<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-23422
----------------
DRYPERS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0344044
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
5300 MEMORIAL, SUITE 900 77007
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING THE AREA CODE: (713) 869-8693
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT: 1415 WEST LOOP NORTH, HOUSTON, TEXAS 77055
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes[_] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
(CLASS) (OUTSTANDING AT JULY 25, 1997)
------- ------------------------------
<S> <C>
Common Stock, $.001 Par Value 10,048,017
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I.FINANCIAL INFORMATION
ITEM 1.UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following information required by Rule 10-01 of Regulation S-X is
provided herein for Drypers Corporation and subsidiaries:
<TABLE>
<S> <C>
Consolidated Balance Sheets--December 31, 1996 and June 30, 1997.
Consolidated Statements of Earnings for the Three Months and Six
Months Ended June 30, 1996 and 1997.
Consolidated Statement of Stockholders' Equity for the Six Months
Ended June 30, 1997.
Consolidated Statements of Cash Flows for the Six Months Ended June
30, 1996 and 1997.
Notes to Consolidated Financial Statements.
</TABLE>
i
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1996 1997
------ ------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 4,923 $ 30,567
Accounts receivable, net of allowance for doubtful
accounts of $1,160 and $1,702, respectively........ 30,631 36,092
Inventories......................................... 11,616 12,632
Prepaid expenses and other.......................... 4,410 6,722
-------- --------
Total current assets.............................. 51,580 86,013
PROPERTY AND EQUIPMENT, net of depreciation and
amortization of $14,157 and $14,714, respectively.... 35,154 41,233
INTANGIBLE AND OTHER ASSETS, net of amortization of
$10,185 and $9,166, respectively..................... 63,821 71,874
-------- --------
$150,555 $199,120
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings............................... $ 15,622 $ --
Current portion of long-term debt................... 945 --
Accounts payable.................................... 16,958 17,850
Accrued liabilities................................. 9,348 9,129
-------- --------
Total current liabilities......................... 42,873 26,979
LONG-TERM DEBT........................................ 2,125 1,499
SENIOR TERM NOTES..................................... 44,122 116,566
SUBORDINATED DEBT TO RELATED PARTIES.................. 2,400 --
OTHER LONG-TERM LIABILITIES........................... 5,427 4,104
-------- --------
96,947 149,148
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, 90,000 and 85,750 shares issued and
outstanding........................................ 1 1
Common stock, $.001 par value, 20,000,000 shares
authorized, 7,179,230 and 7,813,777 shares issued
and outstanding, respectively...................... 7 8
Additional paid-in capital.......................... 68,823 69,148
Warrants............................................ 1,395 1,382
Retained deficit.................................... (16,618) (20,567)
-------- --------
Total stockholders' equity........................ 53,608 49,972
-------- --------
$150,555 $199,120
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ---------------------
1996 1997 1996 1997
---------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES........................ $ 52,821 $ 72,551 $ 97,864 $ 132,712
COST OF GOODS SOLD............... 31,301 44,983 60,115 81,739
---------- ---------- --------- ----------
Gross profit................. 21,520 27,568 37,749 50,973
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES......... 18,605 22,972 35,716 41,933
---------- ---------- --------- ----------
Operating income............. 2,915 4,596 2,033 9,040
RELATED-PARTY INTEREST EXPENSE... 88 82 176 170
OTHER INTEREST EXPENSE........... 2,333 1,930 4,227 4,040
OTHER INCOME..................... -- (165) -- (42)
---------- ---------- --------- ----------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION AND EXTRAORDINARY
ITEM............................ 494 2,749 (2,370) 4,872
INCOME TAX PROVISION............. 146 566 201 716
---------- ---------- --------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM.............. 348 2,183 (2,571) 4,156
EXTRAORDINARY ITEM, loss on
extinguishment of debt.......... -- (7,769) -- (7,769)
---------- ---------- --------- ----------
NET INCOME (LOSS)................ 348 (5,586) (2,571) (3,613)
PREFERRED STOCK DIVIDEND......... 165 168 220 336
---------- ---------- --------- ----------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS............. $ 183 $ (5,754) $ (2,791) $ (3,949)
========== ========== ========= ==========
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING.............. 15,995,725 19,008,673 6,635,401 19,057,189
========== ========== ========= ==========
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before
extraordinary item............ $ .02 $ .12 $ (.42) $ .22
Extraordinary item............. -- (.41) -- (.41)
---------- ---------- --------- ----------
Net income (loss).............. $ .02 $ (.29) $ (.42) $ (.19)
========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED COMMON
SHARES SHARES ADDITIONAL
ISSUED AND ISSUED AND PREFERRED COMMON PAID-IN RETAINED
OUTSTANDING OUTSTANDING STOCK STOCK CAPITAL WARRANTS DEFICIT
----------- ----------- --------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1996................... 90,000 7,179,230 $ 1 $ 7 $68,823 $1,395 $(16,618)
Issuance of common
stock in connection
with acquisition
(unaudited)........... -- 46,872 -- -- -- -- --
Conversion of preferred
stock and dividends
into common stock
(unaudited)........... (4,250) 433,374 -- 1 40 -- --
Preferred stock
dividends ($3.79 per
share) (unaudited).... -- -- -- -- -- -- (336)
Exercise of stock
options (unaudited)... -- 90,848 -- -- 222 -- --
Issuance of warrants
(unaudited)........... -- -- -- -- -- 50 --
Exercise of warrants
(unaudited)........... -- 63,453 -- -- 63 (63) --
Net loss (unaudited)... -- -- -- -- -- -- (3,613)
------ --------- --- --- ------- ------ --------
BALANCE, June 30, 1997
(unaudited)............ 85,750 7,813,777 $ 1 $ 8 $69,148 $1,382 $(20,567)
====== ========= === === ======= ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------
1996 1997
-------- -------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................... $ (2,571) $(3,613)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization............................ 3,717 4,037
Non-cash portion of extraordinary item................... -- 3,745
Other.................................................... (221) (43)
Changes in operating assets and liabilities--
(Increase) decrease in--
Accounts receivable................................... (908) (5,461)
Inventories........................................... (1,838) (1,016)
Prepaid expenses and other............................ (1,138) (2,312)
Increase (decrease) in--
Accounts payable...................................... (2,531) 892
Accrued and other liabilities......................... (3,016) (219)
-------- -------
Net cash used in operating activities................ (8,506) (3,990)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment......................... (1,394) (8,518)
Investment in Brazilian venture............................ -- (9,500)
Investment in other noncurrent assets...................... -- (643)
Payments under noncompete agreements....................... (126) (126)
-------- -------
Net cash used in investing activities................ (1,520) (18,787)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under senior term notes......................... -- 115,000
Payments on senior term notes.............................. -- (43,434)
Borrowings under working capital facility.................. -- 10,000
Payments on working capital facility....................... -- (10,000)
Borrowings under revolvers................................. 76,206 79,296
Payments on revolvers...................................... (73,015) (94,918)
Payments on other debt..................................... (375) (3,972)
Financing related costs.................................... (872) (3,773)
Proceeds from exercise of stock options.................... -- 222
Proceeds from issuance of preferred stock.................. 8,822 --
-------- -------
Net cash provided by financing activities............ 10,766 48,421
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 740 25,644
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 2,236 4,923
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 2,976 $30,567
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements included herein have been prepared by
Drypers Corporation (the "Company"), without audit, in accordance with Rule
10-01 of Regulation S-X for interim financial statements required to be filed
with the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes the
disclosures are adequate to make the information presented not misleading. The
financial statements included herein should be reviewed in conjunction with
the Company's December 31, 1996 financial statements and related notes
thereto. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of operations for the
three months and six months ended June 30, 1997, are not necessarily
indicative of the results that will be realized for the fiscal year ending
December 31, 1997.
The unaudited consolidated financial information as of and for the three-
month and six-month periods ended June 30, 1996 and 1997, has not been audited
by independent accountants, but in the opinion of management of the Company,
all adjustments (consisting only of normal, recurring adjustments) necessary
for a fair presentation of the consolidated balance sheets, statements of
earnings, statement of stockholders' equity and statements of cash flows at
the date and for the interim periods indicated have been made.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This
statement establishes new standards for computing and presenting earnings per
share requiring the presentation of "basic" and "diluted" earnings per share
as compared to "primary" and "fully diluted" earnings per share. The Company
is required to adopt SFAS No. 128 in the first quarter of fiscal 1998. Earlier
adoption is not permitted and restatement of all prior period earnings per
share data is required. The Company believes the "diluted" disclosure required
under SFAS No. 128 will not differ materially from the historical primary
earnings per share amounts for the periods presented.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". This statement establishes standards for
reporting and display of comprehensive income and its components in financial
statements. Comprehensive income is the total of net income and all other
nonowner changes in equity. The Company is required to adopt SFAS No. 130 in
the first quarter of fiscal 1998. Reclassification of comparative financial
statements provided for earlier periods will be required. The Company believes
that the display of comprehensive income will not differ materially from the
currently displayed net income (loss) attributable to common stockholders.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information". This
statement requires disclosure related to each segment of an enterprise's
operations similar to that required under current standards with the addition
of quarterly disclosure requirements and a finer partitioning of geographic
disclosures. The Company is required to adopt SFAS No. 130 for the fiscal year
ending December 31, 1998.
Cash interest paid for the six months ended June 30, 1996 and 1997, was
$6,771,000 and $5,041,000, respectively. Cash taxes paid for the six months
ended June 30, 1997, was $70,000.
5
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
2. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Raw Materials.................................... $ 4,659 $ 5,481
Finished Goods................................... 6,957 7,151
------- -------
$11,616 $12,632
======= =======
</TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or market
value. Finished goods inventories include the cost of materials, labor and
overhead.
3. ACQUISITION
In February 1997, the Company entered into a series of transactions related
to the establishment of a 51% owned venture in Brazil, acquisition of certain
intangible assets and rights from Chansommes do Brasil Ind. E Com. Ltda.
("Chansommes") and the purchase of diaper production of Chansommes.
Consideration paid in connection with the transactions totaled approximately
$6,400,000, including $4,000,000 of common stock of the Company (1,000,000
shares), cancellation of an outstanding receivable from Chansommes of
$2,200,000 and $200,000 of transaction related costs. Under the terms of the
agreement, the 1,000,000 shares of common stock were held in escrow by the
Company through May 5, 1997 at which time the owners elected to receive
$4,000,000 in cash in lieu of the shares. While outstanding, the 1,000,000
shares of puttable common stock were presented outside of stockholders'
equity. In connection with the transactions, the Company also obtained a fair
value option to purchase the remaining 49% interest in the venture in Brazil.
During the second quarter of 1997, the Company exercised a portion of such
option and obtained 44% of the remaining 49% interest in the venture in Brazil
for $5,300,000 in cash.
4. DEBT
Recent Financing Transactions
On April 24, 1997, the Company entered into a Note Purchase Agreement with a
financial institution, whereby the Company obtained $10,000,000 in working
capital financing. This financing was provided through the issuance of two
$5,000,000 promissory notes (the "Working Capital Facility"), bearing interest
at 12% per annum payable semiannually and due on May 1, 1999. The Working
Capital Facility was unsecured and could be prepaid by the Company, subject to
a 3% premium if prepaid on or before January 2, 1998. In connection with the
issuance of the Working Capital Facility, the Company issued a warrant to
purchase 100,000 shares of the Company's common stock to the financial
institution.
On June 24, 1997, the Company closed a private issuance of $115,000,000
aggregate principal amount of its 10 1/4% Senior Notes due 2007 (the "Notes").
Proceeds from the offering of the Notes were used to repurchase $43,434,000 of
the $45,000,000 in principal amount of the Company's outstanding 12 1/2%
Series B Senior Notes Due November 1, 2002 pursuant to a tender offer
therefor, to repay the Working Capital Facility, to repay borrowings
outstanding under the Company's revolving credit facility, to repay the
Company's term loan with a bank and to repay the Company's junior subordinated
debt and other indebtedness and for general corporate purposes. In connection
with these transactions, the Company recognized an extraordinary expense of
$7,769,000 for the write-off of capitalized debt issuance costs and prepayment
and other fees, of which $3,745,000 was non-cash.
6
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Short-term Borrowings
As of December 31, 1996 and June 30, 1997, the Company had borrowings
outstanding of $15,622,000 and $--, respectively, under revolving credit
facilities, at weighted average interest rates of 10.0% and 10.1%,
respectively.
On February 29, 1996, the Company entered into a three-year revolving credit
facility with a borrowing base of up to $21,000,000. Availability under the
revolving credit facility and a portion of the proceeds from the sale of
preferred stock were used to repay the previously existing credit facility.
Borrowings outstanding under the previous revolving credit facility bore
interest at prime plus 3% from January 1, 1996 through February 29, 1996.
Borrowings under the current revolving credit facility accrue interest at a
rate of prime plus 1 3/4% per annum. Borrowing availability under this
facility is a function of advance rates based on eligible accounts receivable,
finished goods inventory and raw materials inventory. Borrowings are
collateralized by accounts receivable, inventory, trademarks and trade names,
stock of certain subsidiaries and other intangibles. As of December 31, 1996
and June 30, 1997, the Company had borrowings outstanding of $14,700,000 and
$-- under this facility, respectively.
The revolving credit facility, as amended, requires the Company, among other
things, to maintain consolidated working capital, as defined, which excludes
borrowings under the revolving credit facility, of at least $18,000,000 during
fiscal 1997, of at least $23,000,000 during fiscal 1998, and of at least
$25,000,000 during fiscal 1999 and thereafter, and adjusted net worth, as
defined, of at least $45,000,000 from June 1, 1997, through December 30, 1997,
of at least $50,500,000 from December 31, 1997, through December 30, 1998, and
of at least $54,500,000 from December 31, 1998, and thereafter. The Company
was in compliance with the terms of the revolving credit facility as of June
30, 1997.
Short-term borrowings for international operations were not material as of
December 31, 1996 or June 30, 1997.
Long-term Debt
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Term loan with a bank, interest at prime plus 2%,
secured by a diaper production line.................. $1,125 $ --
Note payable due 1997................................. 446 --
Note payable to Mexico bank, due 2006, interest at
LIBOR plus 10%....................................... 510 510
Note payable to Mexico bank, due 2003, interest at
12%, partially secured by diaper production line..... 989 989
------ ------
3,070 1,499
Less: current maturities............................ (945) --
------ ------
$2,125 $1,499
====== ======
</TABLE>
7
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Senior Term Notes
Long-term debt under senior term notes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
10 1/4% Senior Notes, interest due semiannually on
June 15 and December 15, principal due June 15, 2007. $ -- $115,000
12 1/2% Senior Notes, interest due semiannually on May
1 and November 1, principal due November 1, 2002, net
of unamortized debt discount of $878 and $--,
respectively......................................... 44,122 1,566
------- --------
$44,122 $116,566
======= ========
</TABLE>
The Indenture governing the 10 1/4% Senior Notes contains certain covenants
that, among other things, limit the Company's ability to incur additional
indebtedness; pay dividends; purchase capital stock; make certain other
distributions, loans and investments; sell assets; enter into transactions
with related persons; and merge, consolidate or transfer substantially all of
its assets. The Indenture also contains provisions for acceleration of payment
of principal upon a change in control, as defined.
Long-Term Subordinated Debt
Long-term subordinated debt to stockholders or warrant holders consisted of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Junior subordinated notes, bearing interest at 12%..... $2,400 $ --
====== =====
</TABLE>
5. EQUITY
Subsequent to June 30, 1997, holders of 22,000 shares of the Company's 7.5%
Preferred Stock converted such shares together with accrued dividends into
2,234,240 shares of Common Stock.
6. RELATED PARTY TRANSACTIONS
On June 30, 1997, the Company extended non-interest bearing loans of
$130,000 to each of its three Co-Chief Executive Officers. One-half of the
loan balances will be forgiven on June 30, 1998 and the remaining balances
will be forgiven on June 30, 1999, if the officers remain employed by the
Company. The loan balances will be charged to compensation expense over the
two-year term.
7. COMMITMENTS AND CONTINGENCIES
In March 1997, the Company entered into a six-year operating lease with a
lease financing company for a diaper production line, which is scheduled for
delivery in the fourth quarter of 1997. Additionally, the Company has
committed to acquire a training pant line by December 31, 1997.
The Company is involved in certain lawsuits and claims arising in the normal
course of business. In the opinion of management, uninsured losses, if any,
resulting from the ultimate resolution of these matters will not have a
material adverse effect on the financial position or results of operations of
the Company.
8
<PAGE>
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis, together with the accompanying
consolidated financial statements and related notes, are intended to aid in
understanding the results of operations as well as its financial position,
cash flows, indebtedness and other key financial information. Unless otherwise
indicated, references herein to "Drypers" or "the Company" refer to Drypers
Corporation and its subsidiaries.
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "anticipate", "estimate", "project" and
similar expressions are intended to identify such forward-looking statements.
Forward-looking statements may be made by management orally or in writing,
including, but not limited to, in press releases, as part of this Management's
Discussion and Analysis of Financial Condition and Results of Operation and as
part of other sections of this Quarterly Report on Form 10-Q and the Company's
other filings with the Securities and Exchange Commission under the Securities
Act of 1933 and the Securities Exchange Act of 1934.
Such forward-looking statements are subject to certain risks, uncertainties
and assumptions, including without limitation those identified below. Should
one or more of these risks or uncertainties materialize, or should any of the
underlying assumptions prove incorrect, actual results of current and future
operations may vary materially from those anticipated, estimated or projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their respective dates.
Among the factors that have a direct bearing on the Company's results of
operations and financial condition are leverage and debt service, competitive
industry, price changes by competitors, dependence on key products and
acceptance of product innovations, cost of certain raw materials,
international operations, currency fluctuations, currency devaluations,
currency restrictions, intellectual property risks, technological changes and
covenant limitations and other factors discussed herein.
OVERVIEW
Drypers is a leading manufacturer and marketer of premium quality, value-
priced disposable baby diapers and training pants sold under the Drypers(R)
brand name in the United States and under the Drypers(R) and other brand names
internationally. The Company also manufactures and sells lower-priced diapers
under other brand names in the United States and internationally, as well as
private label diapers and training pants and pre-moistened baby wipes. During
1995, the Company successfully integrated its four regional brands under the
Drypers(R) brand name, which Drypers believes has increased the awareness of
the Company's products with retailers and consumers while generating operating
efficiencies.
The Company's domestic operations include sales in the United States and
Puerto Rico and exports from these manufacturing operations. The following
table sets forth the Company's domestic and international net sales for the
three months and six months ended June 30, 1996 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------ -------------------------
1996 1997 1996 1997
----------- ----------- ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic............... $45.8 86.8% $47.1 64.9% $85.9 87.8% $ 92.6 69.8%
International.......... 7.0 13.2 25.5 35.1 12.0 12.2 40.1 30.2
----- ----- ----- ----- ----- ----- ------ -----
Total net sales....... $52.8 100.0% $72.6 100.0% $97.9 100.0% $132.7 100.0%
===== ===== ===== ===== ===== ===== ====== =====
</TABLE>
Among the factors that have a direct bearing on the Company's results of
operations are price and product changes and promotional activity by
competitors, increases in costs of raw materials, timing of technological
advances by the Company and its competitors, lack of acceptance by consumers
of new replacement products, foreign governmental monetary and policy changes
and other factors discussed herein.
Gross profit margins vary significantly across the Company's product lines,
as do the levels of promotional and marketing support. Accordingly, gross
profit margins fluctuate with changes in the relative sales mix of the
Company's various product lines. Since the differences in gross profit margins
are generally offset by differences in promotional spending levels, changes in
sales mix do not necessarily cause significant fluctuations in operating
margins.
9
<PAGE>
The foregoing factors should be taken into account, along with the other
factors discussed below, in comparing the Company's results during the three
months and six months ended June 30, 1996 and 1997, and in understanding the
results that may be expected in the future.
RESULTS OF OPERATIONS
The following table sets forth the specified components of income and
expense for the Company expressed as a percentage of net sales for the three
months and six months ended June 30, 1996 and 1997.
<TABLE>
<CAPTION>
SIX MONTHS
THREE MONTHS ENDED ENDED JUNE
JUNE 30 30
-------------------- -------------
1996 1997 1996 1997
--------- --------- ----- -----
<S> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold..................... 59.3 62.0 61.4 61.6
--------- --------- ----- -----
Gross profit........................... 40.7 38.0 38.6 38.4
Selling, general and administrative ex-
penses................................ 35.2 31.7 36.5 31.6
--------- --------- ----- -----
Operating income....................... 5.5 6.3 2.1 6.8
Interest expense....................... 4.6 2.7 4.5 3.2
Other income........................... -- (.2) -- --
--------- --------- ----- -----
Income (loss) before income tax
provision and extraordinary item...... .9 3.8 (2.4) 3.6
Income tax provision................... .3 .8 .2 .5
--------- --------- ----- -----
Income (loss) before extraordinary
item.................................. .6% 3.0% (2.6)% 3.1%
========= ========= ===== =====
</TABLE>
Three Months Ended June 30, 1997 Compared to the Three Months Ended June 30,
1996
Net Sales. Net sales increased 37.4% to $72.6 million for the three months
ended June 30, 1997 from $52.8 million for the three months ended June 30,
1996. Domestic sales increased 2.8% to $47.1 million for the three months
ended June 30, 1997 from $45.8 million for the same period in 1996, primarily
as a result of the introduction of the new baking soda product in May 1996 and
the continued growth in training pants sales. The Company believes that the
introduction of the new baking soda product contributed to an increased share
in existing retail accounts and expanded penetration into new accounts. Net
sales in the international sector grew to $25.5 million for the quarter ended
June 30, 1997 from $7.0 million in the prior comparable period. This
substantial increase reflected primarily the improved sales volume for the
Company's operations in Argentina, the acquisition of a manufacturer in Mexico
in December 1996 and the Company's majority-owned consolidated venture in
Brazil, which began operations in March 1997.
Cost of Goods Sold. Cost of goods sold increased as a percentage of net
sales to 62.0% for the three months ended June 30, 1997 compared to 59.3% for
the three months ended June 30, 1996. This increase in cost of goods sold as a
percentage of net sales reflects an increase in international sales, which
have generally lower gross profit margins, offset by the benefits of higher
volumes over the Company's fixed cost base.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased as a percentage of net sales to 31.7% for
the three months ended June 30, 1997 compared to 35.2% of net sales for the
three months ended June 30, 1996. The decrease reflected the Company's focus
on reducing domestic per-pad selling costs and increases in international
sales which have lower selling and promotional costs.
Operating Income. As a result of the above factors, the Company's operating
income increased $1.7 million to $4.6 million for the three months ended June
30, 1997 from $2.9 million for the three months
10
<PAGE>
ended June 30, 1996. Operating income as a percentage of net sales was 6.3%
for the three months ended June 30, 1997 versus 5.5% for the three months
ended June 30, 1996.
Interest Expense. Interest expense decreased to $2.0 million for the three
months ended June 30, 1997 as compared to $2.4 million for the three months
ended June 30, 1996. The decrease reflected reduced borrowings under the
Company's revolving credit facility offset by borrowings under a working
capital facility and amortization of additional deferred loan costs related to
the refinancing transactions discussed under "Liquidity and Capital
Resources".
Income Taxes. The Company recorded a provision of $566,000 related to state
and foreign taxes for the three months ended June 30, 1997.
Extraordinary Item. In connection with the Company's financing transactions
completed during the second quarter of 1997, the Company recognized an
extraordinary item of $7.8 million for the write-off of capitalized debt
issuance costs and prepayment and other fees.
Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30, 1996
Net Sales. Net sales increased 35.6% to $132.7 million for the six months
ended June 30, 1997 from $97.9 million for the six months ended June 30, 1996.
Domestic sales increased 7.8% to $92.6 million for the six months ended June
30, 1997 from $85.9 million for the same period in 1996, primarily as a result
of the introduction of the new baking soda product in May 1996 and the
continued growth in training pants sales. The Company believes that the
introduction of the new baking soda product contributed to an increased share
in existing retail accounts and expanded penetration into new accounts. Net
sales in the international sector grew to $40.1 million for the six months
ended June 30, 1997 from $12.0 million in the prior comparable period. This
substantial increase reflected primarily the improved sales volume for the
Company's operations in Argentina, the acquisition of a manufacturer in Mexico
in December 1996 and the Company's majority-owned consolidated venture in
Brazil, which began operations in March 1997.
Cost of Goods Sold. Cost of goods sold increased as a percentage of net
sales to 61.6% for the six months ended June 30, 1997 compared to 61.4% for
the six months ended June 30, 1996. This increase in cost of goods sold as a
percentage of net sales reflects an increase in international sales which have
generally lower gross profit margins, offset by the benefits of higher volumes
over the Company's fixed cost base.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased as a percentage of net sales to 31.6% for
the six months ended June 30, 1997 compared to 36.5% of net sales for the six
months ended June 30, 1996. The decrease reflects the Company's focus on
reducing domestic per-pad selling costs and increases in international sales
which have lower selling and promotional costs.
