<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER , 1997
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
DUANE READE INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 04-3164702 5912
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial
incorporation or organization) Identification No.) Classification Code Number)
</TABLE>
440 NINTH AVENUE
NEW YORK, NEW YORK 10001
TELEPHONE: 212-273-5700
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
MR. ANTHONY J. CUTI
DUANE READE INC.
440 NINTH AVENUE
NEW YORK, NEW YORK 10001
TELEPHONE: 212-273-5700
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
Steven Della Rocca, Esq. Stephen M. Besen, Esq.
Latham & Watkins Weil, Gotshal & Manges LLP
885 Third Avenue, Suite 1000 767 Fifth Avenue
New York, New York 10022 New York, New York 10153
Telephone: 212-906-1200 Telephone: 212-310-8000
Telecopy: 212-751-4864 Telecopy: 212-310-8007
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
- -------------------------------------------------------------------------------
Common Stock, par value $0.01 per
share............................ $115,000,000 $34,849
- -------------------------------------------------------------------------------
(1) Includes the amount that the Underwriters have the option to purchase
from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BY ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
, 1998
SHARES
DUANE READE INC.
DR LOGO
COMMON STOCK
All of the shares of common stock, $0.01 par value per share (the "Common
Stock"), offered hereby are being offered (the "Offering") by Duane Reade
Inc. ("Duane Reade" or the "Company").
Prior to this Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will
be between $ and $ per share. See "Underwriting" for information relating
to the factors that will be considered in determining the initial public
offering price.
The Company intends to apply for the listing of the Common Stock on the
under the symbol "DRC."
SEE "RISK FACTORS," BEGINNING ON PAGE 9, FOR A DISCUSSION OF CERTAIN
FACTORS WHICH SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------
Per Share..... $ $ $
Total(3)...... $ $ $
- -------------------------------------------------------------------------------
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase
up to additional shares of Common Stock, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and
Proceeds to the Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are being offered by the several Underwriters
subject to prior sale, when, as and if delivered to and accepted by them,
subject to certain prior conditions. The Underwriters reserve the right to
reject any order in whole or in part. It is expected that delivery of the
shares of Common Stock will be made in New York, New York on or about ,
1998.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
<PAGE>
[PICTURES TO COME]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING TRANSACTIONS, SYNDICATE COVERING TRANSACTIONS, AND THE
IMPOSITION OF PENALTY BIDS. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN
CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE
COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto included elsewhere in
this Prospectus. Unless otherwise stated, the information contained in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
Prior to consummation of the Offering, a reclassification of the Company's
capital stock, pursuant to which holders of shares of class B common stock,
$.01 par value per share ("Class B Common Stock"), will receive one share of
Common Stock for shares of Class B Common Stock (the "Reclassification")
will be implemented. Unless otherwise stated in this Prospectus, references
to the "Company" or "Duane Reade" shall mean Duane Reade Inc. (formerly known
as Duane Reade Holding Corp.), its consolidated subsidiaries and their
respective predecessors. The fiscal year of the Company ends on the last
Saturday in December. Fiscal years 1992 through 1996 each consisted of 52
weeks.
The Company
Duane Reade is the largest drugstore chain in New York City, with 58 of
its 67 stores located in Manhattan's high-traffic business and residential
districts. The Company operates almost twice as many stores in Manhattan as
its next largest competitor. Since opening its first store in 1960, the
Company has successfully executed a marketing and operating strategy tailored
to the unique characteristics of New York City, the largest and most densely
populated market in the United States. According to Drug Store News, Duane
Reade is the leading drugstore chain in the United States in terms of sales
per square foot, at $956 per square foot in 1996, which was more than two
times the national average for drugstore chains. For the fiscal year ended
December 28, 1996, the Company had sales of $381.5 million and EBITDA (as
defined herein) of $35.3 million, increases of 13.2% and 28.6%, respectively,
over the 1995 fiscal year. For the 39 weeks ended September 27, 1997, the
Company had sales of $313.8 million and EBITDA of $29.7 million, increases of
11.6% and 24.9%, respectively, over the comparable 1996 period.
The Company enjoys strong brand name recognition in New York City, which
it believes results from the Company's many locations in high-traffic areas
of Manhattan and the 30 million shopping bags with the distinctive Duane
Reade logo that the Company distributes annually. Independent surveys
conducted in 1995 and 1996 indicated that nine out of ten people who work in
Manhattan recognize the Duane Reade name, and seven out of ten shopped at a
Duane Reade store in the past twelve months. The Company was also recently
named "Regional Drug Store Chain of the Year" for 1997 by Drug Store News.
The Company has developed an operating strategy designed to capitalize on
the unique characteristics of the New York City market, which include
high-traffic volume, above industry average inventory shrink, complex
distribution logistics and high costs of occupancy, media advertising and
personnel. The key elements of the Company's operating strategy are its (i)
everyday low price format and broad product offering, (ii) low cost operating
structure supported by its high volume stores and low advertising and
distribution costs and (iii) ability to design and operate its stores in a
wide variety of sizes and layouts.
The Company believes that its everyday low price format and broad product
offerings provide value and convenience for its customers and build customer
loyalty. The Company's everyday low price format results in prices that the
Company believes are, on average, approximately 10% lower than the prices
generally offered by its competitors.
The Company is able to keep its operating costs relatively low due to its
high per store sales volume, low warehouse and distribution costs and low
advertising expenditures. The Company's high volume stores allow it to
effectively leverage occupancy costs, payroll and other store operating
expenses. The Company's two primary distribution facilities are located
within five miles of all but one of its 67 stores and, combined with the
rapid turnover of inventory in Duane Reade's stores, result in relatively low
warehouse and distribution costs. The Company's strong brand name recognition
in New York City and everyday low price format allow the Company to minimize
its use of costly media and print advertising and to rely instead on
in-window displays and other less expensive promotional activities.
3
<PAGE>
The Company has demonstrated its ability to successfully operate stores
using a wide variety of store configurations and sizes, which the Company
believes is necessary to succeed in the New York City market. For example,
the size of the Company's stores ranges from 2,600 to 12,300 square feet, and
it operates 29 bi-level stores. The Company believes that its flexibility in
configuring stores provides it with a competitive advantage in securing
locations for its new stores, as many of its competitors target more
standarized spaces for their stores, which are more difficult to find in New
York City. In addition, the Company's management team has extensive
experience and knowledge of the New York City real estate market, allowing it
to aggressively pursue attractive real estate opportunities.
The Company was founded in 1960. In 1992, Bain Capital acquired the
Company from its founders and, in June 1997, investment funds affiliated with
DLJ Merchant Banking Partners II, L.P. ("DLJMBPII") acquired approximately
91.5% of the outstanding capital stock of the Company from Bain Capital and
certain other selling securityholders (the "Recapitalization").
In 1994 and 1995, the Company experienced rapid expansion, growing from 40
stores to 59 stores. However, as a result of liquidity constraints and the
need for improved inventory controls, the Company was forced to suspend its
store expansion program in late 1995. In early 1996, a strengthened
management team led by Anthony Cuti, the Company's new Chairman and Chief
Executive Officer, took several measures to improve operations, including
improving inventory controls and decreasing out-of-stock occurrences,
creating a loss prevention function to control inventory shrink and
continuing to invest in management information systems ("MIS"). In 1997, the
Company resumed its store expansion program, opening seven stores. During Mr.
Cuti's tenure at the Company, EBITDA has increased by 53.2% from $26.9
million for the 52 weeks ended March 29, 1996 to $41.2 million for the 52
weeks ended September 27, 1997.
The Company was incorporated in Delaware in 1992. The Company's principal
executive offices are located at 440 Ninth Avenue, New York, New York 10001,
and its phone number is (212) 273-5700.
Growth Strategy
The Company believes that as a result of its successful operating history
and market position in New York City, it is well positioned to capitalize on
the growth opportunities in its market. The Company's strategy for continued
growth is to (i) open additional stores in Manhattan and the surrounding
boroughs, (ii) continue to capitalize on favorable pharmacy trends, (iii)
make opportunistic acquisitions of independent drugstores and pharmacy files
and (iv) continue to implement merchandising initiatives in non-pharmacy
areas.
