof) or better by Moody's and maturing within
twelve months of the date of acquisition.
"Cash Taxes Paid" shall mean, for any fiscal period of Borrower, the
---------------
provision of the Borrower and its Subsidiaries for taxes paid as shown on the
income statement of Borrower for such period minus any increase (or plus any
decrease) in the provision for deferred taxes of the Borrower and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
"Change of Control" shall mean such time as either:
-----------------
(i) prior to the initial Public Equity Offering by the Borrower or the
Parent of its common stock, the Permitted Shareholders cease to be, directly or
indirectly, the beneficial owners in the aggregate, of more than 50% of the
voting power of the Voting Stock of the Borrower and of the Parent, in each case
on a fully-diluted basis, after giving effect to the conversion and exercise of
all outstanding warrants, options and other securities of the Borrower or the
Parent, as the case may be, convertible into or exercisable for Voting Stock of
the Borrower or the Parent, as the case may be (whether or not such securities
are then currently convertible or exercisable); or
(ii) after the initial Public Equity Offering by the Borrower or the Parent
of its common stock, (a) any "person" or "group" (within the meaning of Section
13(d) or 14(d) of the Exchange Act) (other than one or more of the Permitted
Shareholders) has become, directly or indirectly, the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), by way of merger, consolidation or
otherwise, of 35% or more of the voting power of the Voting Stock of the
Borrower or the Parent in each case on a fully-diluted basis, after giving
effect to the conversion and exercise of all outstanding warrants, options and
other securities of the Borrower or the Parent, as the case may be, convertible
into or exercisable for Voting Stock of the Borrower or the Parent, as the case
may be (whether or not such securities are then currently convertible or
exercisable) and (b) such person or group is or becomes, directly or indirectly,
the beneficial owner of a greater percentage of the voting power of the Voting
Stock of the Borrower or of the Parent, as the case may be, calculated on such
fully-diluted basis, than the percentage then beneficially owned by the
Permitted Shareholders; or
7
<PAGE>
(iii) the Borrower or the Parent merges with or into another Person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person merges with or into
the Borrower or the Parent, in any such event pursuant to a transaction in which
the outstanding Voting Stock of the Borrower or the Parent is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (x) the outstanding Voting Stock of the Borrower or the Parent
is converted into or exchanged for (1) Voting Stock (other than Disqualified
Stock) of the surviving or transferee corporation and/or (2) cash, securities
and other property in an amount which could be paid by the Borrower as a
Restricted Payment under Section 7.04 hereof and (y) immediately after such
transaction no "person" or "group" (within the meaning of Section 13(d) and
14(d) of the Exchange Act) (other than one or more of the Permitted
Shareholders) is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of (1) 35% or more of the voting power of the Voting
Stock of the surviving or transferee corporation on a fully-diluted basis, after
giving effect to the conversion and exercise of all outstanding warrants,
options and other securities of such surviving or transferee corporation,
convertible into or exercisable for Voting Stock of such surviving or transferee
corporation (whether or not such securities are then currently convertible or
exercisable) and (2) a greater percentage of the voting power of the Voting
Stock of such surviving or transferee corporation calculated on such fully
diluted basis, than the percentage then beneficially owned by the Permitted
Shareholders; or
(iv) during any period of two consecutive calendar years, individuals who
at the beginning of such period constituted either the board of directors of the
Borrower or of the Parent, as the case may be, together with any new members of
such board of directors (a) whose election by such board of directors or whose
nomination for election by the stockholders of the Borrower or the stockholders
of the Parent, as the case may be, was approved by a vote of a majority of the
members of such board of directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved or (b) elected by the Permitted
Shareholders, cease for any reason to constitute a majority of the directors of
the Borrower or of the Parent, as the case may be, then in office.
"Change in Control Provision" shall mean any term or provision
---------------------------
contained in any indenture, debenture, note, or other agreement or document
evidencing or governing Indebtedness of Borrower evidencing debt or a commitment
to extend loans in excess of $1,000,000.00 which requires, or permits the
holder(s) of such Indebtedness of Borrower to require that such Indebtedness of
Borrower be redeemed, repurchased, defeased, prepaid or repaid, either in whole
or in part, or the maturity of such Indebtedness of Borrower to be accelerated
in any respect, as a result of a change in ownership of the capital stock of
Borrower or voting rights with respect thereto.
"Closing Date" shall mean September 26, 1997 or such later date on
------------
which the initial Loans are made and the conditions set forth in Sections 4.01
and 4.02 are satisfied.
8
<PAGE>
"Collateral" shall mean all of the assets of the Credit Parties
----------
subject to a Lien in favor of the Agent, for the benefit of the Lenders,
pursuant to the Security Documents.
"Commitments" shall mean the Revolving Loan Commitments.
-----------
"Commitment Fee" shall have the meaning ascribed to it in Section
--------------
3.05(a).
"Consolidated Cash Flow" shall mean, with respect to any fiscal period
----------------------
of the Borrower, the sum of (i) Consolidated EBITDA for such period, plus (ii)
Rental Expense for such period, minus (iii) Consolidated Capital Expenditures
made during such period, minus (iv) Cash Taxes Paid during such period, in each
case, calculated on a consolidated basis in accordance with GAAP.
"Consolidated Companies" shall mean, collectively, Parent and all of
----------------------
its Subsidiaries.
"Consolidated EBITDA" shall mean, with reference to any period, an
-------------------
amount equal to the sum for such fiscal period of Consolidated Net Income (Loss)
and, to the extent deducted in determining such Consolidated Net Income (Loss),
provisions for (i) taxes based on income (whether paid or deferred), (ii)
Consolidated Interest Expense, (iii) depreciation of assets and (iv)
amortization.
"Consolidated Funded Debt" shall mean, as of any date of
------------------------
determination, the Funded Debt of the Borrower and its Subsidiaries.
"Consolidated Interest Expense" shall mean, for any period, total
-----------------------------
interest expense of the Borrower and its Subsidiaries (including without
limitation, interest expense attributable to Capital Leases, all capitalized
interest, all commissions, discounts and other fees and charges owed with
respect to bankers acceptance financing, net costs (i.e., costs minus benefits)
----
under Interest Rate Contracts, and total interest expense (whether shown as
interest expense or as loss and expenses on sales of receivables) under a
receivables purchase facility) determined on a consolidated basis in accordance
with GAAP, excluding amortized costs of Indebtedness, net of any interest
income.
"Consolidated Net Income (Loss)" shall mean, with reference to any
------------------------------
period, the net income (or deficit) of the Borrower and its Subsidiaries for
such period (taken as a cumulative whole), after deducting all operating
expenses, provisions for all taxes and reserves (including reserves for deferred
income taxes) and all other proper deductions, all determined in accordance with
GAAP on a consolidated basis, after eliminating all intercompany transactions
and after deducting portions of income properly attributable to minority
interests, if any, in the stock and surplus of the Subsidiaries of the Borrower,
and excluding the sum of (i) the gain or loss (net of any tax effect) resulting
from the sale of any capital assets other than in the ordinary
9
<PAGE>
course of business of the Borrower and its Subsidiaries and (ii) other
extraordinary or non-recurring items, as defined by GAAP, of the Borrower and
its Subsidiaries.
"Consolidated Net Worth" shall mean the shareholders' equity of the
----------------------
Borrower calculated in accordance with GAAP, less treasury stock.
"Contractual Obligation" of any Person shall mean any provision of any
----------------------
security issued by such Person or of any material agreement, instrument or
undertaking under which such Person is obligated or by which it or any of the
property owned by it is bound.
"Contribution Agreement" shall mean the Contribution Agreement
----------------------
executed by each of the Guarantors and the Borrower, substantially in the form
of Exhibit D attached hereto, as the same may be amended, restated or
---------
supplemented from time to time.
"Credit Documents" shall mean, collectively, this Agreement, the
----------------
Notes, the Guaranty Agreement, the Security Documents and all other instruments,
documents, certificates, agreements and writings executed in connection
herewith.
"Credit Parties" shall mean, collectively, each of the Acquisition
--------------
Sub, the Borrower and the Guarantors (including all Persons that are currently
Guarantors and all Persons who may at any time in the future become Guarantors),
and every other Person who from time to time executes a Security Document with
respect to all or any portion of the Obligations.
"Currency Contracts" shall mean any forward contracts, futures
------------------
contracts, foreign exchange contracts, currency swap agreements, and other
similar agreements and arrangements entered into by any Consolidated Company
designed to protect any Consolidated Company against fluctuations in foreign
exchange rates.
"Current Maturities of Long Term Debt" shall have the meaning afforded
------------------------------------
such term under GAAP and shall be calculated with respect to the Borrower and
its Subsidiaries.
"Default" shall mean any condition or event which, with notice or
-------
lapse of time or both, would constitute an Event of Default.
"Disqualified Stock" means (a) with respect to any Person, Capital
------------------
Stock of such Person that, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable), or upon the happening
of any event matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date which is one year after the date on
which the Senior Notes mature and (b) with respect to any Subsidiary of such
Person (including with respect to any Subsidiary of the Borrower), any Capital
Stock.
10
<PAGE>
"Dollar" and "U.S. Dollar" and the sign "$" shall mean lawful money of
------ ----------- -
the United States of America.
"Eligible Assets" means another business or any substantial part of
---------------
another business or other long-term assets (including, without limitation new
restaurant locations), in each case, in, or used or useful in, the same or a
similar line of business as the Borrower (exclusive of Krystal Aviation Co. and
Krystal Aviation Management Co.) was engaged in on the Closing Date or any
reasonable extensions or expansions thereof (including the Capital Stock of
another Person engaged in such business, provided such other Person is, or
immediately after giving effect to any such acquisition shall become, a Wholly-
Owned Subsidiary of the Borrower).
"Eligible Assignee" shall mean (i) a commercial bank organized under
-----------------
the laws of the United States or any state thereof having a combined capital and
surplus of at least $50,000,000 and a long term debt rate of at least
"investment grade" by Moody's or S& P, or any commercial finance or asset-based
lending Affiliate of any such commercial bank and (ii) any Lender.
"Environmental Laws" shall mean all federal, state, local and foreign
------------------
statutes and codes or regulations, rules or ordinances issued, promulgated, or
approved thereunder, now or hereafter in effect (including, without limitation,
those with respect to asbestos or asbestos containing material or exposure to
asbestos or asbestos containing material), relating to pollution or protection
of the environment and relating to public health and safety, relating to (i)
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial toxic or hazardous constituents,
substances or wastes, including without limitation, any Hazardous Substance,
petroleum including crude oil or any fraction thereof, any petroleum product or
other waste, chemicals or substances regulated by any Environmental Law into the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), or (ii) the manufacture, processing,
distribution, use, generation, treatment, storage, disposal, transport or
handling of any Hazardous Substance, petroleum including crude oil or any
fraction thereof, any petroleum product or other waste, chemicals or substances
regulated by any Environmental Law, and (iii) underground storage tanks and
related piping, and emissions, discharges and releases or threatened releases
therefrom, such Environmental Laws to include, without limitation (a) the Clean
Air Act (42 U.S.C. (S) 7401 et seq.), (b) the Clean Water Act (33 U.S.C. (S)
-- ---
1251 et seq.), (c) the Resource Conservation and Recovery Act (42 U.S.C. (S)
-- ---
6901 et seq.), (d) the Toxic Substances Control Act (15 U.S.C. (S) 2601 et
-- --- --
seq.), (e) the Comprehensive Environmental Response Compensation and Liability
- ---
Act, as amended by the Superfund Amendments and Reauthorization Act (42 U.S.C.
(S) 9601 et seq.), and (f) all applicable national and local laws or regulations
-- ---
with respect to environmental control.
"Equity Interests" means Capital Stock and all warrants, options or
----------------
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock), whether outstanding prior
to, on or after the Closing Date.
11
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended and in effect from time to time.
"ERISA Affiliate" shall mean, with respect to any Person, each trade
---------------
or business (whether or not incorporated) which is a member of a group of which
that Person is a member and which is under common control within the meaning of
the regulations promulgated under Section 414 of the Tax Code.
"Eurodollar Advance" shall mean an Advance made or outstanding as a
------------------
Revolving Loan bearing interest based on the Adjusted LIBO Rate.
"Eurodollar Borrowing" shall mean a Borrowing made up of Eurodollar
--------------------
Advances.
"Event of Default" shall have the meaning provided in Article VIII.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
"Executive Officer" shall mean with respect to any Person, the
-----------------
Chairman, President, Vice Presidents, Chief Financial Officer, Treasurer,
Secretary and any Person holding comparable offices or duties.
"Exempt Affiliate Transactions" means (a) transactions between or
-----------------------------
among the Borrower and/or its Wholly-Owned Subsidiaries, (b) advances to
officers of the Borrower or any Subsidiary of the Borrower in the ordinary
course of business to provide for the payment of reasonable expenses incurred by
such persons in the performance of their responsibilities to the Borrower or
such Subsidiary or in connection with any relocation, (c) fees and compensation
paid to and indemnity provided on behalf of directors, officers or employees of
the Borrower or any Subsidiary of the Borrower in the ordinary course of
business, (d) any employment agreement that is in effect on the Closing Date and
any such agreement entered into by the Borrower or a Subsidiary of the Borrower
after the Closing Date in the ordinary course of business of the Borrower or
such Subsidiary and (e) any Restricted Payment that is not prohibited by Section
7.04 hereof.
"Exempt Asset Sale" means an Asset Sale on or after the Closing Date
-----------------
the Net Proceeds of which plus the Net Proceeds of all other Asset Sales made in
the same fiscal year (but, in all cases, after the Closing Date) do not exceed
$2.5 million.
"Facility" or "Facilities" shall mean the Revolving Loan Commitments,
-------- ----------
the Letter of Credit Subcommitment or the Swing Line Subcommitment, as the
context may indicate.
12
<PAGE>
"Federal Funds Rate" shall mean for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with member banks of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of Atlanta, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day on
such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by the Agent.
"Fiscal Quarter" shall mean, with respect to the Borrower, a period of
--------------
13 (or, if applicable, 14) consecutive week period, in each case, comprising a
portion of the Borrower's Fiscal Year.
"Fiscal Year" shall mean any period of 52 (or, if applicable 53)
-----------
consecutive weeks ending on the Sunday closest to December 31 of each year;
references to a Fiscal Year with a number corresponding to any calendar year
(e.g., "Fiscal Year 1996") refer to the Fiscal Year ending on the Sunday closest
to December 31 of that year.
"Fiscal Year End" shall mean the last day of any Fiscal Year.
---------------
"Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of
---------------------------
(i) (x) Consolidated Cash Flow plus (y) Capital Expenditures made by the
----
Borrower and its Subsidiaries during such period in connection with new store
expansion, to (ii) Fixed Charges for such period in each case determined with
respect to the Borrower and its Subsidiaries for the fiscal quarter ending on
such date and the immediately preceding three fiscal quarters.
"Fixed Charges" shall mean, with reference to any period, determined
-------------
in accordance with GAAP on a consolidated basis, the sum of the following for
the Borrower and its Subsidiaries, after eliminating all intercompany items:
(a) Consolidated Interest Expense for such period;
(b) all Rental Obligations payable as lessee under any operating lease
properly charged or chargeable to income during such period in accordance
with GAAP; and
(c) Current Maturities of Long Term Debt for such period as reflected
on the balance sheet for such ended period;
provided that any interest charges or rentals paid or accrued by any Person
- --------
acquired by the Borrower or any of its Subsidiaries during such period, through
purchase, merger, consolidation or otherwise, shall be included in "Fixed
Charges" only to the extent that the earnings of such Person are taken into
account in determining Consolidated Cash Flow for such period.
13
<PAGE>
"Funded Debt" shall mean, as applied to any Person, all Indebtedness
-----------
of such Person of the types described in clauses (i) - (vii) of the definition
thereof, less the undrawn amount of any Letters of Credit issued hereunder.
"Funded Debt Coverage Ratio" shall mean, as of the last day of any
--------------------------
fiscal quarter of the Borrower, the ratio of (i) Consolidated Funded Debt to
(ii) Consolidated EBITDA determined with respect to the Borrower and its
Subsidiaries for the fiscal quarter ending on such date and the immediately
preceding three fiscal quarters.
"GAAP" shall mean generally accepted accounting principles set forth
----
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or, if no such
statements are promulgated, then such other statements by such other entity as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.
"Guarantors" shall mean, collectively, (i) Parent, (ii) Krystal
----------
Aviation Co., (iii) Krystal Aviation Management Co. and (iv) all other Material
Subsidiaries of the Borrower, whether now existing or hereafter created, and
their respective successors and permitted assigns.
"Guaranty" shall mean any contractual obligation, contingent or
--------
otherwise (other than letters of credit), of a Person with respect to any
Indebtedness or other obligation or liability of another Person, including
without limitation, any such Indebtedness, obligation or liability directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable, including contractual obligations (contingent or otherwise)
arising through any agreement to purchase, repurchase, or otherwise acquire such
Indebtedness, obligation or liability or any security therefor, or any agreement
to provide funds for the payment or discharge thereof (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain solvency, assets, level of income, or other financial condition, or to
make any payment other than for value received. The amount of any Guaranty
shall be deemed to be an amount equal to the stated or determinable amount of
the primary obligation in respect of which guaranty is made or, if not so stated
or determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Guaranty Agreements" shall mean, collectively, the Parent Guaranty
-------------------
Agreement and the Subsidiary Guaranty Agreement executed by the Guarantors in
favor of the Lenders and the Agent, substantially in the form of Exhibits C-1
------------
and C-2, respectively, as the same may be amended, restated or supplemented from
---
time to time.
14
<PAGE>
"Hazardous Substances" shall have the meaning assigned to that term in
--------------------
the Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986.
"Hedging Obligations" means, with respect to any Person, the
-------------------
obligations of such Person entered into in the ordinary course of business under
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements and other similar financial agreements or arrangements
designed to protect such Person against, or manage the exposure of such Person
to, fluctuations in interest rates.
"Hostile Acquisition" shall mean any Investment resulting in control
-------------------
of a Person involving a tender offer or proxy contest that has not been
recommended or approved by the board of directors of the Person that is the
subject of the Investment prior to the first public announcement or disclosure
relating to such Investment.
"Indebtedness" of any Person shall mean, without duplication (i) all
------------
obligations of such Person for borrowed money and for the deferred purchase
price of property or services, and obligations evidenced by bonds, debentures,
notes or other similar instruments; (ii) all Capital Lease Obligations; (iii)
all Guaranties of such Person (including contingent reimbursement obligations
under undrawn letters of credit); (iv) Indebtedness of others secured by any
Lien upon property owned by such Person, whether or not assumed; (v) obligations
or other liabilities under Currency Contracts, Interest Rate Contracts, or other
Hedging Obligations; (vi) all obligations of such Person arising pursuant to any
asset securitization transactions; (vii) Redeemable Capital Stock of such Person
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued dividends; and (viii) all other obligations of such Person
which in accordance with GAAP would be shown on the balance sheet of such Person
as a liability (other than reserves required by GAAP). For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock which does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to this Agreement, and if such price is based on, or measured by, the
fair market value of such Redeemable Capital Stock, such fair market value shall
be determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"Interest Period" shall mean (i) as to any Eurodollar Advances, the
---------------
interest period selected by the Borrower pursuant to Section 3.04(a) hereof, and
(ii) as to any Swing Rate Advances, the interest period specified in Section
3.04(b) hereof.
"Interest Rate Contract" shall mean all interest rate swap agreements,
----------------------
interest rate cap agreements, interest rate collar agreements, interest rate
insurance and other agreements and arrangements designed to provide protection
against fluctuations in interest rates, in each case as the same may be from
time to time amended, restated, renewed, supplemented or otherwise modified.
15
<PAGE>
"Investments" means, with respect to any Person, all investments by
-----------
such Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or other extensions of credit or capital contributions to other Persons
(by means of any transfer of cash or other property but excluding advances to
officers of the type specified in clause (b) of the definition of Exempt
Affiliate Transactions), or any purchases, acquisitions for consideration of
Indebtedness, Equity Interests or other securities or ownership by such Person
or any Capital Stock, bonds, notes, debentures or other securities (including,
without limitation any interests in a partnership or joint venture) issued or
owned by any other Person, and all other items that are or would be classified
as investments on a balance sheet prepared in accordance with GAAP; provided
that an acquisition by the Borrower for consideration consisting of common
equity securities of the Borrower shall not be deemed to be an Investment.
"Lender" or "Lenders" shall mean SunTrust, the other banks and lending
------ -------
institutions listed on the signature pages hereof, and each assignee thereof, if
any, pursuant to Section 10.06(c).
"Lending Office" shall mean for each Lender, the office such Lender
--------------
may designate in writing from time to time to Borrower and the Agent with
respect to each Type of Loan.
"L/C Cash Collateral Account" shall mean a cash collateral account
---------------------------
established by Agent for deposit of cash collateral for the aggregate L/C
Outstandings, which account shall be designated as the L/C Cash Collateral
Account and shall be subject to the sole dominion and control of the Agent.
"L/C Exposure" shall mean, for each Lender, the sum, for all Letters
------------
of Credit, of the product of (i) the L/C Outstandings for each Letter of Credit,
multiplied by (ii) such Lender's applicable Pro Rata Share for such Letter of
- ---------- --
Credit.
"L/C Outstandings" shall mean, as at any date of determination with
----------------
respect to an outstanding Letter of Credit, the sum of (i) the maximum aggregate
amount which at such date of determination is available to be drawn (assuming
conditions for drawing thereunder have been met) under such Letter of Credit
then outstanding, plus (ii) the aggregate amount of all drawings under such
----
Letter of Credit and honored by the Agent not theretofore reimbursed by or on
behalf of the Borrower.
"L/C Subcommitment" shall mean, at any time, an aggregate amount of
-----------------
$7,500,000, as such amount may be reduced from time to time in accordance with
the terms of this Agreement, and shall mean, for any Lender, the amount of the
Letter of Credit Subcommitment multiplied by such Lender's Pro Rata Share.
16
<PAGE>
"Letter of Credit" shall mean any letter of credit issued by the Agent
----------------
for the account of the Borrower pursuant to the L/C Subcommitment, as the same
may be amended, extended or re-issued from time to time.
"Letter of Credit Fee" shall have the meaning set forth in Section
--------------------
3.05(b).
"LIBOR" shall mean, for any Interest Period, with respect to
-----
Eurodollar Advances the offered rate for deposits in U.S. Dollars, for a period
comparable to the Interest Period and in an amount comparable to the amount of
such Advances, appearing on the Reuters Screen LIBO Page as of 11:00 A.M.
(London, England time) on the day that is two London Business Days prior to the
first day of the Interest Period. If two or more of such rates appear on the
Reuters Screen LIBO Page, the rate for that Interest Period shall be the
arithmetic mean of such rates. If the foregoing rate is unavailable from the
Reuters Screen for any reason, then such rate shall be determined by the Agent
from Telerate Page 3750 or, if such rate is also unavailable on such service,
then on any other interest rate reporting service of recognized standing
designated in writing by the Agent to Borrower and the other Lenders; in any
such case rounded, if necessary, to the next higher 1/16 of 1.0%, if the rate is
not such a multiple.
"Lien" shall mean any mortgage, pledge, security interest, lien,
----
charge, hypothecation, assignment, deposit arrangement, title retention,
preferential property right, trust or other arrangement having the practical
effect of the foregoing and shall include the interest of a vendor or lessor
under any conditional sale agreement, capitalized lease or other title retention
agreement.
"Loans" shall mean, collectively, the Revolving Loans and the Swing
-----
Line Loans.
"Margin Regulations" shall mean Regulation G, Regulation T, Regulation
------------------
U and Regulation X of the Board of Governors of the Federal Reserve System, as
the same may be in effect from time to time.
"Material Subsidiary" shall mean (i) each Credit Party other than the
-------------------
Borrower, (ii) each guarantor of the Senior Notes, and (iii) each other
Subsidiary of the Borrower, now existing or hereafter established or acquired,
that at any time prior to the Maturity Date, has or acquires total assets in
excess of $500,000.00, or that accounted for or produced more than five percent
(5%) of the Consolidated Net Income (Loss) of the Borrower on a consolidated
basis during any of the three most recently completed Fiscal Years of the
Borrower, or that is otherwise material to the operations or business of the
Borrower or another Material Subsidiary.
"Materially Adverse Effect" shall mean any materially adverse change
-------------------------
in (i) the business, results of operations, financial condition, assets or
prospects of the Consolidated Companies, taken as a whole, (ii) the ability of
Borrower to perform its obligations under this Agreement, or (iii) the ability
of the other Credit Parties (taken as a whole) to perform their respective
obligations under the Credit Documents.
17
<PAGE>
"Maturity Date" shall mean the earlier of (i) August 26, 2000, as such
-------------
date may be extended pursuant to Section 2.03(d), and (ii) the date on which all
amounts outstanding under this Agreement have been declared or have
automatically become due and payable pursuant to the provisions of Article VIII.
"Moody's" shall mean Moody's Investors Service, Inc.