Operating Income. As a result of the above factors, the Company's operating
income increased $7.0 million to $9.0 million for the six months ended June
30, 1997 from $2.0 million for the six months ended June 30, 1996. Operating
income as a percentage of net sales was 6.8% for the six months ended June 30,
1997 versus 2.1% for the six months ended June 30, 1996.
Interest Expense. Interest expense decreased slightly to $4.2 million for
the six months ended June 30, 1997 as compared to $4.4 million for the six
months ended June 30, 1996. The decrease reflected reduced borrowings under
the Company's revolving credit facility offset by borrowings under a working
capital facility and amortization of additional deferred loan costs related to
the refinancing transactions discussed under "Liquidity and Capital
Resources".
Income Taxes. The Company recorded a provision of $716,000 related to state
and foreign taxes for the six months ended June 30, 1997.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital requirements include, but are not
limited to, the payment of principal and interest on its debt; the funding of
working capital needs, primarily inventory, accounts receivable and
advertising and promotional expenses; and the funding of capital investments
in machinery, equipment and computer systems. Historically, the Company has
financed its debt service, working capital and capital expenditure
requirements through a combination of internally generated cash flow,
borrowings under the Company's revolving credit facility and other sources and
proceeds from private and public offerings of debt and equity securities.
On April 24, 1997, the Company entered into a note purchase agreement with a
financial institution, whereby the Company obtained a $10.0 million working
capital facility bearing interest at 12% per annum payable semiannually and
due on May 1, 1999. The working capital facility was unsecured and could be
prepaid by the Company, subject to a 3% premium.
On June 24, 1997, the Company closed a private issuance of $115.0 million
aggregate principal amount of its 10 1/4% Senior Notes due 2007 (the "Notes").
Proceeds from the offering of the Notes were used to repurchase $43.4 million
of the $45.0 million in principal amount of the Company's outstanding 12 1/2%
Series B Senior Notes Due November 1, 2002 pursuant to a tender offer
therefor, to repay the working capital facility described above, to repay
borrowings outstanding under the Company's revolving credit facility, to repay
the Company's term loan with a bank and to repay the Company's junior
subordinated debt and other indebtedness and for general corporate purposes.
In connection with these transactions, the Company recognized an extraordinary
expense of $7.8 million for the write-off of capitalized debt issuance costs
and prepayment and other fees, of which $3.7 million was non-cash.
The Company's operations used $8.5 million of cash during the six months
ended June 30, 1996 and $4.0 million of cash during the six months ended June
30, 1997. The use of cash during the six months ended June 30, 1997 reflects
the cash portion of the extraordinary item and the Company's expanding
international operations. Capital expenditures for the six months ended June
30, 1996 and 1997 were $1.4 million and $8.5 million, respectively. The
significant increase between periods in capital expenditures reflected machine
enhancements incurred in connection with the launch of "Drypers with Aloe
Vera" and capacity increases. Operations and capital expenditures in the 1996
period were funded primarily with $8.8 million of proceeds from the private
placement of convertible preferred stock. For the six months ended June 30,
1997, capital expenditures and the Company's investment in the Brazilian
venture were funded primarily by borrowings.
The Company's working capital was $59.0 million as of June 30, 1997 compared
to $8.7 million as of December 31, 1996. The Company's current assets
increased from $51.6 million at December 31, 1996 to $86.0 million at June 30,
1997, and current liabilities, including short-term debt, decreased from $42.9
million at December 31, 1996 to $27.0 million at June 30, 1997. Total debt
increased from $65.2 million at December 31, 1996 to $118.1 million at June
30, 1997.
The Company currently has available a revolving credit facility with a
borrowing base of up to $21.0 million. Borrowings under the revolving credit
facility bear interest at a rate of prime plus 1 3/4% per annum. Borrowing
availability under the revolving credit facility is a function of advance
rates based on eligible accounts receivable and inventory and is secured by
accounts receivable, inventory, trademarks and trade names, stock of certain
subsidiaries and other intangibles.
In February 1997, the Company began a series of transactions in which it
established a 51% owned subsidiary in Brazil to market its products, acquired
the rights to the Puppet brand name and entered into a supply arrangement with
a Brazilian manufacturer. The Company initially paid 1.0 million shares of
common stock and canceled an outstanding $2.2 million receivable from such
manufacturer as consideration for the acquisition. The sellers of the Puppet
brand name exercised an option to receive $4.0 million in cash in lieu of the
1.0 million shares, and such cash was paid to the sellers in May 1997. During
the second quarter of 1997, the Company also exercised a portion of its fair
value option to purchase 44% of the remaining 49% interest in its Brazilian
subsidiary for $5.3 million in cash.
12
<PAGE>
The Company's estimated cash requirements during 1997 are primarily the
funding of working capital needs, payment of debt service and planned capital
expenditures of approximately $13.5 million. The capital expenditures in 1997
are primarily related to the Company's new product launch in the second
quarter of 1997, as well as expansion of its domestic and international
manufacturing capacity. Of the total capital expenditure budget, approximately
$8.5 million had been incurred through June 30, 1997.
The Company believes that the combination of its cash on hand, cash flow
from operations and the borrowing availability under existing working capital
facilities should allow the Company to meet its working capital, capital
expenditure and debt service requirements, remain in compliance with its
financial covenants and manage its business needs for the foreseeable future.
INFLATION
Inflationary conditions in the United States have been moderate and, except
for pulp prices in 1995, have not had a material impact on the Company's
results of operations or financial position. Despite higher inflationary rates
in Latin America, inflation has not had a material impact on the results of
operations of the Company's operations located in that region because the
Company has generally been able to pass on cost increases to its customers.
FOREIGN CURRENCY
The Company operates in the United States and various foreign countries and
is therefore subject to currency fluctuations. The Company's foreign
operations attempt to minimize the effects of currency risk by offsetting,
whenever possible, amounts payable in U.S. dollars with amounts receivable in
U.S. dollars. As a matter of policy, the Company does not engage in currency
speculation. Other than the December 1994 devaluation of the Mexican peso,
changes in exchange rates historically have not materially impacted the
Company's net sales, costs or business practices.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This
statement establishes new standards for computing and presenting earnings per
share requiring the presentation of "basic" and "diluted" earnings per share
as compared to "primary" and "fully diluted" earnings per share. The Company
is required to adopt SFAS No. 128 in the first quarter of fiscal 1998. Earlier
adoption is not permitted and restatement of all prior period earnings per
share data is required. The Company believes the "diluted" disclosure required
under SFAS No. 128 will not differ materially from the historical primary
earnings per share amounts for the periods presented.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". This statement establishes standards for
reporting and display of comprehensive income and its components in financial
statements. Comprehensive income is the total of net income and all other
nonowner changes in equity. The Company is required to adopt SFAS No. 130 in
the first quarter of fiscal 1998. Reclassification of comparative financial
statements provided for earlier periods will be required. The Company believes
that the display of comprehensive income will not differ materially from the
currently displayed net income (loss) attributable to common stockholders.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information". This
statement requires disclosure related to each segment of an enterprise's
operations similar to that required under current standards with the addition
of quarterly disclosure requirements and a finer partitioning of geographic
disclosures. The Company is required to adopt SFAS No. 130 for the fiscal year
ending December 31, 1998.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Annual Meeting of Stockholders--May 28, 1997.
(b) Inapplicable.
(c) On May 28, 1997, the Stockholders voted in regard to the following
proposals:
Proposal No. 1--To elect two persons to serve as directors of the Company
for a three-year term or until their respective successors are duly elected
and qualified.
Proposal No. 2--To consider and vote on a proposal to approve amendments
to the Drypers Corporation Amended and Restated 1995 Key Employee Stock
Option Plan to (i) increase the aggregate number of shares of the Company's
Common Stock with respect to which options may be granted under the plan by
500,000 to allow for the grant of additional options under the plan and
(ii) make certain other changes as set forth therein.
Proposal No. 3--To consider and vote on a proposal to ratify the
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending December 31, 1997.
As of April 21, 1997, the record date for determining stockholders
entitled to vote at the Annual Meeting of Stockholders, the Company had
outstanding and entitled to vote 8,348,874 shares of Common Stock and
90,000 shares of Senior Convertible 7.5% Preferred Stock. Holders of the
7.5% Preferred Stock have 100 votes per share.
The following table lists the votes cast for each proposal:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN BROKER
------------------------------ ------------------------- ----------------------- ---------
PROPOSAL TOTAL COMMON PREFERRED TOTAL COMMON PREFERRED TOTAL COMMON PREFERRED NON-VOTES
- -------- ---------- --------- --------- ------- ------- --------- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
No. 1--
Terry A. Tognietti 14,757,815 6,157,815 86,000 487,731 487,731 -- -- -- -- --
Philip A. Tuttle 14,753,029 6,153,029 86,000 492,517 492,517 -- -- -- -- --
No. 2 12,172,660 3,572,660 86,000 975,013 975,013 -- 15,648 15,648 -- 2,082,225
No. 3 15,203,109 6,603,109 86,000 39,123 39,123 -- 3,314 3,314 -- --
</TABLE>
(d) Inapplicable.
ITEM 5.OTHER INFORMATION
Cautionary Statements:
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "anticipate", "estimate", "project" and
similar expressions are intended to identify such forward-looking statements.
Forward-looking statements may be made by management orally or in writing,
including, but not limited to, in press releases, as part of Management's
Discussion and Analysis of Financial Condition and Results of Operation and as
part of other sections of this Quarterly Report on Form 10-Q and the Company's
other filings with the Securities and Exchange Commission under the Securities
Act of 1933 and the Securities Exchange Act of 1934.
Such forward-looking statements are subject to certain risks, uncertainties
and assumptions, including without limitation those identified below. Should
one or more of these risks or uncertainties materialize, or should any of the
underlying assumptions prove incorrect, actual results of current and future
operations may vary materially from those anticipated, estimated or projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their respective dates.
14
<PAGE>
Among the factors that have a direct bearing on the Company's results of
operations and financial condition are the following factors:
LEVERAGE AND DEBT SERVICES. The Company is highly leveraged. The
Company's ability to meet its debt service obligations and to reduce its
total debt will be dependent upon the Company's future performance, which
will be subject to general economic conditions and financial, business and
other factors affecting the operations of the Company, many of which are
beyond its control. There can be no assurance that the Company's business
will continue to generate cash flow at or above current levels. If the
Company is unable to generate sufficient cash flow from operations in the
future to service its debt, it may be required to refinance all or a
portion of its existing debt or to obtain additional financing. There can
be no assurance that any such financing could be obtained on terms
acceptable to the Company, if at all.
COMPETITIVE INDUSTRY. In the United States, the Company experiences
substantial competition from a number of producers of disposable baby
diapers and training pants, including larger manufacturers of the leading
national brands and other private label manufacturers. A number of these
producers have substantially greater manufacturing, marketing and financial
resources than the Company and thus are able to exert significant influence
on the worldwide markets in which they compete. Actions by the Company's
competitors could have a material adverse effect on the Company.
PRICE CHANGES BY COMPETITORS. The disposable diaper industry is
characterized by substantial price competition, which is effected through
price changes, product count changes and promotions. Typically, because of
their large market share, one of the Company's larger competitors initiates
such pricing changes. The Company may respond to these pricing changes with
changes to its own prices, product counts or promotional programs. The
process of fully implementing such changes may require a number of months
and the Company's operating results may be adversely affected. For example,
a price per package and product count reduction by Procter & Gamble in the
first quarter of 1995 led to a subsequent repositioning of the Company's
Drypers brand, which adversely affected the Company's results of operations
during that period. There can be no assurance that these or future price or
product changes by the Company's larger competitors will not have a
material adverse effect on the Company or that the Company will be able to
react with price or product changes of its own to maintain its current
market position. In addition, there can be no assurance that the major
producers of private label diapers will not price or position their
products in such a manner as to have material adverse effect on the
Company.
DEPENDENCE ON KEY PRODUCTS AND ACCEPTANCE OF PRODUCT INNOVATIONS. The
Company's Drypers brand premium diapers and training pants accounted for
61.3% and 62.0% of the Company's net sales for 1995 and 1996, respectively.
The Company has made substantial investments in manufacturing equipment and
processes for these products. In addition, the Company from time to time
has introduced product innovations that are incorporated into all of the
Company's premium products. The Company is substantially dependent on the
continued success of sales of these products and customer acceptance of its
product innovations. A number of factors could materially reduce sales by
the Company of its products, or the profitability of such sales, including
actions by its competitors, shifts in consumer preferences or the lack of
acceptance of the Company's product innovations. There can be no assurance
that in the future such factors will not have a material adverse effect on
the Company.
COST OF CERTAIN RAW MATERIALS. Raw materials, especially pulp,
superabsorbent polymers and polypropylene nonwoven fabric, are significant
components of the Company's products and packaging. An industry-wide
shortage or a significant increase in the price of any of these components
could adversely affect the Company's ability to maintain its profit margins
in the event price competition does not permit the Company to increase
prices.
INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS, DEVALUATIONS AND
RESTRICTIONS. A significant portion of the Company's net sales are to
customers outside of the United States and 14.5% of the Company's operating
income derived from such sales during the year ended December 31, 1996. The
Company currently has operations in Argentina, Mexico and Brazil and
expects its international operations to become a larger contributor to
sales and profitability in the future. The success of the Company's sales
15
<PAGE>
to, operations in and expansion into international markets depends on
numerous factors, many of which are beyond the Company's control. Such
factors include economic conditions in the foreign countries in which the
Company operates and to which it sells its products. In addition,
international operations and expansion may increase the Company's exposure
to certain common risks in the conduct of business outside the United
States, including currency exchange rate fluctuations, restrictions on the
repatriation of profits and assets, compliance with foreign laws and
standards, political risks and risks of increases in duties, taxes and
governmental royalties. Moreover, the level of the Company's exports are
impacted by the relative strength or weakness of the U.S. dollar. Other
than the United States, each country in which the Company operates has
experienced political and economic instability in recent years. Moreover,
as recent events in the Latin American region have demonstrated, negative
economic or political developments in one country in the region can lead to
or exacerbate economic or political crises elsewhere in the region. The
economies of Latin America are characterized by extensive government
intervention in the economy; inflation and, in some cases, hyperinflation;
currency devaluations, fluctuations, controls and shortages; troubled and
insolvent financial institutions; capital flight; political instability,
turmoil and violence; and economic contraction and unemployment. Any of the
foregoing could have a material adverse effect on the Company.
INTELLECTUAL PROPERTY RISKS. The Company's larger branded competitors
normally seek U.S. and foreign patent protection for the product
enhancements they develop. The Company believes it has been able to
introduce product features comparable to those introduced by its
competitors by using manufacturing methods or materials that are not
protected by patents, although there can be no assurance that the Company
will be able to continue to do so in the future. To the extent the Company
is not able to introduce comparable products on a timely basis, its
financial position and results of operations could be materially adversely
affected.
In addition, the Company from time to time has received, and may receive
in the future, communications from third parties, asserting that the
Company's products, trademarks, designs, labels or packaging infringe upon
such third parties' intellectual property rights. There can be no assurance
that third parties will not successfully assert claims against the Company
with respect to existing or future products or packaging. Should the
Company be found to infringe upon the intellectual property rights of
others, the Company could be required to cease use of certain products,
trademarks, designs, labels or packaging or pay damages to the affected
parties, any of which could have a material adverse effect on the Company.
Substantial costs also may be incurred by the Company in redesigning its
labels or packaging, in selecting and clearing new trademarks or in
defending any legal action.
TECHNOLOGICAL CHANGES. The disposable baby diaper industry is subject to
frequent technological innovations, with the Company's larger branded
competitors having been the leaders in product design and development
historically. The large research and development departments of these
companies have developed most of the important product enhancements in the
disposable baby diaper industry in the past several years. The Company
believes that by working closely with its suppliers, distributors and other
industry participants it has been able to introduce product enhancements
comparable to those introduced by its competitors when needed to maintain
the Company's competitive position, although there can be no assurance that
the Company will be able, or will have adequate resources, to do so in the
future. To the extent the Company is not able or does not have adequate
resources to introduce comparable products on a timely basis, its financial
position and results of operations could be materially adversely affected.
COVENANT LIMITATIONS. The debt agreements contain numerous financial and
operating covenants that will limit the discretion of the Company's
management with respect to certain business matters. These covenants will
place significant restrictions on, among other things, the ability of the
Company to incur additional debt, to create liens or other encumbrances, to
pay dividends and make other investments and restricted payments, and to
sell or otherwise dispose of assets and to merge or consolidate with other
entities. The revolving credit facility also requires the Company to meet
certain financial ratios and tests. A failure to comply with the
obligations contained in such debt agreements could result in an event of
default thereunder, which could result in acceleration of the related debt
and the acceleration of debt under other instruments evidencing debt that
may contain cross-acceleration or cross-default provisions.
16
<PAGE>
DEPENDENCE ON KEY PERSONNEL. The Company believes that its continued
success will depend to a significant extent upon the abilities and
continued efforts of its senior management. The loss of the services of any
one or more of such key personnel could have an adverse effect on the
Company and there can be no assurance that the Company would be able to
find suitable replacements for such key personnel. The Company has
employment agreements with certain of its senior executives. The Company
does not maintain key man life insurance on any of its executives.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits--Reference is made to the Exhibit Index on page 19 for a list
of exhibits filed as part of this report pursuant to Item 601 of
Regulation S-K.
(b) Reports on Form 8-K--A report on Form 8-K was filed with the Commission
on May 22, 1997, in which the Company reported its intention to make a
private offering of $100,000,000 in aggregate principal amount of
senior notes due 2007.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DRYPERS CORPORATION
Date: August 11, 1997 By: /s/ Jonathan P. Foster
----------------------------------
Chief Financial Officer
(Duly Authorized Officer)
(Principal Financial Officer)
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER AND DESCRIPTION
------------------------------ ------
<C> <S> <C>
4.1 Indenture dated as of June 15, 1997, between Drypers
Corporation and Bankers Trust Company, as Trustee.
11.1 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
19
<PAGE>
EXHIBIT 4.1
DRYPERS CORPORATION,
Issuer
and
BANKERS TRUST COMPANY,
Trustee
____________________
INDENTURE
Dated as of June 15, 1997
_____________________
$115,000,000
10 1/4% Senior Notes due 2007
10 1/4% Series B Senior Notes due 2007
<PAGE>
DRYPERS CORPORATION
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF SEPTEMBER 30, 1996
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
(S) 310(a)(1)..................................... 608
(a)(2)......................................... 608
(b)............................................ 609
(S) 312(a)........................................ 701
(c)............................................ 702
(S) 313(a)........................................ 703
(c)............................................ 703
(S) 314(a)(4)..................................... 1010(a)
(c)(1)......................................... 102
(c)(2)......................................... 102
(e)............................................ 102
(S) 315(a)........................................ 601(a)
(b)............................................ 602
(c)............................................ 601(b)
(d)............................................ 601(c), 603
316(a)(last
sentence)...................................... 101 ("Outstanding")
(a)(1)(A)...................................... 502, 512
(a)(1)(B)...................................... 513
(b)............................................ 508
(c)............................................ 104(d)
(S) 317(a)(1)..................................... 503
(a)(2)......................................... 504
(b)............................................ 1003
(S) 318(a)........................................ 111
__________________________
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
PARTIES........................................................ 1
RECITALS OF THE COMPANY........................................ 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions................................. 1
Acquired Debt........................................ 2
Act.................................................. 2
Affiliate............................................ 2
Agent................................................ 3
Asset Sale........................................... 3
Authenticating Agent................................. 3
Bankruptcy Law....................................... 3
Board of Directors................................... 3
Board Resolution..................................... 3
Business Day......................................... 4
Capital Stock........................................ 4
Capitalized Lease Obligation......................... 4
Change of Control.................................... 4
Closing Date......................................... 4
Commission........................................... 4
Company.............................................. 5
Company Request or Company Order..................... 5
Consolidated EBITDA.................................. 5
Consolidated Fixed Charge Coverage Ratio............. 6
Consolidated Fixed Charges........................... 6
Consolidated Net Worth............................... 6
Corporate Trust Office............................... 7
Custodian............................................ 7
Debt................................................. 7
Default.............................................. 7
Defaulted Interest................................... 7
Depositary........................................... 7
______________________
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
ii
Page
----
Disqualified Stock................................... 8
Equity Offering...................................... 8
Event of Default..................................... 8
Exchange Act......................................... 8
Exchange Notes....................................... 8
Exchange Offer....................................... 8
Exchange Offer Registration Statement................ 9
Generally Accepted Accounting Principles............. 9
Hedging Obligations.................................. 9
Holder............................................... 9
Indenture............................................ 9
Indenture Obligations................................ 9
Initial Notes........................................ 9
Initial Purchasers................................... 9
Interest Payment Date................................ 10
Investment........................................... 10
Issuance Date........................................ 10
Joint Venture........................................ 10
Lien................................................. 10
Maturity............................................. 10
Net Cash Proceeds.................................... 10
Note Register........................................ 11
Notes................................................ 11
Offering Memorandum.................................. 11
Officers' Certificate................................ 11
Opinion of Counsel................................... 11
Outstanding.......................................... 11
Paying Agent......................................... 12
Permitted Investments................................ 12
Person............................................... 14
Predecessor Note..................................... 14
Preferred Stock...................................... 14
QIB.................................................. 14
Qualified Equity Interest............................ 14
Qualified Stock...................................... 14
Redemption Date...................................... 14
Redemption Price..................................... 14
Registration Rights Agreement........................ 14
Regular Record Date.................................. 14
<PAGE>
iii
Page
----
Responsible Officer.................................. 14
Restricted Subsidiary................................ 15
Revolving Credit Facility............................ 15
Rule 144A............................................ 15
Securities Act....................................... 15
Shelf Registration Statement......................... 15
Significant Subsidiary............................... 15
Special Record Date.................................. 15
Stated Maturity...................................... 15
Subordinated Debt.................................... 15
Subsidiary........................................... 16
Subsidiary Guarantee................................. 16
Subsidiary Guarantor................................. 16
Trust Indenture Act.................................. 16
Trustee.............................................. 16
Unrestricted Subsidiary.............................. 16
Government Obligations............................... 16
Vice President....................................... 16
Voting Stock......................................... 17
Weighted Average Life................................ 17
Wholly Owned Restricted Subsidiary................... 17
SECTION 102. Compliance Certificates and Opinions........ 17
SECTION 103. Form of Documents Delivered to Trustee...... 18
SECTION 104. Acts of Holders............................. 19
SECTION 105. Notices, Etc., to Trustee, the Company and
Subsidiary Guarantors....................... 20
SECTION 106. Notice to Holders; Waiver................... 20
SECTION 107. Effect of Headings and Table of Contents.... 21
SECTION 108. Successors and Assigns...................... 21
SECTION 109. Separability Clause......................... 21
SECTION 110. Benefits of Indenture....................... 21
SECTION 111. Governing Law............................... 22
SECTION 112. Legal Holidays.............................. 22
SECTION 113. No Personal Liability of Directors, Officers,
Employees, Stockholders or Incorporators.... 22
SECTION 114. Counterparts................................ 22
SECTION 115. Rules of Interpretation..................... 23
SECTION 116. Ancillary Agreements........................ 23
SECTION 117. Conflict with Trust Indenture Act........... 23
<PAGE>
iv
PAGE
----
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.................................. 23
SECTION 202. Restrictive Legends.............................. 24
SECTION 203. [INTENTIONALLY OMITTED].......................... 25
SECTION 204. Form of Face of Note............................. 26
SECTION 205. Form of Reverse of Note.......................... 29
SECTION 206. Form of Trustee's Certificate of Authentication.. 35
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.................................. 35
SECTION 302. Denominations.................................... 36
SECTION 303. Execution, Authentication, Delivery and Dating... 36
SECTION 304. Temporary Notes.................................. 38
SECTION 305. Registration, Registration of Transfer and
Exchange......................................... 38
SECTION 306. Book-Entry Provisions for the Global Note........ 40
SECTION 307. Special Transfer Provisions...................... 41
SECTION 308. Form of Certificate to Be Delivered in Connection
with Transfers to Non-QIB Institutional Accredited
Investors........................................ 43
SECTION 309. [INTENTIONALLY OMITTED].......................... 45
SECTION 310. Mutilated, Destroyed, Lost and Stolen Notes...... 45
SECTION 311. Payment of Interest; Interest Rights Preserved... 46
SECTION 312. Persons Deemed Owners............................ 47
SECTION 313. Cancellation..................................... 47
SECTION 314. CUSIP Numbers.................................... 48
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.......... 48
SECTION 402. Application of Trust Money....................... 49
<PAGE>
v
PAGE
----
ARTICLE FIVE
DEFAULTS AND REMEDIES
SECTION 501. Events of Default.................................. 50
SECTION 502. Acceleration of Maturity; Rescission and Annulment. 51
SECTION 503. Collection of Debt and Suits for Enforcement by
Trustee............................................ 52
SECTION 504. Trustee May File Proofs of Claim................... 53
SECTION 505. Trustee May Enforce Claims Without Possession of
Notes.............................................. 54
SECTION 506. Application of Money Collected..................... 54
SECTION 507. Limitation on Suits................................ 55
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest............................... 55
SECTION 509. Restoration of Rights and Remedies................. 56
SECTION 510. Rights and Remedies Cumulative..................... 56
SECTION 511. Delay or Omission Not Waiver....................... 56
SECTION 512. Control by Holders................................. 56
SECTION 513. Waiver of Past Defaults............................ 57
SECTION 514. Waiver of Stay or Extension Laws................... 57
SECTION 515. Undertaking for Costs.............................. 57
SECTION 516. Expenses of Enforcement............................ 58
ARTICLE SIX
THE TRUSTEE
SECTION 601. Acceptance of Trusts; Certain Duties and
Responsibilities................................... 58
SECTION 602. Notice of Defaults................................. 59
SECTION 603. Certain Rights of Trustee.......................... 59
SECTION 604. Trustee Not Responsible for Recitals or Issuance
of Notes........................................... 61
SECTION 605. May Hold Notes..................................... 61
SECTION 606. Money Held in Trust................................ 61
SECTION 607. Compensation and Reimbursement..................... 61
SECTION 608. Corporate Trustee Required; Eligibility............ 62
SECTION 609. Intervention by Trustee............................ 63
SECTION 610. Resignation and Removal; Appointment of Successor.. 63
SECTION 611. Acceptance of Appointment by Successor............. 64
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business........................................... 65
<PAGE>
vi
PAGE
----
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE
SECTION 701. Company to Furnish Trustee Names and Addresses..... 65
SECTION 702. Disclosure of Names and Addresses of Holders....... 66
SECTION 703. Reports by Trustee................................. 66
ARTICLE EIGHT
MERGER, CONSOLIDATION, OR SALE OF ASSETS
SECTION 801. Company May Consolidate, Etc., Only on Certain
Terms.............................................. 66
SECTION 802. Successor Substituted.............................. 68
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
SECTION 901. Supplemental Indentures Without Consent of Holders. 68
SECTION 902. Supplemental Indentures with Consent of Holders.... 69
SECTION 903. Execution of Supplemental Indentures............... 70
SECTION 904. Effect of Supplemental Indentures.................. 70
SECTION 905. Conformity with Trust Indenture Act................ 70
SECTION 906. Reference in Notes to Supplemental Indentures...... 70
SECTION 907. Notice of Supplemental Indentures.................. 71
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and
Interest.......................................... 71
SECTION 1002. Maintenance of Office or Agency................... 71
SECTION 1003. Money for Note Payments to Be Held in Trust....... 72
SECTION 1004. Corporate Existence............................... 73
SECTION 1005. Payment of Taxes and Other Claims................. 73
SECTION 1006. Maintenance of Properties......................... 74
SECTION 1007. Insurance......................................... 74
SECTION 1008. Compliance with Laws.............................. 74
SECTION 1009. Limitation on Debt................................ 74
<PAGE>
vii
PAGE
----
SECTION 1010. Limitation on Restricted Payments................. 77
SECTION 1011. Purchase of Notes upon a Change of Control........ 80
SECTION 1012. Limitation on Certain Assets Sales................ 81
SECTION 1013. Limitation on Transactions with Affiliates........ 83
SECTION 1014. Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries............... 84
SECTION 1015. Restrictions on Transfer of Assets to Subsidiaries 85
SECTION 1016. Limitation on Issuances and Sales of Capital Stock
of Restricted Subsidiaries........................ 85
SECTION 1017. Limitation on Liens............................... 85
SECTION 1018. Limitation on Guarantees of Debt by Restricted
Subsidiaries...................................... 87
SECTION 1019. Statement as to Compliance........................ 88
SECTION 1020. Limitation on Unrestricted Subsidiaries........... 89
SECTION 1021. Commission Reports and Reports to Holders......... 89
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Redemption........................................ 90
SECTION 1102. Applicability of Article.......................... 90
SECTION 1103. Election to Redeem; Notice to Trustee............. 90
SECTION 1104. Selection by Trustee of Notes to Be Redeemed...... 90
SECTION 1105. Notice of Redemption.............................. 91
SECTION 1106. Deposit of Redemption Price....................... 92
SECTION 1107. Notes Payable on Redemption Date.................. 92
SECTION 1108. Notes Redeemed in Part............................ 92
ARTICLE TWELVE
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Legal Defeasance or
Covenant Defeasance.............................. 93
SECTION 1202. Legal Defeasance and Discharge................... 93
SECTION 1203. Covenant Defeasance.............................. 94
SECTION 1204. Conditions to Legal Defeasance or Covenant
Defeasance....................................... 94
SECTION 1205. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous
Provisions....................................... 95
SECTION 1206. Reinstatement.................................... 96
<PAGE>
viii
PAGE
----
ARTICLE THIRTEEN
SUBSIDIARY GUARANTEES
SECTION 1301. Subsidiary Guarantees............................. 96
SECTION 1302. Guaranty Absolute................................. 97
SECTION 1303. Waivers........................................... 99
SECTION 1304. Subrogation....................................... 100
SECTION 1305. No Waiver; Remedies............................... 100
SECTION 1306. Continuing Guaranty; No Right of Set-Off;
Independent Obligation............................ 100
SECTION 1307. Subsidiary Guarantors May Consolidate, Etc. on
Certain Terms..................................... 101
SECTION 1308. Additional Subsidiary Guarantors.................. 101
SECTION 1309. Releases.......................................... 101
SIGNATURES............................................................ 103
<PAGE>
INDENTURE, dated as of June 15, 1997, between DRYPERS CORPORATION, a
corporation duly organized and existing under the laws of the State of Delaware
(the "Company"), having its principal office at 5300 Memorial Drive, Suite 900,
Houston, Texas 77007, and BANKERS TRUST COMPANY, a New York banking corporation
and trust company, as trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issuance of its 10 1/4%
Senior Notes due 2007 (the "Initial Notes"), and 10 1/4% Series B Senior Notes
due 2007 (the "Exchange Notes," and together with the Initial Notes, the
"Notes"), of substantially the tenor and amount hereinafter set forth, and to
provide therefor the Company has duly authorized the execution and delivery of
this Indenture.