OPEN ADDITIONAL STORES. The Company believes that the Manhattan drugstore
market remains underpenetrated by drugstore chains, with only 45% of the
estimated $1.3 billion in annual drugstore-related sales controlled by
chains, compared to approximately 74% controlled by chains nationally. This
provides significant opportunities for the Company to open additional stores
in Manhattan as well as in the densely populated areas of the surrounding
boroughs. Some of the Company's most successful stores have been opened in
areas new to the Company, such as the residential areas of the Upper East and
West sides of Manhattan, Brooklyn, the Bronx and Queens. The Company believes
that its long-standing presence in, and knowledge of, the New York City real
estate market, combined with the use of a proprietary site selection model
that considers numerous demographic and traffic flow variables, have allowed
it to identify attractive store locations. Since 1993, all of the Company's
new stores have become profitable on an operating basis within the first full
year of operation. Over the next two years, the Company plans to open
approximately 30 to 40 stores, primarily in Manhattan.
CONTINUE TO CAPITALIZE ON FAVORABLE PHARMACY TRENDS. Sales of prescription
and over-the-counter ("OTC") drugs have been growing rapidly throughout the
drugstore industry. The Company expects demographic trends, such as the aging
of the U.S. population, and industry changes, such as growth of managed care
organizations, insurance companies, employers and other third-party payors
(collectively, "Third-Party Plans"), to continue to drive increases in the
prescription and OTC drug businesses. Since 1994, the Company has focused on
increasing its pharmacy sales by entering into agreements to service
Third-Party Plans and by upgrading the appearance and service level of its
store pharmacies. These
4
<PAGE>
initiatives, designed to capitalize on industry trends, have resulted in the
Company's pharmacy sales growing at a compound annual growth rate of
approximately 30% since 1994. Although these initiatives have helped increase
the average number of prescriptions filled by Duane Reade per store per week
from 640 in 1994 to 860 during 1997, the Company's average remains well below
the industry chain store average of approximately 1,200, providing
significant opportunity for continued pharmacy growth. The Company believes
that continued pharmacy growth will increase overall customer traffic,
thereby also benefitting its non-pharmacy sales.
MAKE OPPORTUNISTIC ACQUISITIONS OF INDEPENDENT DRUGSTORES AND PHARMACY
FILES. The Company believes that the growth of Third-Party Plans and the
continued penetration of chain drugstores such as Duane Reade has put
increasing pressure on the approximately 420 operators of independent
drugstores in Manhattan. When appropriate, the Company considers acquiring
small local chains or independent drugstores. The Company also pursues the
purchase of pharmacy files of independent drugstores when such purchases are
economically attractive to the Company. The pharmacy files of independent
pharmacists tend to have a higher proportion of prescriptions not covered by
Third-Party Plans, which generates incremental revenue and higher margins.
When appropriate, the Company retains the services of the pharmacist, whose
personal relationship with the customers generally maximizes the retention
rate of the purchased file. In 1997, the Company acquired one independent
drugstore and seven such pharmacy files and intends to aggressively pursue
additional purchases.
CONTINUE TO IMPLEMENT MERCHANDISING INITIATIVES IN NON-PHARMACY
AREAS. Management has recently undertaken a number of merchandising
initiatives, including the expansion of certain high-margin categories such
as greeting cards, cosmetics, vitamins, photofinishing and photo supplies and
an expanded seasonal merchandising program. The Company also continues to
focus on category management, which it believes will improve gross margins
and increase non-pharmacy sales. For example, in 1997 the Company introduced
one-hour photofinishing service in three of its stores and intends to
introduce one-hour photofinishing service in approximately seven to ten
additional stores in 1998. The Company has also increased its emphasis on the
sale of its own private label products, which it believes provide a
high-quality, lower priced alternative to name brand products while
generating higher gross profit margins than name brand products. In addition,
by the end of 1997, Duane Reade will have installed Point of Sale ("POS")
scanners in all of its stores and, by the end of the first quarter of 1998,
will have completed its "planogramming" (space management system) initiative
in all of its stores. These systems and initiatives will allow the Company to
better analyze sales trends and merchandise its stores more effectively,
which the Company believes will ultimately increase its sales and
profitability.
Refinancing Plan
The Offering is part of a plan to refinance all of the Company's existing
indebtedness (the "Refinancing Plan") in order to enhance the Company's
financial flexibility to pursue growth opportunities and implement capital
improvements. The successful consummation of the Refinancing Plan will reduce
the Company's overall indebtedness, simplify the Company's capital structure
and provide access to additional borrowings. The principal components of the
Refinancing Plan are: (i) the sale by the Company of shares of Common
Stock in the Offering for estimated net proceeds of $92.0; (ii) the execution
of a new secured credit agreement (the "New Credit Agreement"), which will
provide for borrowings of up to approximately $235 million; (iii) the
repayment of all outstanding borrowings under the Company's existing credit
agreement (the "Existing Credit Agreement"), the outstanding principal amount
of which was $81.5 million as of September 27, 1997; (iv) the redemption of
the Company's outstanding 15% Senior Subordinated Zero Coupon Notes due 2004
(the "Zero Coupon Notes") for $99.8 million (including a redemption premium
of $7.0 million); and (v) the redemption of the Company's outstanding 12%
Senior Notes due 2002 (the "Senior Notes") for $93.9 million (including a
5
<PAGE>
redemption premium of $4.0 million). See "Use of Proceeds." The consummation
of the Offering will be conditional upon the other components of the
Refinancing Plan.
The Offering
Common Stock offered hereby ... shares (1)
Common Stock to be outstanding
after the Offering ............ shares (1)(2)
Use of Proceeds ............... The net proceeds from the Offering, together
with borrowings under the New Credit
Agreement, will be used to complete the
Refinancing Plan. See "Prospectus
Summary--Refinancing Plan" and "Use of
Proceeds."
Proposed Symbol ............... "DRC"
- ------------
(1) Excludes shares of Common Stock issuable upon the exercise of the
Underwriters' over-allotment option.
(2) Excludes (i) outstanding options to purchase an aggregate of
13,558,210.7 shares of Common Stock and (ii) 821,868 additional shares
reserved for issuance under the Company's stock option plans.
6
<PAGE>
Summary Historical
Financial and Operating Data
(In thousands, except per share amounts, percentages and store data)
The following table sets forth summary consolidated historical financial
data for the fiscal years ended December 31, 1994, December 30, 1995 and
December 28, 1996 and for the 39 week periods ended September 28, 1996 and
September 27, 1997. This data should be read in conjunction with the
consolidated historical financial statements of the Company, together with
the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR 39 WEEKS ENDED
------------------------------------------------------------------
SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
---------- ---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................. $281,103 $336,922 $381,466 $281,093 $313,796
Gross profit .............................. 71,425 77,095 92,961 65,296 77,383
Nonrecurring charges (1) .................. -- -- -- -- 10,887
Operating income .......................... 11,042 12,166 14,542 11,849 11,268
Net interest expense ...................... 27,480 30,224 32,396 24,334 25,433
Net loss .................................. (16,438) (18,058) (17,854) (12,485) (14,165)
OPERATING AND OTHER DATA:
EBITDA (3)................................. $ 31,188 $ 27,443 $ 35,300 $ 23,814 $ 29,747
EBITDA as a percentage of net sales ...... 11.1% 8.2% 9.3% 8.5% 9.5%
Number of stores .......................... 51 59 60 60 65
Same store sales growth (4) ............... 1.6% (3.5)% 8.3% 7.8% 7.9%
Pharmacy same store sales growth (4) ..... 14.2% 7.0% 25.5% 25.1% 25.4%
Average store size (square feet) .......... 6,596 6,712 6,733 6,733 6,832
Sales per square foot...................... $ 970 $ 898 $ 956 $ 696 $ 707
Pharmacy sales as a % of net sales ....... 17.6% 19.0% 21.8% 21.5% 24.8%
Third-party sales as a % of pharmacy
sales..................................... 45.7% 58.2% 64.4% 63.3% 72.9%
Capital expenditures....................... $ 9,947 $ 6,868 $ 1,247 $ 913 $ 4,931
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 28, AS OF
1996 SEPTEMBER 27, 1997
---------------- ----------------------------
(ACTUAL) (AS ADJUSTED)(2)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ......................... $ 9,917 $ 29,849 $ 41,243
Total assets ............................ 222,476 239,520 254,800
Total debt and capital lease obligations 245,657 262,649 207,187
Stockholders' deficiency ................ (59,396) (73,561) (5,159)
</TABLE>
(footnotes on next page)
7
<PAGE>
(footnotes to Summary Historical Financial and Operating Data appearing on
the preceding page)
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(1) During the first quarter of fiscal 1997, the Company considered a
public offering of its common stock and took certain steps in
connection with these plans. Such plans were abandoned upon
consummation of the Recapitalization discussed in Note 10 of the Notes
to Consolidated Financial Statements (Unaudited) for the 39 weeks ended
September 27, 1997. Costs and expenses incurred in connection with the
abandoned public offering, the Recapitalization and the exchange offers
referred to in Note 10 of the Notes to Consolidated Financial
Statements (Unaudited) aggregated approximately $10.9 million.