-------
"Mortgages" shall mean those certain mortgages, deed to secure debt,
---------
deeds of trust and similar instruments executed by the Borrower granting a Lien
on the real property and fixtures owned by the Borrower in the States of Georgia
and Tennessee to the Agent, for the benefit of the Lenders, either as originally
executed or as hereafter amended or modified.
"Multiemployer Plan" shall have the meaning set forth in Section
------------------
4001(a)(3) of ERISA.
"Net Proceeds" shall mean the aggregate cash proceeds received by the
------------
Borrower or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
noncash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation legal, accounting and
investment banking fees, and sales commissions), taxes paid or payable as a
result thereof, and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Notes" shall mean, collectively, the Revolving Notes and the Swing
-----
Line Note.
"Notice of Borrowing" shall have the meaning provided in Section
-------------------
3.01(a)(i).
"Notice of Conversion/Continuation" shall have the meaning provided in
---------------------------------
Section 3.01(b)(i).
"Notice of Swing Line Loan" shall have the meaning provided in Section
-------------------------
3.01(a)(ii).
"Obligations" shall mean all amounts owing to the Agent or any Lender
-----------
pursuant to the terms of this Agreement, any Currency Contract or Interest Rate
Contract entered into by a Lender with the Borrower, or any other Credit
Document, including without limitation, all Loans (including all principal and
interest payments (including post-petition interest whether or not allowed as a
claim in any bankruptcy action) due thereunder), fees, expenses, indemnification
and reimbursement payments, indebtedness, liabilities, and obligations of the
Credit Parties, direct or indirect, absolute or contingent, liquidated or
unliquidated, now existing or hereafter arising, together with all renewals,
extensions, modifications or refinancings thereof.
18
<PAGE>
"Parent Guaranty Agreement" shall mean that certain Guaranty Agreement
-------------------------
executed by the Parent in favor of the Agent and the Lenders with respect to the
Obligations, either as originally executed or as hereafter amended or modified.
"Parent Pledge and Security Agreement" shall mean that certain Pledge
------------------------------------
and Security Agreement executed by the Parent in favor of the Agent, for the
benefit of the Lenders, in connection with the Pledged Stock owned by the
Parent, either as originally executed or as hereafter amended or modified.
"Payment Office" shall mean with respect to payments of principal,
--------------
interest, fees or other amounts relating to the Revolving Loans, the Swing Line
Loans, and all other Obligations, the office specified as the "Payment Office"
for the Agent on the signature page of the Agent, or such other location as to
which the Agent shall have given written notice to the Borrower.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
----
successor thereto.
"Permitted Investments" shall mean:
---------------------
(a) any Investments in the Borrower;
(b) any Investments in Cash Equivalents;
(c) Investments made as a result of the receipt of noncash
consideration from an Asset Sale that was made pursuant to and in
compliance with Section 7.05(b);
(d) Investments in property or assets to be used in any line of
business in which the Borrower or any of its Subsidiaries was engaged on
the Closing Date or any reasonable extensions or expansions thereof; and
(e) Investments in Wholly-Owned Subsidiaries of the Borrower and any
entity that (a) is engaged in the same or a similar line of business as
the Borrower or any of it Subsidiaries was engaged in on the Closing Date
or any reasonable extensions or expansions thereof, and (b) as a result of
such Investment, becomes a Wholly-Owned Subsidiary of the Borrower.
"Permitted Liens" shall mean with respect to any Person,
---------------
(a) Liens pursuant to the Security Documents;
(b) Liens existing on the Closing Date and disclosed on Schedule 7.02;
-------------
19
<PAGE>
(c) pledges or deposits by such Person under workmen's compensation
laws, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for the
payment of Indebtedness) or leases to which such Person is a party, or
deposits to secure public or statutory obligations of such Person or
deposits of cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security for
contested taxes or for the payment of rent, in each case incurred in the
ordinary course of business;
(d) Liens imposed by law, such as carriers', warehousemen's and
mechanic's Liens, in each case for sums not yet due or being contested in
good faith by appropriate proceedings; or other Liens arising out of
judgments or awards against such Person with respect to which such Person
shall be proceeding with an appeal or other proceedings for review;
(e) Liens for property taxes not yet subject to penalties for non-
payment or which are being contested in good faith and by appropriate
proceedings;
(f) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in
the ordinary course of its business; provided, however, that such letters
of credit do not constitute Indebtedness;
(g) survey exceptions, minor encumbrances, easements or reservations
of, or rights of others for, licenses, rights of way, sewers, electric
lines, telegraph and telephone lines and other similar purposes, or zoning
or other restrictions as to the use of real properties or liens incidental
to the conduct of the business of such Person or the ownership of its
properties which were not incurred in connection with Indebtedness and
which do not in the aggregate materially adversely affect the value of
said properties or materially impair their use in the operation of the
business of such Person;
(h) Liens securing Indebtedness incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to, property;
provided, however, that the Lien may not extend to any other property
owned by the Borrower or any Subsidiary at the time the Lien is incurred,
and the Indebtedness secured by the Lien may not be issued more than 180
days after the later of the acquisition or construction of the property
subject to the Lien;
(i) Liens on property or shares of stock of a Person at the time such
Person becomes a Subsidiary; provided, however, that any such Lien may not
extend to any other property owned by the Borrower or any Subsidiary;
(j) Liens on property at the time the Borrower or a Subsidiary
acquires the property including any acquisition by means of a merger or
consolidation with or into the
20
<PAGE>
Borrower or a Subsidiary; provided, however, that the Liens may not extend
to any other property owned by the Borrower or any Subsidiary;
(k) Liens securing Indebtedness or other obligations of a Subsidiary
owing to the Borrower or a Wholly-Owned Subsidiary;
(l) Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted to be hereunder, secured by a Lien on
the same property securing such Hedging Obligations; and
(m) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions, renewals
or replacements) as a whole, or in part, of any Indebtedness secured by
any Lien referred to in the foregoing clauses (a), (h) (i) and (j);
provided, however, that (x) such new Lien shall be limited to all or part
of the same property that secured the original Lien (plus improvements on
such property) and (y) the Indebtedness secured by such Lien at such time
is not increased to any amount greater than the sum of (A) the outstanding
principal amount or, if greater, committed amount of the Indebtedness
described under clauses (a), (h), (i) and (j) at the time the original
Lien became a Permitted Lien and (B) an amount necessary to pay any fees
and expenses, including premiums, related to such refinancing, refunding,
extension, renewal or replacement. This clause (m) shall not be deemed to
limit the provisions of clauses (b) through (g), (k), or (l).
"Permitted Shareholders" shall mean (i) those Persons who
----------------------
"beneficially own" (as such term is defined in Rules 13d-3 and 13d-5 under the
Exchange Act) Voting Stock of the Parent as of the Closing Date; (ii) the
spouses, parents, siblings, descendants (including children or grandchildren) of
such Persons; (iii) in the event of the incompetence or death of any of the
Persons described in clause (i) or (ii), such Person's estate, executor,
administrator, committee or other personal representative in each case who at
any particular date shall beneficially own or have the right to acquire,
directly or indirectly, Voting Stock of the Parent; (iv) any trusts created for
the sole benefit of the Persons described in clause (i), (ii), or (iii) or any
trust for the benefit of such trust or (y) any Person of which any of the
Persons described in (i), (ii) or (iii) (x) "beneficially owns" (as such term id
defined in Rules 13d-3 and 13d-5 under the Exchange Act) on a fully-diluted
basis all of the Voting Stock of such Person or (y) is the sole trustee or
general partner, or otherwise has the sole power to manage the business and
affairs, of such Person.
"Person" shall mean any individual, partnership, firm, corporation,
------
association, limited liability company, joint venture, trust or other entity, or
any government or political subdivision or agency, department or instrumentality
thereof.
"Plan" shall mean any "employee benefit plan" (as defined in Section
----
3(3) of ERISA), including, but not limited to, any defined benefit pension plan,
profit sharing plan, money purchase pension plan, savings or thrift plan, stock
bonus plan, employee stock ownership
21
<PAGE>
plan, Multiemployer Plan, or any plan, fund, program, arrangement or practice
providing for medical (including post-retirement medical), hospitalization,
accident, sickness, disability, or life insurance benefits.
"Pledge Agreements" shall mean, collectively, that certain Pledge and
-----------------
Security Agreement and that certain Parent Pledge and Security Agreement
executed in favor of the Agent, substantially in the forms of Exhibits F-1 and
------------
F-2, in each case providing for the grant of first priority Liens on the Pledged
- ---
Stock, as the same may be further supplemented, amended or restated from time to
time.
"Pledged Stock" shall mean, collectively, all issued and outstanding
-------------
capital stock, together with all warrants, stock options, and other purchase and
conversion rights with respect to such capital stock, of each of Borrower and
its Material Subsidiaries (other than Krystal Aviation Management Co.).
"Pro Rata Share" shall mean, with respect to each of the Commitments
--------------
of each Lender, each Revolving Loan to be made by, each Letter of Credit issued
hereunder, and each payment (including, without limitation, any payment of
principal, interest or fees) to be made to each Lender with respect to the
Revolving Loans, the percentage designated as such Lender's Pro Rata Share of
the Revolving Loan Commitments, such Loans, such Letters of Credit or such
payments, as applicable, set forth under the name of such Lender on the
respective signature page for such Lender, in each case as such Pro Rata Share
may change from time to time as a result of assignments or amendments made
pursuant to this Agreement.
"Public Equity Offering" means underwritten public offering of the
----------------------
common stock of the Parent pursuant to an effective registration statement filed
with the United States Securities and Exchange Commission in accordance with the
Securities Act (whether alone or in conjunction with a secondary public
offering).
"Purchase Money Obligations" of any Person means any obligations of
--------------------------
such Person to any seller or any other Person incurred or assumed to finance the
construction and/or acquisition of real or personal property to be used in the
business of such Person or any of its Subsidiaries in an amount that is more
than 100% of the cost of such property, and incurred within 180 days after the
date of such construction or acquisition (excluding accounts payable to trade
creditors incurred in the ordinary course of business).
"Real Estate" shall mean each of the pieces of real property owned by
-----------
the Borrower in fee located in the states of Georgia or Tennessee.
"Redeemable Capital Stock" shall mean any shares of any class or
------------------------
series of capital stock that, either by the terms thereof, by the terms of any
security into which it is convertible or exchangeable, or by contract or
otherwise, is or upon the happening of an event or passage of time would be,
required to be redeemed prior to the Maturity Date or is redeemable at the
option
22
<PAGE>
of the holder thereof at any time prior to the Maturity Date, or is convertible
into or exchangeable for debt securities at any time prior to the Maturity Date.
"Regulation D" shall mean Regulation D of the Board of Governors of
------------
the Federal Reserve System, as the same may be in effect from time to time.
"Rental Obligations" shall mean, with reference to any period, the
------------------
aggregate amount of all rental obligations for which the Borrower and its
Subsidiaries are directly or indirectly liable (as lessee or as guarantor or
other surety but without duplication) under all leases in effect at any time
during such period, including all such amounts for which any Person was liable
during the period immediately prior to the date such Person became a Subsidiary
of the Borrower or was merged into or consolidated with the Borrower or a
Subsidiary of the Borrower, as determined in accordance with GAAP.
"Required Lenders" shall mean at any time, the Lenders holding at
----------------
least 66 2/3% of the Commitments, whether or not advanced, or, following the
termination of all of the Commitments, the Lenders holding at
least 66 2/3% of the aggregate outstanding Advances at such time.
"Requirement of Law" for any person shall mean the articles or
------------------
certificate of incorporation or charter and bylaws or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation, or
determination of an arbitrator or a court or other governmental authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Restricted Payment" has the meaning set forth in Section 7.04 hereof.
------------------
"Reuters Screen" shall mean, when used in connection with any
--------------
designated page and LIBOR, the display page so designated on the Reuters Monitor
Money Rates Service (or such other page as may replace that page on that service
for the purpose of displaying rates comparable to LIBOR).
"Revolving Notes" shall mean, collectively, the promissory notes
---------------
evidencing the Revolving Loans in the form attached hereto as Exhibit A, either
---------
as originally executed or as hereafter amended, modified or supplemented.
"Revolving Loan Commitment" shall mean, at any time for any Lender,
-------------------------
the amount of such commitment set forth below such Lender's name on the
signature page of such Lender hereto attached hereto, as the same may be
increased or decreased from time to time as a result of any reduction thereof
pursuant to Section 2.04, any assignment thereof pursuant to Section 10.06, or
any amendment thereof pursuant to Section 10.02, and as further limited by the
deemed utilization of the Revolving Loan Commitment by Swing Rate Loans as set
forth in Section 3.14 and by the issuance of Letters of Credit.
23
<PAGE>
"Revolving Loans" shall mean, collectively, the revolving loans made
---------------
to the Borrower by the Lenders pursuant to Section 2.01.
"Sale and Leaseback Transaction" means any direct or indirect
------------------------------
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Borrower or a Subsidiary of any property, whether owned
by the Borrower or any Subsidiary as of the Closing Date or later acquired,
which has been or is to be sold or transferred by the Borrower or such
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such person on the security of such property.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Security Documents" shall mean, collectively, the Guaranty
------------------
Agreements, the Borrower Security Agreement, the Mortgages, the Trademark
Security Agreement and each other guaranty agreement, mortgage, deed of trust,
security agreement, pledge agreement, or other security or collateral document
guaranteeing or securing the Obligations, now or hereafter executed, as the same
may be amended, restated, supplemented or otherwise modified from time to time.
"Subordinated Debt" shall mean all Indebtedness of Borrower which is
-----------------
subordinated to all obligations of Borrower or any other Credit Party arising
under this Agreement, the Notes, and the Guaranty Agreements, which is created,
incurred or assumed on terms and conditions satisfactory in all respects to the
Agent and the Lenders, including without limitation, with respect to interest
rates, payment terms, maturities, amortization schedules, covenants, defaults,
remedies, and subordination provisions, as evidenced by the written approval of
the Agent and the Lenders.
"Subsidiary" shall mean, with respect to any Person, any corporation
----------
or other entity (including, without limitation, partnerships, joint ventures,
and associations) regardless of its jurisdiction of organization or formation,
at least a majority of the total combined voting power of all classes of voting
stock or other ownership interests of which shall, at the time as of which any
determination is being made, be owned by such Person, either directly or
indirectly through one or more other Subsidiaries.
"Subsidiary Guaranty Agreement" shall mean that certain Guaranty
-----------------------------
Agreement executed by the Material Subsidiaries of the Borrower in favor of the
Agent and the Lenders with respect to the Obligations, either as originally
executed or as hereafter amended, supplemented or modified.
"Swing Line Exposure" shall mean, with respect to each Lender, the
-------------------
obligation of such Lender to purchase a pro rata participation in each Swing
Rate Advance pursuant to Section 2.02(d) hereof.
24
<PAGE>
"Swing Line Lender" shall mean SunTrust and its successors and
-----------------
assigns.
"Swing Line Note" shall mean a promissory note of the Borrower payable
---------------
to the order of the Swing Line Lender, in substantially the form of Exhibit B
---------
hereto, evidencing the maximum aggregate principal indebtedness of the Borrower
to the Swing Line Lender with respect to outstanding Swing Line Loans made by
the Swing Line Lender pursuant to the Swing Line Subcommitment, either as
originally executed or as it may be from time to time supplemented, modified,
amended, renewed or extended.
"Swing Line Subcommitment" shall mean $5,000,000, as such amount may
------------------------
be reduced pursuant to Section 2.04 or amended or modified pursuant to Section
10.02 hereof.
"Swing Rate" shall mean, as to any Swing Line Loan, the interest rate
----------
per annum agreed to by the Borrower and the Swing Line Lender for such Loan for
the requested Interest Period pursuant to the procedure set forth in Section
3.01(a)(ii).
"Swing Rate Advance" shall mean any Advance outstanding hereunder
------------------
bearing interest based upon the Swing Rate.
"Swing Rate Loan" shall mean a Loan made by the Swing Line Lender
---------------
pursuant to Section 2.02 hereof.
"Tax Code" shall mean the Internal Revenue Code of 1986, as amended
--------
and in effect from time to time.
"Taxes" shall mean any present or future taxes, levies, imposts,
-----
duties, fees, assessments, deductions, withholdings or other charges of whatever
nature, including without limitation, income, receipts, excise, property, sales,
transfer, license, payroll, withholding, social security and franchise taxes now
or hereafter imposed or levied by the United States, or any state, local or
foreign government or by any department, agency or other political subdivision
or taxing authority thereof or therein and all interest, penalties, additions to
tax and similar liabilities with respect thereto.
"Telerate" shall mean, when used in connection with any designated
--------
page and LIBOR, the display page so designated on the Dow Jones Telerate Service
(or such other page as may replace that page on that service for the purpose of
displaying rates comparable to LIBOR).
"Trademark Security Agreement" shall mean that certain trademark
----------------------------
security agreement executed by Borrower, in favor of the Agent, for the benefit
of the Lenders, substantially in the form of Exhibit K attached hereto, either
---------
as originally executed or as hereafter amended or modified.
25
<PAGE>
"Transaction" shall mean, collectively, (i) the Acquisition, (ii) the
-----------
Merger, (iii) the equity contribution described in the recitals hereof, (iv) the
issuance of the Senior Notes, and (v) the repayment of the Existing Credit
Agreement.
"Type" of Borrowing shall mean a Borrowing consisting of Base Rate
----
Advances, Eurodollar Advances or Swing Rate Advances.
"Voting Stock" shall mean securities of any class or classes, the
------------
holders of which are entitled to elect all of the corporate directors (or
Persons performing similar functions).
"Wholly-Owned Subsidiary" of any Person means a Subsidiary of such
-----------------------
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly-Owned Subsidiaries of such Person.
Section 1.02. Accounting Terms and Determination. Unless otherwise
----------------------------------
defined or specified herein, all accounting terms shall be construed herein, all
accounting determinations hereunder shall be made, all financial statements
required to be delivered hereunder shall be prepared, and all financial records
shall be maintained in accordance with, GAAP.
Section 1.03. Other Definitional Terms. The words "hereof", "herein" and
------------------------
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, Schedule, Exhibit and like references are to
this Agreement unless otherwise specified.
Section 1.04. Exhibits and Schedules. All Exhibits and Schedules attached
----------------------
hereto are by reference made a part hereof.
ARTICLE II.
REVOLVING LOANS AND SWING RATE LOANS
------------------------------------
Section 2.01. REVOLVING LOAN COMMITMENTS; USE OF PROCEEDS.
-------------------------------------------
(a) Revolving Loan Commitments. Subject to and upon the terms and
--------------------------
conditions herein set forth, each Lender severally establishes in favor of the
Borrower, from on and after the Closing Date, but prior to the Maturity Date,
its Revolving Loan Commitment. The Lenders, subject to and upon the terms and
conditions set forth herein, from time to time, agree to make to the Borrower
Revolving Loans in an aggregate principal amount outstanding at any time not to
exceed such Lender's Revolving Loan Commitment. Borrower shall be entitled to
repay and reborrow Revolving Loans in accordance with the provisions hereof. In
addition to Revolving Loans, the Borrower may request, from on and after the
Closing Date but prior to the
26
<PAGE>
Maturity Date, that (x) the Swing Line Lender extend to the Borrower Swing Rate
Loans and (y) the Agent issue Letters of Credit for the account of the Borrower,
in each case, subject to and upon the terms and conditions herein set forth.
Notwithstanding any provision of this Agreement to the contrary, (i) the sum of
(x) the aggregate principal amount of the Revolving Loans, plus (y) the
----
aggregate principal amount of the Swing Line Loans at any one time outstanding
plus (z) the aggregate L/C Outstandings shall not exceed the aggregate Revolving
- ----
Loan Commitments, and (ii) the aggregate principal amount of all Revolving Loans
plus Swing Line Exposure plus L/C Exposure of each Lender outstanding pursuant
to this Article II shall not at any time exceed the Revolving Loan Commitment of
such Lender.
(b) Amount and Terms of Loans. Each Revolving Loan shall, at the
-------------------------
option of Borrower, be made or continued as, or converted into, part of one or
more Borrowings that shall consist entirely of Base Rate Advances or Eurodollar
Advances. Each Swing Line Loan shall consist of Swing Rate Advances made by the
Swing Line Lender in accordance with the procedure described in Section 2.02.
Each Eurodollar Borrowing shall be in a principal amount of not less than
$500,000 or a greater integral multiple of $100,000, and each Base Rate
Borrowing shall be in a principal amount of not less than $500,000 or a greater
integral multiple of $100,000. At no time shall the aggregate number of
Eurodollar Borrowings outstanding under this Article II exceed five.
(c) Use of Proceeds. The proceeds of Revolving Loans and the Swing
---------------
Line Loans shall be used solely to (i) on the Closing Date, pay a portion of the
Purchase Price, (ii) pay certain fees and expenses related to the Transaction,
and (iii) on the Closing Date, repay certain Indebtedness of the Target pursuant
to the Existing Credit Agreement, and thereafter, shall be used for the working
capital needs of the Borrower and for other general corporate purposes of the
Borrower.
Section 2.02. Swing Line Subcommitment.
------------------------
(a) Swing Line Subcommitment. Subject to and upon the terms and
------------------------
conditions herein set forth, the Swing Line Lender severally establishes in
favor of the Borrower, from on and after the Closing Date, but prior to the
Maturity Date, its Swing Line Subcommitment. The Swing Line Lender, subject to
and upon the terms and conditions set forth herein, from time to time, shall
make available to the Borrower from time to time, Swing Line Loans which shall
not exceed in aggregate principal amount at any time outstanding the Swing Line
Subcommitment. Borrower shall maintain a concentration account in Borrower's
name (the "Master Account") with the Swing Line Lender into which Borrower's
--------------
daily receipts on its accounts receivables will be collected and from which
Borrower's operating expenses will be paid. If at 11:00 A.M. (local time for
the Swing Line Lender) on any Business Day the Master Account does not have a
positive collected balance (after crediting the proceeds of any short-term
investments in the name of Borrower to the Master Account and after debiting any
items presented for payment through the Master Account on such Business Day),
Borrower shall be deemed to have delivered a Notice of Swing Line Loan
requesting that the Swing Line Lender
27
<PAGE>
make a Swing Rate Advance in an amount equal to the amount necessary to maintain
a positive collected balance in the Master Account (subject to the minimum
borrowing requirement set forth below) and hereby irrevocably directs the Swing
Line Lender to credit such Swing Rate Advance to the Master Account. Borrower
shall be deemed to have delivered to the Swing Line Lender a Notice of Swing
Line Loan immediately prior to each Swing Rate Advance made in accordance with
this subsection, with the Swing Line Lender to confirm such request and the
applicable Swing Rate in writing to the Borrower prior to 5:00 p.m. (Atlanta,
Georgia time) on such Business Day, with the failure of the Borrower to
controvert such request within two (2) Business Days' to be deemed to be
conclusive acceptance thereof (in the absence of manifest error). Borrower
shall be entitled to repay and reborrow Swing Line Loans in accordance with the
provisions hereof. Notwithstanding any provision of this Agreement to the
contrary, the sum of (x) the aggregate principal amount of the Revolving Loans,
plus (y) the aggregate principal amount of the Swing Line Loans at any one time
- ----
outstanding shall not exceed the aggregate Revolving Loan Commitments.
(b) Amount and Terms of Swing Line Loans. Each Swing Line Loan shall
------------------------------------
be outstanding hereunder as a Swing Rate Advance. Each Swing Rate Advance shall
be in a minimum amount of $1,000 and in integral multiples thereof.
(c) Use of Proceeds. The proceeds of Swing Line Loans shall be used
---------------
solely to support daily cash management needs of Borrower as set forth in
subsection (a) above.