Upon the effectiveness of the Exchange Offer Registration Statement (as
defined herein) or the Shelf Registration Statement (as defined herein), the
Indenture shall be subject to, and shall be governed by, the provisions of the
Trust Indenture Act of 1939, as amended, that are required or deemed to be part
of and to govern indentures qualified thereunder.
All things necessary have been done to make the Notes, when executed and
duly issued by the Company and authenticated and delivered hereunder by the
Trustee or the Authenticating Agent, the valid obligations of the Company and to
make this Indenture a valid agreement of the Company in accordance with their
and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the 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 ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. 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 words in the singular include the plural as well
as the
<PAGE>
2
singular, and words in the plural include the singular as well as the
plural;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, or defined by
Commission rule and not otherwise defined herein have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper," as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with Generally Accepted Accounting
Principles;
(d) 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;
(e) the word "or" is not exclusive; and
(f) provisions of the Indenture apply to successive events and
transactions.
Certain terms, used principally in Articles Two, Three, Eight, Ten,
Twelve and Thirteen, are defined in those Articles.
"12 1/2% Senior Notes" means the 12.5% Series B Notes due November 1,
2002 of the Company.
"Acquired Debt" means Debt of a Person (a) existing at the time such
Person is merged with or into the Company or becomes a Subsidiary or (b) assumed
in connection with the acquisition of assets from such Person.
"Act," when used with respect to any Holder, has the meaning set forth
in Section 104.
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control," when used with respect to any specified Person, means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agent" means any Paying Agent, Authenticating Agent and Note
Registrar under this Indenture.
<PAGE>
3
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a "transfer") by
the Company or a Restricted Subsidiary, directly or indirectly, in one or a
series of related transactions, to any Person other than the Company or a
Restricted Subsidiary of (a) any Capital Stock of any Restricted Subsidiary, (b)
all or substantially all of the properties and assets of the Company and its
Restricted Subsidiaries representing a division or line of business or (c) any
other properties or assets of the Company or any Restricted Subsidiary, other
than in the ordinary course of business. For the purposes of this definition,
the term "Asset Sale" does not include any transfer of properties or assets (i)
that is governed by the provisions of Article Eight, (ii) between or among the
Company and its Restricted Subsidiaries pursuant to transactions that do not
violate any other provision of this Indenture, (iii) to an Unrestricted
Subsidiary or a Joint Venture, if permitted under Section 1012, (iv)
representing obsolete or permanently retired equipment and facilities, (v)
involving the leasing of a JOA diaper line from McDonnell Douglas Leasing
Corporation, including the sale and leaseback of related equipment, (vi) the
sale and leaseback of all or a portion of a diaper, training pant or wet wipe
production line acquired by the Company or a Restricted Subsidiary after the
Closing Date, provided that the aggregate amount of proceeds received by the
Company from any such sale may not exceed $1,500,000 or (vii) the gross proceeds
of which (exclusive of indemnities) do not exceed $1,000,000 for any particular
item or $2,000,000 in the aggregate for any fiscal year of the Company.
"Authenticating Agent" means the Person appointed, if any, by the
Trustee as an authenticating agent pursuant to the last paragraph of Section
303.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of
1978, as amended, or any similar United States federal or state or foreign law
relating to bankruptcy, insolvency, receivership, winding-up, liquidation,
reorganization or relief of debtors or any amendment to, succession to or change
in any such law.
"Board of Directors" means, with respect to any Person, either the
board of directors of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the secretary or an assistant secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
"Capital Stock" of any Person means any and all shares, interests,
partnership interests, participations, rights in or other equivalents (however
<PAGE>
4
designated) of such Person's equity interest (however designated).
"Capitalized Lease Obligation" means, with respect to any Person, an
obligation incurred or assumed under or in connection with any capital lease of
real or personal property that, in accordance with GAAP, has been recorded as a
capitalized lease.
"Certificated Notes" has the meaning set forth in Section 201.
"Change of Control" means the occurrence of any of the following
events:
(a) Any Person or "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes 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 securities that such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
a majority of the voting power of all classes of Voting Stock of the
Company.
(b) During any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of Directors,
or whose nomination for election by the stockholders of the Company, was
approved by a vote of 66 2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in
office.
(c) The Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution.
"Closing Date" means the date on which the Notes are originally issued
under the Indenture.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this Indenture 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 Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
<PAGE>
5
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company (i) by its chairman, a vice-chairman, its
president any vice president or Chief Financial Officer and (ii) by its
treasurer, an assistant treasurer, its secretary or an assistant secretary and
delivered to the Trustee; provided, however, that such written request or order
may be signed by any two of the officers or directors listed in clause (i) above
in lieu of being signed by one of such officers or directors listed in such
clause (i) and one of the officers listed in clause (ii) above.
"Consolidated Adjusted Net Income" means, for any period, the net
income (or net loss) of the Company and its Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP, adjusted
to the extent included in calculating such net income or loss by excluding (a)
any net after-tax extraordinary gains or losses (less all fees and expenses
relating thereto), (b) any net after-tax gains or losses (less all fees and
expenses relating thereto) attributable to Asset Sales, (c) the portion of net
income (or loss) of any Person (other than the Company or a Restricted
Subsidiary), including Unrestricted Subsidiaries, in which the Company or any
Restricted Subsidiary has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to the Company or any
Restricted Subsidiary in cash during such period, (d) the net income (or loss)
of any Person combined with the Company or any Restricted Subsidiary on a
"pooling of interests" basis attributable to any period prior to the date of
combination and (e) the net income (but not the net loss) of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary is at the date of determination
restricted, directly or indirectly, including by way of foreign governmental
limitations on remittances, except to the extent that such net income could be
paid to the Company or a Restricted Subsidiary thereof by loans, advances,
intercompany transfers, principal repayments or otherwise; provided that, if any
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated
Adjusted Net Income shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Consolidated
Adjusted Net Income otherwise attributable to such Restricted Subsidiary
multiplied by (B) the quotient of (1) the number of shares of outstanding common
stock of such Restricted Subsidiary not owned on the last day of such period by
the Company or any of its Restricted Subsidiaries divided by (2) the total
number of shares of outstanding common stock of such Restricted Subsidiary on
the last day of such period.
"Consolidated EBITDA" means, for any period, the sum of, without
duplication Consolidated Adjusted Net Income for such period, plus (or, in the
case of clause (d) below, plus or minus) the following items to the extent
included in computing Consolidated Adjusted Net Income for such period (a)
Consolidated Fixed Charges for such period, plus (b) the provision for federal,
state, local and foreign income taxes of the Company and its Restricted
Subsidiaries for such period, plus (c) the aggregate depreciation and
amortization expense of the Company and its Restricted Subsidiaries for such
period, plus (d) any other non-cash charges for such period, and minus non-cash
credits for such period, other than non-cash charges or credits resulting from
changes in prepaid assets or accrued liabilities in the ordinary course of
business;
<PAGE>
6
provided that income tax expense, depreciation and amortization expense, fixed
charges and non-cash charges and credits of a Restricted Subsidiary shall be
included in Consolidated EBITDA only to the extent (and in the same proportion)
that the net income of such Subsidiary was included in calculating Consolidated
Adjusted Net Income for such period.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the
ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Fixed
Charges for such period.
"Consolidated Fixed Charges" means, for any period, without
duplication, the sum of (a) the amount that, in conformity with GAAP, would be
set forth opposite the caption "interest expense" (or any like caption) on a
consolidated statement of operations of the Company and its Restricted
Subsidiaries for such period, including, without limitation, (i) amortization
of debt discount, (ii) the net cost of interest rate contracts (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation, (iv) amortization of debt issuance costs and (v) the interest
component of Capitalized Lease Obligations, plus (b) cash dividends paid on
Preferred Stock and Disqualified Stock by the Company and any Restricted
Subsidiary (to any Person other than the Company and its Restricted
Subsidiaries), plus (c) all interest on any Debt of any Person guaranteed by the
Company or any of its Restricted Subsidiaries; provided, however, that
Consolidated Fixed Charges shall not include (i) any gain or loss from
extinguishment of debt, including the write-off of debt issuance costs and (ii)
the fixed charges of a Restricted Subsidiary to the extent (and in the same
proportion) that the net income of such Subsidiary was excluded in calculating
Consolidated Adjusted Net Income pursuant to clause (e) of the definition
thereof for such period.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity of the Company and its Restricted Subsidiaries as set forth
on the most recently available quarterly or annual consolidated balance sheet of
the Company and its Restricted Subsidiaries, less any amounts attributable to
Disqualified Stock or any equity security convertible into or exchangeable for
Debt, the cost of treasury stock and the principal amount of any promissory
notes receivable from the sale of the Capital Stock of the Company or any of its
Restricted Subsidiaries and less, to the extent included in calculating such
stockholders' equity of the Company and its Restricted Subsidiaries, the
stockholders' equity attributable to Unrestricted Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign currency
adjustments under Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 52).
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at Four Albany Street, New York, NY 10006, except that with respect to
presentation of Notes
<PAGE>
7
for payment or for registration of transfer or exchange, such term shall mean
any office or agency of the Trustee at which, at any particular time, its
corporate agency business shall be conducted.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Debt" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed, (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, (c) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (d) every obligation of such Person issued or
assumed as the deferred purchase price of property or services, (e) every
Capitalized Lease Obligation of such Person, (f) all Disqualified Stock of such
Person valued at its maximum fixed repurchase price, plus accrued and unpaid
dividends, (g) all obligations of such Person under or in respect of Hedging
Obligations, and (h) every obligation of the type referred to in clauses (a)
through (g) of another Person and all dividends of another Person the payment of
which, in either case, such Person has guaranteed. For purposes of this
definition, the "maximum fixed repurchase price" of any Disqualified Stock that
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Disqualified Stock as if such Disqualified Stock were
repurchased on any date on which Debt is required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Stock, such fair market value shall be determined in
good faith by the board of directors of the issuer of such Disqualified Stock.
Notwithstanding the foregoing, trade accounts payable and accrued liabilities
arising in the ordinary course of business and any liability for federal, state
or local taxes or other taxes owed by such Person shall not be considered Debt
for purposes of this definition.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Defaulted Interest" has the meaning set forth in Section 311.
"Definitive Special Record Date" has the meaning set forth in Section
311.
"Depositary" means The Depository Trust Company, its nominees and
successors.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with
<PAGE>
8
respect to such transaction or series of transactions (other than as the holder
of Voting Stock of the Company).
"Disqualified Stock" means any class or series of Capital Stock that,
either by its terms, or by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to one year after the final Stated Maturity of the Notes, (ii) is redeemable at
the option of the holder thereof at any time prior to one year after such final
Stated Maturity or (iii) at the option of the holder thereof, is convertible
into or exchangeable for debt securities at any time prior to one year after
such final Stated Maturity; provided that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to cause the issuer thereof to repurchase or redeem such Capital Stock
upon the occurrence of an "asset sale" or "change of control" occurring prior to
the Stated Maturity of the Notes shall not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are no more favorable to the holders of such Capital Stock than the provisions
of Sections 1011 and 1012 and such Capital Stock specifically provides that the
issuer shall not repurchase or redeem any such stock pursuant to such provision
prior to the Company's repurchase of such Notes as are required to be
repurchased pursuant to the provisions of Sections 1011 and 1012.
"Equity Offering" means an offer and sale by the Company of its common
stock (which is Qualified Stock) to a Person other than a Subsidiary.
"Event of Default" has the meaning set forth in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" has the meaning stated in the first recital of this
Indenture and refers to any Exchange Notes containing terms substantially
identical to the Initial Notes (except that (i) such Exchange Notes shall not
contain terms with respect to transfer restrictions and shall be registered
under the Securities Act, and (ii) certain provisions relating to an increase in
the stated rate of interest thereon shall be eliminated) that are issued and
exchanged for the Initial Notes in accordance with the Exchange Offer, as
provided for in the Registration Rights Agreement and this Indenture.
"Exchange Offer" means the offer by the Company to the Holders of the
Initial Notes to exchange all of the Initial Notes for Exchange Notes, as
provided for in the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Generally Accepted Accounting Principles" means generally accepted
<PAGE>
9
accounting principles in the United States, consistently applied, that are in
effect on the Closing Date.
"guarantee" means, as applied to any obligation, (a) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limitation, the payment of
amounts drawn down under letter of credit.
"Hedging Obligations" means the obligations of any Person under (i)
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements and (ii) other agreements or arrangements designed to protect
such Person against fluctuations in interest rates or the value of foreign
currencies.
"Holder" means the Person in whose name a Note is registered in the
Note Register.
"Indenture" means this instrument as originally executed and 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.
"Indenture Obligations" means the obligations of the Company and any
other obligor hereunder or under the Notes, including the Subsidiary Guarantors
to pay principal of (and premium, if any) and interest on the Notes when due and
payable at Maturity, and all other amounts due or to become due under or in
connection with this Indenture, the Notes and the performance of all other
obligations to the Trustee (including all amounts due to the Trustee under
Section 607 hereof) and the Holders under this Indenture and the Notes,
according to the terms hereof and thereof.
"Initial Notes" has the meaning specified in the recitals to this
Indenture.
"Initial Purchasers" means Prudential Securities Incorporated and
Credit Suisse First Boston, as purchasers of the Initial Notes.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Investment" in any Person means, (i) directly or indirectly, any
advance, loan or other extension of credit (including, without limitation, by
way of guarantee or similar arrangement) or capital contribution to any Person,
the purchase or other acquisition of any stock, bonds, notes, debentures or
other securities issued by such Person, the acquisition (by purchase or
otherwise) of all or substantially all of the business or assets of such Person,
or the making of any investment in such Person, (ii)
<PAGE>
10
the designation of any Restricted Subsidiary as an Unrestricted Subsidiary and
(iii) the transfer of any assets or properties from the Company or a Restricted
Subsidiary to any Unrestricted Subsidiary, other than the transfer of assets or
properties made in the ordinary course of business. Investments exclude
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices.
"Issuance Date" means the closing date for the sale and original
issuance of the Notes hereunder.
"Joint Venture" means any Person (other than an individual or
government) that is not a Subsidiary of the Company and a majority of whose
revenues are derived or will, as a consequence of the Company's or one of its
Subsidiaries' Investments therein, be derived from the business of the
manufacture and sale of disposable diapers and/or training pants in the United
States or elsewhere or a business reasonably related thereto.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation, assignment for
security, claim, preference, priority or other encumbrance upon or with respect
to any property of any kind, real or personal, movable or immovable, now owned
or hereafter acquired. A Person shall be deemed to own subject to a Lien any
property that such Person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Maturity" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity by declaration of acceleration, call for
redemption or purchase or otherwise.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations when received in the form of, or stock
or other assets when disposed for, cash or cash equivalents (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary), net of (a) brokerage commissions and other fees
and expenses (including fees and expenses of legal counsel and investment banks)
related to such Asset Sale, (b) provisions for all taxes payable as a result of
such Asset Sale, (c) payments made to retire Debt where payment of such Debt is
secured by the assets that are the subject of such Asset Sale, (d) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the assets that are subject to the
Asset Sale and (e) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP against any liabilities associated with such Asset Sale and retained
by the seller after such Asset Sale, including pension and other post-
employment benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification
<PAGE>
11
obligations associated with such Asset Sale.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 305.
"Notes" has the meaning stated in the first recital of this Indenture
and more particularly means any Notes authenticated and delivered under this
Indenture.
"Offering Memorandum" means the Offering Memorandum dated June 17,
1997 with respect to the offering of the Notes.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two officers of the Company, one of whom must be a co-chief executive
officer, the chief financial officer, corporate controller, secretary, assistant
secretary, treasurer or assistant treasurer of the Company that meets the
requirements set forth in Section 102.
"Opinion of Counsel" means a written opinion of counsel, which and who
are reasonably acceptable to, and addressed to, the Trustee complying with the
requirements of Section 102. Unless otherwise required by the TIA, such legal
counsel may be an employee of or counsel to the Company or the Trustee.
"Outstanding," when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment or redemption money
in the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Notes; provided that, if such Notes
are to be redeemed, notice of such redemption has been duly given pursuant
to this Indenture or provision therefor satisfactory to the Trustee has
been made;
(iii) Notes, with respect to which the Company has effected Legal
Defeasance and/or Covenant Defeasance as provided in Article Twelve; and
(iv) Notes in exchange for or in lieu of other Notes (including
pursuant to Section 310) which have been authenticated and delivered
pursuant to this Indenture, other than any such Notes in respect of which
there shall have been presented to the Trustee proof satisfactory to it
that such Notes are held by a bona fide purchaser in whose hands the Notes
are valid obligations of the
<PAGE>
12
Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 316, Notes owned by
the Company, any Subsidiary Guarantor or any other obligor upon the Notes or any
Affiliate of the Company, any Subsidiary Guarantor or such other obligor shall
be disregarded and deemed not to be Outstanding (provided that, in connection
with any offer by the Company or any obligor to purchase the Notes, Notes
tendered for purchase shall be deemed to be Outstanding and held by the
tendering Holder until the date of purchase), except that, in determining
whether the Trustee shall be protected in making such calculation or in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which the Trustee actually knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Company, any Subsidiary Guarantor or any other obligor upon
the Notes or any Affiliate of the Company, any Subsidiary Guarantor or such
other obligor.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium, if
any) or interest on any Notes on behalf of the Company.
"Permitted Debt" has the meaning set forth in Section 1009.
"Permitted Investments" means any of the following:
(a) Investments in (i) securities with a maturity of 180 days or less
issued or directly and fully guaranteed or insured by the United States or
any agency or instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof); (ii)
certificates of deposit or acceptances with a maturity of 180 days or less
of any financial institution that is a member of the Federal Reserve System
having combined capital and surplus of not less than $500,000,000; and
(iii) commercial paper with a maturity of 180 days or less issued by a
corporation that is not an Affiliate of the Company and is organized under
the laws of any state of the United States or the District of Columbia and
having a rating of P-1 (or its equivalent) from Moody's Investors Service,
Inc. or A-1 (or its equivalent) from Standard & Poor's Ratings Services.
(b) Investments by the Company or any Restricted Subsidiary in another
Person, if as a result of such Investment such other Person (i) becomes a
Restricted Subsidiary or (ii) is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, the Company
or a Restricted Subsidiary.
<PAGE>
13
(c) Investments by the Company or a Restricted Subsidiary in the
Company or a Subsidiary Guarantor.