(2) Gives pro forma effect to (i) the Refinancing Plan, including the
consummation of the Offering and the application of the net proceeds
therefrom as set forth under "Use of Proceeds," (ii) a provision of
for compensation expense related to previously issued stock
options and (iii) an extraordinary loss of $26.5 million for the 39
weeks ended September 27, 1997 relating to the redemption of the Senior
Notes and the Zero Coupon Notes and the write-off of the unamortized
deferred financing fees, as if all such transactions had occurred at
September 27, 1997. See "Use of Proceeds" and "Capitalization."
(3) As used herein, "EBITDA" means net income (loss) plus nonrecurring
costs, interest, income taxes, depreciation, amortization and other
non-cash items (primarily deferred rents). Management believes that
EBITDA, as presented, represents a useful measure of assessing the
performance of the Company's ongoing operating activities as it
reflects the earnings trends of the Company without the impact of
certain non-cash charges. Targets and positive trends in EBITDA are
used as the performance measure for determining management's bonus
compensation; EBITDA is also utilized by the Company's creditors in
assessing debt covenant compliance. The Company understands that, while
EBITDA is frequently used by security analysts in the evaluation of
companies, it is not necessarily comparable to other similarly titled
captions of other companies due to potential inconsistencies in the
method of calculation. EBITDA is not intended as an alternative to cash
flow from operating activities as a measure of liquidity, nor an
alternative to net income as an indicator of the Company's operating
performance nor any other measure of performance in conformity with
generally accepted accounting principles ("GAAP").
A reconciliation of net loss to EBITDA for each period included above is
set forth below:
<TABLE>
<CAPTION>
FISCAL YEAR 39 WEEKS ENDED
---------------------------------------------------------------------
SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
----------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net loss ............. $(16,438) $(18,058) $(17,854) $(12,485) $(14,165)
Net interest expense 27,480 30,224 32,396 24,334 25,433
Amortization ......... 18,238 11,579 16,217 8,514 3,826
Depreciation ......... 1,184 1,929 3,015 2,295 2,584
Nonrecurring charges -- -- -- -- 10,887
Other non-cash item . 724 1,769 1,526 1,156 1,182
----------- ----------- ----------- --------------- ---------------
EBITDA ............... $ 31,188 $ 27,443 $ 35,300 $ 23,814 $ 29,747
=========== =========== =========== =============== ===============
</TABLE>
(4) Same store sales figures include stores that have been in operation for
at least 13 months.
8
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors
before making an investment in the Common Stock offered hereby.
RISKS ASSOCIATED WITH SUBSTANTIAL INDEBTEDNESS
After the Offering, the Company will have a substantial amount of
outstanding indebtedness. As of September 27, 1997, on a pro forma basis
giving effect to the Refinancing Plan, including the Offering and the
application of the net proceeds therefrom, the consolidated indebtedness of
the Company would have been approximately $207.2 million. Subject to certain
limitations contained in its outstanding debt instruments, the Company or its
subsidiaries may incur additional indebtedness to finance working capital,
capital expenditures or acquisitions or for general corporate purposes. The
Company's level of indebtedness could have important consequences to the
holders of Common Stock, including the following: (i) the Company's ability
to obtain additional capital for acquisitions, capital expenditures, working
capital or general corporate or other purposes may be limited and (ii) the
Company's level of indebtedness may reduce the Company's flexibility to
respond to changing business and economic conditions. Substantially all of
the Company's indebtedness under the New Credit Agreement is expected to be
subject to variable interest rates that fluctuate in accordance with changes
in the market rate to be specified in the New Credit Agreement. Fluctuations
in such interest rates may occur at any time in response to changing economic
conditions and other factors beyond the Company's control, and there can be
no assurance with respect to how long such rates will remain at their current
levels. Although the Company expects to enter into hedging agreements to
limit its exposure to interest rate fluctuations, a significant rise in
interest rates could have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company's ability to service its indebtedness will be dependent on its
future performance, which will be affected by prevailing economic, financial,
business, competitive, legislative, regulatory and other conditions, certain
of which are beyond the Company's control. The Company believes that, based
upon current levels of operations and anticipated growth, it should be able
to meet its debt service obligations when due for the foreseeable future. If,
however, the Company becomes unable to service its indebtedness, it will be
forced to pursue one or more alternative strategies such as selling assets,
restructuring or refinancing its indebtedness or seeking additional equity
capital (which may substantially dilute the ownership interest of holders of
Common Stock). There can be no assurance that any of these strategies could
be effected on satisfactory terms, if at all. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The New Credit Agreement is expected to contain certain covenants which,
among other things, will restrict the ability of the Company and its
subsidiaries to incur additional indebtedness and issue preferred stock, pay
dividends or make other distributions, make certain restricted payments,
create certain liens, sell assets, enter into certain transactions with
affiliates, enter into certain mergers or consolidations or sell or issue
capital stock of the Company's subsidiaries, along with covenants requiring
the Company to maintain specified financial ratios and satisfy certain tests
relating to its financial condition. The Company's ability to comply with the
covenants in the New Credit Agreement may be affected by events beyond its
control, including prevailing economic, financial, business, competitive,
legislative, regulatory and other conditions. The breach of any such
covenants or restrictions could result in a default under the New Credit
Agreement which would permit the lenders thereunder to declare all amounts
borrowed thereunder to be immediately due and payable, together with accrued
and unpaid interest, and terminate the commitments of the lenders to make
further extensions of credit under the New Credit Agreement. If the Company
were unable to repay its indebtedness to its lenders under the New Credit
Agreement, such lenders could proceed against any or all of the collateral
securing the indebtedness under the New Credit Agreement, which collateral is
expected to consist of substantially all of the assets of the Company and the
capital stock and substantially all of the assets of its subsidiaries. See
"Description of Certain Indebtedness--Description of New Credit Agreement."
9
<PAGE>
COMPETITION
The markets in which the Company operates are highly competitive. In the
New York City area, the Company competes against national, regional and local
drugstore chains, discount drugstores, supermarkets, combination food and
drugstores, discount general merchandise stores, mass merchandisers,
independent drugstores and local merchants. Major chain competitors in the
New York City market include Rite-Aid, Genovese and CVS. Many of the
Company's competitors are larger and have greater financial resources than
the Company. In addition to competition from the foregoing, the Company's
pharmacy departments also compete with hospitals, health maintenance
organizations ("HMOs") and mail order prescription drug providers. The
Company's drugstores compete, among other things, on the basis of convenience
of location and store layout, product mix, selection, customer service and
price. There can be no assurance that such competition will not adversely
affect the Company's results of operations or financial condition. See
"Business--Competition."
NET LOSSES
The Company has experienced net losses for the prior four fiscal years and
the 39 weeks ended September 27, 1997. The net proceeds of the Offering will
be used to reduce overall indebtedness of the Company and associated interest
expense. See "Prospectus Summary--Refinancing Plan" and "Use of Proceeds."
The Company's results of operations will continue to be affected by events
and conditions both within and beyond its control, including the successful
implementation of the Company's growth strategy, continued performance of
existing stores, competition, and economic, financial, business and other
conditions. Therefore, there can be no assurance that the Company will not
continue to incur net losses in the future. As of September 27, 1997, the
Company's consolidated stockholders' deficiency was $73.6 million. On a pro
forma basis giving effect to the Refinancing Plan, including the Offering and
the application of the net proceeds therefrom, the Company would have had
stockholders' deficiency of $5.2 million as of September 27, 1997.
ECONOMIC CONDITIONS AND REGIONAL CONCENTRATION
Substantially all of the Company's stores are located in the New York City
area. As a result, the Company is sensitive to economic and competitive
conditions, the regulatory environment and the availability of labor in that
area. The success of the Company's future operations will be substantially
affected by its ability to compete effectively in the New York City area, and
no prediction can be made as to economic conditions in this region.
UNCERTAINTY OF LEASE RENEWALS
All of the Company's stores are leased, with the leases expiring at
various dates from May 1998 to December 2022 (assuming renewal options are
exercised). Leases for eight stores that generated 12.8% of the Company's net
sales for the 39 week period ended September 27, 1997 are scheduled to expire
before the end of 2000. Although the Company has historically been successful
in renewing most of its store leases when they have expired, there can be no
assurance that the Company will continue to be able to do so on acceptable
terms or at all. If the Company is unable to renew the leases for the
Company's store locations as they expire, or find other favorable locations
at acceptable lease rates, there can be no assurance that such failures will
not have a material adverse effect on the Company's financial condition and
results of operations. See "Business--Properties; Leases."