(d) Repayment by Revolving Loans. If (i) any Swing Line Loan shall be
----------------------------
outstanding upon the occurrence of an Event of Default, or (ii) after giving
effect to any request for a Swing Line Loan or a Revolving Loan, the aggregate
principal amount of the Revolving Loans and Swing Line Loans outstanding to the
Swing Line Lender would exceed the Swing Line Lender's Revolving Loan
Commitment, then each Lender hereby agrees, upon request from the Swing Line
Lender, to make a Revolving Loan (which shall be initially funded as a Base Rate
Borrowing) in an amount equal to such Lender's Pro Rata Share of the outstanding
principal amount of the Swing Line Loans (the "Refunded Swing Line Loans")
-------------------------
outstanding on the date such notice is given. On or before 11:00 a.m. (local
time for the Agent) on the first Business Day following receipt by each Lender
of a request to make Revolving Loans as provided in the preceding sentence, each
such Lender (other than the Swing Line Lender) shall deposit in an account
specified by the Agent to the Lenders from time to time the amount so requested
in same day funds, whereupon such funds shall be immediately delivered to the
Swing Line Lender (and not the Borrower) and applied to repay the Refunded Swing
Line Loans. On the day such Revolving Loans are made, the Swing Line Lender's
Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with
the proceeds of the Revolving Loans made by the Swing Line Lender. Upon the
making of any Revolving Loan pursuant to this clause, the amount so funded shall
become due under such Lender's Revolving Note and shall no longer be owed under
the Swing Line Note. Each Lender's obligation to make the Revolving Loans
referred to in this clause shall be absolute and unconditional and shall not be
affected by any circumstance, including, without limitation, (i) any setoff,
counterclaim, recoupment, defense or other right
28
<PAGE>
which such Lender may have against the Swing Line Lender, the Borrower or any
other Person for any reason whatsoever; (ii) the occurrence or continuance of
any Default or Event of Default; (iii) any adverse change in the condition
(financial or otherwise) of the Borrower or any other Credit Party; (iv) the
acceleration or maturity of any Loans or the termination of the Revolving Loan
Commitments after the making of any Swing Line Loan; (v) any breach of this
Agreement by the Borrower or any other Lender; or (vi) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
(e) Purchase of Participations. In the event that (i) the Parent, the
--------------------------
Borrower or any Subsidiary is subject to any bankruptcy or insolvency
proceedings as provided in Section 8.07 or (ii) if the Swing Line Lender
otherwise requests, each Lender shall acquire without recourse or warranty an
undivided participation interest equal to such Lender's Pro Rata Share of the
Revolving Loan Commitments of any Swing Line Loan otherwise required to be
repaid by such Lender pursuant to the preceding clause by paying to the Swing
Line Lender on the date on which such Lender would otherwise have been required
to make a Revolving Loan in respect of such Swing Line Loan pursuant to the
preceding clause, in same day funds, an amount equal to such Lender's Pro Rata
Share of such Swing Line Loan, and no Revolving Loans shall be made by such
Lender pursuant to the preceding clause. From and after the date on which any
Lender purchases an undivided participation interest in a Swing Line Loan
pursuant to this clause, the Swing Line Lender shall distribute to such Lender
(appropriately adjusted, in the case of interest payments, to reflect the period
of time during which such Lender's participation interest is outstanding and
funded) its ratable amount of all payments of principal and interest in respect
of such Swing Line Loan in like funds as received; provided, however, that in
-------- -------
the event such payment received by the Swing Line Lender is required to be
returned to the Borrower, such Lender shall return to the Swing Line Lender the
portion of any amounts which such Lender had received from the Swing Line Lender
in like funds.
(f) Swing Line Loans Following Notice of Event of Default.
-----------------------------------------------------
Notwithstanding the foregoing provisions of this Section 2.02, no Lender shall
be required to make a Revolving Loan to Borrower for the purpose of refunding a
Refunded Swing Line Loan pursuant to Section 2.02(d) above or to purchase a
participating interest in a Swing Line Loan pursuant to Section 2.02(e) above if
a Default or Event of Default has occurred and is continuing, and, prior to the
making by the Swing Line Lender of such Swing Line Loan, the Swing Line Lender
had received written notice from the Borrower or any Lender specifying that such
Default or Event of Default had occurred and was continuing (and identifying the
same as a Default or Event of Default hereunder).
Section 2.03. Notes; Repayment of Principal; Extension of Revolving Loan
----------------------------------------------------------
Commitments.
- -----------
(a) The Borrower's obligations to pay the principal of, and interest
on, the Revolving Loans to each Lender shall be evidenced by the records of the
Agent and such Lender
29
<PAGE>
and by the Revolving Note payable to such Lender (or the assignor of such
Lender) in the amount of such Lender's Revolving Loan Commitment completed in
conformity with this Agreement.
(b) The Borrower's obligations to pay the principal of, and interest
on, the Swing Rate Loans to the Swing Line Lender shall be evidenced by the
records of the Swing Line Lender and the Swing Line Note payable to such Lender
(or the assignor of such Lender) completed in conformity with this Agreement.
(c) All Borrowings outstanding under the Notes shall be due and
payable in full on the Maturity Date. The Borrower shall be required to provide
cash collateral for all Letters of Credit outstanding on the Maturity Date as
provided in Section 2.07(b).
(d) The Borrower may, by written notice to the Agent (which shall
promptly deliver a copy to each of the Lenders), given not less than forty-five
(45) days prior to the Maturity Date then in effect, request that the Lenders
extend the then scheduled Maturity Date (the "Existing Date") for an additional
-------------
one-year period. Each Lender shall, by notice to the Borrower and the Agent
given within thirty (30) days after receipt of such request, advise the Borrower
and the Agent whether or not such Lender consents in its sole discretion, to the
extension request (and any Lender which does not respond during such 30-day
period shall be deemed to have advised the Borrower and the Agent that it will
not agree to such extension). In the event that all of the Lenders shall have
agreed to extend their respective Commitments, the Maturity Date shall be deemed
to have been extended, effective as of the Existing Date, to the date which is
one year thereafter.
Section 2.04. Voluntary Reduction of Commitments. Upon at least three (3)
----------------------------------
Business Days' prior telephonic notice (promptly confirmed in writing) to the
Agent, Borrower shall have the right, without premium or penalty, to terminate
the unutilized Revolving Loan Commitments, in part or in whole, provided that
(i) any such termination shall apply to proportionately and permanently reduce
the Revolving Loan Commitments of each of the Lenders, and (ii) any partial
termination pursuant to this Section 2.04 shall be in an amount of at least
$500,000 and integral multiples of $500,000. Unless otherwise specified by the
Borrower in the applicable notice, the Swing Line Subcommitment and the L/C
Subcommitment shall not be reduced by any such reduction unless and until the
aggregate Revolving Loan Commitments are reduced to an amount less than the
Swing Line Subcommitment and the L/C Subcommitment in which case the Swing Line
Subcommitment and the L/C Subcommitment shall be reduced to such amount.
Section 2.05. L/C Subcommitment. Subject to, and upon the terms and
-----------------
conditions, hereof (including the limitations of Section 2.01) the Borrower may
request, in accordance with the provisions of this Section 2.05 and Section
2.06, that on and after the Closing Date, that the Agent issue a Letter or
Letters of Credit for the account of the Borrower; provided that (i) no Letter
--------
of Credit shall have an expiration date that is later than five (5) days prior
to the Maturity Date; (ii) each Letter of Credit issued by the Agent shall be in
a stated amount of at least $25,000; (iii) the Borrower shall not request that
the Agent issue any Letter of Credit, if, after
30
<PAGE>
giving effect to such issuance, the aggregate L/C Outstandings would exceed the
L/C Subcommitment.
Section 2.06. Notice of Issuance of Letter of Credit; Agreement to Issue.
----------------------------------------------------------
(a) Whenever the Borrower desires the issuance of a Letter of Credit,
it shall, in addition to any application and documentation procedures required
by the Agent for the issuance of such Letter of Credit, deliver to the Agent a
written notice no later than 11:00 A.M. (Atlanta, Georgia time) at least five
(5) days in advance of the proposed date of issuance. Each such notice shall
specify (i) the proposed date of issuance (which shall be a Business Day); (ii)
the face amount of the Letter of Credit; (iii) the expiration date of the Letter
of Credit; and (iv) the name and address of the beneficiary with respect to such
Letter of Credit and shall attach a precise description of the documentation and
a verbatim text of any certificate to be presented by the beneficiary of such
Letter of Credit which would require the Agent to make payment under the Letter
of Credit, provided that the Agent may require changes in any such documents and
--------
certificates in accordance with its customary letter of credit practices, and
provided further, that no Letter of Credit shall require payment against a
- -------- -------
conforming draft to be made thereunder on the same Business Day that such draft
is presented if such presentation is made after 11:00 A.M. (Atlanta, Georgia
time). In determining whether to pay under any Letter of Credit, the Agent
shall be responsible only to determine that the documents and certificate
required to be delivered under its Letter of Credit have been delivered, and
that they comply on their face with the requirements of the Letter of Credit.
Promptly after receiving the notice of issuance of a Letter of Credit, the Agent
shall notify each Lender of such Lender's respective participation therein,
determined in accordance with its respective Pro Rata Share as determined on the
date of the issuance of such Letter of Credit.
(b) The Agent agrees, subject to the terms and conditions set forth in
this Agreement, to issue for the account of the Borrower a Letter of Credit in a
face amount equal to the face amount requested under paragraph (a) above,
following its receipt of a notice and the application and other documents
required by Section 2.06(a). Immediately upon the issuance of each Letter of
Credit, each Lender shall be deemed to, and hereby agrees to, have irrevocably
purchased from the Agent a participation in such Letter of Credit and any
drawing thereunder in an amount equal to such Lender's Pro Rata Share of such
Letter of Credit multiplied by the face amount of such Letter of Credit.
Section 2.07. Payment of Amounts drawn under Letter of Credit.
------------------------------------------------
(a) In the event of any request for a drawing under any Letter of
Credit by the beneficiary thereof, the Agent shall notify the Borrower and the
Lenders on or before the date on which the Agent intends to honor such drawing,
and the Borrower shall reimburse the Agent on the day on which such drawing is
honored in an amount, in same day funds, equal to the amount of such drawing,
provided that anything contained in this Agreement to the contrary
- --------
31
<PAGE>
notwithstanding, unless the Borrower shall have notified the Agent prior to
11:00 A.M. (Atlanta, Georgia time) on the Business Day immediately prior to the
date on which such drawing is honored, that the Borrower intends to reimburse
the Agent for the amount of such drawing in funds other than the proceeds of
Revolving Loans, the Borrower shall be deemed to have timely given a Notice of
Borrowing to the Agent requesting Revolving Loans which are Base Rate Advances
on the date on which such drawing is honored in an amount equal to the amount of
such drawing, and the Lenders shall by 1:00 P.M. (Atlanta, Georgia time) on the
date of such drawing, make Revolving Loans which are Base Rate Advances in the
amount of such drawing, the proceeds of which shall be applied directly by the
Agent to reimburse the Agent for the amount of such drawing, provided that for
--------
the purposes solely of such Borrowing, the conditions and precedents set forth
in Sections 4.01 and 4.02 hereof shall not be applicable, and provided further
----------------
that if for any reason proceeds of the Revolving Loans are not received by the
Agent on such date in the amount equal to the amount of such drawing, the
Borrower shall reimburse the Agent on the Business Day immediately following the
date of such drawing in an amount, in Dollars and immediately available funds,
equal to the excess of the amount of such drawing over the amount of such
Revolving Loans, if any, which are so received, plus accrued interest on the
amount at the applicable rate of interest for Base Rate Advances.
(b) Notwithstanding any provision of this Agreement to the contrary,
to the extent that any Letter of Credit or portion thereof remains outstanding
on the Maturity Date, the parties hereby agree that the beneficiary or
beneficiaries thereof shall be deemed to have made a drawing of all available
amounts pursuant to such Letters of Credit on the Maturity Date, which amounts
shall be reimbursed to the Agent as set forth above and thereafter held by the
Agent as cash collateral for its remaining obligations pursuant to such Letters
of Credit in the L/C Cash Collateral Account.
Section 2.08. Payment by Lenders. In the event that the Borrower shall
------------------
fail to reimburse the Agent as provided in Section 2.07 by borrowing Revolving
Loans, or otherwise providing an amount equal to the amount of any drawing
honored by the Agent pursuant to any Letter of Credit issued by it, the Agent
shall promptly notify each Lender of the unreimbursed amount of such drawing and
of such Lender's respective participation therein. Each Lender shall make
available to the Agent an amount equal to its respective participation, in
Dollars and in immediately available funds, at the office of the Agent specified
in such notice not later than 1:00 P.M. (Atlanta, Georgia time) on the Business
Day after the date notified by the Agent. In the event that any such Lender
fails to make available to the Agent the amount of such Lender's participation
in such Letter of Credit, the Agent shall be entitled to recover such amount on
demand from such Lender together with interest as provided for in Section
3.02(c). The Agent shall distribute to each other Lender which has paid all
amounts payable under this Section with respect to any Letter of Credit, such
Lender's Pro Rata Share of all payments received by the Agent from the Borrower
in reimbursement of drawings honored by the Agent under such Letter of Credit
when such payments are received.
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<PAGE>
Section 2.09. Obligations Absolute. The obligation of the Borrower to
--------------------
reimburse the Agent for drawings made under Letters of Credit issued for the
account of the Borrower and the Lenders' obligation to honor their
participations purchased therein shall be unconditional and irrevocable and
shall be paid strictly in accordance with the terms of this Agreement under all
circumstances, including without limitation, the following circumstances:
(a) Any lack of validity or enforceability of any Letter of Credit;
(b) The existence of any claim, set-off, defense or other right which the
Borrower or any Subsidiary or Affiliate of the Borrower may have at any time
against a beneficiary or any transferee of any Letter of Credit (or any Persons
or entities for whom any such beneficiary or transferee may be acting), any
Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction (including without
limitation any underlying transaction between the Borrower or any of its
Subsidiaries and Affiliates and the beneficiary for which such Letter of Credit
was procured); provided that nothing in this Section shall affect the right of
--------
the Borrower to seek relief against any beneficiary, transferee, Lender or any
other Person in any action or proceeding or to bring a counterclaim in any suit
involving such Persons;
(c) Any draft, demand, certificate or any other document presented under
any Letter of Credit proving to be forged, fraudulent or invalid in any respect
or any statement therein being untrue or inaccurate in any respect;
(d) Payment by the Agent under any Letter of Credit against presentation of
a demand, draft or certificate or other document which does not comply with the
terms of such Letter of Credit;
(e) Any other circumstance or happening whatsoever which is similar to any
of the foregoing; or
(f) the fact that a Default or an Event of Default shall have occurred and
be continuing.
Nothing in this Section 2.09 shall prevent an action against the Agent for its
gross negligence or willful misconduct in honoring drafts under the Letters of
Credit or otherwise.
Section 2.10. Indemnification; Nature of Agent's Duties.
------------------------------------------
(a) In addition to amounts payable elsewhere provided in this
Agreement, without duplication, the Borrower hereby agrees to protect,
indemnify, pay and save the Agent and each Lender harmless from and against any
and all claims, demands, liabilities, damages, losses, costs, charges and
reasonable expenses (including reasonable attorney's fees and
33
<PAGE>
disbursements) which the Agent or any Lender may incur or be subject to as a
consequence, direct or indirect, of (i) the issuance of any Letter of Credit for
the account of the Borrower, other than as a result of the gross negligence or
willful misconduct of the Agent; (ii) the failure of the Agent to honor a
drawing under any Letter of Credit due to any act or omission (whether rightful
or wrongful) of any present or future de jure or de facto government or
------- --------
governmental authority; or (iii) any confirmation of any Letter of Credit
obtained by the Agent with the consent of the Borrower.
(b) Notwithstanding any other provision contained in this Agreement,
the Agent shall not be obligated to issue any Letter of Credit, nor shall any
Lender be obligated to purchase its participation in any Letter of Credit to be
issued hereunder, if the issuance of such Letter of Credit or purchase of such
participation shall have become unlawful or prohibited by compliance by Agent or
such Lender in good faith with any law, governmental rule, guideline, request,
order, injunction, judgment or decree (whether or not having the force of law);
provided that in the case of the obligation of a Lender to purchase such
- --------
participation, such Lender shall have notified the Agent to such effect in
writing at least ten (10) Business Days' prior to the issuance thereof by the
Agent, which notice shall relieve the Agent of its obligation to issue such
Letter of Credit pursuant to the L/C Subcommitment.
ARTICLE III.
GENERAL LOAN TERMS
------------------
Section 3.01. Funding Notices.
---------------
(a) (i) Whenever Borrower desires to make a Borrowing with respect
to the Revolving Loan Commitments (other than one resulting from a conversion or
continuation pursuant to Section 3.01(b)(i)), it shall give the Agent prior
written notice (or telephonic notice promptly confirmed in writing) of such
Borrowing (a "Notice of Borrowing"), such Notice of Borrowing to be given prior
-------------------
to 11:00 A.M. (local time for the Agent) at the Payment Office of the Agent (x)
on the Business Day which is the requested date of such Borrowing in the case of
Base Rate Advances, and (y) three Business Days prior to the requested date of
such Borrowing in the case of Eurodollar Advances. Notices received after 11:00
A.M. shall be deemed received on the next Business Day. Each Notice of
Borrowing shall be irrevocable and shall specify the aggregate principal amount
of the Borrowing, the date of Borrowing (which shall be a Business Day), and
whether the Borrowing is to consist of Base Rate Advances or Eurodollar Advances
and (in the case of Eurodollar Advances) the Interest Period to be applicable
thereto.
(ii) The Borrower shall be deemed to have requested a Swing Rate
Advance with respect to the Swing Line Subcommitment as set forth in Section
2.02(a) above (each, a "Notice of Swing Line Loan"). The Swing Line Lender
-------------------------
shall notify the Borrower of the Swing Rate applicable to each Swing Rate
Advance for the Interest Period by the end of each Business
34
<PAGE>
Day and the failure of the Borrower to contest such rate within two (2) Business
Days shall be deemed to be conclusive evidence of the Borrower's acceptance
thereof.
(b) (i) Whenever Borrower desires to convert all or a portion of an
outstanding Borrowing under the Revolving Loan Commitments consisting of Base
Rate Advances into a Borrowing consisting of Eurodollar Advances, or to continue
outstanding a Borrowing consisting of Eurodollar Advances for a new Interest
Period, it shall give the Agent at least three Business Days' prior written
notice (or telephonic notice promptly confirmed in writing) of each such
Borrowing to be converted into or continued as Eurodollar Advances. Such notice
(a "Notice of Conversion/Continuation") shall be given prior to 11:00 A.M.
---------------------------------
(local time for the Agent) on the date specified at the Payment Office of the
Agent. Each such Notice of Conversion/Continuation shall be irrevocable and
shall specify the aggregate principal amount of the Advances to be converted or
continued, the date of such conversion or continuation and the Interest Period
to be applicable thereto. If, upon the expiration of any Interest Period in
respect of any Borrowing consisting of Eurodollar Advances, Borrower shall have
failed to either deliver the Notice of Conversion/Continuation or repay such
Borrowing, Borrower shall be deemed to have elected to convert or continue such
Borrowing to a Borrowing consisting of Base Rate Advances. So long as any
Default or Event of Default shall have occurred and be continuing, no Borrowing
may be converted into or continued as (upon expiration of the current Interest
Period) Eurodollar Advances unless the Agent and each of the Lenders shall have
otherwise consented in writing. No conversion of any Borrowing of Eurodollar
Advances shall be permitted except on the last day of the Interest Period in
respect thereof.
(ii) Upon the expiration of the applicable Interest Period with
respect to any Swing Line Loan, the Borrower shall repay such Swing Line Loan to
the Swing Line Lender, and in the event that the other Lenders have purchased a
participation in such Swing Line Loan pursuant to Section 2.02 hereof, the Swing
Line Lender shall distribute such payments pro rata amongst the Lenders
participating therein.
(c) Without in any way limiting Borrower's obligation to confirm in
writing any telephonic notice, the Agent and the Swing Line Lender may act
without liability upon the basis of telephonic notice believed by the Agent or
the Swing Line Lender in good faith to be from Borrower prior to receipt of
written confirmation. In each such case, Borrower hereby waives the right to
dispute the Agent's or the Swing Line Lender's record of the terms of such
telephonic notice, absent manifest error.
(d) The Agent shall promptly give each Lender notice by telephone
(confirmed in writing) or by telex, telecopy or facsimile transmission of the
matters covered by the notices given to the Agent pursuant to this Section 3.01
with respect to the Revolving Loan Commitments.
35
<PAGE>
Section 3.02. Disbursement of Funds.
---------------------
(a) No later than 1:00 p.m. (local time for the Agent) on the date of
each Borrowing pursuant to the Revolving Loan Commitments (other than one
resulting from a conversion or continuation pursuant to Section 3.01(b)(i)),
each Lender will make available its Pro Rata Share of the amount of such
Borrowing in immediately available funds at the Payment Office of the Agent.
The Agent will make available to Borrower the aggregate of the amounts (if any)
so made available by the Lenders to the Agent in a timely manner by crediting
such amounts to Borrower's demand deposit account maintained with the Agent or
at Borrower's option, by effecting a wire transfer of such amounts to an account
specified by the Borrower, by the close of business on such Business Day. In
the event that the Lenders do not make such amounts available to the Agent by
the time prescribed above, but such amount is received later that day, such
amount may be credited to Borrower in the manner described in the preceding
sentence on the next Business Day (with interest on such amount to begin
accruing hereunder on such next Business Day).
(b) No later than 3:00 p.m. (local time for the Swing Line Lender) on
the date of each Swing Line Loan, the Swing Line Lender will make available the
amount of such Swing Line Loan in immediately available funds by crediting such
amount to the Master Account.
(c) Unless the Agent shall have been notified by any Lender prior to
the date of a Borrowing that such Lender does not intend to make available to
the Agent such Lender's portion of the Borrowing to be made on such date, the
Agent may assume that such Lender has made such amount available to the Agent on
such date and the Agent may make available to Borrower a corresponding amount.
If such corresponding amount is not in fact made available to the Agent by such
Lender on the date of Borrowing, the Agent shall be entitled to recover such
corresponding amount on demand from such Lender together with interest at the
Federal Funds Rate. If such Lender does not pay such corresponding amount
forthwith upon the Agent's demand therefor, the Agent shall promptly notify
Borrower, and Borrower shall immediately pay such corresponding amount to the
Agent together with interest at the rate specified for the Borrowing which
includes such amount paid and any amounts due under Section 3.12 hereof. Nothing
in this subsection shall be deemed to relieve any Lender from its obligation to
fund its Commitments or its obligations pursuant to Section 2.02 hereunder or to
prejudice any rights which Borrower may have against any Lender as a result of
any default by such Lender hereunder.
(d) All Borrowings under the Commitments (other than Swing Line Loans)
shall be loaned by the Lenders on the basis of their Pro Rata Share of the
Commitments. No Lender shall be responsible for any default by any other Lender
in its obligations hereunder, and each Lender shall be obligated to make the
Loans provided to be made by it hereunder, regardless of the failure of any
other Lender to fund its Commitments hereunder.
36
<PAGE>
Section 3.03. Interest.
--------
(a) Borrower agrees to pay interest in respect of all unpaid principal
amounts of the Revolving Loans from the respective dates such principal amounts
were advanced to maturity (whether by acceleration, notice of prepayment or
otherwise) at rates per annum equal to the applicable rates indicated below:
(i) For Base Rate Advances--The Base Rate in effect from time to time
plus the Applicable Margin; and
- ----
(ii) For Eurodollar Advances--The relevant Adjusted LIBO Rate for the
Interest Period plus the Applicable Margin.
----
(b) Borrower agrees to pay interest in respect of all unpaid principal
amounts of the Swing Line Loans made to Borrower from the respective dates such
principal amounts were advanced to maturity (whether by acceleration, notice of
prepayment or otherwise) at the Swing Rate agreed to by the Borrower and the
Swing Line Lender for each such Swing Line Loan.
(c) Overdue principal and, to the extent not prohibited by applicable
law, overdue interest, in respect of the Loans, and all other overdue amounts
owing hereunder, shall bear interest from each date that such amounts are
overdue:
(i) in the case of overdue principal and interest with respect to all
Loans outstanding as Eurodollar Advances and all Swing Line Loans, at the
greater of (A) the rate otherwise applicable for the then current Interest
Period plus an additional two percent (2.0%) per annum or (B) the rate in effect
----
for Base Rate Advances plus an additional two percent (2.0%) per annum; and
----
(ii) in the case of overdue principal and interest with respect to all
other Loans outstanding as Base Rate Advances and all other Obligations
hereunder (other than Loans), at a rate equal to the applicable Base Rate plus
----
an additional two percent (2.0%) per annum.
(d) Interest on each Loan shall accrue from and including the date of
such Loan to but excluding the date of any repayment thereof; provided that, if
--------
a Loan is repaid on the same day made, one day's interest shall be paid on such
Loan. Interest on all outstanding Base Rate Advances shall be payable quarterly
in arrears on the last day of each calendar quarter, commencing on December 31,
1997. Interest on all outstanding Eurodollar Advances shall be payable on the
last day of each Interest Period applicable thereto, and, in the case of
Eurodollar Advances having an Interest Period in excess of three months, on each
three month anniversary of the initial date of such Interest Period. Interest on
all outstanding Swing Rate Advances shall
37
<PAGE>
be payable monthly in arrears on the last day of each calendar month, commencing
on October 31, 1997. Interest on all Loans shall be payable on any conversion
of any Advances comprising such Loans into Advances of another Type, prepayment
(on the amount prepaid), at maturity (whether by acceleration, notice of
prepayment or otherwise) and, after maturity, on demand.
(e) The Agent, upon determining the Adjusted LIBO Rate for any
Interest Period, shall promptly notify by telephone (confirmed in writing) or in
writing Borrower and the other Lenders of such Adjusted LIBO Rate. Any such
determination shall, absent manifest error, be final, conclusive and binding for
all purposes.
Section 3.04. Interest Periods.
----------------
(a) In connection with the making or continuation of, or conversion
into, each Borrowing of Eurodollar Advances, Borrower shall select an Interest
Period to be applicable to such Eurodollar Advances, which Interest Period shall
be either a 1, 2, 3 or 6 month period.