(d) Investments in the form of senior loans to any Restricted
Subsidiary that is not a Subsidiary Guarantor, provided that no portion of
its net income would be excluded under the definition of Consolidated
Adjusted Net Income by reason of clause (e) of the definition thereof.
(e) Investments in assets owned or used in the ordinary course of
business.
(f) Investments in existence on the Closing Date.
(g) Investments in any Person in the form of the capital contribution
of the Company's common stock.
(h) Promissory notes received as a result of Asset Sales permitted
under Section 1012.
(i) Direct or indirect loans to employees, or to a trustee for the
benefit of such employees, of the Company or any Restricted Subsidiary in
an aggregate amount outstanding at any time not exceeding $400,000 plus the
amount of direct or indirect loans to employees for relocation assistance.
(j) The purchase of all or any portion of the 49% of Hygienic Products
International Limited, the Company's Cayman Islands subsidiary that owns
its Brazilian operations, not owned by the Company prior to the Closing
Date.
(k) Other Investments that do not exceed $3,000,000 in the aggregate
at any time outstanding.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 310 in exchange for a mutilated, lost,
destroyed or stolen Note.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock, whether now outstanding or issued
after the Closing Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
<PAGE>
14
"Private Placement Legend" has the meaning set forth in Section 202.
"QIB" means a "Qualified Institutional Buyer" under Rule 144A.
"Qualified Equity Interest" means any Qualified Stock and all
warrants, options or other rights to acquire Qualified Stock (but excluding any
debt security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any Person means any and all Capital Stock of
such Person, other than Disqualified Stock.
"Redemption Date," when used with respect to any Note to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price," when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of June 24, 1997, among the Company, Prudential Securities
Incorporated and Credit Suisse First Boston Corporation.
"Regular Record Date" for the interest payable on any Interest Payment
Date means June 1 or December 1 (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date.
"Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust and Agency Group of the Trustee (or any
successor group of the Trustee) including any managing director, vice president,
assistant vice president, assistant secretary, assistant treasurer or any other
officer or assistant officer of the Trustee customarily performing functions
similar to those performed by the Persons who at the time shall be such
officers, respectively, or to whom any corporate trust matter is referred at the
Trustee's Corporate Trust Office because of such officer's knowledge and
familiarity with the particular subject.
"Restricted Subsidiary" means any Subsidiary other than an
Unrestricted Subsidiary.
"Revolving Credit Facility" means the loan and security agreement
dated February 26, 1996, between the Company and Congress Financial Corporation
(Southwest), as such agreement may be amended, restated, supplemented,
refinanced or otherwise modified from time to time with the same lender or one
or more other lenders.
"Rule 144A" means Rule 144A under the Securities Act.
<PAGE>
15
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary of the
Company that together with its Subsidiaries, (a) for the most recent fiscal year
of the Company, accounted for more than 10% of the consolidated net sales of the
Company and its Restricted Subsidiaries or (b) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the Company
and its Restricted Subsidiaries, in the case of either (a) or (b), as set forth
on the most recently available consolidated financial statements of the Company
for such fiscal year or (c) was organized or acquired after the beginning of
such fiscal year and would have been a Significant Subsidiary if it had been
owned during the entire fiscal year.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 311.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable and, when used with respect to any other Debt, means the date
specified in the instrument governing such Debt as the fixed date on which the
principal of such Debt or any installment of interest thereon is due and
payable.
"Subordinated Debt" means Debt of the Company or a Subsidiary
Guarantor that is subordinated in right of payment to the Notes or the
Subsidiary Guarantee issued by such Subsidiary Guarantor, as the case may be.
"Subsidiary" means any Person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by the
Company and/or one or more other Subsidiaries of the Company.
"Subsidiary Guarantee" means a guarantee of the Notes by a Restricted
Subsidiary in accordance with the provisions of the Indenture.
"Subsidiary Guarantor" means any Restricted Subsidiary that issues a
Subsidiary Guarantee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force on the date as of which this Indenture was executed, or, if this Indenture
is first qualified under the TIA after the issuance of the Notes, as in force at
the date of such qualification and except as provided in Section 905.
<PAGE>
16
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (a) any Subsidiary that is designated
by the Board of Directors as an Unrestricted Subsidiary in accordance with
Section 1018 and (b) any Subsidiary of an Unrestricted Subsidiary.
"U.S. Government Obligations" means obligations that are (a) direct
obligations of the United States of America for the timely payment of which its
full faith and credit 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 timely 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
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligations or a specific payment of principal of or interest on any
such U.S. Government Obligations held by such custodian for the account of the
holder of such depository receipt; 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 Obligations or the specific payment
of principal of or interest on the U.S. Government Obligations evidenced by such
depository receipt.
"Vice President," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president."
"Voting Stock" means, with respect to any Person, any class or series
of Capital Stock of such Person that is ordinarily entitled to vote in the
election of directors thereof at a meeting of stockholders called for such
purpose, without the occurrence of any additional event or contingency.
"Weighted Average Life" means, as of the date of determination with
respect to any Debt or Disqualified Stock, the quotient obtained by dividing (a)
the sum of the products of (i) the number of years from the date of
determination to the date or dates of each successive scheduled principal or
liquidation value payment of such Debt or Disqualified Stock, respectively,
multiplied by (ii) the amount of each such principal or liquidation value
payment by (b) the sum of all such principal or liquidation value payments.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary,
all of the outstanding voting securities (other than directors' qualifying
shares or an immaterial number of shares required to be owned by other Persons
pursuant to
<PAGE>
17
applicable law) of which are owned, directly or indirectly, by the Company.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company and any Subsidiary
Guarantor and any other obligor on the Notes (if applicable) shall each furnish
to the Trustee an Officers' Certificate in form and substance reasonably
acceptable to the Trustee stating that all conditions precedent, if any,
provided for in this Indenture (including any covenant compliance with which
constitutes a condition precedent) relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any other provision of this
Indenture relating to such particular application or request, no additional
certificate or opinion pursuant to this Section 102 need be furnished.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (including certificates
provided pursuant to Section 1018(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual or such
firm, he or it has made such examination or investigation as is necessary
to enable him or it to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual
or such firm, such condition or covenant has been complied with.
SECTION 103. 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.
<PAGE>
18
Any certificate or opinion of an officer of the Company, any
Subsidiary Guarantor or other obligor on the Notes (if applicable) 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 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, any Subsidiary
Guarantor or other obligor on the Notes (if applicable) stating that the
information with respect to such factual matters is in the possession of the
Company, any such Subsidiary Guarantor or other obligor on the Notes (if
applicable) unless such 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.
Whenever in this Indenture the absence of the occurrence and
continuation of a Default or Event of Default is a condition precedent to the
taking of any action by the Trustee at the request or direction of the Company,
any Subsidiary Guarantor or any Holder, then, notwithstanding that the
satisfaction of such condition is a condition precedent to the Company's, the
Subsidiary Guarantor's or any Holder's (as the case may be) right to make such
request or direction, the Trustee shall be protected in acting in accordance
with such request or direction if a Responsible Officer of the Trustee does not
have knowledge of the occurrence and continuance of such Default or Event of
Default.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action permitted or required by this Indenture to be given or
taken 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 such Holders'
agents 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 pursuant to Section 105 hereof 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 shall be
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section 104.
(b) The fact and date of the execution by any Person of any such
<PAGE>
19
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of 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 that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Note Register.
(d) If the Company or any Subsidiary Guarantor shall solicit from the
Holders of Notes any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company or any such Subsidiary Guarantor (as the case
may be) may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other Act, but the
Company or any such Subsidiary Guarantor (as the case may be) shall have no
obligation to do so. Notwithstanding TIA Section 316(c), such record date shall
be the record date specified in or pursuant to such Board Resolution, which
shall be a date not earlier than the date 30 days prior to the first
solicitation of Holders generally in connection therewith and not later than the
date such solicitation is completed. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent, waiver or other Act
may be given before or after such record date, but only the Holders of record at
the close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite percentage of
Outstanding Notes have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Notes shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders on
such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than six months after the
record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof (including in
accordance with Section 310) in respect of anything done, omitted or suffered to
be done by the Trustee, any Paying Agent, the Company or any Subsidiary
Guarantor in reliance thereon, whether or not notation of such action is made
upon such Note.
<PAGE>
20
SECTION 105. Notices, Etc., to Trustee, the Company and Subsidiary
Guarantors.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company or any Subsidiary
Guarantor or any other obligor on the Notes shall be sufficient for every
purpose hereunder (unless otherwise herein expressly provided) if made,
given, furnished or delivered in writing and mailed, first-class postage
prepaid, or delivered by recognized overnight courier, to or with the
Trustee addressed to it at its Corporate Trust Office, Attention: Corporate
Market Services, or
(2) the Company or any Subsidiary Guarantor by the Trustee or by any
Holder shall be sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if made, given, furnished or delivered, in
writing, or mailed, first-class postage prepaid, or delivered by recognized
overnight courier, to the Company or any Subsidiary Guarantor addressed to
it at the address of the Company's principal office specified in the first
paragraph of this Indenture, or at any other address previously furnished
in writing to the Trustee by the Company or such Subsidiary Guarantor.
The Company and any Subsidiary Guarantor shall promptly transmit to
the Trustee any request, demand, authorization, direction, notice, consent,
waiver or Act received from any Holder.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Note Register on the date such notice is mailed, not later than
the latest date, and not earlier than the earliest date, herein prescribed for
the giving of such notice. In any case where notice to Holders is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder shall affect the sufficiency of such notice
with respect to other Holders. Any notice mailed to a Holder in the manner
herein prescribed shall be conclusively deemed to have been received by such
Holder, whether or not such Holder actually receives such notice. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
<PAGE>
21
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction of any provision
hereof.
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture by the Company and any
Subsidiary Guarantor shall bind their respective successors and assigns, whether
so expressed or not.
SECTION 109. Separability Clause.
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 110. Benefits of Indenture.
Except for any rights herein expressly conferred, nothing in this
Indenture or in the Notes is intended to or shall be construed to give to any
Person (other than the parties hereto, any Agent, each of the Holders and their
respective successors hereunder), any benefit or any legal or equitable right,
remedy or claim under or with respect to this Indenture.
SECTION 111. Governing Law.
THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK. UPON THE EFFECTIVENESS OF THE EXCHANGE OFFER REGISTRATION STATEMENT OR
THE SHELF REGISTRATION STATEMENT, THIS INDENTURE SHALL BE SUBJECT TO, AND
GOVERNED BY, THE PROVISIONS OF THE TRUST INDENTURE ACT OF 1939, AS AMENDED, THAT
ARE REQUIRED OR DEEMED TO BE PART OF AND TO GOVERN INDENTURES QUALIFIED
THEREUNDER.
<PAGE>
22
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, any date established for
payment of Defaulted Interest pursuant to Section 311 or Redemption Date or
Stated Maturity or Maturity of any Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes) payment
of principal (or premium, if any) or interest need not be made on such date, but
may be made on the next succeeding Business Day with the same force and effect
as if made on the Interest Payment Date or date established for payment of
Defaulted Interest pursuant to Section 311, Redemption Date, or at the Stated
Maturity or Maturity of any Note; provided that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date or date
established for payment of Defaulted Interest pursuant to Section 311, Stated
Maturity or Maturity of any Note, as the case may be, to the next succeeding
Business Day.
SECTION 113. No Personal Liability of Directors, Officers, Employees,
Stockholders or Incorporators.
No director, officer, employee, incorporator or stockholder, as such,
of the Company or any Subsidiary Guarantor shall have any liability for any
obligations of the Company or such Subsidiary Guarantor under the Notes, this
Indenture or any Subsidiary Guarantee or for any claim based on, in respect of,
or by reason of, such obligations or their creations. Each Holder by accepting
a Note waives and releases all such liability. Such waiver and release are part
of the consideration for the issuance of the Notes.
SECTION 114. Counterparts.
This Indenture may be executed in any number of counterparts, each of
which shall be an original; but such counterparts shall together constitute but
one and the same instrument.
SECTION 115. Rules of Interpretation.
Use of words "herein", "hereby", "hereunder", "hereof",
"hereinbefore", "hereinafter" and other equivalent words refer to this Indenture
and not solely to the particular portion in which such word is used.
SECTION 116. Ancillary Agreements.
The Trustee is hereby authorized and directed to execute and deliver
such agreements, notices, certificates and assignments as are necessary to
implement the terms hereof.
SECTION 117. Conflict with Trust Indenture Act.
<PAGE>
23
If this Indenture is qualified under the TIA and any provision hereof
limits, qualifies or conflicts with any provision thereof which is required to
be included in this Indenture by any of the provisions of the TIA, such required
provision of the TIA shall control.
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.
The Notes and the Trustee's certificate of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution of the Notes. Any portion of the text of any Note
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Note.
The definitive Notes shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers of the Company executing such Notes, as evidenced by their
execution of such Notes.
Initial Notes offered and sold to "Qualified Institutional Buyers" (as
defined in Rule 144A in reliance on the exemption from the registration
requirements of the Securities Act provided by Rule 144A) shall initially be
issued in the form of one permanent global Note substantially in the form set
forth in Sections 204 and 205 (the "Global Note") deposited with the Trustee, as
custodian for the Depositary, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. The aggregate principal amount of the
Global Note may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depositary or its nominee,
as hereinafter provided.
Initial Notes offered and sold to "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) and (7) under the Securities Act) who are not
Qualified Institutional Buyers shall initially be issued in the form of
permanent certificated Notes in registered form in substantially the form set
forth in Sections 204 and 205 (the "Certificated Notes").
<PAGE>
24
SECTION 202. Restrictive Legends.
Unless and until (i) an Initial Note is sold under a Shelf
Registration Statement or (ii) an Initial Note is exchanged for an Exchange Note
in connection with an effective Exchange Offer Registration Statement, in each
case pursuant to the Registration Rights Agreement, each such Global Note and
Certificated Note shall bear the following legend (the "Private Placement
Legend") on the face thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF
THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH DRYPERS CORPORATION
(THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION
DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE
FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES
ACT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (E)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT SUBJECT TO THE COMPANY'S, AND THE TRUSTEE'S, RIGHT PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
<PAGE>
25
The Global Note, whether or not an Initial Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR SUCH OTHER REPRESENTATIVE OF DTC AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 306 AND 307 OF THE INDENTURE.
SECTION 203. [INTENTIONALLY OMITTED].
<PAGE>
26
SECTION 204. Form of Face of Note.
DRYPERS CORPORATION
10 1/4% Senior Note due 2007
CUSIP No. _________
No. __________ _________
DRYPERS CORPORATION, a Delaware corporation (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_________ or registered assigns, the principal sum of _________ on June 15,
2007, at the office or agency of the Company referred to below, and to pay
interest thereon on December 15, 1997 and semi-annually thereafter, on June 15
and December 15 in each year, from June 24, 1997, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for, at
the rate of 10 1/4% per annum, until the principal hereof is paid or duly
provided for, and (to the extent lawful) to pay on demand interest on any
overdue interest at the rate borne by the Notes from the date on which such
overdue interest becomes payable to the date payment of such interest has been
made or duly provided for. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date shall, as provided in such Indenture,
be paid to the Person in whose name this Note (or one or more Predecessor Notes)
is registered at the close of business on the Regular Record Date for such
interest, which shall be June 1 or December 1 (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date, and such defaulted interest,
and (to the extent lawful) interest on such defaulted interest at the rate borne
by the Notes, may be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest to be fixed by the Trustee,
notice whereof shall be given to Holders of Notes not less than 10 days prior to
such Special Record Date, or may be paid at any time 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,
all as more fully provided in said Indenture.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of June 24, 1997 (the "Registration
Rights Agreement"), between the Company and the Initial Purchasers named
therein. In the event that either (i) an Exchange Offer Registration Statement
(as such term is defined in the Registration Rights Agreement) is not filed with
the Commission on or prior to the 60th day following the date of original issue
of the Notes, (ii) such Exchange Offer Registration Statement has not been
declared effective on or prior
<PAGE>
27
to the 150th day following the date of original issue of the Notes, (iii) the
Exchange Offer (as such term is defined in the Registration Rights Agreement) is
not consummated within 30 days after the date on which the Exchange Offer
Registration Statement was declared effective by the Commission or a Shelf
Registration Statement (as such term is defined in the Registration Rights
Agreement) with respect to the Notes is not declared effective on or prior to
the 150th day following the date of original issue of the Notes or (iv) either
(A) the Exchange Offer Registration Statement ceases to be effective at any time
prior to the time that the Exchange Offer is consummated or (B) if applicable,
the Shelf Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the second
anniversary of its effective date (each event referred to in clauses (i) through
(iv) above, a "Registration Default"), the interest rate borne by this Note
shall be increased by one-quarter of one percent per annum following such 60-day
period in the case of clause (i) above, following the 150-day period in the case
of clause (ii) above, following the 30-day period or 150-day period, as the case
may be, in the case of clause (iii) above, or, in the case of (iv) above
immediately following such Registration Default, which rate shall be increased
by an additional one-quarter of one percent per annum for each 30-day period
that any such additional interest continues to accrue in the case of clauses
(i), (ii) and (iii) above or for each 90-day period that any such additional
interest continues to accrue in the case of clause (iv) above; provided that the
aggregate increase in such annual interest rate shall in no event exceed one and
one-half percent. Upon (w) the filing of the Exchange Offer Registration
Statement after the 60-day period described in clause (i) above, (x) the
effectiveness of the Exchange Offer Registration Statement after the 150-day
period described in clause (ii) above (y) the consummation of the Exchange Offer
or the effectiveness of a Shelf Registration Statement, as the case may be,
after the 30-day period described or 150-day period, as the case may be, in
clause (iii) above, as the case may be, or (z) the effectiveness of the Exchange
Offer Registration Statement or the Shelf Registration Statement following an
event described in clause (iv) above, the interest rate borne by the Note from
the date of such filing, effectiveness or consummation, as the case may be, will
be reduced to the original interest rate if the Company is otherwise in
compliance with this paragraph; provided, however, that, if after such reduction
in interest rate, a different event specified in clause (i), (ii), (iii) or (iv)
above occurs, the interest rate will again be increased and thereafter reduced
pursuant to the foregoing conditions. If the Company issues a notice that the
Shelf Registration Statement is unusable pending the announcement of a material
corporate transaction or otherwise pursuant to Section 3(k) of the Registration
Rights Agreement, or such a notice is required under applicable securities laws
to be issued by the Company, and the aggregate number of days in any consecutive
twelve-month period for which all such notices are issued or required to be
issued exceeds 30 days in the aggregate, then the interest rate borne by the
Notes shall be increased by one-quarter of one percent per annum following the
date that such Shelf Registration Statement ceases to be usable beyond the 30-
day period permitted above, which rate shall be increased by an additional one-
<PAGE>
28
quarter of one percent per annum for each 90-day period that such additional
interest continues to accrue; provided that the aggregate increase in such
annual interest rate may in no event exceed one and one-half percent. Upon the
Company declaring that the Shelf Registration Statement is usable after the
interest rate has been increased pursuant to the preceding sentence, the
interest rate borne by the Notes shall be reduced to the original interest rate
if the Company is otherwise in compliance with this paragraph; provided,
however, that if after any such reduction in interest rate the Shelf
Registration Statement again ceases to be usable beyond the period permitted
above, the interest rate will again be increased and thereafter reduced pursuant
to the foregoing provisions.
The principal of and premium, if any, and interest on the Notes shall
be payable, and the Notes shall be exchangeable and transferable, at the office
or agency of the Company in The City of New York maintained for such purposes
(which initially shall be the office of the Trustee located at Four Albany
Street, New York, New York 10006); provided, however, that, at the option of the
Company, interest may be paid by check mailed to the address of the Person
entitled thereto as such address appears in the security register.
Reference is hereby made to the further provisions of this Note set
forth on the face 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 face hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: DRYPERS CORPORATION
By
Name:
Title:
Attest:
_________________
Authorized Officer
<PAGE>
29
SECTION 205. Form of Reverse of Note.
This Note is one of a duly authorized issue of securities of the Company
designated as its 10 1/4% Senior Notes due 2007 (the "Notes"), limited (except
as otherwise provided in the Indenture referred to below) in aggregate principal
amount to $115,000,000, which may be issued under an indenture (the "Indenture")
dated as of June 15, 1997 between the Company and Bankers Trust Company, as
trustee (the "Trustee" ), which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties, obligations and immunities thereunder of the Company, the Trustee and
the Holders of the Notes, and of the terms upon which the Notes are, and are to
be, authenticated and delivered.
On or before each payment date, the Company shall deliver or cause to be
delivered to the Trustee or the Paying Agent an amount in dollars sufficient to
pay the amount due on such payment date.
The Notes shall be redeemable at the election of the Company, as a whole or
from time to time in part, at any time on or after June 15, 2002, on not less
than 30 nor more than 60 days' prior notice at the redemption prices (expressed
as percentages of principal amount) set forth below, together with accrued
interest, if any, to the Redemption Date, if redeemed during the 12-month
period beginning on June 15 of the years indicated below (subject to the right
of Holders of record on the relevant record dates to receive interest due on an
interest payment date):
YEAR REDEMPTION
---- PRICE
----------
2002............................. 105.125%
2003............................. 103.417
2004............................. 101.708
and thereafter at 100% of the principal amount, together with accrued interest,
if any, to the redemption date.
In addition, at any time or from time to time prior to June 15, 2000,
the Company may at its option redeem Notes with the net proceeds of one or more
Equity Offerings at a redemption price equal to 110.25% of the principal amount
thereof, together with accrued interest, if any, to the Redemption Date (subject
to the rights of Holders of record on the relevant record date to receive
interest due on an interest payment date); provided that, immediately after
giving effect to any such redemption, at least $75,000,000 aggregate principal
amount of the Notes remains Outstanding.
<PAGE>
30
Any such redemption must be made within 90 days of the related Equity Offering.
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee by such method as the Trustee deems fair and appropriate.
In the event of redemption or repurchase of this Note in part only, a
new Note or Notes for the unredeemed portion hereof shall be issued in the name
of the Holder hereof upon the cancellation hereof.
Upon the occurrence of a Change of Control, each Holder will have the
right to require that the Company purchase such Holder's Notes at a purchase
price in cash equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the date of purchase, in
accordance with the Indenture. Holders of Notes that are subject to an offer to
purchase shall receive a Change of Control Offer from the Company prior to any
related Change of Control Payment Date.
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from an Asset Sale, which proceeds are not used (i)
towards the reduction of amounts outstanding under the Revolving Credit
Facility or to the repayment of other senior Debt of the Company or a Restricted
Subsidiary or (ii) to invest (or enter into a legally binding agreement to
invest) in properties and assets to replace the properties and assets that were
the subject of the Asset Sale or in properties and assets that will be used in
businesses of the Company or its Restricted Subsidiaries, as the case may be,
existing on the Closing Date, equal or exceeds a specified amount, the Company
shall be required to make an offer to all Holders to purchase the maximum
principal amount of Notes, in an integral multiple of $1,000, that may be
purchased out of such amount at a purchase price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase, in accordance with the Indenture. Holders of Notes that are
subject to any offer to purchase shall receive an Asset Sale Offer from the
Company prior to any related Asset Sale Purchase Date.
In the case of any redemption or repurchase of Notes, interest
installments whose Stated Maturity is on or prior to the Redemption Date or
Asset Sale Purchase Date, as the case may be, shall be payable to the Holders of
such Notes, or one or more Predecessor Notes, of record at the close of business
on the relevant Regular Record Date or Special Record Date, as the case may be,
referred to on the face hereof. Notes (or portions thereof) for whose
redemption and payment provision is made in accordance with the Indenture shall
cease to bear interest from and after the Redemption Date or Asset Sale Purchase
Date, as the case may be.
If an Event of Default shall occur and be continuing, the principal of
all the Notes may be declared due and payable in the manner and with the effect
provided
<PAGE>
31
in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Note.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the Subsidiary Guarantors and the rights of the Holders under the
Indenture and the Notes and the Subsidiary Guarantees, if any, at any time by
the Company, the Subsidiary Guarantors and the Trustee with the consent of the
Holders of a specified percentage in aggregate principal amount of the Notes at
the time Outstanding. Additionally, the Indenture permits that, without notice
to or consent of any Holder, the Company, any Guarantor and the Trustee together
may amend or supplement the Indenture, any Subsidiary Guarantee or this Note (i)
to evidence the succession of another Person to the Company and the assumption
by any such successor of the covenants of the Company in the Indenture and in
the Notes; or (ii) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the Company;
or (iii) to add additional Events of Defaults; or (iv) to provide for
uncertificated Notes in addition to or in place of the Certificated Notes; or
(v) to evidence and provide for the acceptance of appointment under the
Indenture by a successor Trustee; or (vi) to secure the Notes; or (vii) to cure
any ambiguity, to correct or supplement any provision in the Indenture that may
be defective or inconsistent with any other provision in the Indenture, or to
make any other provisions with respect to matters or questions arising under the
Indenture, provided that such actions pursuant to this clause do not adversely
affect the interests of the Holders in any material respect; or (viii) to
evidence the succession of another Person to any Subsidiary Guarantor and the
assumption by any such successor of the covenants of such Subsidiary Guarantor
in the Indenture and in the Notes; or (ix) to evidence an addition of a new
Subsidiary Guarantor and the assumption by any such new Subsidiary Guarantor of
the covenants in the Indenture and in the Notes; or (x) to comply with any
requirements of the Commission in order to effect and maintain the qualification
of the Indenture under the Trust Indenture Act.