RISKS ASSOCIATED WITH FUTURE GROWTH
The Company is experiencing a period of rapid expansion, which the Company
believes will continue for the foreseeable future. The operating complexity
of the Company's business, as well as the responsibilities of management
personnel, have increased as a result of this expansion. The Company's
ability to manage such growth effectively will require it to continue to
expand and improve its operating and financial systems and to expand, train
and manage its employee base. In addition, as the Company opens new stores,
there can be no assurance that a sufficient number of qualified personnel
will be
10
<PAGE>
available to manage such expanded operations or that such operations will be
successfully integrated into the Company. The Company's inability to manage
its expansion effectively, including the hiring of additional personnel,
could have a material adverse effect on its business and results of
operations. The Company's expansion prospects are also dependent on a number
of other factors, including, among other things, economic conditions,
competition, consumer preferences, financing and working capital needs, the
ability of the Company to negotiate store leases on favorable terms and the
availability of additional warehouse space and new store locations. There can
be no assurance that the Company will be able to effectively realize its
plans for future expansion. See "Business."
RISKS ASSOCIATED WITH REGULATORY AND OTHER CHANGES IN THE HEALTH CARE
INDUSTRY
Pharmacy sales accounted for approximately 22% of the Company's total
sales for 1996 and 25% of the Company's total sales for the 39 week period
ended September 27, 1997. Pharmacy sales to Third-Party Plans accounted for
approximately 64% of the Company's total pharmacy sales for 1996 and
approximately 73% of the Company's total pharmacy sales for the 39 week
period ended September 27, 1997. The efforts of Third-Party Plans to contain
costs have placed downward pressures on gross profit margins from sales of
prescription drugs. However, management believes that the penetration of
Third-Party Plans in the New York City market will continue, and the
resulting increase in volume should help to mitigate the decrease in gross
profit margins. See "Business--The Drugstore Industry."
The Company's revenues from prescription drug sales may also be affected
by health care reform initiatives of federal and state governments, including
proposals designed to significantly reduce spending on Medicare, Medicaid and
other government programs, changes in programs providing for reimbursement
for the cost of prescription drugs by Third-Party Plans and regulatory
changes relating to the approval process for prescription drugs. Such
initiatives could lead to the enactment of federal and state regulations that
may adversely impact the Company's prescription drug sales and, accordingly,
its results of operations.
REGULATORY MATTERS
The Company's business is subject to various federal and state
regulations. For example, pursuant to the Omnibus Budget Reconciliation Act
of 1990 ("OBRA") and comparable state regulations, the Company's pharmacists
are required to offer counseling, without additional charge, to their
customers about medication, dosage, delivery systems, common side effects and
other information deemed significant by the pharmacists and may have a duty
to warn customers regarding any potential adverse effects of a prescription
drug if the warning could reduce or negate such effects. The Company is also
subject to federal, state and local licensing and registration regulations
with respect to, among other things, its pharmacy operations. The Company
believes that it has satisfied all of its licensing and registration
requirements and continues to actively monitor its compliance with such
requirements. However, violations of any such regulations could result in
various penalties, including suspension or revocation of the Company's
licenses or registrations or monetary fines, which could adversely effect the
Company's operations. Additionally, the Company is subject to federal Drug
Enforcement Agency ("DEA") regulations relative to its pharmacy operations
including purchasing, storing and dispensing of controlled substances.
The Company is also subject to laws governing its relationship with
employees, including minimum wage requirements, overtime and working
conditions. Increases in the federal minimum wage rate, employee benefit
costs or other costs associated with employees could adversely affect the
Company's results of operations.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends to a large extent on its executive
management team. Although the Company has entered into employment agreements
with each of the Company's executive officers, it is possible that members of
executive management may leave the Company, and such departures could have a
negative impact on the business of the Company. The Company does not maintain
key-man life insurance on any of its executive officers. See "Management."
11
<PAGE>
CONTINUED INFLUENCE OF PRINCIPAL STOCKHOLDERS
Upon consummation of the Offering, investment funds affiliated with
DLJMPBII, an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), which is one of the Underwriters, and certain of its affiliates will
beneficially own an aggregate of approximately % of the Company's
outstanding Common Stock. In addition, two of the Company's four directors
are Managing Directors of DLJ Merchant Banking II, Inc. ("DLJMB"), a general
partner of DLJMBPII, and one director is a Managing Director of DLJ. In
connection with the consummation of the Offering, the Company expects to add
two independent directors to the Board of Directors. See "Management" and
"Principal Stockholders." Under Delaware law and the Company's Amended and
Restated Certificate of Incorporation, owners of a majority of the Company's
outstanding Common Stock are able to elect all of the Company's directors and
approve significant corporate transactions without the approval or consent of
the other shareholders. As a result, DLJMBPII will continue to have the
ability (either alone or together with a small percentage of other
shareholders) to elect all of the Company's directors and to control the vote
on all matters submitted to a vote of the holders of the Common Stock,
including any going private transaction, merger, consolidation or sale of all
or substantially all of the Company's assets. The Company's Amended and
Restated Certificate of Incorporation provides that any action that can be
taken by a meeting of the shareholders may be taken by written consent in
lieu of a meeting. See "Description of Capital Stock."
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws may inhibit changes in control
of the Company not approved by the Company's Board of Directors. These
provisions, among other things, (i) authorize the Board of Directors to issue
preferred stock ranking senior to the Common Stock without any action on the
part of the shareholders and (ii) establish certain advance notice procedures
for shareholder proposals (including nominations of directors) to be
considered at shareholders' meetings. In addition, Section 203 of the
Delaware General Corporation Law restricts certain persons from engaging in
business combinations with the Company. See "Description of Capital Stock."
RESTRICTIONS ON PAYMENT OF DIVIDENDS ON COMMON STOCK
Since 1993, the Company has not declared or paid any cash or other
dividends on the Common Stock and does not expect to pay dividends for the
foreseeable future. The Company's New Credit Agreement is also expected to
contain covenants that restrict the ability of the Company to pay dividends.
If these restrictions are subsequently removed, any future cash dividends
will depend upon the Company's results of operations, financial conditions,
cash requirements, the availability of a surplus and other factors. See
"Dividend Policy."
COLLECTIVE BARGAINING AGREEMENTS
As of September 27, 1997, approximately 1,800 of the Company's
approximately 2,000 employees were represented by various labor unions and
were covered by collective bargaining agreements. The Company's distribution
facility employees are represented by the International Brotherhood of
Teamsters, Chauffeurs and Warehousemen and Helpers of America, Local 815, and
all store employees are represented by the Allied Trade Council. The
Company's three-year contracts with these two unions expire on August 31,
1999 and August 31, 1998, respectively. The Company has not experienced any
material business interruption as a result of labor disputes within the past
15 years, and the Company considers its employee relations to be good.
However, there can be no assurance that, upon the expiration of any of the
Company's collective bargaining agreements, the Company will be able to
negotiate new collective bargaining agreements on terms favorable to the
Company or that the Company's business operations will not be interrupted as
a result of labor disputes or difficulties or delays in the process of
renegotiating its collective bargaining agreements. In such events, the
Company's results of operations could be materially adversely affected. See
"Business--Employees."