(b) In connection with the making or continuation of each Swing Line
Loan, Borrower shall be deemed to have requested an Interest Period to be
applicable to such Swing Line Loan for a period equal to one (1) Business Day.
(c) Notwithstanding paragraphs (a) and (b) of this Section 3.04:
(i) The initial Interest Period for any Borrowing of Eurodollar
Advances shall commence on the date of such Borrowing (including the date of any
conversion from a Borrowing consisting of Base Rate Advances) and each Interest
Period occurring thereafter in respect of such Borrowing shall commence on the
day on which the next preceding Interest Period expires;
(ii) If any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next succeeding
Business Day, provided that if any Interest Period in respect of Eurodollar
--------
Advances would otherwise expire on a day that is not a Business Day but is a day
of the month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iii) Any Interest Period in respect of Eurodollar Advances which
begins on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period shall, subject to part (iv)
below, expire on the last Business Day of such calendar month; and
(iv) No Interest Period with respect to the Loans shall extend beyond
the Maturity Date.
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<PAGE>
Section 3.05. Fees.
----
(a) Commitment Fee. Borrower shall pay to the Agent, for the ratable
--------------
benefit of each Lender, a commitment fee (the "Commitment Fee") for the period
--------------
commencing on the Closing Date to and including the Maturity Date, payable
quarterly in arrears on the last day of each calendar quarter, commencing on
December 31, 1997, and on the Maturity Date, equal to Applicable Commitment Fee
Rate per annum multiplied by the average daily unused portion of the Revolving
Loan Commitment of each Lender. For the purposes of computing the Commitment
Fee, in addition to the utilization by Revolving Loans, the Revolving Loan
Commitment of each Lender shall be deemed to be utilized by the amount of L/C
Exposure and Swing Line Loans extended by such Lender (or in which such Lender
has purchased a participation) but in no event shall the computation of any
other Lender's Commitment Fee be affected by the Swing Line Loans extended by
the Swing Line Lender unless and until a participation in such Swing Line Loans
is purchased by the other Lenders pursuant to Section 2.02(e) hereof.
(b) Letter of Credit Fee. The Borrower shall pay to the Agent, for
--------------------
the account of itself and the Lenders, a letter of credit fee equal to the
Applicable Margin for Eurodollar Advances multiplied by the average daily
aggregate L/C Exposure with respect to Letters of Credit (the "Letter of Credit
----------------
Fee"). The Letter of Credit Fee shall be payable by the Borrower quarterly, in
- ---
arrears, commencing on December 31, 1997 and continuing thereafter on the last
day of each succeeding calendar quarter and on the Maturity Date.
(c) Administrative Fees. The Borrower shall pay to the Agent an
-------------------
administrative fee in the amount and on the dates previously agreed in writing
by Borrower with the Agent.
Section 3.06. Voluntary Prepayments of Borrowings.
-----------------------------------
(a) Borrower may, at its option, prepay Borrowings consisting of Base
Rate Advances at any time in whole, or from time to time in part, in amounts
aggregating $100,000 or any greater integral multiple of $50,000, by paying the
principal amount to be prepaid together with interest accrued and unpaid thereon
to the date of prepayment. Borrowings consisting of Swing Rate Advances may be
prepaid at any time in whole, or from time to time in part, in amounts
aggregating $50,000 or any greater integral multiple of $10,000, by paying the
principal amount to be prepaid together with interest accrued and unpaid thereon
to the date of prepayment. Borrowings consisting of Eurodollar Advances may be
prepaid, at Borrower's option, in whole, or from time to time in part, in
amounts aggregating $100,000 or any greater integral multiple of $50,000, by
paying the principal amount to be prepaid, together with interest accrued and
unpaid thereon to the date of prepayment, and all compensation payments pursuant
to Section 3.12 if such prepayment is made on a date other than the last day of
an Interest Period applicable thereto. Each such optional prepayment shall be
applied in accordance with Section 3.06(c) below.
39
<PAGE>
(b) Borrower shall give written notice (or telephonic notice confirmed
in writing) to the Agent of any intended prepayment of the Revolving Loans (i)
not less than one Business Day prior to any prepayment of Base Rate Advances and
(ii) not less than three Business Days prior to any prepayment of Eurodollar
Advances. Borrower shall give written notice (or telephonic notice confirmed in
writing) to the Agent of any intended prepayment of the Swing Line Loans not
less than one (1) Business Day prior to such prepayment of such Swing Line
Loans. Such notice, once given, shall be irrevocable. Upon receipt of such
notice of prepayment pursuant to the first sentence of this paragraph (b), the
Agent shall promptly notify each Lender of the contents of such notice and of
such Lender's Pro Rata Share of such prepayment. Upon receipt of any notice of
prepayment pursuant to the second sentence of this paragraph (b), the Agent
shall promptly notify each Lender participating in such Swing Line Loan of the
contents of such notice and of such Lender's Pro Rata Share of such prepayment.
(c) Borrower, when providing notice of prepayment pursuant to Section
3.06(b), may designate the Types of Advances and the specific Borrowing or
Borrowings which are to be prepaid, provided that (i) if any prepayment of
Eurodollar Advances made pursuant to a single Borrowing of the Revolving Loans
shall reduce the outstanding Advances made pursuant to such Borrowing to an
amount less than $500,000, such Borrowing shall immediately be converted into
Base Rate Advances; and (ii) each prepayment made pursuant to a single Borrowing
shall be applied pro rata among the Advances comprising such Borrowing. In the
absence of a designation by Borrower, the Agent shall, subject to the foregoing,
make such designation in its discretion but using reasonable efforts to avoid
funding losses to the Lenders pursuant to Section 3.12. All voluntary
prepayments shall be applied to the payment of interest before application to
principal.
Section 3.07. Payments, etc.
--------------
(a) Except as otherwise specifically provided herein, all payments
under this Agreement and the other Credit Documents shall be made without
defense, set-off or counterclaim to the Agent not later than 1:00 P.M. (local
time for the Agent) on the date when due and shall be made in Dollars in
immediately available funds at its Payment Office.
(b) (i) All such payments shall be made free and clear of and
without deduction or withholding for any Taxes in respect of this Agreement, the
Notes or other Credit Documents, or any payments of principal, interest, fees or
other amounts payable hereunder or thereunder (but excluding, except as provided
in paragraph (iii) hereof, any Taxes imposed on the overall net income of the
Lenders pursuant to the laws of the jurisdiction in which the principal
executive office or appropriate Lending Office of such Lender is located). If
any Taxes are so levied or imposed, Borrower agrees (A) to pay the full amount
of such Taxes, and such additional amounts as may be necessary so that every net
payment of all amounts due hereunder and under the Notes and other Credit
Documents, after withholding or deduction for or on account of any such Taxes
(including additional sums payable under this Section 3.07), will not be less
than the full amount provided for herein had no such deduction or withholding
been required, (B) to make
40
<PAGE>
such withholding or deduction and (C) to pay the full amount deducted to the
relevant authority in accordance with applicable law. Borrower will furnish to
the Agent and each Lender, within 30 days after the date the payment of any
Taxes is due pursuant to applicable law, certified copies of tax receipts
evidencing such payment by Borrower. Borrower will indemnify and hold harmless
the Agent and each Lender and reimburse the Agent and each Lender upon written
request for the amount of any Taxes so levied or imposed and paid by the Agent
or Lender and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes were correctly or
illegally asserted. A certificate as to the amount of such payment by such
Lender or the Agent, absent manifest error, shall be final, conclusive and
binding for all purposes provided that the Agent and each Lender shall use
reasonable efforts to furnish Borrower notice of the imposition of any Taxes as
soon as practicable thereafter; provided, however, that no delay or failure to
-------- -------
furnish such notice shall in any event release or discharge Borrower from its
obligations to the Agent or such Lender pursuant to Section 3.07(b) or otherwise
result in any liability of the Agent or such Lender.
(ii) Each Lender that is organized under the laws of any jurisdiction
other than the United States of America or any State thereof (including the
District of Columbia) agrees to furnish to Borrower and the Agent, prior to the
time it becomes a Lender hereunder, two copies of either U.S. Internal Revenue
Service Form 4224 or U.S. Internal Revenue Service Form 1001 or any successor
forms thereto (wherein such Lender claims entitlement to complete exemption from
or reduced rate of U.S. Federal withholding tax on interest paid by Borrower
hereunder) and to provide to Borrower and the Agent a new Form 4224 or Form 1001
or any successor forms thereto if any previously delivered form is found to be
incomplete or incorrect in any material respect or upon the obsolescence of any
previously delivered form; provided, however, that no Lender shall be required
-------- -------
to furnish a form under this paragraph (ii) after the date that it becomes a
Lender hereunder if it is not entitled to claim an exemption from or a reduced
rate of withholding under applicable law.
(iii) Borrower shall also reimburse each Lender, upon written
request, for any Taxes imposed (including, without limitation, Taxes imposed on
the overall net income of such Lender or its applicable Lending Office pursuant
to the laws of the jurisdiction in which the principal executive office or the
applicable Lending Office of such Lender is located) as such Lender shall
determine are payable by such Lender in respect of amounts paid by or on behalf
of Borrower to or on behalf of such Lender pursuant to paragraph (i) hereof.
(c) Subject to Section 3.04(c)(ii), whenever any payment to be made
hereunder or under any Note shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest thereon shall
be payable at the applicable rate during such extension.
(d) All computations of interest and fees shall be made on the basis
of a year of 360 days for the actual number of days (including the first day but
excluding the last day)
41
<PAGE>
occurring in the period for which such interest or fees are payable (to the
extent computed on the basis of days elapsed). Interest on Base Rate Advances
shall be calculated based on the Base Rate from and including the date of such
Loan to but excluding the date of the repayment or conversion thereof. Interest
on Eurodollar Advances and Swing Rate Advances shall be calculated as to each
Interest Period from and including the first day thereof to but excluding the
last day thereof. Each determination by the Agent of an interest rate or fee
hereunder shall be made in good faith and, except for manifest error, shall be
final, conclusive and binding for all purposes.
(e) Payment by the Borrower to the Agent in accordance with the terms
of this Agreement shall, as to the Borrower, constitute payment to the Lenders
under this Agreement.
Section 3.08. Interest Rate Not Ascertainable, etc. In the event that the
-------------------------------------
Agent shall have reasonably determined (which determination shall be made in
good faith and, absent manifest error, shall be final, conclusive and binding
upon all parties) that on any date for determining the Adjusted LIBO Rate for
any Interest Period, by reason of any changes arising after the date of this
Agreement affecting the London interbank market, or the Agent's position in such
market, adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of Adjusted LIBO Rate,
then, and in any such event, the Agent shall forthwith give notice (by telephone
confirmed in writing) to Borrower and to the Lenders, of such determination and
a summary of the basis for such determination. Until the Agent notifies
Borrower that the circumstances giving rise to the suspension described herein
no longer exist, the obligations of the Lenders to make or permit portions of
the Revolving Loans to remain outstanding past the last day of the then current
Interest Periods as Eurodollar Advances shall be suspended, and such affected
Advances shall bear the same interest as Base Rate Advances.
Section 3.09. Illegality.
----------
(a) In the event that any Lender shall have reasonably determined
(which determination shall be made in good faith and, absent manifest error,
shall be final, conclusive and binding upon all parties) at any time that the
making or continuance of any Eurodollar Advance has become unlawful by
compliance by such Lender in good faith with any applicable law, governmental
rule, regulation, guideline or order (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful), then, in any such
event, the Lender shall give prompt notice (by telephone confirmed in writing)
to Borrower and to the Agent of such determination and a summary of the basis
for such determination (which notice the Agent shall promptly transmit to the
other Lenders).
(b) Upon the giving of the notice to Borrower referred to in
subsection (a) above, (i) Borrower's right to request and such Lender's
obligation to make Eurodollar Advances shall be immediately suspended until such
time that the making or continuance of any Eurodollar Advance is no longer
unlawful, and such Lender shall make an Advance as part of the requested
Borrowing of Eurodollar Advances as a Base Rate Advance, which Base Rate Advance
shall, for
42
<PAGE>
all other purposes, be considered part of such Borrowing, and (ii) if the
affected Eurodollar Advance or Advances are then outstanding, Borrower shall
immediately, or if permitted by applicable law, no later than the date permitted
thereby, upon at least one Business Day's written notice to the Agent and the
affected Lender, convert each such Advance into a Base Rate Advance or Advances,
provided that if more than one Lender is affected at any time, then all affected
Lenders must be treated the same pursuant to this Section 3.09(b).
Section 3.10. Increased Costs.
---------------
(a) If, by reason of (x) after the date hereof, the introduction of or
any change (including, without limitation, any change by way of imposition or
increase of reserve requirements) in or in the interpretation of any law or
regulation, or (y) the compliance with any guideline or request from any central
bank or other governmental authority or quasi-governmental authority exercising
control over banks or financial institutions generally made after the date
hereof (whether or not having the force of law):
(i) any Lender (or its applicable Lending Office) shall be subject to
any tax, duty or other charge with respect to its Eurodollar Advances or its
obligation to make Eurodollar Advances or the basis of taxation of payments to
any Lender of the principal of or interest on its Eurodollar Advances or its
obligation to make Eurodollar Advances shall have changed (except for changes in
the tax on the overall net income of such Lender or its applicable Lending
Office imposed by the jurisdiction in which such Lender's principal executive
office or applicable Lending Office is located); or
(ii) any reserve (including, without limitation, any imposed by the
Board of Governors of the Federal Reserve System), special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender's applicable Lending Office shall be imposed or deemed
applicable or any other condition adversely affecting its Eurodollar Advances or
its obligation to make Eurodollar Advances shall be imposed on any Lender or its
applicable Lending Office or the London interbank market;
and as a result thereof there shall be any increase in the cost to such Lender
of agreeing to make or making, funding or maintaining Eurodollar Advances
(except to the extent already included in the determination of the applicable
Adjusted LIBO Rate for Eurodollar Advances) or its obligation to make Eurodollar
Advances, or there shall be a reduction in the amount received or receivable by
such Lender or its applicable Lending Office, then Borrower shall from time to
time (subject, in the case of certain Taxes, to the applicable provisions of
Section 3.07(b)), upon written notice from and demand by such Lender on Borrower
(with a copy of such notice and demand to the Agent), pay to the Agent for the
account of such Lender within five Business Days after the date of such notice
and demand, additional amounts sufficient to indemnify such Lender against such
increased cost. A certificate as to the amount of such increased cost,
submitted to
43
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Borrower and the Agent by such Lender in good faith and accompanied by a
statement prepared by such Lender describing in reasonable detail the basis for
and calculation of such increased cost, shall, except for manifest error, be
final, conclusive and binding for all purposes.
(b) If any Lender shall advise the Agent that at any time it has
determined in good faith and in its reasonable judgment that, because of the
circumstances described in clauses (x) or (y) in Section 3.10(a) or any other
circumstances beyond such Lender's reasonable control arising after the date of
this Agreement affecting such Lender or the London interbank market or such
Lender's position in such market, the Adjusted LIBO Rate as determined by the
Agent will not adequately and fairly reflect the cost to such Lender of funding
its Eurodollar Advances, then, and in any such event:
(i) the Agent shall forthwith give notice (by telephone confirmed in
writing) to Borrower and to the other Lenders of such advice;
(ii) Borrower's right to request and such Lender's obligation to make
or permit portions of the Loans to remain outstanding past the last day of the
then current Interest Periods as Eurodollar Advances shall be immediately
suspended until such time as the Adjusted LIBO Rate, as determined by the Agent,
will adequately and fairly reflect the cost to such Lender of funding its
Eurodollar Advances; and
(iii) such Lender shall make a Loan as part of the requested
Borrowing of Eurodollar Advances as a Base Rate Advance, which such Base Rate
Advance shall, for all other purposes, be considered part of such Borrowing.
Section 3.11. Lending Offices.
---------------
(a) Each Lender agrees that, if requested by Borrower, it will use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate an alternate Lending Office with respect to any of its Eurodollar
Advances affected by the matters or circumstances described in Sections 3.07(b),
3.08, 3.09 or 3.10 to reduce the liability of Borrower or avoid the results
provided thereunder, so long as such designation is not disadvantageous to such
Lender as reasonably determined by such Lender, which determination shall be
conclusive and binding on all parties hereto. Nothing in this Section 3.11
shall affect or postpone any of the obligations of Borrower or any right of any
Lender provided hereunder.
(b) If any Lender that is organized under the laws of any jurisdiction
other than the United States of America or any State thereof (including the
District of Columbia) issues a public announcement with respect to the closing
of its lending offices in the United States such that any withholdings or
deductions and additional payments with respect to Taxes may be required to be
made by Borrower thereafter pursuant to Section 3.07(b), such Lender shall use
reasonable efforts to furnish Borrower notice thereof as soon as practicable
thereafter; provided, however, that no delay in furnishing such notice shall in
-------- -------
any event release or discharge Borrower
44
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from its obligations to such Lender pursuant to Section 3.07(b) or otherwise
result in any liability of such Lender.
Section 3.12. Funding Losses. Borrower shall compensate each Lender, upon
--------------
its written request to Borrower (which request shall set forth the basis for
requesting such amounts in reasonable detail and which request shall be made in
good faith and, absent manifest error, shall be final, conclusive and binding
upon all of the parties hereto), for all losses, expenses and liabilities
(including, without limitation, any interest paid by such Lender to lenders of
funds borrowed by it to make or carry its Eurodollar Advances to the extent not
recovered by such Lender in connection with the re-employment of such funds but
excluding loss of anticipated profits), which the Lender may sustain: (i) if
for any reason (other than a default by such Lender) a borrowing of, or
conversion to or continuation of, Eurodollar Advances to Borrower does not occur
on the date specified therefor in a Notice of Borrowing, a Notice of Conversion/
Continuation (whether or not withdrawn), (ii) if any repayment (including
mandatory prepayments and any conversions pursuant to Section 3.09(b)) of any
Eurodollar Advances to Borrower occurs on a date which is not the last day of an
Interest Period applicable thereto, or (iii), if, for any reason, Borrower
defaults in its obligation to repay its Eurodollar Advances when required by the
terms of this Agreement.
Section 3.13. Assumptions Concerning Funding of Eurodollar Advances.
-----------------------------------------------------
Calculation of all amounts payable to a Lender under this Article III shall be
made as though that Lender had actually funded its relevant Eurodollar Advances
through the purchase of deposits in the relevant market bearing interest at the
rate applicable to such Eurodollar Advances in an amount equal to the amount of
the Eurodollar Advances and having a maturity comparable to the relevant
Interest Period and through the transfer of such Eurodollar Advances from an
offshore office of that Lender to a domestic office of that Lender in the United
States of America; provided, however, that each Lender may fund each of its
-------- --------
Eurodollar Advances in any manner it sees fit and the foregoing assumption shall
be used only for calculation of amounts payable under this Article III.
Section 3.14. Apportionment of Payments. Aggregate principal and interest
-------------------------
payments in respect of Revolving Loans and Commitment Fees shall be apportioned
among all outstanding Revolving Loan Commitments and Revolving Loans to which
such payments relate, proportionately to the Lenders' respective Pro Rata Share
of such Revolving Loan Commitments and outstanding Revolving Loans. Each
payment of principal and interest of any Swing Line Loan shall be payable solely
to the Swing Line Lender except as provided in Section 2.02(d) and (e). The
Agent shall promptly distribute to each Lender at its payment office set forth
beside its name on the appropriate signature page hereof or such other address
as any Lender may request its share of all such payments received by the Agent.
Section 3.15. Sharing of Payments, Etc. If any Lender shall obtain any
-------------------------
payment or reduction (including, without limitation, any amounts received as
adequate protection of a deposit treated as cash collateral under the Bankruptcy
Code) of the Obligations (whether voluntary, involuntary, through the exercise
of any right of set-off, or otherwise) in excess of its
45
<PAGE>
Pro Rata Share of payments or reductions on account of such obligations obtained
by all the Lenders (other than payments of principal, interest and fees with
respect to the Swing Line Loans which are payable solely to the Swing Line
Lender or Lenders participating therein pursuant to Section 2.02(d) and (e)),
such Lender shall forthwith (i) notify each of the other Lenders and Agent of
such receipt, and (ii) purchase from the other Lenders such participations in
the affected obligations as shall be necessary to cause such purchasing Lender
to share the excess payment or reduction, net of costs incurred in connection
therewith, ratably with each of them, provided that if all or any portion of
such excess payment or reduction is thereafter recovered from such purchasing
Lender or additional costs are incurred, the purchase shall be rescinded and the
purchase price restored to the extent of such recovery or such additional costs,
but without interest unless the Lender obligated to return such funds is
required to pay interest on such funds. Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 3.15
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of Borrower in the amount of such
participation.
Section 3.16. Capital Adequacy. Without limiting any other provision of
----------------
this Agreement, in the event that any Lender shall have reasonably determined in
good faith that any law, treaty, governmental (or quasi-governmental) rule,
regulation, guideline or order regarding capital adequacy not currently in
effect or fully applicable as of the Closing Date, or any change therein or in
the interpretation or application thereof, or compliance by such Lender with any
request or directive regarding capital adequacy not currently in effect or fully
applicable as of the Closing Date (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) from a central
bank or governmental authority or body having jurisdiction, does or shall have
the effect of reducing the rate of return on such Lender's capital as a
consequence of its obligations hereunder to a level below that which such Lender
could have achieved but for such law, treaty, rule, regulation, guideline or
order, or such change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy) by an amount reasonably deemed by
such Lender to be material, then within ten (10) Business Days after written
notice and demand by such Lender (with copies thereof to the Agent), Borrower
shall from time to time pay to such Lender additional amounts sufficient to
compensate such Lender for such reduction (but, in the case of outstanding Base
Rate Advances, without duplication of any amounts already recovered by such
Lender by reason of an adjustment in the applicable Base Rate). Each
certificate as to the amount payable under this Section 3.16 (which certificate
shall set forth the basis for requesting such amounts in reasonable detail),
submitted to Borrower by any Lender in good faith, shall, absent manifest error,
be final, conclusive and binding for all purposes.
Section 3.17. Limitation on Certain Payment Obligations.
-----------------------------------------
(a) Each Lender or Agent shall make written demand on Borrower for
indemnification or compensation pursuant to Section 3.07 no later than 180 days
after the earlier of (i) the date on which such Lender or Agent makes payment of
such Taxes, and (ii) the date on
46
<PAGE>
which the relevant taxing authority or other governmental authority makes
written demand upon such Lender or Agent for payment of such Taxes.
(b) Each Lender or Agent shall make written demand on Borrower for
indemnification or compensation pursuant to Sections 3.10 and 3.12 no later
than 180 days after the event giving rise to the claim for indemnification or
compensation occurs.
(c) Each Lender or Agent shall make written demand on Borrower for
indemnification or compensation pursuant to Section 3.16 no later than 180 days
after such Lender or Agent receives actual notice or obtains actual knowledge of
the promulgation of a law, rule, order or interpretation or occurrence of
another event giving rise to a claim pursuant to such sections.
(d) In the event that the Lenders or Agent fail to give Borrower
notice within the time limitations prescribed in (a) or (b) above, Borrower
shall not have any obligation to pay such claim for compensation or
indemnification. In the event that any Lender or Agent fails to give Borrower
notice within the time limitation prescribed in (c) above, Borrower shall not
have any obligation to pay any amount with respect to claims accruing prior to
the date which is 180 days preceding such written demand.
ARTICLE IV.
CONDITIONS TO BORROWINGS
------------------------
The obligations of each Lender to make Advances hereunder is subject to the
satisfaction of the following conditions:
Section 4.01. Conditions Precedent to Initial Loans and Letters of Credit.