The Indenture also contains provisions permitting the Holders of not
less than a majority in aggregate principal amount of the Notes at the time
Outstanding, on behalf of the Holders of all the Notes, to waive any past
defaults by the Company with certain provisions of the Indenture, the Notes and
the Subsidiary Guarantees, if any, and certain past Defaults under the
Indenture, the Notes and the Subsidiary Guarantees, if any, and their
consequences. Any such consent or waiver by or on behalf of the Holder of this
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
<PAGE>
32
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company or the
Subsidiary Guarantors or any other obligor on the Notes (in the event any
Subsidiary Guarantor or other obligor is obligated to make payments in respect
of the Notes), which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Note at the times, place, and rate, and in
the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registerable on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Note Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, shall be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to pay all documentary, stamp or similar issue or transfer taxes or
other governmental charge payable in connection therewith.
The Notes are entitled to the benefit of a Subsidiary Guarantee by
each Subsidiary Guarantor to the extent provided in each such Subsidiary
Guarantee.
Prior to the time of due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the contrary.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF NEW YORK.
Interest on this Note shall be computed on the basis of a 360-day year
of twelve 30-day months.
All terms used in this Note which are defined in the Indenture shall
have
<PAGE>
33
the meanings assigned to them in the Indenture.
<PAGE>
34
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ----------------------------------
(please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
(leave blank)
attorney to transfer said Note on the books of the Company with full power of
substitution in the premises.
In connection with any transfer of this Note occurring prior to the
date that is the earlier of the date of an effective Registration Statement or
June 24, 1999, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided by
Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished that comply with the conditions of
transfer set forth in this Note and the Indenture.
If neither of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
Date: ____________________ __________________________________________
NOTICE: The signature must correspond with
<PAGE>
35
the name as written upon the face of the
within- mentioned instrument in every
particular, without alteration or any change
whatsoever.
Signature Guarantee:
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
-------------------------- ----------------------------------------
NOTICE: To be executed by an executive
officer.
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 1011 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1012 of the Indenture, state the amount (in original
principal amount) below:
$_____________________.
Date:
Your Signature:
(Sign exactly as your name appears on the face of this Note)
<PAGE>
36
Signature Guarantee:
SECTION 206. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in substantially
the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Dated: ____________________
This is one of the Notes referred to in the within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
By
Authorized Signatory
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $115,000,000, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 304, 305, 306, 307, 310,
906, 1015, 1017 or 1108 or pursuant to an Exchange Offer.
The Initial Notes shall be known and designated as the "10 1/4% Senior
Notes due 2007" and the Exchange Notes shall be known and designated as the "10
1/4% Series B Senior Notes due 2007," in each case, of the Company. The Stated
Maturity of the Notes shall be June 15, 2007, and they shall bear interest at
the rate of 10 1/4% per annum from June 24, 1997, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
payable on December 15, 1997 and semiannually thereafter on June 15 and December
15 in each year, until the principal thereof is paid in full and to the Person
in whose name the Note (or any Predecessor Note) is registered at the close of
business on the relevant Regular Record Date next preceding such Interest
Payment Date. Interest shall be computed on the basis of a
<PAGE>
37
360-day year comprised of twelve 30-day months, until the principal thereof is
paid or duly provided for. Interest on any overdue principal, interest (to the
extent lawful) or premium, if any, shall be payable on demand.
The principal of and premium, if any, and interest on the Notes shall
be payable, and the Notes shall be exchangeable and transferable, at the office
or agency of the Company in The City of New York maintained for such purposes
(which initially will be the office of the Trustee located at Four Albany
Street, New York, New York 10006); provided, however, that, at the option of the
Company, interest may be paid by check mailed to the address of the Person
entitled thereto as such address appears in the Note Register.
Holders shall have the right to require the Company to purchase their
Notes, in whole or in part, in the event of a Change of Control pursuant to
Section 1011.
The Notes shall be subject to repurchase by the Company pursuant to an
Asset Sale Offer as provided in Section 1012.
The Notes shall be redeemable as provided in Article Eleven and in the
Notes.
SECTION 302. Denominations.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its Chairman,
its President or a Vice President, under its corporate seal reproduced thereon
and attested by its Chief Financial Officer, Secretary or an Assistant
Secretary. The signature of any of these officers on the Notes may be manual or
facsimile signatures of the present or any future such authorized officer and
may be imprinted or otherwise reproduced on the Notes. All authorized facsimile
signatures shall have the same force and effect as if manually signed.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Initial Notes executed by the Company to
the
<PAGE>
38
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Notes, directing the Trustee to authenticate the Notes and
certifying that all conditions precedent to the issuance of Notes contained
herein have been fully complied with, and the Trustee in accordance with such
Company Order shall authenticate and deliver such Initial Notes. On Company
Order, the Trustee shall authenticate for original issue Exchange Notes in an
aggregate principal amount not to exceed $115,000,000; provided that such
Exchange Notes shall be issuable only upon the valid surrender for cancellation
of Initial Notes of a like aggregate principal amount in accordance with an
Exchange Offer pursuant to the Registration Rights Agreement. In each case, the
Trustee shall be entitled to receive an Officers' Certificate and an Opinion of
Counsel of the Company that it may reasonably request in connection with such
authentication of Notes. Such Company Order shall specify the amount of Notes
to be authenticated and the date on which the original issue of Initial Notes or
Exchange Notes is to be authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
duly executed by the Trustee by manual signature of an authorized signatory, and
such certificate upon any Note shall be conclusive evidence, and the only
evidence, that such Note has been duly authenticated and delivered hereunder and
is entitled to the benefits of this Indenture.
In case the Company or any Subsidiary Guarantor, pursuant to Article
Eight, shall be consolidated or merged with or into any other Person or shall
convey, transfer, lease or otherwise dispose of its properties and assets
substantially as an entirety to any Person, and the successor Person resulting
from such consolidation, or surviving such merger, or into which the Company or
such Subsidiary Guarantor shall have been merged, or the Person which shall have
received a conveyance, transfer, lease or other disposition as aforesaid, shall
have executed an indenture supplemental hereto with the Trustee pursuant to
Article Eight, any of the Notes authenticated or delivered prior to such
consolidation, merger, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person, be exchanged for
other Notes executed in the name of the successor Person with such changes in
phraseology and form as may be appropriate, but otherwise in substance of like
tenor as the Notes surrendered for such exchange and of like principal amount;
and the Trustee, upon Company Request of the successor Person, shall
authenticate and deliver Notes as specified in such request for the purpose of
such exchange. If Notes shall at any time be authenticated and delivered in any
new name of a successor Person pursuant to this Section 303 in exchange or
substitution for or upon registration of transfer of any Notes, such successor
Person, at the option of the Holders but without expense to them, shall provide
for the exchange of all Notes at the time Outstanding for Notes authenticated
and delivered in such new name.
<PAGE>
39
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes on behalf of the Trustee. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent, except for
authentication of original issues or replacement of mutilated, lost, stolen or
destroyed Notes. An authenticating agent has the same rights as any Note
Registrar or Paying Agent to deal with the Company and its Affiliates.
SECTION 304. Temporary Notes.
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Notes may determine, as conclusively evidenced by their 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 at the office or agency of the Company
designated for such purpose pursuant to Section 1002, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as 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. The Note Register shall be in written form
or any other form capable of being converted into written form within a
reasonable time. At all reasonable times, the Note Register shall be open to
inspection by the Trustee. The Trustee is hereby initially appointed as
security registrar (the Trustee in such capacity, together with any successor of
the Trustee in such capacity, the "Note Registrar") for the purpose of
registering Notes and transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the office
or
<PAGE>
40
agency of the Company designated pursuant to Section 1002, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Notes of any authorized
denomination or denominations of a like aggregate principal amount.
Furthermore, any Holder of the Global Note shall, by acceptance of
such Global Note, agree that transfers of beneficial interest in such Global
Note may be effected only through a book-entry system maintained by the Holder
of such Global Note (or its agent), and that ownership of a beneficial interest
in the Note shall be required to be reflected in a book entry.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at the office or agency of the Company
designated for such purpose pursuant to Section 1002. Whenever any Notes are so
surrendered for exchange (including an exchange of Initial Notes for Exchange
Notes), the Company shall execute, and the Trustee shall authenticate and
deliver, the Notes which the Holder making the exchange is entitled to receive;
provided that no exchange of Initial Notes for Exchange Notes shall occur until
an Exchange Offer Registration Statement shall have been declared effective by
the Commission, the Trustee shall have received an Officers' Certificate
confirming that the Exchange Offer Registration Statement has been declared
effective by the Commission and the Initial Notes to be exchanged for the
Exchange Notes shall be cancelled by the Trustee.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Note Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption 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
exchanges pursuant to Section 304, 906, 1016, 1017 or 1108, not involving any
transfer.
SECTION 306. Book-Entry Provisions for the Global Note.
(a) The Global Note initially shall (i) be registered in the name of
Cede & Co. as nominee for the Depositary (the "Global Note Holder"), (ii) be
delivered to the
<PAGE>
41
Trustee as custodian for such Depositary and (iii) bear legends as set forth in
Section 202.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Notes held on their
behalf by the Depositary, or the Trustee as its custodian, or under the Global
Note, and the Depositary may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner of such Global Note
for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or shall impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Note.
(b) Transfers of the Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in the Global Note
may be transferred in accordance with the rules and procedures of the Depositary
and the provisions of Section 307. Beneficial owners may obtain Certificated
Notes in exchange for their beneficial interests in the Global Note upon request
in accordance with the Depositary's and the Note Registrar's procedures. In
addition, Certificated Notes shall be transferred to all beneficial owners in
exchange for their beneficial interests in the Global Note if (i) the Company
notifies the Trustee in writing that the Depositary is unwilling or unable to
act as a depositary for the Global Note 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 Notes under the Indenture.
(c) In connection with any transfer of a portion of the beneficial
interest in the Global Note pursuant to subsection (b) of this Section to
beneficial owners, the Note Registrar shall reflect on its books and records the
date and a decrease in the principal amount of the Global Note in an amount
equal to the principal amount of the beneficial interest in the Global Note to
be transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Certificated Notes of like tenor and
amount to each Person that the Global Note Holder and the Depositary identify as
being the beneficial owner of the related Notes.
(d) In connection with the transfer of the entire Global Note to
beneficial owners pursuant to subsection (b) of this Section, the Global Note
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Global Note Holder and the Depositary in
exchange for its beneficial interest in the Global Note, an equal aggregate
principal amount of Certificated Notes of authorized denominations.
<PAGE>
42
(e) Any Certificated Notes delivered in exchange for an interest in
the Global Note pursuant to subsection (c) or subsection (d) of this Section
shall, except as otherwise provided by paragraph (a)(i)(x) and paragraph (c) of
Section 307, bear the applicable legend regarding transfer restrictions
applicable to the Certificated Note set forth in Section 202.
(f) The registered holder of the Global Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 307. Special Transfer Provisions.
Unless and until (i) an Initial Note is sold under an effective Shelf
Registration Statement, or (ii) an Initial Note is exchanged for an Exchange
Note in connection with an effective Exchange Offer Registration Statement, in
each case pursuant to the Registration Rights Agreement, the following
provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The
following provisions shall apply with respect to the registration of any
proposed transfer of an Initial Note to any institutional "accredited investor"
(as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act) which is not a QIB:
(i) The Note Registrar shall register the transfer of any Initial
Note, whether or not such Initial Note bears the Private Placement Legend,
if (x) the requested transfer is at least two years after the original
issue date of the Initial Note or (y) the proposed transferee has delivered
to the Note Registrar a certificate substantially in the form set forth in
Section 308.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Note Registrar
of (x) the documents, if any, required by paragraph (i) and (y)
instructions given in accordance with the Depositary's and the Note
Registrar's procedures therefor, the Note Registrar shall reflect on its
books and records the date and a decrease in the principal amount of the
Global Note in an amount equal to the principal amount of the beneficial
interest in the Global Note to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more
Certificated Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of an Initial Note to a
QIB:
(i) If the Note to be transferred consists of Certificated Notes, the
Registrar shall register the transfer if such transfer is being made by a
proposed
<PAGE>
43
transferor who has checked the box provided for on the form of Initial Note
stating, or has otherwise advised the Company and the Note Registrar in
writing, that the sale has been made in compliance with the provisions of
Rule 144A to a transferee who has signed the certification provided for on
the form of Initial Note stating, or has otherwise advised the Company and
the Note Registrar in writing, that it is purchasing the Initial Note for
its own account or an account with respect to which it exercises sole
investment discretion and that it, or the Person on whose behalf it is
acting with respect to any such account, is a QIB within the meaning of
Rule 144A, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding
the Company as it has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, and the Initial
Note to be transferred consists of Certificated Notes, upon receipt by the
Note Registrar of instructions given in accordance with the Depositary's
and the Note Registrar's procedures therefor, the Note Registrar shall
reflect on its books and records the date and an increase in the principal
amount of the Global Note in an amount equal to the principal amount of the
Certificated Notes to be transferred, and the Trustee shall cancel the
Certificated Note so transferred.
(c) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Note
Registrar shall deliver Notes that do not bear the Private Placement Legend.
Upon the transfer, exchange or replacement of Notes bearing the Private
Placement Legend, the Note Registrar shall deliver only Notes that bear the
Private Placement Legend unless either (i) the circumstances contemplated by
paragraph (a)(i)(x) of this Section 307 exist or (ii) there is delivered to the
Note Registrar an Opinion of Counsel reasonably satisfactory to the Company and
the Trustee to the effect that neither such legend nor the related restrictions
on transfer are required in order to maintain compliance with the provisions of
the Securities Act.
(d) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it shall transfer such Note only as provided in this
Indenture.
The Note Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 306 or this Section
307. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Note Registrar.
<PAGE>
44
SECTION 308. Form of Certificate to Be Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors.
Drypers Corporation
5300 Memorial Drive, Suite 900
Houston, Texas 77007
Prudential Securities Incorporated
Credit Suisse First Boston Corporation
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Ladies and Gentlemen:
In connection with our proposed purchase of $ aggregate principal
amount of 10 1/4% Notes due 2007 (the "Securities") of Drypers Corporation
(the "Company"), we confirm that:
1. We have received a copy of the Offering Memorandum, dated June , 1997
relating to the Securities and such other information as we deem necessary in
order to make our investment decision.
2. We understand that the Securities have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and unless so
registered, may not be sold except as permitted in the following sentence. We
agree on our own behalf and on behalf of any investor account for which we are
purchasing Securities to offer, sell or otherwise transfer such Securities
prior to the date which is two years after the later of the date of original
issue and the last date on which the Company or any affiliate or the Company
was the owner of such Securities (or any predecessor thereto) (the "Resale
Restriction Termination Date") only (a) to the Company, (b) pursuant to a
registration statement which has been declared effective under the Securities
Act, (c) for so long as the Securities are eligible for resale pursuant to
Rule 144A under the Securities Act, to a Person we reasonably believe is a
Qualified Institutional Buyer under Rule 144A that purchases for its own
account or for the account of a Qualified Institutional Buyer to whom notice
is given that the transfer is being made in reliance on Rule 144A, (d) to an
institutional "accredited investor" (as defined in subparagraph (a)(1), (2),
(3) or (7) of Rule 501 of Regulation D under the Securities Act) that is
purchasing for his own account or for the account of such an institutional
"accredited investor" or (e) pursuant to any other available exemption from
the registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
or the property of such investor account be at all times within our or their
control and to compliance with any applicable state securities laws. The
foregoing restrictions on sale shall not apply subsequent to the
<PAGE>
45
Resale Restriction Termination Date. If any resale or other transfer of the
Securities is proposed to be made pursuant to clause (d) above prior to the
Resale Restriction Termination Date, the transferor shall deliver a letter
from the transferee substantially in the form of this letter to the Company
and the trustee under the indenture relating to the Securities (the "Trustee")
which shall provide, among other things, that the transferee is an
institutional "accredited investor" and that it is acquiring such Securities
for investment purposes and not for distribution in violation of the
Securities Act. Each purchaser acknowledges that the Company and the Trustee
reserve the right prior to any offer, sale or other transfer of the Securities
prior to the Resale Restriction Termination Date pursuant to clauses (d), (e)
or (f) above to require the delivery of an opinion of counsel, certifications
or other information satisfactory to the Company and the Trustee.
3. We are an institutional "accredited investor" (as defined above)
purchasing for our own account or for the account of an institutional
"accredited investor" for which we exercise sole investment discretion and we
are acquiring the Securities for investment purposes and not with a view to,
or for offer or sale in connection with, any distribution in violation of the
Securities Act and 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 Securities, and we and any investor accounts for which we
are acting are each able to bear the economic risk of our or its investments
for an indefinite period.
4. You and the Trustee 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 Purchaser)
By:
Name:
Title:
Date:
Upon transfer, the Securities should be registered in the name of the new
beneficial owner
<PAGE>
46
as follows:
Name:
Address:
Taxpayer ID Number:
SECTION 309. [INTENTIONALLY OMITTED]
SECTION 310. Mutilated, Destroyed, Lost and Stolen Notes.
If (i) any mutilated Note is surrendered to the Trustee, or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered to the Company
and the Trustee such security or indemnity, in each case, as may be required by
them to save 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 the Trustee shall authenticate and
deliver, in exchange for any such mutilated Note or in lieu of any such
destroyed, lost or stolen Note, a new Note of like tenor and 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, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) in connection therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, any Subsidiary Guarantor and
any other obligor on the Notes, whether or not the mutilated, destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
<PAGE>
47
SECTION 311. 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 (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest at the office or agency of
the Company maintained for such purpose pursuant to Section 1002; provided,
however, that each installment of interest may at the Company's option be paid
by mailing a check for such interest, payable to or upon the written order of
the Person entitled thereto pursuant to Section 312, to the address of such
Person as it appears in the Note Register.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the Regular Record Date by virtue of having been such
Holder, and such defaulted interest and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Notes (such defaulted interest and
interest thereon herein collectively called "Defaulted Interest") shall be paid
by the Company, at its election in each case, as provided in clause (1) or (2)
below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Notes (or their respective Predecessor
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 each Note and the date
(not less than 30 days after such notice) of the proposed payment (the
"Special Record Date"), 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 by the
Trustee for the benefit of the Persons entitled to such Defaulted Interest
as in this clause provided. Thereupon the Trustee shall fix a Definitive
Special Record Date (the "Definitive Special Record Date") for the payment
of such Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the Special Record Date and not less than 10
days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Definitive
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 Definitive Special Record Date therefor to be given in the manner
provided for in Section 106, not less than 10 days prior to such Definitive
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Definitive Special Record Date therefor having been so
given, such Defaulted Interest shall be paid by the Trustee from the funds
deposited by the Company as hereinabove provided to the Persons in whose
names the Notes (or their respective Predecessor Notes) are registered at
the close of business on
<PAGE>
48
such Definitive Special Record Date and shall no longer be payable pursuant
to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the 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, 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 312. Persons Deemed Owners.
Prior to the due presentment of a Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Persons in whose names such Notes , including the Global Note , are
registered as the owners of such Note for the purpose of receiving payment of
principal of (and premium, if any) and (subject to Sections 305 and 311)
interest on such Note and for all other purposes whatsoever, whether or not such
Note be overdue, and none of the Company, any Subsidiary Guarantor, the Trustee
nor any agent of the Company, any Subsidiary Guarantor or the Trustee shall be
affected by notice to the contrary.
SECTION 313. Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. If the
Company shall acquire any of the Notes other than as set forth in the preceding
sentence, the acquisition shall not operate as a redemption or satisfaction of
the Debt represented by such Notes unless and until the same are surrendered to
the Trustee for cancellation pursuant to this Section 313. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section 313, except as expressly permitted by this Indenture. All
cancelled Notes held by the Trustee shall be disposed of by the Trustee in
accordance with its customary procedures unless by Company Order the Company
shall direct that cancelled Notes be returned to it.
<PAGE>
49
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon request by the Company cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Notes expressly provided for herein or pursuant hereto) and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture when
(1) either
(a) all the Notes theretofore authenticated and delivered (other
than (i) Notes which have been lost, stolen or destroyed and which
have been replaced or paid as provided in Section 310 and (ii) Notes
for whose payment money has theretofore been deposited in trust with
the Trustee or any Paying Agent or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 1003) have been delivered to the
Trustee for cancellation; or
(b) all such Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable; or
(ii) will become due and payable at their Stated Maturity
within one year; or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company has irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust for such purpose an amount
sufficient to pay and discharge the entire Debt on such Notes not
theretofore delivered to the Trustee for cancellation, for principal
(and premium, if any) and interest to the date of such deposit (in the
case of Notes which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company or the Subsidiary Guarantors have paid or caused to be
paid
<PAGE>
50
all sums payable hereunder by the Company or the Subsidiary Guarantors; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to subclause (b) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 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
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 401 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 Subsidiary Guarantor's obligations under this Indenture and
the Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 401; provided that if the Company has made any payment of
principal of, premium, if any, or interest on any Notes because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.
ARTICLE FIVE
DEFAULTS AND REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any "judgment, decree or order of any court or any order, rule or regulation
of any administrative or government body"):
<PAGE>
51
(a) default in the payment of any interest on any Note when it becomes
due and payable, and continuance of such default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if any,
on) any Note when due;
(c) failure to perform or comply with Article Eight;
(d) default in the performance, or breach, of any covenant or
agreement of the Company or any Subsidiary Guarantor contained in this
Indenture or any Subsidiary Guarantee (other than a default in the
performance, or breach, of a covenant or agreement that is specifically
dealt with elsewhere herein), and continuance of such default or breach for
a period of 60 days after written notice has been given to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least
25% in aggregate principal amount of the Notes then Outstanding;
(e) (i) the occurrence of an event of default under any mortgage,
bond, indenture, loan agreement or other document evidencing an issue of
Debt of the Company or any Significant Subsidiary, which issue has an
aggregate outstanding principal amount of not less than $5,000,000, and
such default has resulted in such Debt becoming, whether by declaration or
otherwise, due and payable prior to the date on which it would otherwise
become due and payable or (ii) a default in any payment when due at final
maturity of any such Debt;
(f) failure by the Company or any of its Restricted Subsidiaries to
pay one or more final judgments the uninsured portion of which exceeds in
the aggregate $5,000,000, which judgment or judgments are not paid,
discharged or stayed for a period of 60 days;
(g) any Subsidiary Guarantee issued by a Significant Subsidiary ceases
to be in full force and effect or is declared null and void or any
Subsidiary Guarantor denies that it has any further liability under any
Subsidiary Guarantee, or gives notice to such effect (other than by reason
of the termination of this Indenture or the release of any such Subsidiary
Guarantee in accordance with this Indenture), and such condition has
continued for a period of 60 days after written notice of such failure
requiring the Subsidiary Guarantor and the Company to remedy the same has
been given (x) to the Company by the Trustee or (y) to the Company and the
Trustee by the Holders of 25% in aggregate principal amount of the Notes
then Outstanding;
(h) the Company or any of its Significant Subsidiaries pursuant to or
within the meaning of Federal Bankruptcy Code: (A) commences a voluntary
case; (B) consents to the entry of an order for relief against it in an
involuntary case; (C) consents to the
<PAGE>
52
appointment of a Custodian of it or for all or substantially all of its
property; (D) makes a general assignment for the benefit of its creditors,
or (E) admits in writing that it is generally not paying its debts (other
than debts which are the subject of a bona fide dispute) as they become
due; or
(i) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that remains unstayed and in effect for 60 days and:
(A) is for relief against the Company or any of its Significant
Subsidiaries in an involuntary case; (B) appoints a custodian of the
Company or any of its Significant Subsidiaries or for all or substantially
all of the property of the Company or any of its Significant Subsidiaries;
or (C) orders the liquidation of the Company or any of its Significant
Subsidiaries; provided that clauses (A), (B) and (C) shall not apply to an
Unrestricted Subsidiary, unless such action or proceeding has a material
adverse effect on the interests of the Company or any Restricted
Subsidiary.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than as specified in Section 501(h))
occurs and is continuing, the Trustee or the Holders of not less than 25% in
aggregate principal amount of the Notes then Outstanding may, and the Trustee at
the request of such Holders shall, declare the principal of all of the
Outstanding Notes immediately due and payable and, upon any such declaration,
such principal shall become due and payable immediately. If an Event of Default
specified in Section 501(h) above occurs and is continuing, then the principal
of all of the Outstanding Notes 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 of Notes.