12
<PAGE>
IMMEDIATE AND SUBSTANTIAL DILUTION
Based upon an assumed public offering price of $ per share (the midpoint
of the range set forth on the cover page of this Prospectus), purchasers of
Common Stock in the Offering will experience immediate and substantial
dilution of $ per share in the net tangible book deficiency per share of
Common Stock. See "Dilution."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Although the Company intends to apply for the listing of the Common
Stock for trading on the , there can be no assurance that an active
trading market for the Common Stock will develop or be sustained or that
purchasers of Common Stock in the Offering will be able to resell their
shares at prices at or above the initial offering price. The initial public
offering price of the Common Stock offered hereby will be determined by
negotiations among the Company and the representatives of the Underwriters
and may not be indicative of the market price for the Common Stock after the
Offering. See "Underwriting." After the Offering, the market price for shares
of the Common Stock may be volatile and may fluctuate based upon a number of
factors, including many that are beyond the control of the Company, such as
the Company's results of operations and business performance, general
industry trends, news announcements by competitors of the Company, changes in
the regulatory environment or in general, political, market and economic
conditions.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of
Common Stock outstanding. The shares of Common Stock sold in the Offering
will be freely tradable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), unless held by an
"affiliate" of the Company, as that term is defined under Rule 144 under the
Securities Act ("Rule 144"), which shares will be subject to the resale
limitations of Rule 144. In addition, certain existing stockholders,
including holders of restricted Common Stock, have registration rights with
respect to Common Stock held by them. In connection with the Offering, all
existing stockholders have agreed not to dispose of any shares for a period
of 180 days from the date of this Prospectus, and the Company has agreed not
to dispose of any shares (other than shares sold by the Company in the
Offering or issuances by the Company of certain employee stock options and
shares covered thereby) for a period of 180 days from the date of this
Prospectus, without the prior written consent of representatives of the
Underwriters. Upon expiration of such 180-day period, shares of Common
Stock will be eligible for sale subject to certain volume and other
limitations of Rule 144 applicable to "affiliates" of the Company. No
prediction can be made as to the effect, if any, that market sales of shares
of Common Stock or the availability of shares of Common Stock for sale will
have on the market price of the Common Stock from time to time. The sale of a
substantial number of shares held by the existing stockholders, whether
pursuant to a subsequent public offering or otherwise, or the perception that
such sales could occur, could adversely affect the market price of the Common
Stock and could materially impair the Company's future ability to raise
capital through an offering of equity securities. See "Certain Relationships
and Related Transactions--Stockholders and Registration Rights Agreement,"
"Shares Eligible for Future Sale" and "Underwriting."
13
<PAGE>
USE OF PROCEEDS
The net proceeds from the Offering (after deducting the underwriting
discounts of $7.0 million and other general offering expenses of $1.0
million) are estimated to be approximately $92.0 million, based on an assumed
initial public offering price of $ per share (which represents the midpoint
of the range set forth on the cover page of the Prospectus). The Company
intends to use such net proceeds, together with borrowings under the New
Credit Agreement of approximately $205.0 million, to complete the Refinancing
Plan, which is expected to consist of: (i) the redemption of all of the Zero
Coupon Notes for $99.8 million (including a redemption premium of $7.0
million), (ii) the redemption of all of the Senior Notes for $93.9 million
(including a redemption premium of $4.0 million), (iii) the repayment of all
outstanding term loan indebtedness under the Existing Credit Agreement, the
outstanding principal amount of which was $65.5 million as of September 27,
1997, (iv) the repayment of all outstanding revolving indebtedness under the
Existing Credit Agreement, the outstanding principal amount of which was
$16.0 million as of September 27, 1997, and (v) the payment of fees and
expenses incurred in connection with the Refinancing Plan. The Company plans
to use the proceeds of the Offering and a portion of the proceeds from the
New Credit Agreement to fund the redemption of the Zero Coupon Notes and the
Senior Notes. Accordingly, the proceeds from the Offering will be placed in
escrow pending such redemptions, which the Company currently expects to occur
approximately 30 days after the closing of the Offering.
The term loan indebtedness under the Existing Credit Agreement has a
maturity date of June 2002 and currently bears interest at an annual rate of
LIBOR plus 3.0%, which, as of September 30, 1997, equaled approximately
8.625%. The revolving loan indebtedness under the Existing Credit Agreement
has a maturity date of June 2001 and currently bears interest at an annual
rate of LIBOR plus 2.5%, which, as of September 30, 1997, equaled
approximately 8.125%, and provides for a commitment fee ranging from 0.375%
to 0.5% per annum on the unused portion of the facility, depending on the
Company's ratio of consolidated debt to EBITDA (as defined in the Existing
Credit Agreement). The Zero Coupon Notes have a maturity date of September
2004 and accrete at a fixed rate of 15% per annum compounded semiannually,
with cash interest payments commencing in March 2000 at a fixed rate of 15%
per annum. The Senior Notes have a maturity date of September 2002 and bear
interest at a fixed rate of 12% per annum.
14
<PAGE>
DIVIDEND POLICY
Since 1993, the Company has not declared or paid any cash or other
dividends on its Common Stock and does not expect to pay dividends for the
foreseeable future. The Company anticipates that, for the foreseeable future,
earnings will be reinvested in the business and used to service indebtedness.
The New Credit Agreement is expected to contain covenants that restrict the
ability of the Company to pay dividends. The declaration and payment of
dividends by the Company are subject to the discretion of the Company's Board
of Directors. Any future determination to pay dividends will depend on the
Company's results of operations, financial condition, capital requirements,
contractual restrictions under its current or any future indebtedness, the
availability of a surplus and other factors deemed relevant by the Board of
Directors. See "Risk Factors--Restrictions on Payment of Dividends on Common
Stock."
15
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company as
of September 27, 1997 and the pro forma capitalization as adjusted to give
effect to the Refinancing Plan (assuming consummation of the redemption of
the Senior Notes and the Zero Coupon Notes), including the sale by the
Company of shares of Common Stock offered hereby at an assumed initial
public offering price of $ (the midpoint of the range set forth on the
cover page of this Prospectus). See "Use of Proceeds." This table should be
read in conjunction with the consolidated financial statements of the
Company, including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 27, 1997
-------------------------
AS
ACTUAL ADJUSTED(1)
---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current debt:
Current portion of term loan facility ......... $ 660 $ --
-------- ---------
Current portion of New Credit Agreement ....... -- 4,050
Current portion of capital lease obligations .. 1,510 1,510
-------- ---------
Total current debt ........................... 2,170 5,560
-------- ---------
Long-term debt:
Revolving credit facility ...................... 16,000 --
Term loan facility ............................. 64,815 --
New Credit Agreement-revolving credit facility -- --
New Credit Agreement-term loan facility ....... -- 200,950
Senior Notes(2) ................................ 89,893 --
Zero Coupon Notes(3) ........................... 89,094 --
Capital lease obligations ...................... 677 677
-------- ---------
Total long-term debt ......................... 260,479 201,627
-------- ---------
Stockholders' equity (deficiency):
Common Stock and additional paid-in capital ... 24,665 116,665
Preferred Stock................................. -- --
Accumulated deficit ............................ (98,226) (121,824)
-------- ---------
Total stockholders' equity (deficiency) ..... (73,561) (5,159)
-------- ---------
Total capitalization ............................. $189,088 $ 202,028
======== =========
</TABLE>
- ------------
(1) Gives pro forma effect to the Refinancing Plan, including the
consummation of the Offering and the application of the net proceeds
therefrom as set forth under "Use of Proceeds," as if all such
transactions had occurred at September 27, 1997.
(2) Pursuant to the terms of the Indenture relating to the Senior Notes,
the Company has the right to call the Senior Notes at a price equal to
104.5% of the principal amount thereof (a premium of approximately $4.0
million). Concurrently with closing of the Offering, the Company will
call the Senior Notes (the "Senior Notes Redemption") and currently
expects that the Senior Notes Redemption will occur approximately 30
days after the closing of the Offering.
(3) Pursuant to the terms of the Indenture relating to the Zero Coupon
Notes, the Company has the right to call the Zero Coupon Notes at a
price equal to 107.5% of the accreted value thereof (a premium of
approximately $7.0 million). Concurrently with the closing of the
Offering, the Company will call the Zero Coupon Notes (the "Zero Coupon
Notes Redemption") and currently expects that the Zero Coupon Notes
Redemption will occur approximately 30 days after the closing of the
Offering.
16
<PAGE>
DILUTION
The net tangible book deficiency of the Company as of September 27, 1997
was approximately $211.1 million, or $ per share of Common Stock. Net
tangible book deficiency per share represents the amount of the Company's
total tangible assets less its total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the receipt of $
million of estimated net proceeds from the Offering and the application
thereof as described under "Use of Proceeds," the pro forma net tangible book
deficiency of the Company at September 27, 1997 would have been approximately
$140.9 million, or $ per share of Common Stock. This represents an
immediate reduction in net tangible book deficiency of $ per share to the
existing shareholders and an immediate net tangible book value dilution of
$ per share to new investors purchasing shares in the Offering. The
following table illustrates this dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share ...................... $
Net tangible book deficiency per share at September 27, 1997 ......... $
Decrease in net tangible book deficiency per share attributable to
new investors........................................................
------------
Pro forma net tangible book deficiency value per share after the
Offering ............................................................
------------
Dilution per share to new investors .................................. $
------------
</TABLE>
The following table summarizes, on a pro forma basis after giving effect
to the Offering and the application of the net proceeds therefrom and the
Refinancing Plan as of September 27, 1997, the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
for such Shares and the average price per share paid by the existing
stockholders and the new investors purchasing shares of Common Stock in the
Offering (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders (1) 85,405,424.5 % $24,665 % $
New investors ............. % %
------------ --- ------- ---
Total...................... % $ %
------------ --- ------- ---
</TABLE>
- ------------
(1) Excludes: 13,558,210.7 shares of Common Stock reserved for issuance upon
the exercise of stock options outstanding as of September 27, 1997 (with
a weighted average exercise price of $ per share).