-----------------------------------------------------------
At the time of the making of the initial Loans hereunder on the Closing Date and
the issuance of the initial Letter of Credit hereunder, all obligations of
Parent and Acquisition Sub to Agent and Lenders incurred prior to the initial
Loans (including, without limitation, Borrower's obligations to reimburse fees
and expenses payable to the Agent as previously agreed with Borrower), shall
have been paid in full, and the Agent shall have received the following, in form
and substance reasonably satisfactory in all respects to the Agent:
(a) the duly executed counterparts of this Agreement;
(b) the duly completed Revolving Notes evidencing the Revolving Loan
Commitments and the duly executed Swing Line Note evidencing the Swing Line
Subcommitment;
(c) the duly executed Guaranty Agreements and Contribution Agreement;
47
<PAGE>
(d) the duly executed Borrower Security Agreement and appropriate UCC
financing statements relating thereto;
(e) the duly executed Trademark Security Agreement;
(f) accompanying Uniform Commercial Code financing statements relating
thereto;
(g) the duly executed Pledge Agreements accompanied, to the extent relevant
under applicable law, by (i) all stock certificates representing the Pledged
Stock, (ii) stock powers for those shares duly executed in blank, (iii) Uniform
Commercial Code financing statements relating thereto, and (iv) any other
documentation requested by the Agent in order to assure the perfection of a
first priority lien in such Pledged Stock in favor of the Agent for the benefit
of the Lenders;
(h) a duly executed certificate of a senior officer of the Parent and the
Acquisition Sub certifying that each of the Credit Parties, after giving effect
to the transactions contemplated by this Agreement, will be solvent, in form and
substance satisfactory to the Agent;
(i) duly executed Mortgages, together with appropriate Uniform Commercial
Code fixture financing statements;
(j) a duly executed closing certificate of the Borrower and the Parent in
substantially the form of Exhibit G attached hereto and appropriately completed;
---------
(k) certificates of the Secretaries or Assistant Secretaries of the Credit
Parties attaching and certifying copies of the resolutions of the board of
directors of the Credit Parties, authorizing as applicable the execution,
delivery and performance of the Credit Documents by the Credit Parties party
thereto;
(l) certificates of the Secretaries or an Assistant Secretary of the Credit
Parties certifying (i) the name, title and true signature of each officer of the
Credit Parties executing the Credit Documents, and (ii) the bylaws of the Credit
Parties;
(m) certified copies of the articles or certificate of incorporation or
charters of the Credit Parties certified by the Secretaries of State and by the
Secretaries or Assistant Secretaries of the Credit Parties, together with
certificates of good standing or existence, as may be available from the
Secretaries of State of the jurisdiction of incorporation or organization of the
Credit Parties and each other jurisdiction where the Credit Parties ownership of
property or the conduct of its business require it to be qualified, except where
a failure to be so qualified would not have a Materially Adverse Effect;
48
<PAGE>
(n) acknowledgments from CT Corporation System or National Registered
Agents, Inc. as to its appointment as agent for service of process for the
Credit Parties;
(o) the favorable opinion of (i) Long Aldridge & Norman LLP, counsel to the
Credit Parties, substantially in the form of Exhibit H-1, addressed to the Agent
-----------
and each of the Lenders, and (ii) Miller & Martin, special Tennessee counsel to
the Credit Parties, substantially in the form of Exhibit H-2, addressed to the
-----------
Agent and each of the Lenders;
(p) copies of all documents and instruments, including all consents,
authorizations and filings, required or advisable under any Requirement of Law
or by any material Contractual Obligation of the Credit Parties, in connection
with the execution, delivery, performance, validity and enforceability of the
Credit Documents and the other documents to be executed and delivered hereunder,
and such consents, authorizations, filings and orders shall be in full force and
effect and all applicable waiting periods shall have expired;
(q) reports from the Uniform Commercial Code records of each of the
jurisdictions listed on Schedule 4.01 hereto, in each case showing no
-------------
outstanding liens or security interests granted by any Credit Party other than
(x) Permitted Liens and (y) Liens in favor of the Agent;
(r) copies of indentures, credit agreements, instruments, and other
documents evidencing or securing Indebtedness of any Consolidated Company
described on Schedule 7.01, in any single case in an amount not less than
-------------
$1,000,000;
(s) certificates, reports and other information as the Agents may request
from any Consolidated Company in order to satisfy the Lenders as to the absence
of any material liabilities or obligations arising from matters relating to
employees of the Consolidated Companies, including employee relations,
collective bargaining agreements, Plans and other compensation and employee
benefit plans;
(t) a summary, set forth in format and detail acceptable to the Agent, of
the types and amounts of insurance (property and liability) maintained by the
Consolidated Companies accompanied by the insurance certificates naming the
Agent as loss payee and additional insured as may be required by the terms of
the Security Documents;
(u) a copy of the Merger Agreement, accompanied by the certificate of a
senior officer of the Parent as to the consummation of the Acquisition and the
other transactions contemplated by the Merger Agreement and certain other
matters, together with copies of the documents required to be delivered pursuant
to the Merger Agreement, together with the certificate of a senior officer of
the Parent as to the accuracy thereof;
49
<PAGE>
(v) evidence satisfactory to the Agent that all conditions precedent to the
consummation of the Merger have been fulfilled and that the Merger will take
place concurrently with or prior to the initial Advance hereunder;
(w) a copy of the Senior Note Indenture, in form and substance satisfactory
to the Agent, accompanied by a certificate of a senior officer of the
Acquisition Sub stating that all conditions precedent to the issuance of the
Senior Notes have been satisfied and that the Senior Notes will be issued
concurrently with or prior to the initial Advance hereunder, resulting in the
receipt of gross proceeds thereof in an amount of not less than $100,000,000;
(x) evidence satisfactory to the Agent of an equity investment in Borrower
made by Parent (funded by private equity contributions to Parent) in an amount
of not less than $35,000,000;
(y) a duly executed Solvency Certificate of the Borrower;
(z) a duly executed Closing Memorandum;
(aa) written direction from the Acquisition Sub to the Agent regarding the
disbursement of the proceeds of the initial Advances to be made on the Closing
Date;
(bb) evidence satisfactory to the Agent of the repayment of all other
Indebtedness of the Target other than Indebtedness permitted by the terms of
this Agreement, and the release of all Liens securing the same (including
without limitation, the Existing Credit Agreement); and
(cc) evidence assuring the Agent and the Lenders that all corporate
proceedings and all other legal matters in connection with the authorization,
legality, validity and enforceability of the Credit Documents and the
Transaction are in form and substance satisfactory to the Lenders in the
exercise of their reasonable credit judgment.
Section 4.02. Conditions to Each Loan and Letter of Credit. At the
--------------------------------------------
time of the making of all Loans (but not including the continuation or
conversion of any Revolving Loan in the same principal amount or any Revolving
Loan pursuant to Section 2.02(c) or Section 2.07) and issuance of all Letters of
Credit (before as well as after giving effect to such Loans and the proposed use
of the proceeds thereof and the issuance of such Letters of Credit) the
following conditions shall have been satisfied or shall exist:
(a) there shall exist no Default or Event of Default;
(b) all representations and warranties by Acquisition Sub or Borrower
contained herein shall be true and correct in all material respects with the
same effect as
50
<PAGE>
though such representations and warranties had been made on and as of the date
of such Loan or issuance of such Letter of Credit, except for representations
and warranties which were made as of a specific date;
(c) the Loans to be made or the Letters of Credit to be issued and the use
of proceeds thereof shall not contravene, violate or conflict with, or involve
the Agent or any Lender in a violation of, any law, rule, injunction, or
regulation, or determination of any court of law or other governmental authority
applicable to Borrower or Acquisition Sub; and
(d) the Agent shall have received such other documents or legal opinions as
the Agent or any Lender may reasonably request, all in form and substance
satisfactory to the Agent in the exercise of its reasonable credit judgment.
Each request for a Borrowing or a Swing Line Loan and the acceptance by
Borrower of the proceeds thereof and each request for the issuance of a Letter
of Credit shall constitute a representation and warranty by Acquisition Sub and
Borrower, as of the date of the Loans comprising such Borrowing or the issuance
of such Letter of Credit, that the applicable conditions specified in Section
4.01 (with respect to the initial Loans and Letters of Credit) and Section 4.02
have been satisfied.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower (as to itself and all of its Subsidiaries) and prior to its
merger into the Borrower, Acquisition Sub, represents and warrants as follows
(with the understanding that the matters described on the Schedules hereto
assume the consummation of the Transaction):
Section 5.01. Corporate Existence; Compliance with Law. Each of the
----------------------------------------
Acquisition Sub, the Borrower and its Subsidiaries is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. Each of the Acquisition Sub, the Borrower
and its Subsidiaries (i) has the corporate power and authority and the legal
right to own and operate its property and to conduct its business, (ii) is duly
qualified as a foreign corporation and in good standing under the laws of each
jurisdiction where its ownership of property or the conduct of its business
requires such qualification, and (iii) is in compliance with all Requirements of
Law, where (a) the failure to have such power, authority and legal right as set
forth in clause (i), (b) the failure to be so qualified or in good standing as
set forth in clause (ii), or (c) the failure to comply with Requirements of Law
as set forth in clause (iii), would reasonably be expected by the Acquisition
Sub or the Borrower, in the aggregate, to have a Materially Adverse Effect. The
jurisdiction of incorporation or organization, and the ownership of all issued
and outstanding capital stock, for each Subsidiary of the Borrower as of the
date of
51
<PAGE>
this Agreement is accurately described on Schedule 5.01. The Acquisition Sub
-------------
has no Subsidiaries.
Section 5.02. Corporate Power; Authorization. Each of the Credit
------------------------------
Parties has the corporate power and authority to make, deliver and perform the
Credit Documents to which it is a party and has taken all necessary corporate
action to authorize the execution, delivery and performance of such Credit
Documents. No consent or authorization of, or filing with, any Person
(including, without limitation, any governmental authority), is required in
connection with the execution, delivery or performance by any Credit Party, or
the validity or enforceability against any Credit Party, of the Credit Documents
to which it is a party, other than such consents, authorizations or filings
which have been made or obtained.
Section 5.03. Enforceable Obligations. This Agreement has been duly
-----------------------
executed and delivered, and each other Credit Document will be duly executed and
delivered, by the respective Credit Parties parties thereto, and this Agreement
constitutes, and each other Credit Document when executed and delivered will
constitute, legal, valid and binding obligations of the Credit Parties parties
thereto, respectively, enforceable against the Credit Parties parties thereto,
in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity.
Section 5.04. No Legal Bar. The execution, delivery and performance
------------
by the Credit Parties of the Credit Documents to which they are a party will not
violate any Requirement of Law or cause a breach or default under any of their
respective Contractual Obligations where such violation or breach would
reasonably be expected to have a Materially Adverse Effect.
Section 5.05. No Material Litigation. Except as set forth on
----------------------
Schedule 5.05 or in any notice furnished to the Lenders pursuant to Section
- -------------
6.07(e) at or prior to the respective times the representations and warranties
set forth in this Section 5.05 are made or deemed to be made hereunder, no
litigation, investigations or proceedings of or before any courts, tribunals,
arbitrators or governmental authorities are pending or, to the knowledge of
Borrower, threatened by or against Acquisition Sub, Borrower or any of its
Subsidiaries, or against any of their respective properties or revenues,
existing or future (a) with respect to any Credit Document, or any of the
transactions contemplated hereby or thereby, or (b) seeking money damages in
excess of $1,000,000, either singly or in the aggregate or which, if adversely
determined, would otherwise reasonably be expected to have a Materially Adverse
Effect.
Section 5.06. Investment Company Act, Etc. None of the Credit
---------------------------
Parties is an "investment company" or a company "controlled" by an "investment
company" (as each of the quoted terms is defined or used in the Investment
Company Act of 1940, as amended). None of the Credit Parties is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, or any foreign, federal or local statute or regulation limiting its
ability to
52
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incur indebtedness for money borrowed, guarantee such indebtedness, or pledge
its assets to secure such indebtedness, as contemplated hereby or by any other
Credit Document.
Section 5.07. Margin Regulations. No part of the proceeds of any of
------------------
the Loans will be used for any purpose which violates, or which would be
inconsistent or not in compliance with, the provisions of the applicable Margin
Regulations.
Section 5.08. Compliance With Environmental Laws.
----------------------------------
(a) The Borrower and its Subsidiaries have received no notices of
claims or potential liability under, nor notices of non-compliance with, any
applicable Environmental Law, which claims and liabilities under, and non-
compliance with, such Environmental Laws, would reasonably be expected to result
in penalties, fines, claims or other liabilities to the Borrower and its
Subsidiaries in amounts in excess of $1,000,000, either individually or in the
aggregate (including any such penalties, fines, claims, or liabilities relating
to the matters set forth on Schedule 5.08(a)), except as set forth on Schedule
---------------- --------
5.08(a) or in any notice furnished to the Lenders pursuant to Section 6.07(f) at
- -------
or prior to the respective times the representations and warranties set forth in
this Section 5.08(a) are made or deemed to be made hereunder.
(b) Except as set forth on Schedule 5.08(b) or in any notice furnished
----------------
to the Lenders pursuant to Section 6.07(f) at or prior to the respective times
the representations and warranties set forth in this Section 5.08(b) are made or
deemed to be made hereunder, none of the Borrower and its Subsidiaries has
received any notice of violation, or notice of any action, either judicial or
administrative, from any governmental authority (whether United States or
foreign) relating to the actual or alleged violation of any Environmental Law,
including, without limitation, any notice of any actual or alleged spill, leak,
or other release of any Hazardous Substance, waste or hazardous waste by
Borrower or any of its Subsidiaries or its employees or agents, or as to the
existence of any contamination on any properties owned by Borrower or any of its
Subsidiaries, where any such violation, spill, leak, release or contamination
would reasonably be expected to result in penalties, fines, claims or other
liabilities to the Borrower or any of its Subsidiaries in amounts in excess of
$1,000,000, either individually or in the aggregate.
(c) Except as set forth on Schedule 5.08(c), the Borrower and its
----------------
Subsidiaries have obtained all necessary governmental permits, licenses and
approvals which are material to the operations conducted on their respective
properties, including without limitation, all required material permits,
licenses and approvals for (i) the emission of air pollutants or contaminants,
(ii) the treatment or pretreatment and discharge of waste water or storm water,
(iii) the treatment, storage, disposal or generation of hazardous wastes, (iv)
the withdrawal and usage of ground water or surface water, and (v) the disposal
of solid wastes, where the failure to obtain such permits, licenses and
approvals would reasonably be expected to have a Materially Adverse Effect,
either individually or in the aggregate.
53
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Section 5.09. Insurance. The Borrower and its Subsidiaries currently
---------
maintain insurance with respect to their respective properties and businesses,
with financially sound and reputable insurers, having coverages against losses
or damages of the kinds customarily insured against by reputable companies in
the same or similar businesses, such insurance being in amounts no less than
those amounts which are customary for such companies under similar
circumstances. The Borrower and its Subsidiaries have paid all material amounts
of insurance premiums now due and owing with respect to such insurance policies
and coverages, and such policies and coverages are in full force and effect.
Section 5.10. No Default. Except as set forth on Schedule 5.10, none
---------- -------------
of the Acquisition Sub, the Borrower or any of its Subsidiaries is in default
under or with respect to any Contractual Obligation in any respect which default
or defaults would be reasonably expected in the aggregate to have a Materially
Adverse Effect.
Section 5.11. No Burdensome Restrictions. Except as set forth on
--------------------------
Schedule 5.11 or in any notice furnished to the Lenders pursuant to Section
- -------------
6.07(k) at or prior to the respective times the representations and warranties
set forth in this Section 5.11 are made or deemed to be made hereunder, none of
the Acquisition Sub, the Borrower or any of its Subsidiaries is a party to or
bound by any Contractual Obligation or Requirement of Law which has had or would
reasonably be expected to have a Materially Adverse Effect.
Section 5.12. Taxes. Except as set forth on Schedule 5.12, each of
----- -------------
the Acquisition Sub, the Borrower and its Subsidiaries have filed or caused to
be filed all declarations, reports and tax returns which are required to have
been filed, and has paid all taxes, custom duties, levies, charges and similar
contributions ("taxes" in this Section 5.12) shown to be due and payable on said
returns or on any assessments made against it or its properties, and all other
taxes, fees or other charges imposed on it or any of its properties by any
governmental authority (other than those the amount or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided in its
books); and no tax liens have been filed and, to the knowledge of Borrower and
Acquisition Sub, no claims are being asserted with respect to any such taxes,
fees or other charges.
Section 5.13. Subsidiaries. Except as disclosed on Schedule 5.01, on
------------ -------------
the date of this Agreement, Borrower has no Subsidiaries and neither Borrower
nor any Subsidiary is a joint venture partner or general partner in any
partnership. Except as disclosed on Schedule 5.13 or in any notice furnished to
-------------
the Lenders pursuant to Section 6.07(l) at or prior to the respective times the
representations and warranties set forth in this Section 5.13 are made or deemed
to be made hereunder, Borrower has no Material Subsidiaries.
54
<PAGE>
Section 5.14. Financial Statements. Acquisition Sub has furnished to
--------------------
the Agent and the Lenders:
(a) Target Financial Statements. (i) the audited consolidated balance
---------------------------
sheet of Target and its Subsidiaries as at December 29, 1996 and December 31,
1995 and the related consolidated statements of income, shareholders' equity and
cash flows for the 52-week periods then ended, including in each case the
related schedules and notes, and (ii) the unaudited balance sheet of Target and
its Subsidiaries as at June 29, 1997, and the related unaudited consolidated
statements of income, shareholders' equity, and cash flows for the period then
ended, setting forth in each case in comparative form the figures for the
previous fiscal year and second fiscal quarter, as the case may be. The
foregoing financial statements fairly present in all material respects the
consolidated financial condition of Target and its Subsidiaries as at the dates
thereof and results of operations for such periods in conformity with GAAP
consistently applied. Target and its Subsidiaries taken as a whole do not have
any material contingent obligations, contingent liabilities, or material
liabilities for known taxes, long-term leases or unusual forward or long-term
commitments not reflected in the foregoing financial statements or the notes
thereto. Since June 29, 1997, there have been no changes with respect to Target
and its Subsidiaries which has had or would reasonably be expected to have a
Materially Adverse Effect.
(b) Parent Balance Sheet. the unaudited balance sheet of the Parent and
--------------------
its Subsidiaries (after giving effect to the Transaction) dated as of the
Closing Date, delivered to the Lenders as of the Closing Date and certified as
true and correct by a senior officer of the Parent, fairly present in all
material respects, on a pro forma consolidated basis, based upon financial
results of Target and Parent through August 24, 1997, the combined consolidated
financial condition of Parent as at the date thereof.
(c) Pro Forma Combined Financial Statements. (i) the unaudited pro
---------------------------------------
forma condensed consolidated balance sheet of Borrower (after giving effect to
the Transaction) as of June 29, 1997 and (ii) the unaudited pro forma condensed
consolidated statements of operations for the fiscal year ended December 29,
1996 and the six months ending June 29, 1997, set forth in the Offering
Memorandum to be filed with the Securities Exchange Commission in connection
with the offering of the Senior Notes, fairly presents in all material respects,
on a pro forma consolidated basis, the combined consolidated financial condition
of Borrower as at the dates thereof. The Consolidated Companies, after giving
effect to the Transaction, taken as a whole, do not have any material contingent
obligations, contingent liabilities, or material liabilities for known taxes,
long-term leases or unusual forward or long-term commitments not reflected in
the foregoing financial statements or the notes thereto.
(d) The Projections. The projections, dated June 30, 1997, copies of
---------------
which have been furnished to each Lender, have been prepared on the basis of the
assumptions set forth therein, which are believed by the Borrower to be
reasonable and fair in the light of current conditions and the past history of
the Target and its Subsidiaries and to reflect a reasonable
55
<PAGE>
estimate of the projected balance sheets, results of operations, cash flows and
other information presented therein.
(e) No Material Adverse Change. Since the date of the preparation of
--------------------------
the pro forma financial statements and projections set forth above, there have
been no changes with respect to the Consolidated Companies which has had or
would reasonably be expected to have a Materially Adverse Effect.
Section 5.15. ERISA. Except as disclosed on Schedule 5.15 or in any
----- -------------
notice to the Lenders furnished pursuant to Section 6.07(g) at or prior to the
respective times the representations and warranties set forth in this Section
5.15 are made or deemed to be made hereunder:
(1) Identification of Plans. None of the Acquisition Sub, the
-----------------------
Borrower or its Subsidiaries nor any of their respective ERISA Affiliates
maintains or contributes to, or has during the past seven years maintained or
contributed to, any Plan that is subject to Title IV of ERISA;
(2) Compliance. Each Plan maintained by the Acquisition Sub, the
----------
Borrower or its Subsidiaries have at all times been maintained, by their terms
and in operation, in compliance with all applicable laws, and the Acquisition
Sub, the Borrower and its Subsidiaries are subject to no tax or penalty with
respect to any Plan of such Person or any ERISA Affiliate thereof, including
without limitation, any tax or penalty under Title I or Title IV of ERISA
(excluding PBGC premiums in the normal course) or under Chapter 43 of the Tax
Code, or any tax or penalty resulting from a loss of deduction that was
previously asserted on a filed tax return with the state or federal taxing
authority under Sections 162, 404, or 419 of the Tax Code, where the failure to
comply with such laws, and such taxes and penalties, together with all other
liabilities referred to in this Section 5.15 (taken as a whole), would in the
aggregate have a Materially Adverse Effect;
(3) Liabilities. The Acquisition Sub, the Borrower and its
-----------
Subsidiaries are subject to no liabilities (including withdrawal liabilities)
with respect to any Plans of such Persons or any of their ERISA Affiliates,
including without limitation, any liabilities arising from Titles I or IV of
ERISA, other than obligations to fund benefits under an ongoing Plan and to pay
current contributions, expenses and premiums with respect to such Plans, where
such liabilities, together with all other liabilities referred to in this
Section 5.15 (taken as a whole), would in the aggregate have a Materially
Adverse Effect;
(4) Funding. The Acquisition Sub, the Borrower and its Subsidiaries
-------
and, with respect to any Plan which is subject to Title IV of ERISA, each of
their respective ERISA Affiliates, have made full and timely payment of all
amounts (A) required to be contributed under the terms of each Plan and
applicable law, and (B) required to be paid as expenses (including PBGC or other
premiums) of each Plan, where the failure to pay such amounts (when
56
<PAGE>
taken as a whole, including any penalties attributable to such amounts) would
have a Materially Adverse Effect. No Plan subject to Title IV of ERISA (other
than a Multiemployer Plan) has an "amount of unfunded benefit liabilities" (as
defined in Section 4001(a)(18) of ERISA), determined as if such Plan terminated
on any date on which this representation and warranty is deemed made, in any
amount which, together with all other liabilities referred to in this Section
5.15 (taken as a whole), would have a Materially Adverse Effect if such amount
were then due and payable. None of the Acquisition Sub, the Borrower and its
Subsidiaries would be subject to withdrawal liability with respect to any
Multiemployer Plan, determined as if the event resulting in such withdrawal
liability occurred on any date on which this representation is made or deemed to
be made based on the most recent actuarial valuation data made available to
employers participating in the Multiemployer Plan, in any amount which, together
with all other liabilities referred to in this Section 5.15 (taken as a whole),
would have a Materially Adverse Effect if such amounts were then due and
payable. The Acquisition Sub, the Borrower and its Subsidiaries are subject to
no liabilities with respect to post-retirement medical benefits in any amounts
which, together with all other liabilities referred to in this Section 5.15
(taken as a whole), would reasonably be expected to have a Materially Adverse
Effect if such amounts were then due and payable.
Section 5.16. Patents, Trademarks, Licenses, Etc. Except as set
-----------------------------------
forth on Schedule 5.16, (i) Borrower and its Subsidiaries have obtained and hold
-------------
in full force and effect all material patents, trademarks, service marks, trade
names, copyrights, licenses and other such rights, free from material burdensome
restrictions, which are necessary for the operation of their respective
businesses as presently conducted, and (ii) to the best of Borrower's knowledge,
no product, process, method, service or other item presently sold by or employed
by Borrower and its Subsidiaries in connection with such business infringes any
patents, trademark, service mark, trade name, copyright, license or other right
owned by any other person and there is not presently pending, or to the
knowledge of Borrower, threatened, any claim or litigation against or affecting
Borrower and its Subsidiaries contesting such Person's right to sell or use any
such product, process, method, substance or other item where the result of such
failure to obtain and hold such benefits or such infringement would reasonably
be expected to have a Materially Adverse Effect.
Section 5.17. Ownership of Property. Except as set forth on Schedule
--------------------- --------
5.17, each Consolidated Company has good and marketable fee simple title to or a
- ----
valid leasehold interest in all of its real property and good title to, or a
valid leasehold interest in, all of its other property, as such properties are
reflected in the pro forma consolidated balance sheet of the Consolidated
Companies as of June 29, 1997 referred to in Section 5.14, other than properties
disposed of in the ordinary course of business since such date or as otherwise
permitted by the terms of this Agreement, subject to no Lien or title defect of
any kind, except Permitted Liens. The Consolidated Companies enjoy peaceful and
undisturbed possession under all of their respective material leases.
Section 5.18. Indebtedness. Except for the Indebtedness set forth on
------------
Schedule 7.01 or otherwise permitted pursuant to Section 7.01, (and with the
- -------------
exception of the Existing Credit
57
<PAGE>
Agreement to be repaid in full on the Closing Date) none of the Acquisition Sub,
the Borrower or any of its Subsidiaries is an obligor in respect of any
Indebtedness for borrowed money or any commitment to create or incur any
Indebtedness for borrowed money.
Section 5.19. Financial Condition. On the Closing Date, and on the
-------------------
date of each Loan hereunder and after giving effect to the Transaction and the
other transactions contemplated by this Agreement and the other Credit
Documents, including without limitation, the use of the proceeds of the Loans as
provided in Section 2.01, (i) the assets of each Credit Party at fair valuation
and based on their present fair saleable value (including, without limitation,
the fair and realistic value of any contribution or subrogation rights in
respect of any Guaranty Agreement given by such Credit Party) will exceed such
Credit Party's debts, including contingent liabilities (as such liabilities may
be limited under the express terms of any Guaranty Agreement of such Credit
Party), (ii) the remaining capital of such Credit Party will not be unreasonably
small to conduct the Credit Party's business, and (iii) such Credit Party will
not have incurred debts, or have intended to incur debts, beyond the Credit
Party's ability to pay such debts as they mature. For purposes of this Section
5.19, "debt" means any liability on a claim, and "claim" means (a) the right to
payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured, or (b) the right to an equitable remedy
for breach of performance if such breach gives rise to a right to payment,
whether or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed, secured or unsecured.