At any time after a declaration of acceleration under the Indenture,
but before a judgment or decree for payment of the money due has been obtained
by the Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration and its consequences if:
(i) the Company or any Subsidiary Guarantor has paid or deposited with
the Trustee a sum sufficient to pay
(A) all overdue interest on all Notes,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Notes that has become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by
the Notes,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest and overdue principal (and premium, if
any) at the rate borne by
<PAGE>
53
the Notes, and
(D) all sums paid or advanced by the Trustee under the Indenture
and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel; and
(ii) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on the Notes that have
become due solely by such declaration of acceleration, have been cured or
waived. No such rescission shall affect any subsequent default or impair
any right consequent thereon.
SECTION 503. Collection of Debt and Suits for Enforcement by Trustee.
The Company and each of the Subsidiary Guarantors covenants that if
(a) a default is made in the payment of any interest on any Note when
such interest becomes due and payable and such default continues for a
period of 30 days, or
(b) a default is made in the payment of the principal of (or premium,
if any, on) any Note at the Maturity thereof,
the Company and the Subsidiary Guarantors shall, upon demand of the Trustee, pay
to the Trustee for the benefit of the Holders of such Notes, the whole amount
then due and payable on such Notes for principal (and premium, if any) and
interest, with interest upon the overdue principal (and premium, if any) and, to
the extent that payment of such interest shall be legally enforceable, upon
overdue installments of interest, at the rate borne by 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 and counsel and all other
amounts due to the Trustee under Section 607.
If the Company or any Subsidiary Guarantor, as the case may be, 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, such
Subsidiary 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, such Subsidiary 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 such rights,
<PAGE>
54
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 subject, however, to Section 513. No recovery of any
such judgment upon any property of the Company or any Subsidiary Guarantor
shall affect or impair any rights, powers or remedies of the Trustee or the
Holders hereunder or now or hereinafter existing in law or in equity.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any Subsidiary Guarantor, 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 the 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, premium, if any, 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 (and
premium, if any) and interest owing and unpaid in respect of the Notes, to
take such other actions (including participating as a member, voting or
otherwise, of any official committee of creditors appointed in such matter)
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) 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 judicial 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 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 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the 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; provided, however, that the
Trustee may, on behalf of such Holders, vote for the election of a trustee in
bankruptcy or other similar official.
<PAGE>
55
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture, the Notes or the
Subsidiary Guarantees 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 and 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 in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, 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
607;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due
and payable on such Notes for principal (and premium, if any) and interest,
respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Company or any other obligor on the Notes, as their
interests may appear or as a court of competent jurisdiction may direct,
provided that all sums due and owing to the Holders and the Trustee have
been paid in full as required by this Indenture.
SECTION 507. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect
<PAGE>
56
of such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority or
more in principal amount of the Outstanding Notes;
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, any Note or any Subsidiary Guarantee 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 Holders or to enforce any right under this
Indenture, any Note or any Subsidiary Guarantee, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, in Article Eleven) and
in such Note of the principal of (and premium, if any) and (subject to Section
311) interest on such Note on the respective Stated Maturities expressed in such
Note (or, in the case of redemption or repurchase, on the Redemption Date or
repurchase) and to institute suit for the enforcement of any such payment, and
such rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture or any Subsidiary Guarantee and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company, any
Subsidiary Guarantor, any other obligor on the Notes, the Trustee and the
Holders shall 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 510. Rights and Remedies Cumulative.
<PAGE>
57
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of
Section 310, 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 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 511. 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 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.
SECTION 512. Control by Holders.
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
(1) such direction shall not be in conflict with any rule of law or
with this Indenture or any Subsidiary Guarantee,
(2) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting; and
(3) subject to the provisions of Section 315 of the Trust Indenture
Act, the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Notes may, on behalf of the Holders of all of the Notes,
waive any past defaults under the Indenture, except a default in the payment of
the principal of (and premium, if any) or interest on any Note, or in respect of
a covenant or provision that under the Indenture cannot be modified or amended
without the consent of the Holder of each Note Outstanding.
<PAGE>
58
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture and the Company, any Subsidiary Guarantor, the Trustee
and the Holders shall be restored to their former positions and rights
hereunder; but no such waiver shall extend to any subsequent or other Default or
Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
Each of the Company and the Subsidiary Guarantors covenants (to the
extent that it may lawfully do so) that it 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 would prohibit or forgive the Company, any Subsidiary Guarantor or
any such obligor from paying all or any portion of the principal of, or premium,
if any, or interest on the Notes contemplated herein or in the Notes or which
may affect the covenants or the performance of this Indenture; and each of the
Company, any Subsidiary Guarantor and any such obligor (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any such
law and covenants that it 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 515. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Note by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
the provisions of this Section 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 (or premium, if any) or interest on any Note on or after the
respective Stated Maturities expressed in such Note (or, in the case of
redemption, on or after the Redemption Date).
SECTION 516. Expenses of Enforcement.
<PAGE>
59
The Company agrees to pay or reimburse the Trustee and each Holder for
all reasonable costs and expenses (including reasonable counsels' fees) of the
Trustee or such Holders in connection with (a) any Default and any enforcement
or collection proceedings resulting therefrom and (b) the enforcement of this
Section 516.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Acceptance of Trusts; Certain Duties and
Responsibilities.
(a) Except during the continuance of an Event of Default, the Trustee
shall perform 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.
(b) In case a Default or an Event of Default has occurred and is
continuing of which a Responsible Officer of the Trustee has actual knowledge or
of which written notice of such Default or Event of Default shall have been
given to the Trustee by the Company, any other obligor of the Notes or by any
Holder, the Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their exercise, as
a prudent Person would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the effect of
paragraph (a) of this Section;
(2) the Trustee shall not be liable for any errors of judgment or any
acts, omissions, mistakes of fact or law taken or omitted in good faith by
a Responsible Officer, unless it shall be proved that the Trustee was
negligent;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders of a majority in aggregate principal amount of the
Outstanding Notes relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee to expend
or risk
<PAGE>
60
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 reason able grounds for believing that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
SECTION 602. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and is
known to a Responsible Officer of the Trustee, the Trustee shall mail to each
Holder of the Notes notice of the Default or Event of Default within 90 days
after the occurrence thereof in accordance with TIA Section 315(b).
SECTION 603. Certain Rights of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent Person
would exercise or use under the circumstances in the conduct of his own affairs.
(b) Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of debt or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties or, in the case of cables, telecopies and telexes,
to have been sent by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, request and rely upon an Officers' Certificate;
<PAGE>
61
(4) the Trustee may consult with counsel of its selection and any
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;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of debt 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;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture; and
(9) 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.
(c) The Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
<PAGE>
62
(d) The permissive right of the Trustee to do the things enumerated in
this Indenture shall not be construed as a duty, and the Trustee shall not be
answerable for other than its negligence or willful misconduct.
SECTION 604. Trustee Not Responsible for Recitals or Issuance of
Notes.
The recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company and the Subsidiary Guarantors, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as
to the validity, legality or sufficiency of this Indenture or of the Notes or of
the Subsidiary Guarantees or any contracts referenced herein to which the
Company or any Subsidiary Guarantor is a party, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall
not be accountable for the use or application by the Company of Notes or the
proceeds thereof.
SECTION 605. May Hold Notes.
The Trustee, any Paying Agent, any Note Registrar, any authenticating
agent or any other agent of the Company or of the Trustee, in its individual or
any other capacity, may become the owner or pledgee of Notes and, subject to TIA
Sections 310(b) and 311, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Note Registrar,
Authenticating Agent or such other agent.
SECTION 606. Money Held in Trust.
All moneys received by the Trustee shall, subject to the conditions
specified in this Article Six, until used or applied as herein provided, be held
in trust hereunder for the purposes for which they were received, but need not
be segregated from other funds except to the extent required by law. The
Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed in writing with the Company or any
Subsidiary Guarantor.
SECTION 607. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation as shall
be agreed to in writing between the Company and the Trustee for all
services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an
express trust);
<PAGE>
63
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel and costs and expenses of
collection), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to indemnify each of the Trustee or any predecessor Trustee (and
their respective directors, officers, employees and agents) for, and to
hold it harmless against, any and all loss, damage, claim, liability or
expense, including taxes (other than taxes based on the income of the
Trustee) incurred without negligence or bad faith on its part, arising out
of or in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the resignation or removal
of the Trustee, and satisfaction and discharge of this Indenture. As security
for the performance of such obligations of the Company, the Trustee shall have a
lien prior to the Holders of the Notes upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the payment of
principal of (and premium, if any) or interest on particular Notes.
Notwithstanding any provision in this Indenture, the Trustee's right
to immunities and protection from liability hereunder and its rights to payment
of its fees, expenses and indemnities shall survive its resignation or removal
and the final payment or defeasance of the Notes and the termination of the
Indenture and all indemnification and releases from liability granted herein
shall extend to its directors, officers, employees and agents.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 608. Corporate Trustee Required; Eligibility.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and which shall have an
office in The City of New York, and shall have a combined capital and surplus of
at least $50,000,000. If the Trustee does not have an office in The City of New
York, the Trustee may appoint an agent in The City of New York reasonably
acceptable to the Company to conduct any activities which the Trustee may be
required under this Indenture to conduct in The City of New York. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of federal, state, territorial or District of Columbia
supervising or examining authority, then for the
<PAGE>
64
purposes of this Section 608, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
608, it shall resign immediately in the manner and with the effect hereinafter
specified in this Article.
SECTION 609. Intervention by Trustee.
In any judicial proceeding which in the opinion of the Trustee and its
counsel has a substantial bearing on the interests of the Holders of the Notes,
the Trustee may intervene on behalf of the Holders of the Notes and shall do so
if requested in writing by Holders of a majority of the aggregate principal
amount of Outstanding Notes.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of this Section 610.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. Upon receiving such notice of resignation, the Company
shall promptly appoint a successor trustee by written instrument executed by
authority of the Board of Directors, a copy of which shall be delivered to the
resigning Trustee and a copy to the successor trustee. If an instrument of
acceptance required by this Section shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in principal amount of the Outstanding Notes, delivered
to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) 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,
or
(2) the Trustee shall cease to be eligible under Section 608 and shall
fail to resign 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,
or
<PAGE>
65
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a Custodian of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a 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 Act of 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, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Notes in the manner provided for in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all
the rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder, subject to its lien provided for in Section
607. 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
<PAGE>
66
such rights, powers and trusts.
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.
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise eligible under this Article,
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 case at that
time any of the Notes shall not have been authenticated, any successor Trustee
may authenticate such Notes either in the name of any predecessor hereunder or
in the name of the successor Trustee. In all such cases such certificates shall
have the full force and effect which this Indenture provides for the certificate
of authentication of the Trustee shall have; provided, however, that the right
to adopt the certificate of authentication of any predecessor Trustee or to
authenticate Notes in the name of any predecessor Trustee shall apply only to
its successor or successors by merger, conversion or consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE
SECTION 701. Company to Furnish Trustee Names and Addresses.
The Company shall furnish or cause to be furnished to the Trustee
(a) semiannually, not more than 10 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request, a
list of similar form and content to that in Subsection (a) hereof as of a
date not more than 15 days prior to the time such list is furnished;
<PAGE>
67
provided, however, that if and so long as the Trustee shall be the Note
Registrar, no such list need be furnished.
SECTION 702. Disclosure of Names and Addresses of Holders.
Every Holder of Notes, by receiving and holding the same, agrees with
the Company and the Trustee that none of the Company or the Trustee or any agent
of either of them 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
TIA Section 312, 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 TIA Section 312(b).
SECTION 703. Reports by Trustee.
Within 60 days after June 15 of each year commencing with the first
June 15 after the first issuance of Notes, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a
brief report dated as of such June 15 if required by TIA Section 313(a).
ARTICLE EIGHT
MERGER, CONSOLIDATION, OR SALE OF ASSETS
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company may not consolidate with or merge with or into any other
Person or, directly or indirectly, convey, sell, assign, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any other Person (in one transaction or a series of related transactions),
unless each of the following conditions is satisfied:
(a) Either (i) the Company is the surviving corporation or (ii) the
Person (if other than the Company) formed by such consolidation or into
which the Company is merged or the Person that acquires by sale,
assignment, transfer, lease or other disposition the properties and assets
of the Company substantially as an entirety (the "Surviving Entity") (A) is
a corporation, partnership or trust organized and validly existing under
the laws of the United States, any state thereof or the District of
Columbia and (B) expressly assumes, by a supplemental indenture in form
satisfactory to the Trustee, all of the Company's obligations under the
Indenture and the Notes;
(b) Immediately after giving effect to such transaction and treating
any
<PAGE>
68
obligation of the Company or a Restricted Subsidiary in connection with or
as a result of such transaction as having been incurred at the time of
such transaction, no Default or Event of Default has occurred and is
continuing;
(c) Immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Net Worth of the Company (or of the Surviving
Entity if the Company is not the continuing obligor under the Indenture) is
equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction;
(d) Immediately after giving effect to such transaction on a pro forma
basis on the assumption that the transaction occurred at the beginning of
the most recently ended four full fiscal quarter period for which internal
financial statements are available, the Company (or the Surviving Entity if
the Company is not the continuing obligor under the Indenture) could incur
at least $1.00 of additional Debt (other than Permitted Debt) pursuant to
Section 1009;
(e) If the Company is not the continuing obligor under the Indenture,
each Subsidiary Guarantor, unless it is the other party to the transaction
described above, has by supplemental indenture confirmed that its
Subsidiary Guarantee applies to the Surviving Entity's obligations under
the Indenture and the Notes;
(f) If any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of Section 1017 are complied with; and
(g) The Company delivers, or causes to be delivered, to the Trustee,
in form and substance reasonably satisfactory to the Trustee, an Officers'
Certificate and an Opinion of Counsel, each stating that such transaction
complies with the requirements of the Indenture.
SECTION 802. Successor Substituted. In the event of any transaction
described in and complying with the conditions listed in Section 801 in which
the Company is not the continuing obligor under the Indenture, the Surviving
Entity shall, pursuant to a supplemental indenture in form and substance
satisfactory to the Trustee, succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, and
thereafter the Company shall, except in the case of a lease, be discharged from
all its obligations and covenants under the Indenture and Notes.
<PAGE>
69
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company in
this Indenture and in the Notes; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to add additional Events of Defaults; or
(4) to provide for uncertificated Notes in addition to or in place of
the Certificated Notes; or
(5) to evidence and provide for the acceptance of appointment under
the Indenture by a successor Trustee; or
(6) to secure the Notes; or
(7) to cure any ambiguity, to correct or supplement any provision in
this Indenture that may be defective or inconsistent with any other
provision in this Indenture, or to make any other provisions with respect
to matters or questions arising under this Indenture, provided that such
actions pursuant to this clause do not adversely affect the interests of
the Holders in any material respect; or
(8) to evidence the succession of another Person to any Subsidiary
Guarantor and the assumption by any such successor of the covenants of such
Subsidiary Guarantor in this Indenture and in the Notes, as provided by
Section 1307 (b) hereof; or
(9) to evidence an addition of a new Subsidiary Guarantor and the
assumption by any such new Subsidiary Guarantor of the covenants in this
Indenture and in the Notes, as provided by Section 1308 hereof; or
<PAGE>
70
(10) to comply with any requirements of the Commission in order to
effect and maintain the qualification of the Indenture under the Trust
Indenture Act.
The Trustee is hereby authorized to join in the execution of any such
supplemental indenture and to make any further appropriate agreements and
stipulations that may be contained therein.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of at least a majority in principal
amount of the Outstanding Notes (including consents obtained in connection with
a tender offer or exchange offer for the Notes), by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Note affected thereby:
(a) change the Stated Maturity of the principal of, or any installment
of interest on, any Note;
(b) reduce the principal amount thereof or the rate of interest
thereon or any premium payable upon the redemption thereof;
(c) change the place of payment where, or the coin or currency in
which, any Note or any premium or interest thereon is payable;
(d) impair the right to institute suit for the enforcement of any such
payment after the Stated Maturity thereof (or, in the case of redemption,
on or after the Redemption Date);
(e) reduce the principal amount of Outstanding Notes, the consent of
whose Holders is required for any amendment, supplement or waiver under
this Indenture; or
(f) waive a default in the payment of principal of, or premium, if
any, or interest on the Notes.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
<PAGE>
71
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustees own rights, duties or
immunities under this Indenture or otherwise and no supplemental indenture
shall, without the consent of the Trustee, amend or otherwise modify Article Six
hereof.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Notes theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby (except as provided in Section 902).
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Note affected, in
the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
<PAGE>
72
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.
The Company covenants and agrees for the benefit of the Holders that
it shall duly and punctually pay the principal of (and premium, if any) and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company shall maintain in 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. The Corporate Trust Office of the Trustee shall be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company shall give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, 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 as its agent to receive all such 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 such purposes and may from time to
time rescind any such designation; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its 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
or rescission and any change in the location of any such other office or agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it
shall, on or before each due date of the principal of (or premium, if any) or
interest on any of the Notes, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay the principal of (or
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and shall promptly
notify the Trustee of its action or failure to so act.
<PAGE>
73
Whenever the Company shall have one or more Paying Agents for the
Notes, it shall, on or before each due date of the principal of (or premium, if
any) or interest on any Notes, deposit with a Paying Agent a sum in same day
funds (or New York Clearing House funds if such deposit is made prior to the
date on which such deposit is required to be made) sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal, premium or
interest, and (unless such Paying Agent is the Trustee) the Company shall
promptly notify the Trustee of such action or any failure to so act.
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent shall:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal
(and premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (or premium, if
any) or interest on any Note and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Note shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment to the
<PAGE>
74
Company, may at the expense of the Company cause to be published once, in a
newspaper published in the English language, customarily published on each
Business Day and of general circulation in the Borough of Manhattan, The City of
New York, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining shall be repaid
to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence and that of each Restricted Subsidiary and the corporate rights
(charter and statutory) licenses and franchises of the Company and each
Restricted Subsidiary; provided, however, that the Company shall not be required
to preserve any such existence (except the Company), right, license or franchise
if the Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
each of its Restricted Subsidiaries, taken as a whole, and that the loss thereof
is not, and shall not be, disadvantageous in any material respect to the
Holders.
SECTION 1005. 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 material taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a material liability or lien upon the property of the Company or any
Subsidiary; provided, however, 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 appropriate reserves, if necessary (in
the good faith judgment of management of the Company) are being maintained in
accordance with GAAP.
SECTION 1006. Maintenance of Properties.
The Company shall cause all material properties owned by the Company
or any Restricted Subsidiary or used or held for use in the conduct of its
business or the business of any Restricted Subsidiary to be maintained and kept
in normal condition, repair and working order 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 conducted at all
times; provided, however, that nothing in this Section shall prevent the
Company or any of its Restricted Subsidiaries from discontinuing the maintenance
of any of such properties if such discontinuance
<PAGE>
75
is, in the judgment of the Company, desirable in the conduct of its business or
the business of any Restricted Subsidiary and not adverse in any material
respect to the Holders.
SECTION 1007. Insurance.
To the extent available at commercially reasonable rates, the Company
shall maintain, and shall cause each of its Subsidiaries to maintain, insurance
with responsible carriers against such risks and in such amounts, and with such
deductibles, retentions, self-insured amounts and co-insurance provisions, as
are customarily carried by similar businesses, of similar size, including
professional and general liability, property and casualty loss, workers'
compensation and interruption of business insurance.
SECTION 1008. Compliance with Laws.
The Company shall comply, and shall cause each of its Subsidiaries to
comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America, all states and municipalities
thereof, and of any governmental regulatory authority, in respect of the conduct
of their respective businesses and the ownership of their respective properties,
except for such noncompliances as would not in the aggregate have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole.
SECTION 1009. Limitation on Debt.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, create, issue, assume, guarantee or in any manner become directly
or indirectly liable for the payment of, or otherwise incur (collectively,
"incur"), any Debt (including Acquired Debt and the issuance of Disqualified
Stock), except that the Company or a Restricted Subsidiary may incur Debt or
issue Disqualified Stock if, at the time of such event, the Consolidated Fixed
Charge Coverage Ratio for the immediately preceding four full fiscal quarters
for which internal financial statements are available, taken as one accounting
period, would have been equal to at least 2.0 to 1.0 through June 30, 1998 and
2.5 to 1.0 thereafter.
In making the foregoing calculation, pro forma effect shall be given
to: (i) the incurrence of such Debt and (if applicable) the application of the
net proceeds therefrom, including to refinance other Debt, as if such Debt was
incurred and the application of such proceeds occurred at the beginning of such
four-quarter period, (ii) the incurrence, repayment or retirement of any other
Debt by the Company or its Restricted Subsidiaries since the first day of such
four-quarter period as if such Debt was incurred, repaid or retired at the
beginning of such four-quarter period and (iii) the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any company, entity or business acquired or disposed of by the
Company or its Restricted Subsidiaries, as the case may be,
<PAGE>
76
since the first day of such four-quarter period, as if such acquisition or
disposition occurred at the beginning of such four-quarter period. In making a
computation under the foregoing clause (i) or (ii), (A) interest on Debt bearing
a floating interest rate shall be computed as if the rate in effect on the date
of computation had been the applicable rate for the entire period, (B) if such
Debt bears, at the option of the Company, a fixed or floating rate of interest,
interest thereon shall be computed by applying, at the option of the Company,
either the fixed or floating rate and (C) the amount of Debt under a revolving
credit facility shall be computed based upon the average daily balance of such
Debt during such four-quarter period.
(b) Notwithstanding the foregoing, the Company may, and may, to the
extent expressly permitted below, permit its Restricted Subsidiaries to, incur
any of the following Debt ("Permitted Debt"):
(i) Debt of the Company or any Restricted Subsidiary under the
Revolving Credit Facility or one or more other credit facilities in an
aggregate principal amount at any one time outstanding not to exceed the
greater of (a) $21,000,000 and (b) the sum of 75% of the aggregate book
value of the accounts receivable (net of bad debt reserves) and 50% of the
aggregate net book value of the inventory of the Company and its Restricted
Subsidiaries determined on a consolidated basis in accordance with GAAP as
of the last day of the immediately preceding four full fiscal quarters for
which internal financial statements are available, less any amounts applied
to the permanent reduction of such credit facilities pursuant to Section
1012, together with guarantees of such Debt by a Restricted Subsidiary;
provided, however, that the aggregate principal amount of Debt of the
Company's foreign Restricted Subsidiaries that are not Subsidiary
Guarantors, as a group, permitted to be outstanding in reliance on this
clause (i) may not exceed the greater of (x) $10,000,000 and (y) 50% of the
aggregate book value of the accounts receivable (net of bad debt reserves)
of such foreign Restricted Subsidiaries calculated in accordance with the
foregoing provisions of this clause (i).
(ii) Debt of the Company or any Restricted Subsidiary outstanding on
the Closing Date (excluding borrowings under the Revolving Credit
Facility).
(iii) Debt owed by the Company to any Restricted Subsidiary or owed
by any Subsidiary Guarantor to the Company or any other Restricted
Subsidiary that is a Subsidiary Guarantor (provided that such Debt is held
by the Company or such Restricted Subsidiary) or owed by the Company or a
Subsidiary Guarantor to a Restricted Subsidiary that is not a Subsidiary
Guarantor, provided such debt would represent a "Permitted Investment"
under clause (d) of the definition thereof.
(iv) Debt represented by the Notes and the Subsidiary Guarantees.
(v) Debt of the Company or any Restricted Subsidiary in respect of
Hedging
<PAGE>
77
Obligations incurred in the ordinary course of business.
(vi) Capitalized Lease Obligations of the Company or any Restricted
Subsidiary, provided that the aggregate amount of Debt under this clause
(vi) does not exceed $5,000,000 at any one time outstanding.
(vii) Debt of the Company or any Restricted Subsidiary under purchase
money mortgages or secured by purchase money security interests so long as
(x) such Debt is not secured by any property or assets of the Company or
any Restricted Subsidiary other than the property and assets so acquired
and (y) such Debt is created within 60 days of the acquisition of the
related property; provided that the aggregate amount of Debt under this
clause (vii) does not exceed $2,000,000 at any one time outstanding.
(viii) Debt of the Company or any Restricted Subsidiary consisting of
guarantees, indemnities or obligations in respect of purchase price
adjustments in connection with the acquisition or disposition of assets,
including, without limitation, shares of Capital Stock.
(ix) Guarantees by any Restricted Subsidiary made in accordance with
Section 1017.