17
<PAGE>
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA
FINANCIAL AND OPERATING DATA
(In thousands, except per share amounts, percentages and store data)
The data set forth below as of December 31, 1992 and for the period
September 26, 1992 through December 31, 1992, and as of January 1, 1994,
December 31, 1994, December 30, 1995, December 28, 1996 and for each of the
52 week periods then ended was derived from the consolidated financial
statements of the Company. As used below, the term "Predecessor" refers to
the operations of Duane Reade prior to the acquisition thereof by Bain
Capital in September 1992. The basis of accounting as of September 25, 1992
and for the period January 1, 1992 through September 25, 1992 reflects the
historical basis of accounting of the Predecessor prior to the acquisition
thereof by Bain Capital and such data was derived from the consolidated
financial statements of the Predecessor. The data presented below for the 39
weeks ended September 28, 1996 and September 27, 1997 and as of September 27,
1997 have been derived from the Company's unaudited consolidated financial
statements and, in the opinion of the Company's management, reflect and
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such results. The results of operations
for the 39 weeks ended September 27, 1997 are not necessarily indicative of
the results that may be expected for a full fiscal year. This information
should be read in conjunction with the historical consolidated financial
statements of the Company, including the notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR
--------------
PERIOD
JANUARY 1
TO
SEPTEMBER 25,
1992
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ........................... $167,634
Cost of sales ....................... 124,637
--------
Gross profit ........................ 42,997
Selling, general and administrative
expenses ........................... 22,636
Amortization ........................ 0
Depreciation ........................ 723
Store pre-opening expenses .......... --
Nonrecurring charges (1) ............ --
--------
Operating income (loss) ............. 19,638
Net interest expense ................ 3,298
--------
Income (loss) before income tax .... 16,340
Provision for taxes ................. 620
--------
Net income (loss) ................... $ 15,720
========
Earnings (loss) per common share ...
Weighted average common shares
outstanding.........................
Pro forma net interest expense ......
Pro forma net loss (2)...............
Pro forma net loss per common
equivalent share (2)................
Pro forma weighted average common
shares outstanding .................
OPERATING AND OTHER DATA:
EBITDA (3) .......................... $ 20,380
EBITDA as a percentage of sales .... 12.2%
Number of stores at end of period .. 37
Same store sales growth (4) ......... --
Pharmacy same store sales
growth (4)(6).......................
Average store size (square feet) ... --
Sales per square foot ............... --
Pharmacy sales as a % of net sales
(6)................................. --
Third-party sales as a % of pharmacy
sales (7) ..........................
Capital expenditures ................ $ 114
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital ..................... $ 13,943
Total assets ........................ 264,355
Total debt and capital lease
obligations ........................ 221,471
Stockholders' equity (deficiency) .. (35,622)
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
COMPANY
---------------------------------------------------------------------------------------------
PERIOD
SEPTEMBER 26 39 WEEKS ENDED
TO FISCAL YEAR --------------
DECEMBER 31, ---------------------------------------------- SEPTEMBER 28, SEPTEMBER 27,
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ........................... $60,785 $241,474 $281,103 $336,922 $381,466 $281,093 $313,796
Cost of sales ....................... 45,560 181,566 209,678 259,827 288,505 215,797 236,413
------- -------- -------- -------- -------- -------- --------
Gross profit ........................ 15,225 59,908 71,425 77,095 92,961 65,296 77,383
Selling, general and administrative
expenses ........................... 8,019 29,666 39,741 50,326 59,048 42,499 48,218
Amortization ........................ 7,344 27,432 18,238 11,579 16,217 8,514 3,826
Depreciation ........................ 166 729 1,184 1,929 3,015 2,295 2,584
Store pre-opening expenses .......... -- 300 1,220 1,095 139 139 600
Nonrecurring charges (1) ............ -- -- -- -- -- -- 10,887
------- -------- -------- -------- -------- -------- --------
Operating income (loss) ............. (304) 1,781 11,042 12,166 14,542 11,849 11,268
Net interest expense ................ 6,989 26,199 27,480 30,224 32,396 24,334 25,433
------- -------- -------- -------- -------- -------- --------
Income (loss) before income tax ..... (7,293) (24,418) (16,438) (18,058) (17,854) (12,485) (14,165)
Provision for taxes ................. -- -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss) ................... $(7,293) $(24,418) $(16,438) $(18,058) $(17,854) $(12,485) $(14,165)
======= ======== ======== ======== ======== ======== ========
Earnings (loss) per common share .... $ (.09) $ (.29) $ (.19) $ (.21) $ (.21) $ (.15) $ (.17)
======= ======== ======== ======== ======== ======== ========
Weighted average common shares
outstanding......................... 79,714 83,059 84,598 84,739 84,118 84,231 84,321
======= ======== ======== ======== ======== ======== ========
Pro forma net interest expense ...... 19,540 15,203
Pro forma net loss (2)............... (28,947) (30,444)
Pro forma net loss per common
equivalent share (2)................
Pro forma weighted average common
shares outstanding .................
OPERATING AND OTHER DATA:
EBITDA (3) .......................... $ 7,206 $ 29,975 $ 31,188 $ 27,443 $ 35,300 $ 23,814 $ 29,747
EBITDA as a percentage of sales .... 11.9% 12.4% 11.1% 8.2% 9.3% 8.5% 9.5%
Number of stores at end of period .. 37 40 51 59 60 60 65
Same store sales growth (4) ......... 2.4%(5) 3.3% 1.6% (3.5)% 8.3% 7.8% 7.9%
Pharmacy same store sales
growth (4)(6)....................... -- -- 14.2% 7.0% 25.5% 25.1% 25.4%
Average store size (square feet) .... 6,166(5) 6,172 6,596 6,712 6,733 6,733 6,832
Sales per square foot ............... $ 1,001(5) $ 1,022 $ 970 $ 898 $ 956 $ 696 $ 707
Pharmacy sales as a % of
net sales (6)....................... -- 16.6% 17.6% 19.0% 21.8% 21.5% 24.8%
Third-party sales as a % of pharmacy
sales (7) .......................... 45.7% 58.2% 64.4% 63.3% 72.9%
Capital expenditures ................ $ 960 $ 1,838 $ 9,947 $ 6,868 $ 1,247 $ 913 $ 4,931
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital ..................... $ 13,722 $ 14,285 $ 20,152 $ 13,699 $ 9,917 $ 8,220 $ 29,849
Total assets ........................ 260,674 234,430 229,699 235,860 222,476 226,060 239,520
Total debt and capital lease
obligations ........................ 221,815 223,422 228,764 244,104 245,657 247,570 262,649
Stockholders' equity (deficiency) ... 16,236 (6,757) (23,170) (41,196) (59,396) (54,027) (73,561)
</TABLE>
18
<PAGE>
- ------------
(1) During the first quarter of fiscal 1997, the Company considered a
public offering of its common stock and took certain steps in
connection with these plans. Such plans were abandoned upon
consummation of the Recapitalization discussed in Note 10 of the Notes
to Consolidated Financial Statements (Unaudited) for the 39 weeks ended
September 27, 1997. Costs and expenses incurred in connection with the
abandoned public offering, the Recapitalization and the exchange offers
referred to in Note 10 of the Notes to Consolidated Financial
Statements (Unaudited) aggregated approximately $10.9 million.
(2) Gives pro forma effect to (i) the Refinancing Plan, including the
consummation of the Offering and the application of the net proceeds
therefrom as set forth under "Use of Proceeds," (ii) a provision of
for compensation expense related to previously issued stock
options and (iii) an extraordinary loss of $23.9 million and $26.5
million for fiscal year 1996 and the 39 weeks ended September 27, 1997,
respectively, relating to the redemption of the Senior Notes and the
Zero Coupon Notes and the write-off of the unamortized deferred
financing fees, as if all such transactions had occurred at September
27, 1997. See "Use of Proceeds" and "Capitalization."
(3) As used herein, "EBITDA" means net income (loss) plus nonrecurring
charges, interest, income taxes, depreciation, amortization and other
non-cash items (primarily deferred rents). Management believes that
EBITDA, as presented, represents a useful measure of assessing the
performance of the Company's ongoing operating activities as it
reflects the earnings trends of the Company without the impact of
certain non-cash charges. Targets and positive trends in EBITDA are
used as the performance measure for determining management's bonus
compensation; EBITDA is also utilized by the Company's creditors in
assessing debt covenant compliance. The Company understands that, while
EBITDA is frequently used by security analysts in the evaluation of
companies, it is not necessarily comparable to other similarly titled
captions of other companies due to potential inconsistencies in the
method of calculation. EBITDA is not intended as an alternative to cash
flow from operating activities as a measure of liquidity, nor an
alternative to net income as an indicator of the Company's operating
performance nor any other measure of performance in conformity with
GAAP.