Section 5.20. Labor Matters. Except as set forth in Schedule 5.20 or
------------- -------------
in any notice furnished to the Lenders pursuant to Section 6.07(k) at or prior
to the respective times the representations and warranties set forth in this
Section 5.20 are made or deemed to be made hereunder, the Consolidated Companies
have experienced no strikes, labor disputes, slow downs or work stoppages due to
labor disagreements which have had, or would reasonably be expected to have, a
Materially Adverse Effect, and, to the best knowledge of Acquisition Sub or
Borrower, there are no such strikes, disputes, slow downs or work stoppages
threatened against any Consolidated Company. Except as set forth in Schedule
--------
5.20 or in any notice furnished to the Lenders pursuant to Section 6.07(k) at or
- ----
prior to the respective times the representations and warranties set forth in
this Section 5.20 are made or deemed to be made hereunder, the hours worked and
payment made to employees of the Consolidated Companies have not been in
violation in any material respect of the Fair Labor Standards Act or any other
applicable law dealing with such matters where the failure to comply therewith
would reasonably be expected to have a Materially Adverse Effect. Substantially
all payments due from the Consolidated Companies, or for which any claim may be
made against the Consolidated Companies, on account of wages and employee health
and welfare insurance and other benefits have been paid or accrued as
liabilities on the books of the Consolidated Companies where the failure to pay
or accrue such liabilities would reasonably be expected to have a Materially
Adverse Effect.
Section 5.21. Payment or Dividend Restrictions. Except as described
--------------------------------
on Schedule 5.21, none of the Borrower or its Subsidiaries is party to or
-------------
subject to any agreement or understanding
58
<PAGE>
restricting or limiting the payment of any dividends or other distributions by
Borrower or any Subsidiaries of Borrower.
Section 5.22. Ownership of Acquisition Sub and Borrower. As of the
-----------------------------------------
Closing Date, Parent owns 100% of the issued and outstanding capital stock of
the Acquisition Sub and, immediately upon consummation of the Merger concurrent
with the initial Loans hereunder, will own 100% of the issued and outstanding
capital stock of the Borrower, which Stock is fully paid and non-assessable.
Section 5.23. Acquisition. The Merger Agreement is in full force and
-----------
effect, has not been terminated, rescinded or withdrawn, and no material
provision thereof has been amended or waived by any party; all representations
and warranties of the parties set forth in the Merger Agreement, are true and
correct as of the Closing Date with the same effect as though made on and as of
the Closing Date; all requisite approvals by governmental authorities and
regulatory bodies having jurisdiction over the Parent, the Target and the
Acquisition Sub in respect of the transactions contemplated by the Merger
Agreement have been obtained by such entities, as the case may be, and no such
approvals impose any conditions to the consummation of the transactions
contemplated by the Merger Agreement or the continued conduct by the Borrower of
the business of Target or otherwise. The Merger will be consummated before or
concurrently with the initial Advance hereunder.
Section 5.24. Continuing Business of Target; Business of Parent. (a)
-------------------------------------------------
There exists no actual or, to the best knowledge of Acquisition Sub or Borrower,
threatened termination, cancellation or limitation of, or any material
modification or change in, (i) the business relationships of the Borrower with
any customer or group of customers of the Borrower whose business individually
or in the aggregate is material to the operations or financial condition of the
Borrower, (ii) the business relationships of the Borrower with any of its
material suppliers or (iii) any Material Contract where such termination,
cancellation, limitation, modification or change would reasonably be expected,
individually or in the aggregate, to have a Materially Adverse Effect; and the
Acquisition Sub and the Borrower reasonably anticipates that after the
consummation of the transactions contemplated by the Merger Agreement and this
Agreement, substantially all such customers and suppliers will continue a
business relationship with the Borrower on a basis no less favorable to the
Borrower than as heretofore conducted with the Target and there exists no other
condition or state of facts or circumstances which would reasonably be expected
to have a Materially Adverse Effect on the ongoing business of the Borrower.
(b) Parent, as of the Closing Date (i) engages in no business or other
activity other than the ownership of the Stock of the Acquisition Sub and
following the consummation of the Transaction, the Borrower and (ii) has no
outstanding Indebtedness other than the Parent Guaranty Agreement.
59
<PAGE>
Section 5.25. Consents to Acquisition. No material consent, authorization
-----------------------
or approval of, or declaration, notification, filing or registration with, any
governmental or regulatory authority or any third party, including without
limitation, the filing of any "Pre-merger Notification Report" with the Federal
Trade Commission and the Antitrust Division of the Department of Justice
pursuant to Title II of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended and the regulations promulgated thereunder is necessary in
connection with the consummation of the Acquisition and the Merger which has not
been obtained on or prior to the Closing Date.
Section 5.26. Disclosure. No representation or warranty contained in
----------
this Agreement (including the Schedules attached hereto) or in any other
document furnished from time to time pursuant to the terms of this Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary to make the statements herein or
therein not misleading in any material respect as of the date made or deemed to
be made. Except as may be set forth herein (including the Schedules attached
hereto), there is no fact known to Acquisition Sub or Borrower which has had, or
is reasonably expected to have, a Materially Adverse Effect.
ARTICLE VI.
AFFIRMATIVE COVENANTS
---------------------
So long as any Commitment remains in effect hereunder or any Note or
other Obligation shall remain unpaid, Borrower will:
Section 6.01. Corporate Existence, Etc. Preserve and maintain, and
-------------------------
cause each of its Subsidiaries to preserve and maintain, its corporate
existence, its material rights, franchises, and licenses, and its material
patents and copyrights (for the scheduled duration thereof), trademarks, trade
names, and service marks, necessary or desirable in the normal conduct of its
business, and its qualification to do business as a foreign corporation in all
jurisdictions where it conducts business or other activities making such
qualification necessary, where the failure to be so qualified would reasonably
be expected to have a Materially Adverse Effect.
Section 6.02. Compliance with Laws, Etc. Comply, and cause each of
--------------------------
its Subsidiaries to comply with all Requirements of Law (including, without
limitation, the Environmental Laws subject to the exception set forth in Section
5.08 where the penalties, claims, fines, and other liabilities resulting from
noncompliance with such Environmental Laws do not involve amounts in excess of
$1,000,000 in the aggregate) and Contractual Obligations applicable to or
binding on any of them where the failure to comply with such Requirements of Law
and Contractual Obligations would reasonably be expected to have a Materially
Adverse Effect.
60
<PAGE>
Section 6.03. Payment of Taxes and Claims, Etc. Pay, and cause each of
---------------------------------
its Subsidiaries to pay, (i) all taxes, assessments and governmental charges
imposed upon it or upon its property, and (ii) all claims (including, without
limitation, claims for labor, materials, supplies or services) which might, if
unpaid, become a Lien upon its property, unless, in each case, the validity or
amount thereof is being contested in good faith by appropriate proceedings and
adequate reserves are maintained with respect thereto.
Section 6.04. Keeping of Books. Keep, and cause each of its
----------------
Subsidiaries to keep, proper books of record and account, containing complete
and materially accurate entries of all their respective financial and business
transactions.
Section 6.05. Visitation, Inspection, Etc. Permit, and cause each of
---------------------------
its Subsidiaries to permit, any representative of the Agent or any Lender to
visit and inspect any of its property, to examine its books and records and to
make copies and take extracts therefrom, and to discuss its affairs, finances
and accounts with its officers, all at such reasonable times and as often as the
Agent or such Lender may reasonably request; provided that, as long as no Event
of Default has occurred or is continuing, (i) Agent or such Lender shall give at
least five (5) Business Days' prior written notice to Borrower of any such visit
or inspection, (ii) such visit or inspection will not materially interfere with
the conduct of business and (iii) such visit or inspection will be at Agent's or
such Lender's expense.
Section 6.06. Insurance; Maintenance of Properties.
------------------------------------
(a) Maintain or cause to be maintained with financially sound and
reputable insurers, insurance with respect to its properties and business, and
the properties and business of its Subsidiaries, against loss or damage of the
kinds customarily insured against by reputable companies in the same or similar
businesses, such insurance to be of such types and in such amounts as is
customary for such companies under similar circumstances; provided, however,
-------- -------
that in any event Borrower shall use its best efforts to maintain, or cause to
be maintained, insurance in amounts and with coverages not materially less
favorable to any of its Subsidiaries as in effect on the date of this Agreement.
(b) Cause, and cause each of its Subsidiaries to cause, all properties
used or useful in the conduct of its business to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
settlements and improvements thereof, all as in the judgment of Borrower may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted.
Section 6.07. Reporting Covenants. Furnish to each Lender:
-------------------
(a) Annual Financial Statements. As soon as available and in any event
---------------------------
within 120 days after each fiscal year end of Parent, balance sheets of the
Parent and its
61
<PAGE>
Subsidiaries as at the end of such year, presented on a consolidated and
consolidating basis, and the related statements of income, shareholders'
equity, and cash flows of the Parent and its Subsidiaries for such fiscal
year, presented on a consolidated and consolidating basis, setting forth in
each case in comparative form the figures for the previous fiscal year, all
in reasonable detail and accompanied by a report thereon of Arthur Andersen
L.L.P. or other independent public accountants of comparable recognized
national standing, which such report shall be unqualified as to going
concern and scope of audit and shall state that such financial statements
present fairly in all material respects the financial condition as at the
end of such fiscal year on a consolidated and consolidating basis, and the
results of operations and statements of cash flows of the Parent and its
Subsidiaries for such Fiscal Year in accordance with GAAP and that the
examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards;
(b) Quarterly and Monthly Financial Statements. (i) As soon as
------------------------------------------
available and in any event within 45 days after the end of each fiscal
quarter of Parent (other than the fourth fiscal quarter), balance sheets of
the Parent and its Subsidiaries as at the end of such quarter presented on
a consolidated and consolidating basis and the related statements of
income, shareholders' equity, and cash flows of the Parent and its
Subsidiaries for such fiscal quarter and for the portion of Parent's Fiscal
Year ended at the end of such quarter, presented on a consolidated and
consolidating basis setting forth in each case in comparative form the
figures for the corresponding quarter and the corresponding portion of
Parent's previous Fiscal Year, all in reasonable detail and certified, with
respect to the quarterly statements, by the chief financial officer or
principal accounting officer of Borrower that such financial statements
fairly present in all material respects the financial condition of the
Parent and its Subsidiaries as at the end of such fiscal quarter on a
consolidated and consolidating basis, and the results of operations and
statements of cash flows of the Parent and its Subsidiaries for such fiscal
quarter and such portion of Parent's Fiscal Year, in accordance with GAAP
consistently applied (subject to normal year-end audit adjustments and the
absence of certain footnotes) and (ii) as soon as available and in any
event within 30 days after the end of each calendar month, balance sheets
of the Parent and its Subsidiaries as at the end of such month presented on
a consolidated and consolidating basis and the related statements of
income, shareholders' equity, and cash flows of the Parent and its
Subsidiaries for such month and for the portion of Parent's Fiscal Year
ended at the end of such month, presented on a consolidated and
consolidating basis setting forth in each case in comparative form the
figures for the corresponding portion of Parent's previous Fiscal Year, all
in reasonable detail, in accordance with GAAP consistently applied (subject
to normal year-end audit adjustments and the absence of certain footnotes);
(c) No Default/Compliance Certificate. Together with the financial
---------------------------------
statements required pursuant to subsections (a) and (b)(i) above, a
certificate, substantially in the form of Exhibit I attached hereto, of the
---------
treasurer or chief financial
62
<PAGE>
officer of Borrower (i) to the effect that, based upon a review of the
activities of the Parent and its Subsidiaries and such financial statements
during the period covered thereby, there exists no Event of Default and no
Default under this Agreement, or if there exists an Event of Default or a
Default hereunder, specifying the nature thereof and the proposed response
thereto, and (ii) demonstrating in reasonable detail compliance as at the
end of such Fiscal Year or such fiscal quarter with Section 6.08 and
Sections 7.01 through 7.06;
(d) Notice of Default. Promptly after any Executive Officer of
-----------------
Borrower has notice or knowledge of the occurrence of an Event of Default
or a Default, a certificate of the chief financial officer or principal
accounting officer of Borrower specifying the nature thereof and the
proposed response thereto;
(e) Litigation. Promptly after (i) the occurrence thereof, notice of
----------
the institution of or any material adverse development in any material
action, suit or proceeding or any governmental investigation or any
arbitration, before any court or arbitrator or any governmental or
administrative body, agency or official, against Borrower or any of its
Subsidiaries, or any material property of any thereof seeking money damages
in excess of $2,000,000 (unless any such judgment, award or fine is
unequivocally covered by Borrower's insurance policies) or which, if
adversely determined, would otherwise reasonably be expected to have a
Materially Adverse Effect, or (ii) actual knowledge thereof, notice of the
threat of any such action, suit, proceeding, investigation or arbitration;
(f) Environmental Notices. Promptly after receipt thereof, notice of
---------------------
any actual or alleged violation, or notice of any action, claim or request
for information, either judicial or administrative, from any governmental
authority relating to any actual or alleged claim, notice of potential
responsibility under or violation of any Environmental Law, or any actual
or alleged spill, leak, disposal or other release of any waste, petroleum
product, or hazardous waste or Hazardous Substance by Borrower or any of
its Subsidiaries which could reasonably be expected to result in penalties,
fines, claims or other liabilities to Borrower or any of its Subsidiaries
in amounts in excess of $1,000,000;
(g) ERISA. (i) Promptly after the occurrence thereof with respect to
-----
any Plan of any Consolidated Company or any ERISA Affiliate thereof, or any
trust established thereunder, notice of (A) a "reportable event" described
in Section 4043 of ERISA and the regulations issued from time to time
thereunder (other than a "reportable event" not subject to the provisions
for 30-day notice to the PBGC under such regulations), or (B) any other
event which could subject any Consolidated Company to any tax, penalty or
liability (excluding PBGC premiums in the normal course) under Title I or
Title IV of ERISA or Chapter 43 of the Tax Code, or any tax or penalty
resulting from a loss of deduction that was asserted on a filed tax return
with the state or federal taxing authority
63
<PAGE>
under Sections 162, 404 or 419 of the Tax Code, where any such taxes,
penalties or liabilities exceed or could reasonably be expected to exceed
$1,000,000 in the aggregate;
(ii) Promptly after such notice must be provided to the PBGC, or
to a Plan participant, beneficiary or alternative payee, any notice
required under Section 101(d), 302(f)(4), 303, 307, 4041(b)(1)(A) or
4041(c)(1)(A) of ERISA or under Section 401(a)(29) or 412 of the Tax Code
with respect to any Plan of any Consolidated Company or any ERISA Affiliate
thereof;
(iii) Promptly after receipt, any notice received by any
Consolidated Company or any ERISA Affiliate thereof concerning the intent
of the PBGC or any other governmental authority to terminate a Plan of such
Consolidated Company or ERISA Affiliate thereof which is subject to Title
IV of ERISA, to impose any liability on such Consolidated Company or ERISA
Affiliate under Title IV of ERISA or Chapter 43 of the Tax Code;
(iv) Upon the request of the Agent, promptly upon the filing
thereof with the Internal Revenue Service ("IRS") or the Department of
Labor ("DOL"), a copy of IRS Form 5500 or annual report for each Plan of
any Consolidated Company or ERISA Affiliate thereof which is subject to
Title IV of ERISA;
(v) Upon the request of the Agent, (A) true and complete copies
of any and all documents, government reports and IRS determination or
opinion letters or rulings for any Plan of any Consolidated Company from
the IRS, PBGC or DOL, (B) any reports filed with the IRS, PBGC or DOL with
respect to a Plan of the Consolidated Companies or any ERISA Affiliate
thereof, or (C) a current statement of withdrawal liability for each
Multiemployer Plan of any Consolidated Company or any ERISA Affiliate
thereof;
(h) Liens. Promptly upon Borrower or any Subsidiary becoming aware
-----
thereof, notice of the filing of any federal statutory Lien, tax or other
state or local government Lien or any other Lien affecting their respective
properties, other than Permitted Liens;
(i) Public Filings, Etc. Promptly upon the filing thereof or
-------------------
otherwise becoming available, copies of all financial statements, annual,
quarterly and special reports, proxy statements and notices sent or made
available generally by Parent or Borrower to its public security holders,
of all regular and periodic reports and all registration statements and
prospectuses, if any, filed by any of them with any securities exchange,
and of all press releases and other statements made available generally to
the public containing material developments in the business or financial
condition of Borrower and the other Consolidated Companies;
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(j) Accountants' Reports. Promptly upon receipt thereof, copies of
--------------------
all financial statements of, and all reports submitted by, independent
public accountants to Parent or Borrower in connection with each annual,
interim, or special audit of Parent's or Borrower's financial statements,
including without limitation, the comment letter submitted by such
accountants to management in connection with their annual audit;
(k) Burdensome Restrictions, Etc. Promptly upon the existence or
----------------------------
occurrence thereof, notice of the existence or occurrence of (i) any
Contractual Obligation or Requirement of Law described in Section 5.11,
(ii) failure of Borrower or any Subsidiary to hold in full force and effect
those material trademarks, service marks, patents, trade names, copyrights,
licenses and similar rights necessary in the normal conduct of its
business, and (iii) any strike, labor dispute, slow down or work stoppage
as described in Section 5.20;
(l) New Material Subsidiaries. Within 30 days after the formation or
-------------------------
acquisition of any Material Subsidiary, or any other event resulting in the
creation of a new Material Subsidiary, notice of the formation or
acquisition of such Material Subsidiary or such occurrence, including a
description of the assets of such entity, the activities in which it will
be engaged, and such other information as the Agent and any of the Lenders
may request;
(m) Intercompany Asset Transfers. Promptly upon the occurrence
----------------------------
thereof, notice of the transfer of any assets from any Credit Party to any
other Consolidated Company that is not a Credit Party in any transaction or
series of related transactions, where either the book value or the fair
market value of such assets is greater than $1,000,000 (excluding sales or
other transfers of assets in the ordinary course of business);
(n) Annual Budget and Projections. Within a reasonable period of time
-----------------------------
after the beginning of each Fiscal Year of Borrower, an annual budget and
accompanying projected balance sheets and statements of income,
shareholders' equity, and cash flows for such fiscal year for the Borrower
and its Subsidiaries in form and substance reasonably acceptable to the
Lenders; and
(o) Other Information. With reasonable promptness, such other
-----------------
information about the Consolidated Companies as the Agent or any Lender may
reasonably request from time to time.
Section 6.08. Financial Covenants.
-------------------
(a) Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage
---------------------------
Ratio at all times, measured as of the last day of each Fiscal Quarter of the
Borrower, commencing with
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the last day of the third Fiscal Quarter of 1998, of not less than the ratio set
forth opposite the period in which such Fiscal Quarter Ended as set forth below:
Period Ratio
------ -----
Third Fiscal Quarter 1998 0.75:1.00
First Day of Fourth Fiscal Quarter 1998
through the last day of Third
Fiscal Quarter 1999 1.00:1.00
First Day of Fourth Fiscal Quarter
1999 and thereafter 1.05:1.00.
The calculation of the Fixed Charge Coverage Ratio of the Borrower as of the
last day of the third Fiscal Quarter of 1998 shall be based upon the four Fiscal
Quarters of the Borrower ending on such date. The calculation of the Fixed
Charge Coverage Ratio of the Borrower as of the last day of the fourth Fiscal
Quarter of 1998 shall be based solely upon the period consisting of such fourth
Fiscal Quarter of 1998. The calculation of the Fixed Charge Coverage Ratio of
the Borrower as of the last day of the first Fiscal Quarter of 1999 shall be
based solely upon the period consisting of the fourth Fiscal Quarter of 1998 and
the first Fiscal Quarter of 1999. The calculation of the Fixed Charge Coverage
Ratio of the Borrower as of the last day of the second Fiscal Quarter of 1999
shall be based solely upon the period consisting of the fourth Fiscal Quarter of
1998, the first Fiscal Quarter of 1999 and the second Fiscal Quarter of 1999.
Following the second Fiscal Quarter of 1999, the Fixed Charge Coverage Ratio
shall be calculated in accordance with the definition thereof.
(b) Funded Debt Coverage Ratio. Maintain a Funded Debt Coverage
--------------------------
Ratio at all times, measured as of the last day of each Fiscal Quarter of the
Borrower, commencing with the last day of the third Fiscal Quarter of 1998, of
not less than the ratio set forth opposite the period in which such Fiscal
Quarter Ended as set forth below:
Period Ratio
------ -----
Third Fiscal Quarter 1998 7.50:1.00
First Day of Fourth Fiscal Quarter 1998
through the last day of Third
Fiscal Quarter 1999 6.00:1.00
First Day of Fourth Fiscal Quarter
1999 and thereafter 5.00:1.00.
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(c) Consolidated Net Worth. Maintain at all times, as calculated on
----------------------
the last day of each Fiscal Quarter of the Borrower, Consolidated Net Worth in
an amount not less than $15,000,000.
(d) Consolidated Capital Expenditures. Not make or commit to make
---------------------------------
any Consolidated Capital Expenditures during any period of eight consecutive
Fiscal Quarters which exceed, when aggregated with all other Consolidated
Capital Expenditures previously made during such period, the amount of
$20,000,000.
Section 6.09. Notices Under Certain Other Indebtedness. Within five (5)
----------------------------------------
Business Days upon its receipt thereof, Borrower shall furnish the Agent a copy
of any notice received by it or any other Consolidated Company from the
holder(s) of Indebtedness referred to in Section 7.01(b), (c), (e), (f), (g) or
(i) (or from any trustee, agent, attorney, or other party acting on behalf of
such holder(s)) in an amount which, in the aggregate, exceeds $1,000,000, where
such notice states or claims (i) the existence or occurrence of any default or
event of default with respect to such Indebtedness under the terms of any
indenture, loan or credit agreement, debenture, note, or other document
evidencing or governing such Indebtedness, or (ii) the existence or occurrence
of any event or condition which requires or permits holder(s) of any
Indebtedness to exercise rights under any Change in Control Provision.
Section 6.10. Additional Credit Parties and Collateral. Promptly after
----------------------------------------
(i) the formation or acquisition of any Material Subsidiary not listed on
Schedule 5.13, (ii) the transfer of assets to any Consolidated Company if notice
- -------------
thereof is required to be given pursuant to Section 6.07(m) and as a result
thereof the recipient of such assets becomes a Material Subsidiary, or (iii) the
occurrence of any other event creating a new Material Subsidiary, Borrower shall
cause to be executed and delivered a Guaranty Agreement from each such Material
Subsidiary, together with related corporate authorization documents,
organizational documents, secretary's certificates and, if requested by the
Agent in the exercise of its reasonable credit judgment, opinions, all in form
and substance satisfactory to the Agent and the Required Lenders.
ARTICLE VII.
NEGATIVE COVENANTS
------------------
So long as any Commitment remains in effect hereunder or any Note or
other Obligation shall remain unpaid, Borrower will not and will not permit any
Subsidiary to:
Section 7.01. Indebtedness. Create, incur, assume, guarantee, suffer to
------------
exist or otherwise become liable on or with respect to, directly or indirectly,
any Indebtedness (including Acquired Indebtedness), other than:
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(a) Indebtedness of the Borrower under this Agreement and of the
Material Subsidiaries of Borrower pursuant to the Guaranty Agreement;
(b) Indebtedness outstanding or incurred on the Closing Date and
described on Schedule 7.01;
-------------
(c) Indebtedness of the Borrower or any of its Subsidiaries
represented by Capital Lease Obligations (whether or not incurred pursuant
to Sale and Leaseback Transactions), mortgage financings or Purchase Money
Obligations, in each case incurred for the purpose of financing all of any
part of the purchase price or cost of construction or improvement of
property used in the business of the Borrower or any of its Subsidiaries
(provided that such Indebtedness is incurred within 180 days of the date
such property is purchased or the date on which such construction of or
improvement to such property is commenced) in an aggregate principal amount
at any time outstanding not to exceed $15,000,000.00;
(d) unsecured current liabilities (other than liabilities for borrowed
money or liabilities evidenced by promissory notes, bonds or similar
instruments) incurred in the ordinary course of business and either (i) not
more than 30 days past due, or (ii) being disputed in good faith by
appropriate proceedings with reserves for such disputed liability
maintained in conformity with GAAP;
(e) Indebtedness of Borrower with respect to the Senior Notes and
Indebtedness of the Material Subsidiaries of Borrower with respect to
guarantees thereof;
(f) Subordinated Debt of the Borrower (but not Subsidiaries of the
Borrower) expressly approved in writing by the Lenders;
(g) Guarantees of advances to officers and employees in the ordinary
course of business, or Guarantees otherwise disclosed to and approved in
writing by the Agent and the Required Lenders;
(h) Endorsements of instruments for deposit or collection in the
ordinary course of business; and
(i) other Indebtedness of Borrower not exceeding $5,000,000 in
aggregate principal amount outstanding at any time.