(x) Debt of the Company or any Restricted Subsidiary, not permitted by
any other clause of this definition, in an aggregate principal amount not
to exceed $3,000,000 at any one time outstanding.
(xi) Any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") of any
outstanding Debt, other than Debt incurred pursuant to clauses (i), (v),
(vi), (vii) or (x) of this definition, including any successive
refinancings thereof, so long as (A) any such new Debt is in a principal
amount that does not exceed the principal amount so refinanced, plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Debt refinanced or the amount of
any premium reasonably determined by the Company as necessary to accomplish
such refinancing, plus the amount of the expenses of the Company incurred
in connection with such refinancing, (B) in the case of any refinancing of
Subordinated Debt, such new Debt is made subordinate to the Notes at least
to the same extent as the Debt being refinanced and (C) such refinancing
Debt does not have a Weighted Average Life less than the Weighted Average
Life of the Debt being refinanced and does not have a final scheduled
maturity earlier than the final scheduled maturity, or permit redemption at
the option of the holder earlier than the earliest date of redemption at
the option of the holder, of the Debt being refinanced.
<PAGE>
78
SECTION 1010. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, take any of the following actions:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of the Company or any
Restricted Subsidiary (other than (A) dividends or distributions payable
solely in Qualified Equity Interests, (B) dividends or distributions by a
Restricted Subsidiary payable to the Company or another Restricted
Subsidiary or (C) pro rata dividends or distributions on common stock of a
Restricted Subsidiary held by minority stockholders, provided that such
dividends do not in the aggregate exceed the minority stockholders' pro
rata share of such Restricted Subsidiary's net income from the first day of
the Company's fiscal quarter during which the Closing Date occurs);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock (or any options,
warrants or other rights to acquire shares of Capital Stock) of (A) the
Company or any Unrestricted Subsidiary or (B) any Restricted Subsidiary
held by any Affiliate of the Company (other than, in either case, any such
Capital Stock owned by the Company or any of its Restricted Subsidiaries);
(iii) make any principal payment on, or repurchase, redeem, defease
or otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Debt; and
(iv) make any Investment (other than a Permitted Investment) in any
Person
(such payments or other actions described in (but not excluded from) clauses (i)
through (iv) being referred to as "Restricted Payments"), unless at the time of,
and immediately after giving effect to, the proposed Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing,
(2) the Company could incur at least $1.00 of additional Debt (other
than Permitted Debt) pursuant to the first paragraph of the "Limitation on
Debt" covenant and
(3) the aggregate amount of all Restricted Payments declared or made
after the Closing Date does not exceed the sum of:
(A) 50% of the aggregate Consolidated Adjusted Net Income of the
Company during the period (taken as one accounting period) from the
first day of the Company's fiscal quarter during which the Closing
Date occurs to the last
<PAGE>
79
day of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
proposed Restricted Payment (or, if such aggregate cumulative
Consolidated Adjusted Net Income is a loss, minus 100% of such
amount), plus
(B) the aggregate net cash proceeds received by the Company after
the Closing Date from the issuance or sale (other than to a
Subsidiary) of Qualified Equity Interests of the Company (excluding
proceeds of an Equity Offering that are used to redeem Notes, as
discussed above); plus
(C) the aggregate net cash proceeds received by the Company after
the Closing Date from the issuance or sale (other than to a
Subsidiary) of debt securities or Disqualified Stock that have been
converted into or exchanged for Qualified Stock of the Company,
together with the aggregate net cash proceeds received by the Company
at the time of such conversion or exchange, plus
(D) $5,000,000.
(b) Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may take any of the following actions, so long as (with respect to
clauses (v) and (vi) below) no Default or Event of Default has occurred and is
continuing or would occur:
(i) The payment of any dividend within 60 days after the date of
declaration thereof, if at the declaration date such payment would not have
been prohibited by the foregoing provision.
(ii) The repurchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company in exchange for, or out
of the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of, Qualified Equity Interests of the Company.
(iii) The purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Debt in exchange for, or out of
the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of Qualified Equity Interests of the Company.
(iv) The purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Debt in exchange for, or out of the
net cash proceeds of a substantially concurrent issuance or sale (other
than to a Subsidiary) of, Subordinated Debt, so long as the Company or a
Restricted Subsidiary would be permitted to refinance such original
Subordinated Debt with such new Subordinated Debt pursuant to clause (xi)
of the definition of Permitted Debt.
<PAGE>
80
(v) The repurchase of any Subordinated Debt at a purchase price not
greater than 101% of the principal amount of such Subordinated Debt in the
event of a "change of control" in accordance with provisions similar to
Section 1011; provided that, prior to or simultaneously with such
repurchase, the Company has made the Change of Control Offer as provided in
such covenant with respect to the Notes and has repurchased all Notes
validly tendered for payment in connection with such Change of Control
Offer.
(vi) The repayment, on or promptly after the Closing Date, of the
Company's outstanding 12% Junior Subordinated Debentures in the principal
amount of $2,400,000.
The payments described in clauses (ii), (iii) and (v) of this
subsection (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of subsection
(a) and the payments described in clauses (i), (iv) and (vi) of this subsection
(b) shall be Restricted Payments that shall be permitted to be taken in
accordance with this subsection (b) and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of subsection
(a).
For the purpose of making any calculations under this Indenture (i) if
a Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company
shall be deemed to have made an Investment in an amount equal to the fair market
value of the net assets of such Restricted Subsidiary at the time of such
designation as determined by the Board of Directors of the Company, whose good
faith determination shall be conclusive, (ii) any property transferred to or
from an Unrestricted Subsidiary shall be valued at fair market value at the time
of such transfer, as determined by the Board of Directors of the Company, whose
good faith determination shall be conclusive and (iii) subject to the foregoing,
the amount of any Restricted Payment, if other than cash, shall be determined by
the Board of Directors of the Company, whose good faith determination shall be
conclusive.
(c) If the aggregate amount of all Restricted Payments calculated
under the foregoing provision includes an Investment in an Unrestricted
Subsidiary or other Person that thereafter becomes a Restricted Subsidiary, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision shall be reduced by the lesser of (x) the net asset value of such
Subsidiary at the time it becomes a Restricted Subsidiary and (y) the initial
amount of such Investment.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision shall be reduced by the amount of any net reduction in such Investment
(resulting from the payment of interest or dividends, loan repayment, transfer
of assets or otherwise), to the extent such net reduction is not included in
the Company's Consolidated Adjusted Net Income; provided that the total
<PAGE>
81
amount by which the aggregate amount of all Restricted Payments may be reduced
may not exceed the lesser of (x) the cash proceeds received by the Company and
its Restricted Subsidiaries in connection with such net reduction and (y) the
initial amount of such Investment.
In computing Consolidated Adjusted Net Income of the Company for
purposes of the foregoing clause (3)(A), (i) the Company may use audited
financial statements for the portions of the relevant period for which audited
financial statements are available on the date of determination and unaudited
financial statements and other current financial data based on the books and
records of the Company for the remaining portion of such period and (ii) the
Company shall be permitted to rely in good faith on the financial statements and
other financial data derived from the books and records of the Company that are
available on the date of determination. If the Company makes a Restricted
Payment that, at the time of the making of such Restricted Payment, would in the
good faith determination of the Company be permitted under the requirements of
the Indenture, such Restricted Payment shall be deemed to have been made in
compliance with the Indenture notwithstanding any subsequent adjustments made in
good faith to the Company's financial statements affecting Consolidated Adjusted
Net Income of the Company for any period.
SECTION 1011. Purchase of Notes upon a Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
shall have the right to require that the Company purchase such Holder's Notes,
in whole or in part in integral multiples of $1,000, at a purchase price in cash
equal to 101% of the principal amount of such Notes, plus accrued and unpaid
interest, if any, to the date of purchase.
(b) Within 45 days following any Change of Control, the Company shall
notify the Trustee thereof and give written notice of such Change of Control to
each Holder of Notes by first-class mail, postage prepaid, at its address
appearing in the Note Register, stating:
(i) the purchase price and the purchase date, which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed or such later date as is necessary to comply with
requirements under the Exchange Act;
(ii) that any Note not tendered shall continue to accrue interest;
(iii) that unless the Company defaults in the payment of the
purchase price, any Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest on and after the Change of
Control purchase date;
(iv) certain other procedures that a Holder of Notes must follow to
accept a Change of Control Offer or to withdraw such acceptance.
<PAGE>
82
(c) The Company shall comply with the applicable tender offer rules
including Rule l4e-l under the Exchange Act, and any other applicable securities
laws and regulations in connection with a Change of Control Offer.
(d) The Company shall not, and shall not permit any Restricted
Subsidiary to, create any restriction (other than restrictions existing under
Debt as in effect on the Closing Date or in refinancings of such Debt) that
would materially impair the ability of the Company to make a Change of Control
Offer to purchase the Notes or, if such Change of Control Offer is made, to pay
for the Notes tendered for purchase.
SECTION 1012. Limitation on Certain Assets Sales.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) the consideration received by
the Company or such Restricted Subsidiary for such Asset Sale is not less than
the fair market value of the assets sold (as determined by the Board of
Directors of the Company, whose good faith determination shall be conclusive)
and (ii) the consideration received by the Company or the relevant Restricted
Subsidiary in respect of such Asset Sale consists of at least 80% (A) cash or
cash equivalents or (B) the assumption by the transferee of Debt of the Company
or a Restricted Subsidiary ranked pari passu with the Notes and release of the
Company or such Restricted Subsidiary from all liability on such Debt.
(b) If the Company or any Restricted Subsidiary engages in an Asset
Sale, the Company may, at its option, within 12 months after such Asset Sale,
(i) apply all or a portion of the Net Cash Proceeds to the permanent reduction
of amounts outstanding under the Revolving Credit Facility or to the repayment
of other senior Debt of the Company or a Restricted Subsidiary or (ii) invest
(or enter into a legally binding agreement to invest) all or a portion of such
Net Cash Proceeds in properties and assets to replace the properties and assets
that were the subject of the Asset Sale or in properties and assets that shall
be used in businesses of the Company or its Restricted Subsidiaries, as the case
may be, existing on the Closing Date. If any such legally binding agreement to
invest such Net Cash Proceeds is terminated, the Company may, within 90 days of
such termination or within 12 months of such Asset Sale, whichever is later,
invest such Net Cash Proceeds as provided in clause (i) or (ii) (without regard
to the parenthetical contained in such clause (ii)) above. The amount of such
Net Cash Proceeds not so used as set forth above in this paragraph (b)
constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $5,000,000,
the Company shall make an offer to all Holders of Notes (an "Asset Sale Offer")
to purchase, on a pro rata basis, the maximum principal amount of Notes, that is
an integral multiple of $1,000, that may be purchased out of the Excess Proceeds
at an offer price in cash in an amount equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date fixed for the
closing of such offer (the "Offered Price"). Within 30 Business Days after the
date
<PAGE>
83
on which the aggregate amount of Excess Proceeds exceeds $5,000,000, the Company
shall give to each Holder of the Notes, with a copy to the Trustee, in the
manner provided in Section 106 a notice stating:
(i) that the Holder has the right to require the Company to repurchase
such Holder's Notes at the Offered Price, subject to proration in the event
the Excess Proceeds are less than the aggregate Offered Price of all Notes
tendered;
(ii) the date of purchase of Notes pursuant to the Asset Sale Offer
(the "Asset Sale Purchase Date"), which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed;
(iii) that the Offered Price shall be paid to Holders electing to
have Notes purchased on the Asset Sale Purchase Date, provided that a
Holder must surrender its Note to the Paying Agent at the address
specified in the notice prior to the close of business at least five
Business Days prior to the Asset Sale Purchase Date;
(iv) any Note not tendered shall continue to accrue interest pursuant
to its terms;
(v) that unless the Company defaults in the payment of the Offered
Price, any Note accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest on and after the Asset Sale Purchase Date;
(vi) that Holders shall be entitled to withdraw their tendered Notes
and their election to require the Company to purchase such Notes, provided
that the Company receives, not later than the close of business on the
third Business Day preceding the Asset Sale Purchase Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount and serial numbers of the Notes tendered for
purchase, and a statement that such Holder is withdrawing its election to
have such Notes purchased;
(vii) that the Holders whose Notes are being purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered; which unpurchased portion must be equal
to $1,000 in principal amount or an integral multiple thereof; and
(viii) the instructions a Holder must follow in order to have his
Notes purchased in accordance with this Section 1012.
To the extent that the aggregate amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company may use the
deficiency for general
<PAGE>
84
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select,
in accordance with the terms of a Company Order, the Notes to be purchased.
Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
The Company shall comply with the requirements of 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 purchase
of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of
any securities laws or regulations conflict with the provisions of this Section
1012, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Indenture.
SECTION 1013. Limitation on Transactions with Affiliates.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, enter into or suffer to exist any
transaction with, or for the benefit of, any Affiliate of the Company or any
beneficial owner of 5% or more of any class of the Capital Stock of the Company
at any time outstanding ("Interested Persons"), unless
(i) such transaction is on terms that are no less favorable to the
Company or such Restricted Subsidiary, as the case may be, than those that
could have been obtained in an arm's length transaction with third parties
who are not Interested Persons and
(ii) either (A) with respect to any transaction or series of related
transactions involving aggregate payments in excess of $1,000,000, but less
than $5,000,000, the Company delivers an Officers' Certificate to the
Trustee certifying that such transaction or transactions comply with clause
(i) above or (B) with respect to a transaction or series of transactions
involving aggregate payments equal or greater than $5,000,000, such
transaction or transactions have been approved by the Board of Directors
(including a majority of the Disinterested Directors) of the Company or
the Company has obtained a written opinion from a nationally recognized
investment banking firm to the effect that such transaction or transactions
are fair to the Company or such Restricted Subsidiary from a financial
point of view.
(b) The foregoing provisions shall not restrict any of the following:
(1) Transactions among the Company and/or its Restricted
Subsidiaries.
(2) The Company from paying reasonable and customary regular
compensation and fees to directors of the Company or any Restricted
Subsidiary who are not employees of the Company or any Restricted
Subsidiary.
<PAGE>
85
SECTION 1014. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distributions on or in respect of its Capital Stock, (b) pay
any Debt owed to the Company or any other Restricted Subsidiary, (c) make loans
or advances to the Company or any other Restricted Subsidiary or (d) transfer
any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of any of the following:
(i) Any agreement in effect on the Closing Date.
(ii) Customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any Restricted Subsidiary.
(iii) The refinancing or successive refinancings of Debt incurred
under the agreements in effect on the Closing Date, so long as such
encumbrances or restrictions are no less favorable to the Company or any
Restricted Subsidiary than those contained in such original agreement.
(iv) Any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), 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.
(v) Any agreement providing for the incurrence of Permitted Debt by a
Restricted Subsidiary in compliance with Section 1009 provided that such
Restricted Subsidiary is or becomes a Subsidiary Guarantor.
SECTION 1015. Restrictions on Transfer of Assets to Subsidiaries.
The Company shall not sell, convey, transfer or otherwise dispose of
its property or assets to any of its Subsidiaries, except for sales,
conveyances, transfers or other dispositions (a) of property or assets having an
aggregate fair market value no greater than $5,000,000 made after the Closing
Date and in the ordinary course of business; (b) of property or assets having a
fair market value not in excess of the amount of Investments then permitted to
be made pursuant to the definition of Permitted Investments or Section 1010; or
(c) made to any Restricted Subsidiary, if such Restricted Subsidiary is either
(i) a Subsidiary Guarantor or (ii) a Restricted Subsidiary, provided that no
portion of its net income would be excluded under the
<PAGE>
86
definition of Consolidated Adjusted Net Income by reason of clause (e) of the
definition thereof. The amount of any sale, conveyance, transfer or other
disposition permitted to be made pursuant to the foregoing clause (b), unless it
constitutes a Permitted Investment, shall be treated as the payment of a
Restricted Payment in calculating the amount of Restricted Payments made by the
Company.
SECTION 1016. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries.
The Company shall not sell, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any shares of Capital
Stock of a Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) except (i) to the Company or a Wholly
Owned Restricted Subsidiary, (ii) issuances or sales to foreign nationals of
shares of Capital Stock of foreign Restricted Subsidiaries, to the extent
required by applicable law, or issuances or sales to directors of directors'
qualifying shares, (iii) if, immediately after giving effect to such issuance or
sale, neither the Company nor any of its Subsidiaries owns any shares of Capital
Stock of such Restricted Subsidiary (including options, warrants or other rights
to purchase shares of such Capital Stock) (iv) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any Investment in such Person remaining
after giving effect to such issuance or sale would have been permitted to be
made under Section 1009 if made on the date of such issuance or sale or (v)
issuances or sales to the other stockholders of such Restricted Subsidiary of up
to 1% of the Capital Stock of such Restricted Subsidiary.
SECTION 1017. Limitation on Liens.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume or suffer to exist any Lien of
any kind on or with respect to any of its property or assets, including any
shares of stock or indebtedness of any Restricted Subsidiary, whether owned at
the Closing Date or thereafter acquired, or any income, profits or proceeds
therefrom, or assign or otherwise convey any right to receive income thereon,
unless (a) in the case of any Lien securing Subordinated Debt, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Lien and (b) in the case of any other Lien, the Notes are
equally and ratably secured with the obligation or liability secured by such
Lien.
Notwithstanding the foregoing, the Company may, and may permit any
Restricted Subsidiary to, incur any of the following Liens ("Permitted Liens"):
(i) Liens (other than Liens securing Debt under the Revolving Credit
Facility) existing as of the Closing Date.
<PAGE>
87
(ii) Liens on property or assets of the Company or any Restricted
Subsidiary securing Debt under the Revolving Credit Facility or other
credit facilities permitted by clause (i) of the definition of "Permitted
Debt" in a principal amount not to exceed the principal amount of the
outstanding Debt thereunder.
(iii) Liens on any property or assets of a Restricted Subsidiary
granted in favor of the Company or any Restricted Subsidiary.
(iv) Liens securing the Notes or any Subsidiary Guarantee.
(v) Liens representing the interest or title of lessors under
Capitalized Lease Obligations or Liens securing purchase money mortgages or
purchase money security interests, so long as the aggregate amount secured
by such Liens does not exceed the respective amounts permitted by clause
(vi) or (vii) of the definition of "Permitted Debt."
(vi) Liens securing Acquired Debt created prior to (and not in
connection with or in contemplation of) the incurrence of such Debt by the
Company or any Restricted Subsidiary; provided that such Lien does not
extend to any property or assets of the Company or any Restricted
Subsidiary other than the property and assets acquired in connection with
the incurrence of such Acquired Debt.
(vii) Liens securing obligations under Hedging Obligations permitted
to be incurred pursuant to clause (v) of the definition of "Permitted
Debt".
(viii) Statutory Liens or landlords', carriers', warehouseman's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceedings.
(ix) Liens for taxes, assessments, government charges or claims that
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted.
(x) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts
for the payment of money).
(xi) Easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the business
of the Company or any Restricted Subsidiary incurred in the ordinary course
of business.
<PAGE>
88
(xii) Liens arising by reason of any judgment, decree or order of any
court, so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such
judgment, decree or order have not been finally terminated or the period
within which such proceedings may be initiated has not expired.
(xiii) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to
such letters of credit and the products and proceeds thereof.
(xiv) Liens upon specific items of inventory or other goods and
proceeds of the Company or any Restricted Subsidiary securing its
obligations in respect of bankers' acceptances issued or created for the
account of any Person to facilitate the purchase, shipment or storage of
such inventory or other goods.
(xv) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods.
(xvi) Any extension, renewal or replacement, in whole or in part, of
any Lien described in the foregoing clauses (i) through (xv); provided that
any such extension, renewal or replacement is no more restrictive in any
material respect than the Lien so extended, renewed or replaced and does
not extend to any additional property or assets.
SECTION 1018. Limitation on Guarantees of Debt by Restricted
Subsidiaries.
(a) All of the Company's domestic Restricted Subsidiaries (those
active Restricted Subsidiaries organized or principally doing business in the
United States and its territories and possessions) shall be Subsidiary
Guarantors.
(b) The Company shall not permit any Restricted Subsidiary that is not
a Subsidiary Guarantor, directly or indirectly, to guarantee, assume or in any
other manner become liable for the payment of any Debt of the Company or any
Debt of any other Restricted Subsidiary, unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for a
guarantee of payment of the Notes by such Restricted Subsidiary and (ii) with
respect to any guarantee of Subordinated Debt by a Restricted Subsidiary, any
such guarantee is subordinated to such Restricted Subsidiary's guarantee with
respect to the Notes at least to the same extent as such Subordinated Debt is
subordinated to the Notes, provided that the foregoing provision shall not be
applicable to any guarantee by any Restricted Subsidiary (A) that existed at the
time such Person became a Restricted Subsidiary and was not incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary or (B) of the 12 1/2% Senior Notes as of any date on or prior to
December 15, 1997.
<PAGE>
89
(c) Any guarantee by a Restricted Subsidiary of the Notes pursuant to
the preceding paragraph shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon (i) any sale,
exchange or transfer to any Person not an Affiliate of the Company of all of the
Company's and the Restricted Subsidiaries' Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture), (ii) the release or
discharge of the guarantee that resulted in the creation of such guarantee of
the Notes, except a discharge or release by or as a result of payment under such
guarantee or (iii) the designation of such Restricted Subsidiary as an
Unrestricted Subsidiary in accordance with the terms of the Indenture.
SECTION 1019. Statement as to Compliance.
(a) The Company and each Subsidiary Guarantor will deliver to the
Trustee, within 45 days after the end of each fiscal quarter (90 days in the
case of the fourth quarter), an Officers' Certificate stating that a review of
the activities of the Company or Subsidiary Guarantor, as the case may be, and
their respective Subsidiaries during the preceding fiscal quarter has been made
under the supervision of the signing officers with a view to determining whether
it has kept, observed, performed and fulfilled, and has caused each of its
Subsidiaries to keep, observe, perform and fulfill its obligations under this
Indenture and further stating, as to each such officer signing such
certificate, that, to the best of his or her knowledge, the Company or
Subsidiary Guarantor, as the case may be, during such preceding fiscal quarter
has kept, observed, performed and fulfilled, and has caused each of its
Subsidiaries to keep, observe, perform and fulfill each and every such covenant
contained in this Indenture and no Default or Event of Default occurred during
such quarter and at the date of such certificate there is no Default or Event of
Default which has occurred and is continuing or, if such signers do know of such
Default or Event of Default, the certificate shall describe its status, with
particularity and that, to the best of his or her knowledge, no event has
occurred and remains by reason of which payments on the account of the principal
of or interest, if any, on the Notes is prohibited or if such event has
occurred, a description of the event and what action each is taking or purposes
to take with respect thereto. The Officers' Certificate shall also notify the
Trustee should the Company or any Subsidiary Guarantor elect to change the
manner in which it fixes its fiscal year end. For purposes of this Section
1018(a), such compliance shall be determined without regard to any period of
grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of Debt of
the Company or any Subsidiary gives any notice or takes any other action with
respect to a claimed default (other than with respect to Debt in the principal
amount of less than $10 million), the Company shall deliver to the Trustee by
registered or certified mail an Officers' Certificate specifying such event,
notice or other action within ten Business Days of any officer of the Company
having knowledge of any Default.
<PAGE>
90
SECTION 1020. Limitation on Unrestricted Subsidiaries.
(a) The Board of Directors of the Company may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary so long as (i) neither the Company nor any Restricted Subsidiary is
directly or indirectly liable for any Debt of such Subsidiary, (ii) no default
with respect to any Debt of such Subsidiary would permit (upon notice, lapse of
time or otherwise) any holder of any other Debt of the Company or any Restricted
Subsidiary to declare a default on such other Debt or cause the payment thereof
to be accelerated or payable prior to its stated maturity, (iii) any Investment
in such Subsidiary made as a result of designating such Subsidiary an
Unrestricted Subsidiary shall not violate Section 1010, (iv) neither the
Company nor any Restricted Subsidiary has a contract, agreement, arrangement,
understanding or obligation of any kind, whether written or oral, with such
Subsidiary other than those that might be obtained at the time from Persons who
are not Affiliates of the Company and (v) neither the Company nor any Restricted
Subsidiary has any obligation to subscribe for additional shares of Capital
Stock or other equity interest in such Subsidiary, or to maintain or preserve
such Subsidiary's financial condition or to cause such Subsidiary to achieve
certain levels of operating results.
(b) The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary; provided that (i) no Default
or Event of Default has occurred and is continuing following such designation
and (ii) the Company is in compliance with Section 1009 (treating any Debt of
such Unrestricted Subsidiary as the incurrence of Debt by a Restricted
Subsidiary).
SECTION 1021. Commission Reports and Reports to Holders.