A reconciliation of net income (loss) to EBITDA for each period
included above is set forth below:
<TABLE>
<CAPTION>
JAN. 1 SEPT. 26 39 WEEKS ENDED
TO TO FISCAL YEAR --------------
SEPT. 25, DEC. 31, -------------------------------------------- SEPT. 28, SEPT. 27,
1992 1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) .... $15,720 $(7,293) $(24,418) $(16,438) $(18,058) $(17,854) $(12,485) $(14,165)
Net interest expense 3,298 6,989 26,199 27,480 30,224 32,396 24,334 25,433
Amortization ......... 0 7,344 27,432 18,238 11,579 16,217 8,514 3,826
Depreciation ......... 723 166 729 1,184 1,929 3,015 2,295 2,584
Nonrecurring charges -- -- -- -- -- -- -- 10,887
Other non-cash items 639 -- 33 724 1,769 1,526 1,156 1,182
------- ------- -------- -------- -------- -------- -------- --------
EBITDA ............... $20,380 $ 7,206 $ 29,975 $ 31,188 $ 27,443 $ 35,300 $ 23,814 $ 29,747
======= ======= ======== ======== ======== ======== ======== ========
</TABLE>
(4) Same store sales figures include stores that have been in operation for
at least 13 months.
(5) For the year ended December 31, 1992.
(6) Prior to 1993, the Company did not separately track pharmacy sales.
(7) Prior to fiscal year 1994, the Company's pharmacy system did not
separately track third-party sales.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in connection with the consolidated financial
statements of the Company and the notes thereto included elsewhere in this
Prospectus.
GENERAL
The Company generates revenues primarily through sales of OTC drugs and
prescription pharmaceutical products, health and beauty aids, food and
beverage items, tobacco products, cosmetics, housewares, hosiery, greeting
cards, photofinishing, photo supplies and seasonal merchandise. Health and
beauty products, including OTC drugs, represent the largest of the Company's
product categories. The Company's primary costs and expenses consist of (i)
inventory costs, (ii) labor expenses and (iii) occupancy costs.
In 1994 and 1995, the Company experienced rapid expansion, growing from 40
stores to 59 stores. However, as a result of liquidity constraints and the
need for improved inventory controls, the Company was forced to suspend its
store expansion program in late 1995. In early 1996, a strengthened
management team led by Anthony Cuti, the Company's new Chairman and Chief
Executive Officer, took several measures to improve operations such as
decreasing out-of-stock occurrences, creating a loss prevention function to
control inventory shrink and continuing to invest in MIS.
In 1997, the Company resumed its store expansion program, opening seven
stores in 1997. Generally a new Duane Reade store requires an investment of
approximately $1.1 million in capital expenditures and working capital. Since
1993, all of the Company's new stores have become profitable on an operating
basis within the first full year of operation. Over the next two years, the
Company plans to open approximately 30 to 40 stores, primarily in Manhattan.
Over the past two years, Third-Party Plans, including managed care
providers and insurance companies, have comprised an increasing percentage of
the Company's pharmacy business as the health care industry shifts to managed
care. While sales to customers covered by Third-Party Plans result in lower
gross profit rates due to competitive pricing, the Company believes that such
lower rates are offset by increased volume of pharmacy sales and the
opportunity to leverage fixed expenses.
The Company was founded in 1960. In 1992, Bain Capital acquired the
Company from its founders and, in June 1997, investment funds affiliated with
DLJMBPII acquired approximately 91.5% of the outstanding capital stock of the
Company from Bain Capital and certain other selling securityholders.
The Company conducts its business exclusively through its wholly owned
subsidiary, Daboco Inc. ("Daboco"), and Daboco's wholly owned subsidiary, DRI
I Inc. ("DRI I Inc."). Together, Daboco and DRI I Inc. hold 100% of the
partnership interests of Duane Reade. The Company has no operations of its
own, and its primary asset is the common stock of Daboco.
The Company includes stores that have been in operation for at least 13
months for purposes of calculating comparable store sales figures.
20
<PAGE>
RESULTS OF OPERATIONS
The following sets forth the results of operations as a percentage of
sales for the periods indicated.
<TABLE>
<CAPTION>
39 WEEKS ENDED
FISCAL YEAR -----------------------------
------------------------ SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Net sales .................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales .............. 74.6 77.1 75.6 76.8 75.3
----- ----- ----- ----- -----
Gross profit ............... 25.4 22.9 24.4 23.2 24.7
----- ----- ----- ----- -----
Selling, general and
administrative expenses .. 14.1 14.9 15.5 15.1 15.4
Amortization ............... 6.5 3.5 4.3 3.0 1.2
Depreciation ............... 0.4 0.6 0.8 0.8 0.8
Store pre-opening expenses 0.4 0.3 0.0 0.1 0.2
Nonrecurring charges ....... -- -- -- -- 3.5
----- ----- ----- ----- -----
Operating income ........... 4.0 3.6 3.8 4.2 3.6
Net interest expense ....... 9.8 9.0 8.5 8.6 8.1
----- ----- ----- ----- -----
Net loss ................... (5.8)% (5.4)% (4.7)% (4.4)% (4.5)%
===== ===== ===== ===== =====
</TABLE>
39 WEEKS ENDED SEPTEMBER 27, 1997 COMPARED TO 39 WEEKS ENDED SEPTEMBER 28, 1996
Net sales in the 39 weeks ended September 27, 1997 were $313.8 million, an
increase of 11.6% over net sales of $281.1 million for the 39 weeks ended
September 28, 1996. The increase was attributable to increased comparable
store sales of 7.9% and the inclusion of one new store opened during the 39
weeks ended September 28, 1996 for the entire 1997 period and five new stores
opened in 1997.
Cost of sales as a percentage of net sales decreased to 75.3% for the 39
weeks ended September 27, 1997 from 76.8% for the 39 weeks ended September
28, 1996, resulting in an increase in gross profit margin to 24.7% for the
1997 period from 23.2% during the same period in 1996. The increase in gross
margin resulted from a number of factors including (i) increased contribution
from the sale of higher margin merchandise such as cosmetics, vitamins,
general merchandise, generic drugs and private label products, (ii) higher
promotional allowances received from vendors and (iii) lower occupancy costs.
Selling, general and administrative expenses represented 15.4% and 15.1%
of net sales in the 39 weeks ended September 27, 1997 and September 28, 1996,
respectively. The percentage increase in 1997 compared to 1996 resulted
principally from higher selling and administrative expenses including (i)
higher store salaries as a percentage of net sales (principally from new
stores) and (ii) operating costs related to the Company's management
information systems department, partially offset by elimination of management
fees as a result of the Recapitalization.
Amortization of goodwill and other intangibles in the 39 weeks ended
September 27, 1997 and September 28, 1996 was $3.8 million and $8.5 million,
respectively. The decrease in amortization is principally a result of the
completion in 1996 of amortization of covenants not to compete.
Depreciation was $2.6 million and $2.3 million in the 39 weeks ended
September 27, 1997 and the 39 weeks ended September 28, 1996, respectively.
Store pre-opening expenses increased from $0.1 million in the 39 weeks
ended September 28, 1996 to $0.6 million in the 39 weeks ended September 27,
1997 due to the opening of five new store locations in 1997 compared to one
in 1996.
Net interest expense was $25.4 million in the 39 weeks ended September 27,
1997 compared to $24.3 million in the 39 weeks ended September 28, 1996. The
increase in interest expense was principally due to (i) higher non-cash
accretion of the Zero Coupon Notes, (ii) interest related to financing of
third party accounts receivable and (iii) increased interest on borrowings
under the revolving credit facility,
21
<PAGE>
partially offset by (a) reduced interest on term loan borrowings caused by
the decrease in average balance from $72.8 million for the 39 weeks ended
September 28, 1996 to $66.5 million for the 39 weeks ended September 27, 1997
and a decrease in the average interest rate from 9.1% for the 39 weeks ended
September 28, 1996 to 8.8% for the 39 weeks ended September 27, 1997 and (b)
reduced interest on capital lease obligations.