Section 7.02. Liens. Create, incur, assume or suffer to exist any Lien on
-----
any of its property now owned or hereafter acquired to secure any Indebtedness
other than Permitted Liens.
Section 7.03. Mergers, Consolidations, Etc. (a) Merge or consolidate with
-----------------------------
any other Person, except that this Section 7.03 shall not apply to:
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(i) any merger or consolidation of Borrower with any other Person
provided that the Borrower is the surviving corporation after such merger
or consolidation,
(ii) any merger or consolidation of any of the Borrower's Subsidiaries
with any other Person provided that any such Subsidiary shall be the
surviving corporation after such merger or consolidation, shall be a
Wholly-Owned Subsidiary of the Borrower and such acquisition or
consolidation shall be permitted hereunder, or
(iii) any merger between Subsidiaries of Borrower.
Section 7.04. Investments, Loans, Dividends, Etc.
-----------------------------------
(a) Directly or indirectly:
(i) declare or pay any dividend or make any distribution of any kind
or character (whether in cash, securities or other property) on account of
any class of the Borrower's or any of its Subsidiaries' Equity Interests or
to holders thereof (including, without limitation, any payment to
stockholders of the Borrower in connection with a merger or consolidation
involving the Borrower), other than (a) dividends or distributions payable
solely in Equity Interests (other than Disqualified Stock) of the Borrower
or (b) dividends or distributions payable solely to the Borrower or any
Wholly-Owned Subsidiary of the Borrower;
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Borrower, any Subsidiary of the Borrower, or any
other Affiliate of the Borrower (other than any such Equity Interests owned
by the Borrower or any Wholly-Owned Subsidiary of the Borrower);
(iii) make any Investment (other than Permitted Investments); or
(iv) make any payments to any Affiliate of the Borrower as
compensation for management services, except through the issuance of Equity
Interests (other than Disqualified Stock) of the Borrower
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
-------------------
and after giving effect to such Restricted Payment:
(I) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof,
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(II) at the time of such Restricted Payment and after giving pro forma
effect thereto as if such Restricted Payment had been made at the beginning
of the applicable four-quarter period, the Borrower would have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth under Section 6.08(b)
hereof, and
(III) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments declared or made by the Borrower and its
Subsidiaries on or after the Closing Date (excluding Restricted Payments
permitted by Sections 7.04(b)(ii), 7.04(b)(iii), 7.04(b)(iv), 7.04(b)(v)
and 7.04(b)(vi) hereof), is less than the sum of (i) 50% of the
Consolidated Net Income of the Borrower for the period (taken as one
accounting period) from the beginning of the first Fiscal Quarter
commencing after the Closing Date to the end of the Borrower's most
recently ended Fiscal Quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Borrower from
the issue or sale after the Closing Date of Equity Interests of the
Borrower or of debt securities of the Borrower that have been converted
into such Equity Interests (other than Equity Interests (or convertible
debt securities) sold to a Subsidiary of the Borrower and other than
Disqualified Stock or debt securities that have been converted into
Disqualified Stock).
(b) The foregoing clauses (II) and (III) of Section 7.04(a) will not
prohibit:
(i) the payment of any dividend on any class of Capital Stock of the
Borrower or any Subsidiary of the Borrower within 60 days after the date of
declaration thereof, if on the date on which such dividend was declared
such payment would have complied with the provisions of this Agreement; or
(ii) any dividend on shares of Capital Stock payable solely in shares
of Capital Stock (other than Disqualified Stock); or
(iii) any dividend or other distribution payable from a Subsidiary to
the Borrower or any Wholly-Owned Subsidiary; or
(iv) the making of any Investment in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Borrower) of Equity Interests of the Borrower (other than
Disqualified Stock); provided, that any net cash proceeds that are utilized
for any such Investment, and any Consolidated Net Income resulting therefor
shall be excluded from clause (III) of Section 7.04(a) hereof; or
(v) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of the Borrower in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary of the
Borrower) of other Equity Interests of
70
<PAGE>
the Borrower (other than any Disqualified Stock); provided that any net
cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition, and any Consolidated Net Income resulting
therefrom, shall be excluded from clause (III) of Section 7.04(a) hereof;
or
(vi) the defeasance, redemption or repurchase of pari passu or
Subordinated Debt with the net cash proceeds from an incurrence of
additional Subordinated Debt or the substantially concurrent sale (other
than to a Subsidiary of the Borrower) of Equity Interests of the Borrower
(other than Disqualified Stock); provided, that any net cash proceeds that
are utilized for any such defeasance, redemption or repurchase, and any
Consolidated Net Income resulting therefrom, shall be excluded from clause
(III) of Section 7.04(a) hereof; or
(vii) the repurchase of shares of Capital Stock of the Borrower in
connection with repurchase provisions under employee stock option and stock
purchase agreements or other agreements to compensate management employees
of the Borrower to the extent such payments do not exceed $1.0 million in
the aggregate.
(c) The amount of all Restricted Payments (other than cash) shall be
the fair market value on the date of the Restricted Payment of the asset(s)
proposed to be transferred by the Borrower or such Subsidiary, as the case may
be, pursuant to the Restricted Payment.
Section 7.05. Asset Sales. (a) Engage, directly or indirectly, in an
-----------
Asset Sale (except an Exempt Asset Sale) unless:
(i) the Borrower (or such Subsidiary) receives consideration at the
time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of, and in the case of a lease of assets,
a lease providing for rent and other conditions which are no less favorable
to the Borrower (or such Subsidiary) in any material respect than the then
prevailing market conditions (as determined in each case by the Board of
Directors of the Borrower, whose determination shall be conclusive if made
in good faith and evidenced by a Board Resolution set forth in an officers'
certificate of the Borrower delivered to the Agent);
(ii) at least 85% (100% in the case of lease payments) of the
consideration therefor received by the Borrower or such Subsidiary is in
the form of cash or Cash Equivalents; and
(iii) No Default or Event of Default exists or would result
therefrom.
(b) The Borrower may apply, and may permit its Subsidiaries to apply,
Net Proceeds of an Asset Sale (other than an Exempt Asset Sale), at its option,
in each case within 180 days after the consummation of such an Asset Sale:
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(i) to permanently reduce Indebtedness outstanding hereunder (and
to permanently reduce the Commitments with respect thereto) or pursuant to
the Senior Notes;
(ii) to acquire Eligible Assets or to reimburse the Borrower or
its Subsidiaries for expenditures previously made to acquire Eligible
Assets, provided that any such expenditures were made not more than 180
--------
days prior to the consummation of such Asset Sale and were made in
contemplation of such Asset Sale and for the purpose of replacing the
assets to be disposed of in such Asset Sale; or
(iii) to reimburse the Borrower or its Subsidiaries for
expenditures made, and costs incurred, to repair, rebuild, replace or
restore property subject to loss, damage or taking to the extent that the
Net Proceeds consist of insurance proceeds received on account of such
loss, damage or taking.
Pending the final application of any such Net Proceeds, the Borrower may invest
such Net Proceeds temporarily in Cash Equivalents or apply such Net Proceeds to
reduce amounts outstanding hereunder. Notwithstanding the foregoing, with
respect to any Asset Sale of any Collateral, the Borrower (or such Subsidiary)
shall not be permitted to enter into any Asset Sale with respect thereto unless
and until the Borrower has granted to the Agent, for the ratable benefit of the
Lenders, a perfected security interest in additional Collateral of a quality and
value (including cash or Cash Equivalents) at least equal to the quality and
value of the Collateral subject to the Asset Sale (in each case, as determined
in the reasonable discretion of the Required Lenders); provided, however, that
such requirement for substitute Collateral shall not apply to an Asset Sale of
the Capital Stock or all of substantially all of the assets of Krystal Aviation
Co. and Krystal Aviation Management Co.
Section 7.06. Sale and Leaseback Transactions. Enter into any Sale and
-------------------------------
Leaseback Transaction. Notwithstanding the foregoing, the Borrower or any
Subsidiary may enter into a Sale and Leaseback Transaction if:
(a) after giving pro forma effect to any such Sale and Leaseback
Transaction, the Borrower shall be in compliance with Sections 7.01 and
7.02 hereof,
(b) the gross cash proceeds of such Sale and Leaseback Transaction are
at least equal to the fair market value of such property;
(c) the aggregate rent payable by the Borrower in respect of such Sale
and Leaseback Transaction is not in excess of the fair market rental value
of the property leased pursuant to such Sale and Leaseback Transaction; and
(d) the assets subject to such Sale and Leaseback Transaction do not
constitute Collateral.
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Section 7.07. Transactions with Affiliates. Enter into or suffer to exist
----------------------------
any transaction or a series of related transactions (including, without
limitation the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate (each of the foregoing, an "Affiliate
Transaction"), other than Exempt Affiliate Transactions, unless:
(a) such Affiliate Transaction is on terms that are no less favorable
to the Borrower or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by the Borrower or such Subsidiary
with a Person that is not an Affiliate; and
(b) the Borrower delivers to the Lenders (i) with respect to any
Affiliate Transaction entered into after the Closing Date involving
aggregate consideration in excess of $2.5 million, a Board Resolution duly
adopted by a committee of independent Directors of the Borrower, as set
forth in an Officer's Certificate, certifying that such Affiliate
Transaction complies with clause (a) above.
Section 7.08. Changes in Business. Enter into or engage in any business
-------------------
which is substantially different from the business engaged in (or any reasonable
extensions or expansions thereof) by the Borrower and its Subsidiaries on the
Closing Date.
Section 7.09. ERISA. Take or fail to take any action with respect to any
-----
Plan of any Consolidated Company or, with respect to its ERISA Affiliates, any
Plans which are subject to Title IV of ERISA or to continuation health care
requirements for group health plans under the Tax Code, including without
limitation (i) establishing any such Plan, (ii) amending any such Plan (except
where required to comply with applicable law), (iii) terminating or withdrawing
from any such Plan, or (iv) incurring an amount of unfunded benefit liabilities,
as defined in Section 4001(a)(18) of ERISA, or any withdrawal liability under
Title IV of ERISA with respect to any such Plan, which together with any other
action or omission referred to in this Section 7.09 (taken as a whole) would
have a Materially Adverse Effect, without first obtaining the written approval
of the Required Lenders.
Section 7.10. Limitation on Payment Restrictions Affecting Borrower and
---------------------------------------------------------
its Subsidiaries. Create or otherwise cause or suffer to exist or become
- ----------------
effective, any consensual encumbrance or restriction on the ability of Borrower
or any of its Subsidiaries to (i) pay dividends or make any other distributions
on any stock of a Subsidiary of the Borrower, or (ii) pay any intercompany debt
owed to Borrower or any Subsidiary of Borrower, or (iii) transfer any of its
property or assets to Borrower or any Subsidiary of Borrower, except any
consensual encumbrance or restriction existing as of the Closing Date.
Section 7.11. Actions Under Certain Documents. Without the prior written
-------------------------------
consent of the Required Lenders (i) modify, amend, cancel or rescind any
agreements or documents evidencing or governing Subordinated Debt or
intercompany debt, (ii) make any payment with respect to Subordinated Debt,
except that current interest accrued on such Subordinated Debt as
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<PAGE>
of the date of this Agreement and all interest subsequently accruing thereon
(whether or not paid currently) may be paid unless a Default or Event of Default
has occurred and is continuing, (iii) voluntarily prepay any portion of
intercompany debt, (iv) amend or modify the Senior Note Indenture or Senior
Notes issued thereunder to (x) increase the interest rate applicable thereto or
fees payable in connection therewith, (y) shorten the maturity or scheduled
amortization thereof, (z) make any covenant or event of default applicable
thereto more restrictive or otherwise to materially increase the obligations or
liabilities of the Consolidated Companies thereunder or (v) prepay, defease,
tender for, or otherwise provide for the payment prior to maturity of, the
Senior Notes, in whole or in part, except in connection with an Asset Sale as
permitted pursuant to Section 7.05 hereof.
Section 7.12. Additional Negative Pledges. Create or otherwise cause or
---------------------------
suffer to exist or become effective, directly or indirectly, any prohibition or
restriction on the creation or existence of any Lien upon any asset of Borrower
or its Subsidiaries, other than pursuant to (i) Section 7.02, (ii) the terms of
any agreement, instrument or other document pursuant to which any Indebtedness
permitted by Section 7.01(c) is incurred by Borrower or its Subsidiaries, so
long as such prohibition or restriction applies only to the property or asset
being financed by such Indebtedness, (iii) the Senior Indenture as in effect on
the Closing Date and (iv) any requirement of applicable law or any regulatory
authority having jurisdiction over any of the Borrower or its Subsidiaries.
Section 7.13. Changes in Fiscal Year. Change the calculation of the
----------------------
Fiscal Year of the Borrower.
Section 7.14. Issuance of Stock by Subsidiaries. Permit any Material
---------------------------------
Subsidiary (either directly or indirectly by the issuance of rights or options
for, or securities convertible into such shares) to issue, sell or dispose of
any shares of its stock of any class (other than directors' qualifying shares,
if any) except to the Borrower or another Wholly-Owned Subsidiary of Borrower.
ARTICLE VIII.
EVENTS OF DEFAULT
-----------------
Upon the occurrence and during the continuance of any of the following
specified events (each an "Event of Default"):
Section 8.01. Payments. Borrower shall fail to make promptly when due
--------
(including, without limitation, by mandatory prepayment) any principal payment
with respect to the Loans, or Borrower shall fail to make any payment of
interest, fee or other amount payable hereunder within two (2) Business Days of
its due date;
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Section 8.02. Covenants Without Notice. Borrower shall fail to observe or
------------------------
perform any covenant or agreement contained in Sections 6.01, 6.05, 6.07, 6.08,
6.09 or Article VII, provided that Borrower may fail to observe the covenant set
forth in Section 6.08(a) once for any Fiscal Quarter through the third Fiscal
Quarter of 1999 without causing an Event of Default;
Section 8.03. Other Covenants. Borrower shall fail to observe or perform
---------------
any covenant or agreement contained in this Agreement, other than those referred
to in Sections 8.01 and 8.02, and such failure shall remain unremedied for 30
days after the earlier of (i) Borrower's obtaining knowledge thereof, or (ii)
written notice thereof shall have been given to Borrower by Agent or any Lender;
Section 8.04. Representations. Any representation or warranty made or
---------------
deemed to be made by Borrower or any other Credit Party or by any of its
officers under this Agreement or any other Credit Document (including the
Schedules attached thereto), or any certificate or other document submitted to
the Agent or the Lenders by any such Person pursuant to the terms of this
Agreement or any other Credit Document, shall be incorrect in any material
respect when made or deemed to be made or submitted;
Section 8.05. Non-Payments of Other Indebtedness. Parent or any
----------------------------------
Consolidated Company shall fail to make when due (whether at stated maturity, by
acceleration, on demand or otherwise, and after giving effect to any applicable
grace period) any payment of principal of or interest on any Indebtedness (other
than the Obligations) exceeding $1,000,000 individually or in the aggregate;
Section 8.06. Defaults Under Other Agreements; Change In Control
--------------------------------------------------
Provisions. (a) Parent or any Consolidated Company shall fail to observe or
- ----------
perform any covenants or agreements contained in any agreements or instruments
relating to any of its Indebtedness exceeding $1,000,000 individually or in the
aggregate (after giving effect to any applicable grace period), or any other
event shall occur if the effect of such failure or other event is to accelerate,
or with notice or passage of time or both (after giving effect to any applicable
grace period), to permit the holder of such Indebtedness or any other Person to
accelerate, the maturity of such Indebtedness; or any such Indebtedness shall be
required to be prepaid (other than by a regularly scheduled required prepayment)
in whole or in part prior to its stated maturity; or (b) any event or condition
shall occur or exist which, pursuant to the terms of any Change in Control
Provision, requires or permits the holder(s) of the Indebtedness subject to such
Change in Control Provision to require that such Indebtedness be redeemed,
repurchased, defeased, prepaid or repaid, in whole or in part, or the maturity
of such Indebtedness to be accelerated;
Section 8.07. Bankruptcy. Parent or any Consolidated Company shall
----------
commence a voluntary case concerning itself under the Bankruptcy Code or
applicable foreign bankruptcy laws; or an involuntary case for bankruptcy is
commenced against Parent or any Consolidated Company and the petition is not
controverted within 10 days, or is not dismissed within 60 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) or
similar
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<PAGE>
official under applicable foreign bankruptcy laws is appointed for, or takes
charge of, all or any substantial part of the property of the Parent or any
Consolidated Company; or the Parent or any Consolidated Company commences
proceedings of its own bankruptcy or to be granted a suspension of payments or
any other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction, whether now or hereafter in effect, relating to the Parent or any
Consolidated Company or there is commenced against the Parent or any
Consolidated Company any such proceeding which remains undismissed for a period
of 60 days; or the Parent or any Consolidated Company is adjudicated insolvent
or bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Parent or any Consolidated Company suffers any
appointment of any custodian or the like for it or any substantial part of its
property to continue undischarged or unstayed for a period of 60 days; or the
Parent or any Consolidated Company makes a general assignment for the benefit of
creditors; or the Parent or any Consolidated Company shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts generally
as they become due; or the Parent or any Consolidated Company shall call a
meeting of its creditors with a view to arranging a composition or adjustment of
its debts; or the Parent or any Consolidated Company shall by any act or failure
to act indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate action is taken by the Parent or any Consolidated
Company for the purpose of effecting any of the foregoing;
Section 8.08. ERISA. A Plan of either Parent, a Consolidated Company or
-----
of any of its ERISA Affiliates which is subject to Title IV of ERISA:
(i) shall fail to be funded in accordance with the minimum
funding standard required by applicable law, the terms of such Plan,
Section 412 of the Tax Code or Section 302 of ERISA for any plan year or a
waiver of such standard is sought or granted with respect to such Plan
under applicable law, the terms of such Plan or Section 412 of the Tax Code
or Section 303 of ERISA; or
(ii) is being, or has been, terminated or the subject of
termination proceedings under applicable law or the terms of such Plan; or
(iii) shall require Parent or a Consolidated Company to provide
security under applicable law, the terms of such Plan, Section 401 or 412
of the Tax Code or Section 306 or 307 of ERISA; or
(iv) results in a liability to Parent or a Consolidated Company
under applicable law, the terms of such Plan, or Title IV of ERISA;
and there shall result from any such failure, waiver, termination or other event
described in clauses (i) through (iv) above a liability to the PBGC or a Plan
that would have a Materially Adverse Effect;
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Section 8.09. Judgments. Judgments or orders for the payment of money in
---------
excess of $2,000,000 individually or in the aggregate (unless the Borrower's
insurance company has admitted liability for such judgment or order with respect
to all amounts in excess of $2,000,000 and such judgment has not resulted in a
Lien on the assets of the Borrower or its Subsidiaries) or otherwise having a
Materially Adverse Effect shall be rendered against Parent or any Consolidated
Company and such judgment or order shall continue unsatisfied (in the case of a
money judgment) and in effect for a period of 35 days during which execution
shall not be effectively stayed or deferred (whether by action of a court, by
agreement or otherwise);
Section 8.10. Ownership of Credit Parties. If Borrower shall at any time
---------------------------
fail to own and control the shares of Voting Stock of any Subsidiary which it
owned or controlled at the time such Subsidiary became a Credit Party hereunder
other than due to sale of the Voting Stock of such Subsidiary permitted pursuant
to Section 7.05 hereof;
Section 8.11. Chairman of the Board of Directors of Parent and Borrower.
---------------------------------------------------------
If Philip H. Sanford shall cease for any reason, including without limitation,
death, incompetence or incapacity, to hold the position and exercise the duties
of the Chairman of the Board of the Directors of each of the Parent and the
Borrower and is not replaced within a reasonable period of time by a Person of
comparable experience, expertise and standing in the business community, as
determined by the Required Lenders in the exercise of their reasonable credit
judgment;
Section 8.12. Change in Control. If a Change of Control shall occur;
-----------------
Section 8.13. Default Under Other Credit Documents; Merger Agreement. (x)
------------------------------------------------------
There shall exist or occur any "Event of Default" as provided under the terms of
any other Credit Document, or any Credit Document ceases to be in full force and
effect or the validity or enforceability thereof is disaffirmed by or on behalf
of Borrower or any other Credit Party, or at any time it is or becomes unlawful
for Borrower or any other Credit Party to perform or comply with its obligations
under any Credit Document, or the obligations of Borrower or any other Credit
Party under any Credit Document are not or cease to be legal, valid and binding
on Borrower or any such Credit Party; or (y) any party to the Merger Agreement
shall default with respect to its covenants or obligations thereunder where such
default results in a Materially Adverse Effect with respect to the Credit
Parties; or
Section 8.14. Failure of Merger and other Elements of the Transaction.
-------------------------------------------------------
Failure of the Transaction to be consummated before or substantially
concurrently with the initial Loans hereunder;
then, and in any such event, and at any time thereafter if any Event of Default
shall then be continuing, the Agent may, and upon the written or telex request
of the Required Lenders, shall, take any or all of the following actions,
without prejudice to the rights of the Agent, any Lender or the holder of any
Note to enforce its claims against Borrower or any other Credit Party: (i)
declare all Commitments terminated, whereupon the Commitments of each Lender
shall
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terminate immediately and any commitment fee shall forthwith become due and
payable without any other notice of any kind; (ii) declare the principal of and
any accrued interest on the Loans, and all other Obligations owing hereunder to
be, whereupon the same shall become, forthwith due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; provided, that, if an Event of Default specified
--------
in Section 8.07 shall occur, the result which would occur upon the giving of
notice by the Agent to any Credit Party, shall occur automatically without the
giving of any such notice, and (iii) may exercise any other rights or remedies
available under the Credit Documents, at law or in equity. Upon any acceleration
of the Loans outstanding hereunder, all outstanding Letters of Credit shall be
deemed to have been fully drawn and the Borrower shall be required to deposit
cash collateral into the L/C Cash Collateral Account in accordance with the
provisions of Section 2.07(b).
ARTICLE IX.
THE AGENT.
---------
Section 9.01. Appointment of Agent. Each Lender hereby designates
--------------------
SunTrust as Agent to administer all matters concerning the Loans and to act as
herein specified. Each of the Lenders hereby designates Union Bank of
Switzerland, New York Branch as the Syndication Agent and acknowledges that the
Syndication Agent shall have no duties under this Agreement whatsoever but shall
be entitled to all protections afforded the Agent under this Article IX. Each
Lender hereby irrevocably authorizes, and each holder of any Note by the
acceptance of a Note shall be deemed irrevocably to authorize, the Agent to take
such actions on its behalf under the provisions of this Agreement, the other
Credit Documents, and all other instruments and agreements referred to herein or
therein, and to exercise such powers and to perform such duties hereunder and
thereunder as are specifically delegated to or required of the Agent by the
terms hereof and thereof and such other powers as are reasonably incidental
thereto. The Agent may perform any of its duties hereunder by or through their
agents or employees.
Section 9.02. Authorization of Agent with Respect to the Security
---------------------------------------------------
Documents. (a) Each Lender hereby authorizes the Agent to enter into each of
- ---------
the Security Documents substantially in the form attached hereto, and to take
all action contemplated thereby. All rights and remedies under the Security
Documents may be exercised by the Agent for the benefit of the Agent and the
Lenders and the other beneficiaries thereof upon the terms thereof. The Lenders
further agree that the Agent may assign its rights and obligations under any of
the Security Documents to any affiliate of the Agent or to any trustee, if
necessary or appropriate under applicable law, which assignee in each such case
shall (subject to compliance with any requirements of applicable law governing
the assignment of such Security Documents) be entitled to all the rights of the
Agent under and with respect to the applicable Security Document.
(b) In each circumstance where, under any provision of any Security
Document, the Agent shall have the right to grant or withhold any consent,
exercise any remedy,
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make any determination or direct any action by the Agent under such Security
Document, the Agent shall act in respect of such consent, exercise of remedies,
determination or action, as the case may be, with the consent of and at the
direction of the Required Lenders; provided, however, that no such consent of
-------- -------
the Required Lenders shall be required with respect to any consent,
determination or other matter that is, in the Agent's judgment, ministerial or
administrative in nature. In each circumstance where any consent of or
direction from the Required Lenders is required, the Agent shall send to the
Lenders a notice setting forth a description in reasonable detail of the matter
as to which consent or direction is requested and the Agent's proposed course of
action with respect thereto. In the event the Agent shall not have received a
response from any Lender within five (5) Business Days after such Lender's
receipt of such notice, such Lender shall be deemed to have agreed to the course
of action proposed by the Agent.
Section 9.03. Nature of Duties of Agent. The Agent shall have no duties
-------------------------
or responsibilities except those expressly set forth in this Agreement and the
other Credit Documents. None of the Agent nor any of its respective officers,
directors, employees or agents shall be liable for any action taken or omitted
by it as such hereunder or in connection herewith, unless caused by its or their
gross negligence or willful misconduct. The duties of the Agent shall be
ministerial and administrative in nature; the Agent shall not have by reason of
this Agreement a fiduciary relationship in respect of any Lender; and nothing in
this Agreement, express or implied, is intended to or shall be so construed as
to impose upon the Agent any obligations in respect of this Agreement or the
other Credit Documents except as expressly set forth herein.