The Company and each Subsidiary Guarantor shall file on a timely basis
with the Commission, to the extent such filings are accepted by the Commission
and whether or not the Company or each such Subsidiary Guarantor, as the case
may be, has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company or each such
Subsidiary Guarantor, as the case may be, would be required to file if it were
subject to Section 13 or 15(d) of the Exchange Act. The Company and each
Subsidiary Guarantor shall also (a) file with the Trustee, and provide to the
Trustee for distribution to each Holder of Notes, without cost to such Holder,
copies of such reports and documents within 15 days after the date on which the
Company or each such Subsidiary Guarantor, as the case may be, files such
reports and documents with the Commission or the date on which the Company or
each such Subsidiary Guarantor, as the case may be, would be required to file
such reports and documents if the Company or each such Subsidiary Guarantor, as
the case may be, were so required and (b) if filing such reports and documents
with the Commission is not accepted by the Commission or is prohibited under the
Exchange Act, supply at the Company's cost copies of such reports and documents
to any prospective Holder of Notes promptly upon written request.
<PAGE>
91
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Redemption.
The Notes may or shall, as the case may be, be redeemed, as a whole or
from time to time in part, subject to the conditions and at the Redemption
Prices specified in the form of Note, together with accrued interest to the
Redemption Date.
SECTION 1102. Applicability of Article.
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee, from the Outstanding Notes not previously called for redemption
by lot or by such other method as the Trustee shall deem fair and appropriate
and which may provide for the selection for redemption of portions of the
principal of Notes; provided, however, that no such partial redemption shall
reduce the portion of the principal amount of a Note not redeemed to less than
$1,000.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to
<PAGE>
92
be redeemed only in part, to the portion of the principal amount of such Note
which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Notes to be redeemed. The Trustee may give notice of
redemption in the Company's name and at the Company's expense; provided,
however, that the Company shall deliver to the Trustee, at least 45 days prior
to the Redemption Date, an Officers' Certificate requesting that the Trustee
give such notice and setting forth the information to be stated in such notice
as provided in the following items.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Notes are to be redeemed, the
identification of the particular Notes (or portion thereof) to be redeemed,
as well as the aggregate principal amount of Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the notice which
relates to such Note shall state that on and after the Redemption Date,
upon surrender of such Note, the Holder shall receive, without charge, a
new Note or Notes of authorized denominations for the principal amount
thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) shall become due and payable upon each such Note, or the portion
thereof, to be redeemed, and, unless the Company defaults in making the
redemption payment, that interest on Notes called for redemption (or the
portion thereof) shall cease to accrue on and after said date,
(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price and accrued interest, if any,
(7) the name and address of the Paying Agent, and
(8) that Notes called for redemption must be surrendered to the Paying
Agent to collect the Redemption Price.
<PAGE>
93
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and accrued interest on, all
the Notes which are to be redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more Predecessor Notes, registered as such at the close of
business on the relevant Regular Record Date or Special Record Date, as the case
may be, according to their terms and the provisions of Section 311.
Subject to Section 112 , if any Note called for redemption shall not
be so paid upon surrender thereof for redemption, the principal (and premium, if
any) shall, until paid, bear interest from the Redemption Date at the rate borne
by the Notes.
SECTION 1108. Notes Redeemed in Part.
Any Note which is to be redeemed only in part (pursuant to the
provisions of this Article) shall be surrendered at the office or agency of the
Company maintained for such purpose pursuant to Section 1002 (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or such Holder's attorney duly authorized in writing),
and the Company shall execute, and the Trustee shall authenticate and deliver to
the Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in an aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Note so surrendered, provided, that each such new Note shall be in a
principal amount of $1,000 or integral multiple thereof.
<PAGE>
94
ARTICLE TWELVE
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Legal Defeasance or Covenant
Defeasance.
The Company and the Subsidiary Guarantors may, at their option by
Board Resolution, at any time, with respect to the Notes, elect to have either
Section 1202 or Section 1203 be applied to all Outstanding Notes upon compliance
with the conditions set forth below in this Article Twelve.
SECTION 1202. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1202, the Company and any Subsidiary Guarantors shall
be deemed to have been discharged from its obligations with respect to all
Outstanding Notes on the date the conditions set forth in Section 1204 are
satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal
Defeasance means that the Company and any Subsidiary Guarantors shall be deemed
to have paid and discharged the entire Debt represented by the Outstanding
Notes, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 1205 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,
at the expense of the Company, shall execute proper instruments acknowledging
the same), except for 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 (and premium, if any,
on) and interest on such Notes when such payments are due, (B) the Company's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an office or
agency for payments in respect of the Notes and segregate and hold such payments
in trust, (C) the rights, powers, trusts, duties and immunities of the Trustee
(including pursuant to Section 607) and (D) the defeasance provisions of the
Indenture.
Subject to compliance with this Article Twelve, the Company may
exercise its option under this Section 1202 notwithstanding the prior exercise
of its option under Section 1203 with respect to the Notes.
SECTION 1203. Covenant Defeasance.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1203, the Company and any Subsidiary Guarantors shall
be released from their obligations under any covenant contained in Section 801
and in Sections 1009 through 1020 with
<PAGE>
95
respect to the Outstanding Notes on and after the date the conditions set forth
below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not to be "Outstanding" for the purposes of any direction,
waiver, consent or 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 outstanding for accounting purposes). For this purpose, such
Covenant Defeasance means that, with respect to the Outstanding Notes, the
Company and any Subsidiary Guarantors may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section
501(d), but, except as specified above, the remainder of this Indenture and such
Notes shall be unaffected thereby.
SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
1202 or Section 1203 to the Outstanding Notes:
(a) the Company must irrevocably deposit or cause to be deposited with
the Trustee, as trust funds in trust, specifically pledged as security for,
and dedicated solely to, the benefit of the Holders of the Notes, money in
an amount, or U.S. Government Obligations that through the scheduled
payment of principal and interest thereon shall provide money in an
amount, or a combination thereof, sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay and
discharge the principal of (and premium, if any, on) and interest on the
Outstanding Notes at maturity (or upon redemption, if applicable) of such
principal or installment of interest and premium, if any;
(b) no Default or Event of Default has occurred and is continuing on
the date of such deposit or, insofar as an event of bankruptcy under
Section 501(h) is concerned, at any time during the period ending on the
91st day after the date of such deposit;
(c) such defeasance or covenant defeasance must not result in a breach
or violation of, or constitute a default under, this Indenture or any
material agreement or instrument to which the Company or any Subsidiary
Guarantor is a party or by which it is bound or cause the Trustee or the
trust so created to be subject to the Investment Company Act of 1940;
(d) in the case of defeasance, the Company must deliver to the Trustee
an Opinion of Counsel stating that the Company has received from, or there
has been published by, the Internal Revenue Service a ruling, or since the
date hereof, there has
<PAGE>
96
been a change in applicable federal income tax law, to the effect, and
based thereon such opinion must confirm that, the Holders of the
Outstanding Notes shall not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance and shall 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 defeasance had not occurred;
(e) in the case of covenant defeasance, the Company must have
delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Notes Outstanding shall not recognize income, gain or loss
for federal income tax purposes as a result of such covenant defeasance and
shall 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; and
(f) the Company must have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either Legal Defeasance or Covenant
Defeasance, as the case may be, have been complied with.
SECTION 1205. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1205, the "Trustee") pursuant to Section 1204 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 Paying Agent (including the Company acting as its
own 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 premium, if
any) and interest, but such money 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 1204 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 the Outstanding Notes.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1204 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 which would then
be required to be deposited to effect an equivalent legal defeasance or covenant
defeasance, as
<PAGE>
97
applicable, in accordance with this Article.
SECTION 1206. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 1205 by reason of any
legal proceeding or by any reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's and each Subsidiary Guarantor's obligations
under this Indenture, the Notes and the Subsidiary Guarantees shall be revived
and reinstated as though no deposit had occurred pursuant to Section 1202 or
1203, as the case may be, until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 1205; provided,
however, that if the Company or any Subsidiary Guarantor makes any payment of
principal of (or premium, if any) or interest on any Note following the
reinstatement of its obligations, the Company or such Guarantor, as the case may
be, shall be subrogated to the rights of the Holders of such Notes to receive
such payment from the money and U.S. Government Obligations held by the Trustee
or Paying Agent.
ARTICLE THIRTEEN
SUBSIDIARY GUARANTEES
SECTION 1301. Subsidiary Guarantees.
(a) Each Subsidiary Guarantor, hereby, jointly and severally, fully,
absolutely, unconditionally and irrevocably guarantees to each Holder of a Note
authenticated and delivered by the Trustee, and to the Trustee on behalf of
each Holder, the punctual payment and performance when due of all Indenture
Obligations which, for purposes of its Subsidiary Guarantee, shall also be
deemed to include all commissions, fees, charges, costs and other expenses
(including reasonable legal fees and disbursements of counsel) arising out of or
incurred by the Trustee or the Holders in connection with the enforcement of any
Subsidiary Guarantee. Without limiting the generality of the foregoing, each
Subsidiary Guarantor's liability shall extend to all amounts that constitute
part of the Indenture Obligations and would be owed by the Company to such
Holder or the Trustee under the Notes or this Indenture but for the fact that
they are unenforceable, reduced, limited, suspended or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding involving the
Company.
(b) Each Subsidiary Guarantor and by its acceptance hereof each Holder
hereby confirms that it is the intention of all such parties that the guarantee
by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee not
constitute a fraudulent transfer or conveyance for purposes of any federal or
state law. To effectuate the foregoing intention, the Holders and each
Subsidiary Guarantor hereby irrevocably agree that the obligations of such
<PAGE>
98
Subsidiary Guarantor under its Subsidiary Guarantee shall be limited to the
maximum amount as shall, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to paragraph (c) of this Section 1301,
result in the obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law.
(c) In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under its Subsidiary Guarantee, such Funding Guarantor
shall be entitled to a contribution from each other Subsidiary Guarantor in a
pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor
(including the Funding Guarantor) for all payments, damages and expenses
incurred by the Funding Guarantor in discharging the Indenture Obligations of
the Company or any other Subsidiary Guarantor's obligations with respect to its
Subsidiary Guarantee. "Adjusted Net Assets" of such Subsidiary Guarantor at any
date shall mean the lesser of (x) the amount by which the fair value of the
property of such Subsidiary Guarantor exceeds the total amount of liabilities,
including, without limitation, contingent liabilities (after giving effect to
all other fixed and contingent liabilities incurred or assumed on such date),
but excluding liabilities under the Subsidiary Guarantee of such Subsidiary
Guarantor at such date and (y) the amount by which the present fair salable
value of the assets of such Subsidiary Guarantor at such date exceeds the amount
that shall be required to pay the probable liability of such Subsidiary
Guarantor on its debts (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), excluding debt in respect of the
Subsidiary Guarantee, as they become absolute and matured.
SECTION 1302. Guaranty Absolute.
Each Subsidiary Guarantor guarantees that the Indenture Obligations
shall be paid or performed strictly in accordance with the terms of the Notes
and this Indenture, regardless of any law, regulation or order now or hereafter
in effect in any jurisdiction affecting any of such terms or the rights of the
Trustee or any Holder with respect thereto. The obligations of each Subsidiary
Guarantor under its Subsidiary Guarantee are independent of the obligations of
the Company under the Notes and this Indenture, and a separate action or actions
may be brought and prosecuted against such Subsidiary Guarantor to enforce its
Subsidiary Guarantee, irrespective of whether any action is brought against the
Company or any other Subsidiary Guarantor or whether the Company or any other
Subsidiary Guarantor is joined in any such action or actions. The liability of
each Subsidiary Guarantor under its Subsidiary Guaranty shall be absolute and
unconditional and the liability and obligations of such Subsidiary Guarantor
hereunder shall not be released, discharged, mitigated, waived, impaired or
affected in whole or in part by:
<PAGE>
99
(a) any lack of validity or enforceability of this Indenture or the
Notes with respect to the Company or any Subsidiary Guarantor or any
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Indenture Obligations, or any other
amendment or waiver of or any consent to departure from this Indenture,
including any increase in the Indenture Obligations resulting from the
extension of additional credit to the Company or otherwise;
(c) the failure to give notice to the Subsidiary Guarantor of the
occurrence of a Default under the provisions of this Indenture or the
Notes;
(d) any taking, release or amendment or waiver of or consent to
departure from any other guarantee, for all or any of the Indenture
Obligations;
(e) any failure, omission, delay by or inability on the part of the
Trustee or the Holders to assert or exercise any right, power or remedy
conferred on the Trustee or the Holders in this Indenture or the Notes;
(f) any change in the corporate structure, or termination,
dissolution, consolidation or merger of the Company or any guarantor with
or into any other entity, the voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all the
assets of the Company or any guarantor, the marshalling of the assets and
liabilities of the Company or any guarantor, the receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition with the creditors, or readjustment of, or other
similar proceedings affecting the Company or any guarantor, or any of the
assets of any of them;
(g) the assignment of any right, title or interest of the Trustee or
any Holder in this Indenture or the Notes to any other Person; or
(h) any other event or circumstance (including any statute of
limitations), whether foreseen or unforeseen and whether similar or
dissimilar to any of the foregoing, that might otherwise constitute a
defense available to, or a discharge of, the Company or a guarantor, other
than payment in full of the Indenture Obligations; it being the intent of
the Subsidiary Guarantor that its obligations hereunder shall not be
discharged except by payment of all amounts owing pursuant to this
Indenture or the Notes.
The Subsidiary Guarantee of each Subsidiary Guarantor shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Indenture Obligations is rescinded or must otherwise be returned by
any Holder or the Trustee upon the insolvency,
<PAGE>
100
bankruptcy or reorganization of the Company or otherwise, all as though such
payment had not been made. Each Subsidiary Guarantor further agrees, to the
fullest extent that it may lawfully do so, that, as between such Subsidiary
Guarantor on the one hand, and the Holders and the Trustee, on the other hand,
(i) the maturity of the obligations guaranteed hereby may be accelerated as
provided in Article Five of this Indenture for the purposes of each Subsidiary
Guarantee, notwithstanding any stay, injunction or other prohibition extant
under any applicable bankruptcy law preventing such acceleration in respect of
the obligations guaranteed hereby and (ii) in the event of any declarations of
acceleration of such obligations as provided in Article Five of this Indenture,
such obligations (whether or not due and payable) shall forthwith become due and
payable by the Subsidiary Guarantor for the purpose of its Subsidiary Guarantee.
SECTION 1303. Waivers.
(a) Each Subsidiary Guarantor hereby expressly waives (to the extent
permitted by law) notice of the acceptance of its Subsidiary Guarantee and
notice of the existence, renewal, extension or the non-performance, non-
payment, or non-observance on the part of the Company of any of the terms,
covenants, conditions and provisions of this Indenture or the Notes or any
other notice whatsoever to or upon the Company or such Subsidiary Guarantor with
respect to the Indenture Obligations. Each Subsidiary Guarantor hereby
acknowledges communication to it of the terms of this Indenture and the Notes
and all of the provisions herein contained and consents to and approves the
same. Each Subsidiary Guarantor hereby expressly waives (to the extent
permitted by law) diligence, presentment and protest.
(b) Without prejudice to any of the rights or recourse which the
Trustee or the Holders may have against the Company, each Subsidiary Guarantor
hereby expressly waives (to the extent permitted by law) any right to require
the Trustee or the Holders to:
(1) initiate or exhaust any rights, remedies or recourse against the
Company, any Subsidiary Guarantor or any other Person;
(2) value, realize upon, or dispose of any security of the Company or
any other Person held by the Trustee or the Holders; or
(3) initiate or exhaust any other remedy which the Trustee or the
Holders may have in law or equity;
before being entitled to demand payment from any Subsidiary Guarantor under any
Subsidiary Guarantee.
SECTION 1304. Subrogation.
Each Subsidiary Guarantor shall not exercise any rights that it may
acquire by way
<PAGE>
101
of subrogation under this Subsidiary Guarantee, by any payment made hereunder or
otherwise, until all the Indenture Obligations shall have been paid in full. If
any amount shall be paid to any Subsidiary Guarantor on account of any such
subrogation rights at any time when all the Indenture Obligations shall not have
been paid in full, such amount shall be held in trust for the benefit of the
Holders and the Trustee and shall forthwith be paid to the Trustee, on behalf of
the Holders, to be credited and applied to the Indenture Obligations, whether
matured or unmatured.
SECTION 1305. No Waiver; Remedies.
No failure on the part of any Holder or the Trustee to exercise, and
no delay in exercising, any right hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 1306. Continuing Guaranty; No Right of Set-Off; Independent
Obligation.
(a) This Subsidiary Guarantee is a continuing guarantee of the payment
and performance of all Indenture Obligations and shall remain in full force and
effect until the payment in full of all of the Indenture Obligations and all
other amounts payable under this Subsidiary Guarantee and shall apply to and
secure any ultimate balance due or remaining unpaid to the Trustee or the
Holders; and this Subsidiary Guarantee shall not be considered as wholly or
partially satisfied by the payment or liquidation at any time or from time to
time of any sum of money for the time being due or remaining unpaid to the
Trustee or the Holders. Each Subsidiary Guarantor covenants and agrees to
comply with all obligations, covenants, agreements and provisions applicable to
it in this Indenture.
(b) Each Subsidiary Guarantor hereby guarantees that the Indenture
Obligations shall be paid to the Trustee without set-off or counterclaim or
other reduction whatsoever (whether for taxes, withholding or otherwise) in
lawful currency of the United States of America.
(c) Each Subsidiary Guarantor guarantees that the Indenture
Obligations shall be paid strictly in accordance with their terms regardless of
any lack of validity or enforceability of any of such terms or the rights of the
Holders with respect thereto.
(d) Each Subsidiary Guarantor's liability to pay or perform or cause
the performance of the Indenture Obligations under this Subsidiary Guarantee
shall arise forthwith after demand for payment or performance by the Trustee has
been given to such Subsidiary Guarantor in the manner prescribed in this
Indenture.
<PAGE>
102
SECTION 1307. Subsidiary Guarantors May Consolidate, Etc. on Certain
Terms.
(a) Nothing contained in this Indenture or in any of the Notes shall
prevent any consolidation or merger of a Subsidiary Guarantor with or into
another Subsidiary Guarantor or shall prevent any sale or conveyance of the
property of a Subsidiary Guarantor as an entirety or substantially as an
entirety to another Subsidiary Guarantor, which consolidation, merger, sale or
conveyance is otherwise in accordance with the terms of this Indenture.
(b) Other than as set forth in paragraph (a) of this Section, no
Subsidiary Guarantor may consolidate with or merge with or into (whether or not
such Subsidiary Guarantor is the surviving Person) another Person whether or not
affiliated with such Subsidiary Guarantor unless: (i) subject to the provisions
of Section 1309, the Person formed by or surviving such consolidation or merger
(if other than such Subsidiary Guarantor) assumes all of the obligations of such
Subsidiary Guarantor under the Indenture and its Subsidiary Guarantee, pursuant
to a supplemental indenture in form and substance satisfactory to the Trustee
and (ii) immediately after giving effect to such transaction, no Default or
Event of Default has occurred and is continuing.
SECTION 1308. Additional Subsidiary Guarantors.
The Company shall cause each Person that becomes a Restricted
Subsidiary after the date of this Indenture to become a Subsidiary Guarantor
with respect to the Indenture Obligations by executing and delivering a
supplemental indenture to this Indenture providing for a Subsidiary Guarantee by
such Restricted Subsidiary and by causing such Person to execute and deliver
such supplemental indenture in accordance with the terms of this Article
Thirteen; provided that any such Restricted Subsidiary that is organized outside
of the United States shall not be required to provide a Subsidiary Guarantee so
long as such Restricted Subsidiary has not guaranteed any other Debt of the
Company or any other Restricted Subsidiary. The Company shall deliver to the
Trustee, together with the supplemental indenture referred to above, an Opinion
of Counsel that such Subsidiary Guarantee is a legal, valid, binding and
enforceable obligation of such Subsidiary Guarantor, subject to customary local
law exceptions and customary exceptions for bankruptcy and equitable principles.
The Company hereby represents, that no Restricted Subsidiaries and no
Subsidiary Guarantors are in existence as of the date hereof.
SECTION 1309. Releases.
(a) Concurrently with any consolidation or merger of a Subsidiary
Guarantor or any sale or conveyance of the property of a Subsidiary Guarantor as
an entirety or substantially as an entirety, in each case as permitted by
Section 1307, and upon delivery by the Company to the Trustee of an Officers'
Certificate and an Opinion of Counsel, each to the effect
<PAGE>
103
that (i) such consolidation, merger, sale or conveyance was or shall be made by
a Subsidiary Guarantor in accordance with Section 1307, and (ii) all conditions
precedent to such release have been satisfied, the Trustee shall promptly
execute any documents reasonably required in order to evidence the release of
such Subsidiary Guarantor from its obligations under its Subsidiary Guarantee.
Any Subsidiary Guarantor not released from its obligations under its Subsidiary
Guarantee under this Article Thirteen shall remain liable for the full amount of
the Indenture Obligations under its Subsidiary Guarantee.
(b) Concurrently with the Legal Defeasance of the Notes under Section
1202 hereof or the Covenant Defeasance of the Notes under Section 1203 hereof,
the Subsidiary Guarantors shall be released from all of their obligations under
their Subsidiary Guarantees.
(c) Upon (i) a sale, transfer or other disposition of all of the
Capital Stock of a Subsidiary Guarantor to a Person that is not an Affiliate of
the Company, (ii) a sale, transfer or other disposition of all or substantially
all of the assets of a Subsidiary Guarantor to a Person that is not an Affiliate
of the Company, or (iii) the designation of such Subsidiary Guarantor as an
Unrestricted Subsidiary, in any such case in compliance with the terms of this
Indenture, then such Subsidiary Guarantor shall be deemed automatically and
unconditionally released and discharged from all of its obligations under its
Subsidiary Guarantee without any further action on the part of the Trustee or
any Holder of the Notes; provided that the Net Proceeds of any such sale,
transfer or other disposition are applied in accordance with Section 1012.
<PAGE>
104
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
DRYPERS CORPORATION,
a Delaware corporation
By
Name:
Title:
BANKERS TRUST COMPANY,
as Trustee
By
Name:
Title:
<PAGE>
EXHIBIT 11.1
DRYPERS CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE SIX MONTHS ENDED JUNE
30 30
----------------------- -----------------------
1996 1997 1996 1997
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Income (loss) before
extraordinary item.......... $ 348 $ 2,183 $ (2,571) $ 4,156
Extraordinary item........... -- (7,769) -- (7,769)
----------- ----------- ---------- -----------
Net income (loss)............ 348 (5,586) (2,571) (3,613)
Preferred stock dividend..... 165 168 220 336
----------- ----------- ---------- -----------
Net income (loss) available
to common stockholders...... $ 183 $ (5,754) $ (2,791) $ (3,949)
=========== =========== ========== ===========
Weighted average number of
shares of common stock...... 15,649,450 16,740,745 6,635,401 16,789,261
Common stock equivalents..... 346,275 2,267,298 -- 2,267,928
----------- ----------- ---------- -----------
Weighted average number of
shares of common stock and
common stock equivalents.... 15,995,725 19,008,673 6,635,401 19,057,189
=========== =========== ========== ===========
Net income (loss) per share
of common stock and common
stock equivalents--
Before extraordinary item.. $ .02 $ .12 $ (.42) $ .22
Extraordinary item......... -- (.41) -- (.41)
----------- ----------- ---------- -----------
Net income (loss)............ $ .02 $ (.29) $ (.42) $ (.19)
=========== =========== ========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 30,567,000 0
<SECURITIES> 0 0
<RECEIVABLES> 37,794,000 0
<ALLOWANCES> 1,702,000 0
<INVENTORY> 12,632,000 0
<CURRENT-ASSETS> 6,722,000 0
<PP&E> 55,947,000 0
<DEPRECIATION> 14,714,000 0
<TOTAL-ASSETS> 199,120,000 0
<CURRENT-LIABILITIES> 26,979,000 0
<BONDS> 116,566,000 0
0 0
1,000 0
<COMMON> 8,000 0
<OTHER-SE> 49,963,000 0
<TOTAL-LIABILITY-AND-EQUITY> 199,120,000 0
<SALES> 72,551,000 132,712,000
<TOTAL-REVENUES> 72,551,000 132,712,000
<CGS> 44,983,000 81,739,000
<TOTAL-COSTS> 67,955,000 123,672,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,012,000 4,210,000
<INCOME-PRETAX> 2,749,000 4,872,000
<INCOME-TAX> 566,000 716,000
<INCOME-CONTINUING> 2,183,000 4,156,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 7,769,000 7,769,000
<CHANGES> 0 0
<NET-INCOME> (5,586,000) (3,613,000)
<EPS-PRIMARY> (.29) (.19)
<EPS-DILUTED> (.29) (.19)
</TABLE>