Section 9.04. Lack of Reliance on the Agent.
-----------------------------
(a) Independently and without reliance upon the Agent, each Lender, to the
extent it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the Credit
Parties in connection with the taking or not taking of any action in connection
herewith, and (ii) its own appraisal of the creditworthiness of the Credit
Parties, and, except as expressly provided in this Agreement, the Agent shall
have no duty or responsibility, either initially or on a continuing basis, to
provide any Lender with any credit or other information with respect thereto,
whether coming into its possession before the making of the Loans or at any time
or times thereafter.
(b) The Agent shall not be responsible to any Lender for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith or for
the execution, effectiveness, genuineness, validity, enforceability,
collectibility, priority or sufficiency of this Agreement, the Notes, the
Guaranty Agreement or any other documents contemplated hereby or thereby, or the
financial condition of the Credit Parties, or be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement, the Notes, the Guaranty Agreement or the other
documents contemplated hereby or thereby, or the
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financial condition of the Credit Parties, or the existence or possible
existence of any Default or Event of Default.
Section 9.05. Certain Rights of the Agent. If the Agent shall request
---------------------------
instructions from the Required Lenders with respect to any action or actions
(including the failure to act) in connection with this Agreement, the Agent
shall be entitled to refrain from such act or taking such act, unless and until
the Agent shall have received instructions from the Required Lenders; and the
Agent shall not incur liability in any Person by reason of so refraining.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against the Agent as a result of the Agent acting or refraining from
acting hereunder in accordance with the instructions of the Required Lenders.
Section 9.06. Reliance by Agent. The Agent shall be entitled to rely, and
-----------------
shall be fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cable gram,
radiogram, order or other documentary, teletransmission or telephone message
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person. The Agent may consult with legal counsel (including
counsel for any Credit Party), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
Section 9.07. Indemnification of Agent. To the extent the Agent is not
------------------------
reimbursed and indemnified by the Credit Parties, each Lender will reimburse and
indemnify the Agent, ratably according to the respective amounts of the Loans
outstanding under all Facilities (or if no amounts are outstanding, ratably in
accordance with the Commitments), in either case, for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including counsel fees and disbursements) or disbursements of
any kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in performing its duties hereunder, in any way relating to or
arising out of this Agreement or the other Credit Documents; provided that no
--------
Lender shall be liable to the Agent for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's gross negligence or willful
misconduct.
Section 9.08. The Agent in its Individual Capacity. With respect to its
------------------------------------
obligation to lend under this Agreement, the Loans made by it and the Notes
issued to it, the Agent shall have the same rights and powers hereunder as any
other Lender or holder of a Note and may exercise the same as though it were not
performing the duties specified herein; and the terms "Lenders", "Required
Lenders", "holders of Notes", or any similar terms shall, unless the context
clearly otherwise indicates, include the Agent in its individual capacity. The
Agent may accept deposits from, lend money to, and generally engage in any kind
of banking, trust, financial advisory or other business with the Consolidated
Companies or any affiliate of the Consolidated Companies as if it were not
performing the duties specified herein, and may accept fees and other
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consideration from the Consolidated Companies for services in connection with
this Agreement and otherwise without having to account for the same to the
Lenders.
Section 9.09. Holders of Notes. The Agent may deem and treat the payee of
----------------
any Note as the owner thereof for all purposes hereof unless and until a written
notice of the assignment or transfer thereof shall have been filed with the
Agent. Any request, authority or consent of any Person who, at the time of
making such request or giving such authority or consent, is the holder of any
Note shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Note or of any Note or Notes issued in exchange therefor.
Section 9.10. Successor Agent.
---------------
(a) The Agent may resign at any time by giving written notice thereof to
the Lenders and Borrower and may be removed at any time with or without cause by
the Required Lenders; provided, however, the Agent may not resign or be removed
-------- -------
until a successor Agent has been appointed and shall have accepted such
appointment. Upon any such resignation or removal, the Required Lenders shall
have the right to appoint a successor Agent subject to Borrower's prior written
approval. If no successor Agent shall have been so appointed by the Required
Lenders, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation or the Required Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent subject to Borrower's prior written approval,
which shall be a bank which maintains an office in the United States, or a
commercial bank organized under the laws of the United States of America or any
State thereof, or any Affiliate of such bank, having a combined capital and
surplus of at least $1,000,000,000.
(b) Upon the acceptance of any appointment as the Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
this Agreement. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Article IX shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was an Agent under this
Agreement.
ARTICLE X.
MISCELLANEOUS
-------------
Section 10.01. Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing (including bank wire, telex, telecopy or
similar teletransmission or writing) and shall be given to such party at its
address or applicable teletransmission number set forth on the signature pages
hereof, or such other address or applicable teletransmission number
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as such party may hereafter specify by notice to the Agent and Borrower. Each
such notice, request or other communication shall be effective (i) if given by
telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answerback is received, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid, (iii) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and the
appropriate confirmation is received, or (iv) if given by any other means
(including, without limitation, by air courier), when delivered or received at
the address specified in this Section; provided that notices to the Agent shall
--------
not be effective until received.
Section 10.02. Amendments, Etc. No amendment or waiver of any provision
----------------
of this Agreement or the other Credit Documents, nor consent to any departure by
any Credit Party therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Required Lenders (and in the case of any
amendment, the applicable Credit Party), and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided that no amendment, waiver or consent shall, unless in
--------
writing and signed by all the Lenders do any of the following: (i) waive any of
the conditions specified in Section 4.01 or 4.02, (ii) increase the Commitments
or contractual obligations of the Lenders to Borrower under this Agreement,
(iii) reduce the principal of, or interest on, the Notes or any fees hereunder,
(iv) postpone any date fixed for the payment in respect of principal of, or
interest on, the Notes or any fees hereunder, (v) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Notes, or the
number or identity of Lenders which shall be required for the Lenders or any of
them to take any action hereunder, (vi) agree to release any Guarantor from its
obligations under any Guaranty Agreement or any Collateral from the Security
Documents (other than in connection with an Asset Sale pursuant to Section 7.05
where the conditions of such Section have been satisfied), (vii) modify the
definition of "Required Lenders," or (viii) modify this Section 10.02.
Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Lenders required hereinabove
to take such action, affect the rights or duties of the Agent under this
Agreement or under any other Credit Document.
Section 10.03. No Waiver; Remedies Cumulative. No failure or delay on the
------------------------------
part of the Agent, any Lender or any holder of a Note in exercising any right or
remedy hereunder or under any other Credit Document, and no course of dealing
between any Credit Party and the Agent, any Lender or the holder of any Note
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right or remedy hereunder or under any other Credit Document preclude any
other or further exercise thereof or the exercise of any other right or remedy
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which the Agent, any
Lender or the holder of any Note would otherwise have. No notice to or demand
on any Credit Party not required hereunder or under any other Credit Document in
any case shall entitle any Credit Party to any other or further notice or demand
in similar or other circumstances or constitute a waiver of the rights of the
Agent, the
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Lenders or the holder of any Note to any other or further action in any
circumstances without notice or demand.
Section 10.04. Payment of Expenses, Etc. Borrower shall:
-------------------------
(i) whether or not the transactions hereby contemplated are
consummated, pay all reasonable, out-of-pocket costs and expenses of the
Agent in the administration (both before and after the execution hereof and
including reasonable expenses actually incurred relating to advice of
counsel as to the rights and duties of the Agent and the Lenders with
respect thereto) of, and in connection with the preparation, execution and
delivery of, preservation of rights under, enforcement of, and, after a
Default or Event of Default, refinancing, renegotiation or restructuring
of, this Agreement and the other Credit Documents and the documents and
instruments referred to therein, and any amendment, waiver or consent
relating thereto (including, without limitation, the reasonable fees
actually incurred and disbursements of counsel for the Agent), and in the
case of enforcement of this Agreement or any Credit Document after an Event
of Default, all such reasonable, out-of-pocket costs and expenses
(including, without limitation, the reasonable fees actually incurred and
reasonable disbursements and changes of counsel), for any of the Lenders;
(ii) subject, in the case of certain Taxes, to the applicable
provisions of Section 3.07(b), pay and hold each of the Lenders harmless
from and against any and all present and future stamp, documentary, and
other similar Taxes with respect to this Agreement, the Notes and any other
Credit Documents, any collateral described therein, or any payments due
thereunder, and save each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay or omission to pay
such Taxes; and
(iii) indemnify the Agent and each Lender, and their respective
officers, directors, employees, representatives and agents from, and hold
each of them harmless against, any and all costs, losses, liabilities,
claims, damages or expenses incurred by any of them (whether or not any of
them is designated a party thereto) (an "Indemnitee") arising out of or by
reason of any investigation, litigation or other proceeding related to any
actual or proposed use of the proceeds of any of the Loans or any Credit
Party's entering into and performing of the Agreement, the Notes, or the
other Credit Documents, including, without limitation, the reasonable fees
actually incurred and disbursements of counsel incurred in connection with
any such investigation, litigation or other proceeding; provided, however,
-------- -------
Borrower shall not be obligated to indemnify any Indemnitee for any of the
foregoing arising out of such Indemnitee's gross negligence or willful
misconduct;
(iv) without limiting the indemnities set forth in subsection (iii)
above, indemnify each Indemnitee for any and all expenses and costs
(including without limitation, remedial, removal, response, abatement,
cleanup, investigative, closure and
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monitoring costs), losses, claims (including claims for contribution or
indemnity and including the cost of investigating or defending any claim
and whether or not such claim is ultimately defeated, and whether such
claim arose before, during or after any Credit Party's ownership,
operation, possession or control of its business, property or facilities or
before, on or after the date hereof, and including also any amounts paid
incidental to any compromise or settlement by the Indemnitee or Indemnitees
to the holders of any such claim), lawsuits, liabilities, obligations,
actions, judgments, suits, disbursements, encumbrances, liens, damages
(including without limitation damages for contamination or destruction of
natural resources), penalties and fines of any kind or nature whatsoever
(including without limitation in all cases the reasonable fees actually
incurred, other charges and disbursements of counsel in connection
therewith) incurred, suffered or sustained by that Indemnitee based upon,
arising under or relating to Environmental Laws based on, arising out of or
relating to in whole or in part, the existence or exercise of any rights or
remedies by any Indemnitee under this Agreement, any other Credit Document
or any related documents.
If and to the extent that the obligations of Borrower under this Section
10.04 are unenforceable for any reason, Borrower hereby agrees to make the
maximum contribution to the payment and satisfaction of such obligations
which is permissible under applicable law.
Section 10.05. Right of Setoff. In addition to and not in limitation of
---------------
all rights of offset that any Lender or other holder of a Note may have under
applicable law, each Lender or other holder of a Note shall, upon the occurrence
of any Event of Default and whether or not such Lender or such holder has made
any demand or any Credit Party's obligations have matured, have the right to
appropriate and apply to the payment of any Credit Party's obligations hereunder
and under the other Credit Documents, all deposits of any Credit Party (general
or special, time or demand, provisional or final) then or thereafter held by and
other indebtedness or property then or thereafter owing by such Lender or other
holder to any Credit Party, whether or not related to this Agreement or any
transaction hereunder.
Section 10.06. Benefit of Agreement; Assignments; Participations.
-------------------------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto, provided that Borrower may not assign or transfer any of its interest
hereunder without the prior written consent of the Lenders.
(b) Any Lender may make, carry or transfer Loans at, to or for the
account of, any of its branch offices or the office of an Affiliate of such
Lender.
(c) Each Lender may assign all or a portion of its interests, rights
and obligations under this Agreement (including all or a portion of any of its
Commitments and the
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Loans at the time owing to it and the Notes held by it) to any Eligible
Assignee; provided, however, that (i) the Borrower must give its prior written
-------- -------
consent to such assignment unless such assignment is an Affiliate of the
assigning Lender or unless an Event of Default has occurred and is continuing
hereunder, (ii) the amount of the Commitments of the assigning Lender subject to
each assignment (determined as of the date the assignment and acceptance with
respect to such assignment is delivered to the Agent) shall not be less than an
amount equal to $5,000,000 or greater integral multiplies of $1,000,000 (or such
lesser amount as shall constitute the entire Commitment of such Lender) and
(iii) the parties to each such assignment shall execute and deliver to the Agent
an Assignment and Acceptance, together with a Note or Notes subject to such
assignment and, unless such assignment is to an Affiliate of such Lender, a
processing and recordation fee of $3,000. Borrower shall not be responsible for
such processing and recordation fee or any costs or expenses incurred by any
Lender or the Agent in connection with such assignment. From and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five (5) Business Days after the execution thereof, the
assignee thereunder shall be a party hereto and to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement. Within five (5) Business Days after receipt of the
notice and the Assignment and Acceptance, Borrower shall execute and deliver to
the Agent, in exchange for the surrendered Note or Notes (which Agent shall
deliver to Borrower forthwith), a new Note or Notes to the order of such
assignee in a principal amount equal to the applicable Commitments assumed by it
pursuant to such Assignment and Acceptance and new Note or Notes to the
assigning Lender in the amount of its retained Commitment or Commitments. Such
new Note or Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note or Notes, shall be dated the
date of the surrendered Note or Notes which they replace, and shall otherwise be
in substantially the form attached hereto.
(d) Each Lender may, without the consent of Borrower or the Agent,
sell participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitments in the Loans owing to it and the Notes held by it), provided,
--------
however, that (i) such Lender's obligations under this Agreement shall remain
- -------
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) the participating bank or
other entity shall not be entitled to the benefit (except through its selling
Lender) of the cost protection provisions contained in Article III of this
Agreement, and (iv) Borrower and the Agent and other Lenders shall continue to
deal solely and directly with each Lender in connection with such Lender's
rights and obligations under this Agreement and the other Credit Documents, and
such Lender shall retain the sole right to enforce the obligations of Borrower
relating to the Loans and to approve any amendment, modification or waiver of
any provisions of this Agreement. Each Lender shall promptly notify in writing
the Agent and the Borrower of any sale of a participation hereunder.
(e) Any Lender or participant may, in connection with the assignment
or participation or proposed assignment or participation, pursuant to this
Section, disclose to the
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assignee or participant or proposed assignee or participant any information
relating to Borrower or the other Consolidated Companies furnished to such
Lender by or on behalf of Borrower or any other Consolidated Company. With
respect to any disclosure of confidential, non-public, proprietary information,
such proposed assignee or participant shall agree to use the information only
for the purpose of making any necessary credit judgments with respect to this
credit facility and not to use the information in any manner prohibited by any
law, including without limitation, the securities laws of the United States.
The proposed participant or assignee shall agree not to disclose any of such
information except (i) to directors, employees, auditors or counsel to whom it
is necessary to show such information, each of whom shall be informed of the
confidential nature of the information, (ii) in any statement or testimony
pursuant to a subpoena or order by any court, governmental body or other agency
asserting jurisdiction over such entity, or as otherwise required by law
(provided prior notice is given to Borrower and the Agent unless otherwise
prohibited by the subpoena, order or law), and (iii) upon the request or demand
of any regulatory agency or authority with proper jurisdiction. The proposed
participant or assignee shall further agree to return all documents or other
written material and copies thereof received from any Lender, the Agent or
Borrower relating to such confidential information unless otherwise properly
disposed of by such entity.
(f) Any Lender may at any time assign all or any portion of its rights
in this Agreement and the Notes issued to it to a Federal Reserve Bank; provided
--------
that no such assignment shall release the Lender from any of its obligations
hereunder.
(g) If (i) any Taxes referred to in Section 3.07(b) have been levied
or imposed so as to require withholdings and reductions by the Borrower and
payment by the Borrower of additional amounts to any Lender as a result thereof
or any Lender shall make demand for payment of any material additional amounts
as compensation for increased cost pursuant to Section 3.10, then and in such
event, upon request from the Borrower delivered to such Lender, such Lender
shall assign, in accordance with the provisions of Section 10.06(c), all of its
rights and obligations under this Agreement and the other Credit Documents to an
Eligible Assignee selected by the Borrower and consented to by the Agent in
consideration for the payment by such assignee to the Lender of the principal of
and interest on the outstanding Loans accrued to the date of such assignment,
the assumption of such Lender's Commitments hereunder, together with any and all
other amounts owing to such Lender under any provisions of this Agreement or the
other Credit Documents accrued to the date of such assignment.
Section 10.07. Governing Law; Submission to Jurisdiction.
-----------------------------------------
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER AND UNDER THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF) OF THE STATE OF GEORGIA.
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(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE
NOTES OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE SUPERIOR COURT OF
FULTON COUNTY, GEORGIA, OR ANY OTHER COURT OF THE STATE OF GEORGIA OR OF THE
UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF GEORGIA, AND, BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, BORROWER HEREBY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TRIAL BY JURY TO
THE EXTENT ALLOWED BY LAW, AND BORROWER AND ACQUISITION SUB HEREBY IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH
RESPECTIVE JURISDICTIONS.
(c) EACH OF ACQUISITION SUB AND BORROWER HEREBY IRREVOCABLY DESIGNATES
NATIONAL REGISTERED AGENTS, INC. AND CT CORPORATION SYSTEM, RESPECTIVELY, AS ITS
DESIGNEE, APPOINTEE AND LOCAL AGENT TO RECEIVE, FOR AND ON BEHALF OF ACQUISITION
SUB AND BORROWER, SERVICE OF PROCESS IN SUCH RESPECTIVE JURISDICTIONS IN ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE NOTES OR ANY
DOCUMENT RELATED THERETO. IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED
ON SUCH LOCAL AGENT WILL BE PROMPTLY FORWARDED BY SUCH LOCAL AGENT AND BY THE
SERVER OF SUCH PROCESS BY MAIL TO ACQUISITION SUB AND BORROWER AT ITS ADDRESS
SET FORTH OPPOSITE ITS SIGNATURE BELOW, BUT THE FAILURE OF ACQUISITION SUB OR
BORROWER TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH
PROCESS. EACH OF ACQUISITION SUB OR BORROWER FURTHER IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO BORROWER OR ACQUISITION SUB AT ITS SAID ADDRESS, SUCH
SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING.
(d) Nothing herein shall affect the right of the Agent, any Lender,
any holder of a Note or any Credit Party to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed against
Borrower or Acquisition Sub in any other jurisdiction.
Section 10.08. Independent Nature of Lenders' Rights. The amounts payable
-------------------------------------
at any time hereunder to each Lender shall be a separate and independent debt,
and each Lender shall be
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entitled to protect and enforce its rights pursuant to this Agreement and its
Notes, and it shall not be necessary for any other Lender to be joined as an
additional party in any proceeding for such purpose.
Section 10.09. Counterparts. This Agreement may be executed in any number
------------
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
Section 10.10. Effectiveness; Termination of Commitments; Survival.
---------------------------------------------------
(a) This Agreement shall become effective on the date on which all of
the parties hereto shall have signed a copy hereof (whether the same or
different copies) and shall have delivered the same to the Agent or, in the case
of the Lenders, shall have given to the Agent written or telex notice (actually
received) that the same has been signed and mailed to them.
(b) The obligations of Borrower under Sections 3.07(b), 3.10, 3.12,
3.13, 3.16 and 10.04 hereof shall survive the payment in full of the Notes after
the Maturity Date. All representations and warranties made herein, in the
certificates, reports, notices, and other documents delivered pursuant to this
Agreement shall survive the execution and delivery of this Agreement, the other
Credit Documents, and such other agreements and documents, the making of the
Loans hereunder, and the execution and delivery of the Notes.
Section 10.11. Severability. In case any provision in or obligation under
------------
this Agreement or the other Credit Documents shall be invalid, illegal or
unenforceable, in whole or in part, in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
Section 10.12. Independence of Covenants. All covenants hereunder shall
-------------------------
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitation of, another covenant, shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
Section 10.13. Change in Accounting Principles, Fiscal Year or Tax Laws.
--------------------------------------------------------
If (i) any preparation of the financial statements referred to in Section 6.07
hereafter occasioned by the promulgation of rules, regulations, pronouncements
and opinions by or required by the Financial Accounting Standards Board or the
American Institute of Certified Public Accounts (or successors thereto or
agencies with similar functions) result in a material change in the method of
calculation of financial covenants, standards or terms found in this Agreement,
(ii) there is any change in Borrower's fiscal quarter or Fiscal Year, or (iii)
there is a material change in federal tax laws which materially affects any of
the Consolidated Companies' ability to comply with the
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financial covenants, standards or terms found in this Agreement, Borrower and
the Required Lenders agree to enter into negotiations in order to amend such
provisions so as to equitably reflect such changes with the desired result that
the criteria for evaluating any of the Consolidated Companies' financial
condition shall be the same after such changes as if such changes had not been
made. Unless and until such provisions have been so amended, the provisions of
this Agreement shall govern.
Section 10.14. Intent Not To Violate Usury Laws. It is the intent of the
--------------------------------
parties hereto not to violate any federal or state law, rule or regulation
pertaining either to usury or to the contracting for or charging or collecting
of interest, and the Borrower and the Agent and Lenders agree that, should any
provision of this Agreement or of the Notes, or any act performed hereunder or
thereunder, violate any such law, rule or regulation, then the excess of
interest or loan charges contracted for or charged or collected over the maximum
lawful rate of interest shall be applied to the outstanding principal
indebtedness due to the Lenders by the Borrower under this Agreement.
Section 10.15. Headings Descriptive; Entire Agreement. The headings of
--------------------------------------
the several sections and subsections of this Agreement are inserted for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Agreement. This Agreement, the other Credit Documents,
and the agreements and documents required to be delivered pursuant to the terms
of this Agreement constitute the entire agreement among the parties hereto and
thereto regarding the subject matters hereof and thereof and supersede all prior
agreements, representations and understandings related to such subject matters.
[SIGNATURES SET FORTH ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their duly authorized officers as of the day and year
first above written.
Address for Notices: TKC ACQUISITION CORP.
- -------------------
c/o Briggs L. Tobin By: /s/ Philip H. Sanford
303 Peachtree Street ------------------------------------
Suite 5300 Philip H. Sanford
Atlanta, Georgia 30308 Chairman and Chief Executive Officer
Telecopy No.: 404/527-4198 Attest: /s/ Benjamin R. Probasco
--------------------------------
Benjamin R. Probasco
Secretary
[CORPORATE SEAL]
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Address for Notices: SUNTRUST BANK, ATLANTA,
- -------------------
25 Park Place, N.E.
24th Floor
Atlanta, Georgia 30303 By: /s/ J. Christopher Deisley
Attention: J. Christopher Deisley -------------------------------------
J. Christopher Deisley
First Vice President
Telecopy No.: 404/827-6270
By: /s/ Kevin S. MacDonald
-------------------------------------
Kevin S. MacDonald
Vice President
REVOLVING LOAN COMMITMENT: $15,000,000.00
PRO RATA SHARE: 60%
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Address for Notices:
- -------------------
UNION BANK OF SWITZERLAND,
299 Park Avenue NEW YORK BRANCH, INDIVIDUALLY AND AS
New York, New York 10171 SYNDICATION AGENT
Attention: Renata Jacobson
By: /s/ Renata Jacobson
------------------------------------
Title: V.P.
Telecopy No.: (212) 821-5778 ---------------------------------
By: /s/ Ruth L. Webster
------------------------------------
Title: Assistant Vice-President
---------------------------------
REVOLVING LOAN COMMITMENT: $10,000,000.00
PRO RATA SHARE: 40%
[Signature Page to Credit Agreement]
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Address for Notices: SUNTRUST BANK, ATLANTA,
- ------------------- AS AGENT
25 Park Place, N.E.
24th Floor
Atlanta, Georgia 30303 By: /s/ J. Christopher Deisley
Attention: J. Christopher Deisley -------------------------------------
J. Christopher Deisley
First Vice President
Telecopy No.: 404/827-6270
By: /s/ Kevin S. MacDonald
-------------------------------------
Kevin S. MacDonald
Vice President
Payment Office:
- --------------
25 Park Place, N.E.
24th Floor
Atlanta, Georgia 30303
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ASSUMPTION
----------
THE KRYSTAL COMPANY, a Tennessee corporation, hereby expressly assumes,
concurrently with the consummation of the Merger and the initial Advance
pursuant to the Credit Agreement, all obligations of TKC Acquisition Corp.
arising pursuant to the foregoing Agreement, the Notes and all other Credit
Documents.
IN WITNESS WHEREOF, the undersigned has caused its duly authorized officers
to execute this Agreement as of the date first above written.
Address for Notices: THE KRYSTAL COMPANY
- -------------------
The Krystal Building
One Union Square By: /s/ Philip H. Sanford
Chattanooga, Tennessee 37402 ------------------------------------
Attn: Chairman Philip H. Sanford
Chairman and Chief Executive Officer
Attest: /s/ Benjamin R. Probasco
--------------------------------
Benjamin R. Probasco
Secretary
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
November____ 1997