The net loss for the Company increased by $1.7 million from $12.5 million
in the 39 weeks ended September 28, 1996 to $14.2 million in the 39 weeks
ended September 27, 1997 primarily as a result of nonrecurring charges (see
Note 11 of Notes to Consolidated Financial Statements (Unaudited)) and
increases in selling, general and administrative expenses and interest
expense, partially offset by increased sales and gross profit margin and
lower amortization of intangibles. The Company's EBITDA improved by $5.9
million or 24.9% to $29.7 million in the 39 weeks ended September 27, 1997
compared to $23.8 million in the 39 weeks ended September 28, 1996. EBITDA as
a percentage of sales increased to 9.5% in the 39 weeks ended September 27,
1997 from 8.5% in the 39 weeks ended September 28, 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales in 1996 were $381.5 million, an increase of 13.2% over 1995 net
sales of $336.9 million. The increase was due to increased comparable store
sales of 8.3% and the inclusion of eight stores opened during 1995 for the
entire 1996 period and of one store opened in 1996. The increase in
comparable store sales was primarily attributable to increased pharmacy
sales, which increased to 21.8% of total sales in 1996 compared to 19.0% of
total sales in 1995.
Cost of sales as a percentage of net sales decreased to 75.6% for 1996
from 77.1% for 1995, resulting in an increase in gross profit margin to 24.4%
for 1996 from 22.9% for 1995. The increase in gross margin resulted from a
number of factors including (i) lower inventory shrink losses, (ii) increased
contributions from the sale of generic drugs and private label products,
(iii) less promotional activity and (iv) lower rent-to-sales ratios in stores
opened during 1995 and 1994. The increases were partially offset by lower
gross margins resulting from sales to customers covered by Third-Party Plans.
Selling, general and administrative expenses were $59.0 million or 15.5%
of net sales and $50.3 million or 14.9% of net sales in 1996 and 1995,
respectively. The percentage increase in 1996 compared to 1995 resulted
principally from higher administrative expenses, including (i) operating
costs related to the Company's management information systems department,
(ii) administrative salaries and one time executive search and severance
expenses and (iii) professional and consulting fees principally for the
warehouse and loss prevention areas. The increases were partially offset by
lower store operating expenses as a percentage of net sales primarily due to
a higher volume of pharmacy sales, which allows the Company to leverage other
fixed store operating expenses.
Amortization of goodwill and other intangibles in 1995 and 1996 was $11.6
million and $16.2 million, respectively. The increase in amortization was
caused by an increase in the amortization of covenants not to compete from
$8.1 million in 1995 to $11.4 million in 1996 and amortization of systems
installation and integration costs in an amount of $1.4 million in 1996. The
increase in amortization of covenants not to compete was caused by the
write-off of the balance of such intangibles in 1996 resulting from the
termination of the related agreements. Amortization of systems installation
and integration costs began in 1996.
The increase in depreciation from $1.9 million in 1995 to $3.0 million in
1996 resulted principally from (i) depreciation of data processing equipment
which began in 1996 and (ii) a full year's depreciation in 1996 of assets of
eight stores that were opened in 1995.
Store pre-opening expenses decreased from $1.1 million in 1995 to $0.1
million in 1996 due to the opening of one new store location in 1996 compared
to eight in 1995.
Net interest expense increased 7.2% to $32.4 million in 1996 from $30.2
million in 1995. The increase in interest expense was principally due to the
higher non-cash accretion of the Zero Coupon Notes offset, in part, by
reduced interest on term loan borrowings resulting from the decrease in
average outstanding balance from $75.1 million to $72.0 million and a
decrease in the average interest rate from 9.5% to 9.1%.
22
<PAGE>
The net loss for the Company decreased by $0.2 million or 1.1% from $18.1
million in 1995 to $17.9 million in 1996 primarily as a result of increased
sales and gross profit margin offset, in part, by increases in selling,
general and administrative expenses and amortization of intangibles. The
Company's EBITDA increased by $7.9 million or 28.6% to $35.3 million in 1996
compared to $27.4 million in 1995. EBITDA as a percentage of sales increased
to 9.3% in 1996 from 8.1% in 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales in 1995 were $336.9 million, an increase of 19.9% over 1994 net
sales of $281.1 million. The increase was primarily due to the inclusion of
11 new stores opened during 1994 for the entire 1995 period and of eight
stores opened during 1995, partially offset by a decrease in comparable store
sales of 3.5%.
Cost of sales as a percentage of net sales increased to 77.1% for 1995
from 74.6% for 1994. The increase in cost of sales resulted from a number of
factors, including: (i) increased inventory losses arising from inventory
shrink and from difficulties encountered in implementing new warehousing and
merchandising systems, (ii) delays in implementation of normal price
increases, (iii) increased promotional activity, primarily in the last
quarter of 1995, and (iv) increased occupancy expense as a percentage of
sales in 1995 as compared with 1994. These changes were partially offset by a
decline in amortization of certain acquisition costs, which amortization was
completed in the third quarter of 1994.
Selling, general and administrative expenses for 1995 increased to $50.3
million from $39.7 million for 1994, representing 14.9% and 14.1% of sales in
1995 and 1994, respectively. Such percentage increase in 1995 resulted
principally from additional costs from operating new stores and the
implementation of new MIS.
Amortization of goodwill and other intangibles decreased from $18.2
million in 1994 to $11.6 million in 1995. This decrease was primarily
attributable to a decrease in amortization of covenants not to compete from
$13.0 million in 1994 to $8.1 million in 1995. The decrease in amortization
of covenants not to compete in 1995 as compared to 1994 is a result of the
double declining balance method of amortization for such intangibles.
Amortization of customer files in connection with the acquisition of the
Company by Bain Capital in September 1992, which amounted to $1.7 million in
1994, was completed in the third quarter of 1994.
Depreciation charges in 1995 and 1994 were $1.9 million and $1.2 million,
respectively. The increase in 1995 resulted principally from (i) depreciation
in 1995 of assets of eight new store locations opened and (ii) a full year's
depreciation in 1995 of assets of 11 store locations that were opened in 1994
as compared to one-half year's depreciation of such assets in 1994.
Store pre-opening expenses of $1.1 million and $1.2 million in 1995 and
1994, respectively, relate principally to eight new store locations opened in
1995 and 11 new store locations opened in 1994.
Net interest expense increased from $27.5 million in 1994 to $30.2 million
in 1995. This increase was principally due to an increase in the non-cash
accretion of the Zero Coupon Notes of $1.3 million and higher interest on
term loan borrowings resulting from a higher average interest rate of 9.5%
for 1995 as compared to 7.8% for 1994.
The net loss for the Company increased by $1.6 million or 9.8% from $16.4
million in 1994 to $18.1 million in 1995 primarily as a result of a decrease
in gross profit and an increase in selling, general and administrative
expenses offset, in part, by a decrease in amortization expense. The
Company's EBITDA decreased by $3.7 million or 12.0% to $27.4 million in 1995
compared to $31.2 million in 1994. EBITDA as a percentage of sales declined
to 8.1% in 1995 from 11.1% in 1994.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1997, the Company entered into the Existing Credit
Agreement, which provides for, among other things, $65.5 million of term
loans and up to $30.0 million of revolving loans. As of October 31, 1997,
outstanding balances thereunder totaled $91.5 million. The Company utilizes
cash flow from operations, together with borrowings under the revolving
portion of the Existing Credit Agreement, to fund working capital needs,
investing activities (consisting primarily of capital expenditures) and
23
<PAGE>
financing activities (normal debt service requirements, interest payments and
repayment of term and revolving loans outstanding). Concurrently with the
consummation of the Refinancing Plan, the Company expects to refinance and
replace the Existing Credit Agreement with the New Credit Agreement.
Working capital was $9.9 million and $13.7 million as of December 28, 1996
and December 30, 1995, respectively, and $29.8 million on September 27, 1997.
The Company's capital requirements primarily result from opening and stocking
new stores and from the continuing development of new MIS. The Company's
ability to open stores in 1996 was limited to a certain degree by liquidity
considerations. The Company believes that there are significant opportunities
to open additional stores, and currently plans to open 30 to 40 stores in the
next two years. The Company expects to spend approximately $16 million in
1998 on capital expenditures primarily for new and replacement stores.
Working capital is also required to support inventory for the Company's
existing stores. Historically, the Company has been able to lease its store
locations.
The net proceeds received by the Company from the Offering, together with
borrowings under the New Credit Agreement, will be used to complete the
Refinancing Plan. See "Use of Proceeds." The Refinancing Plan is designed to
enhance the Company's financial flexibility and enable it to pursue growth
opportunities and implement capital improvements. The Company expects that
the Refinancing Plan will reduce the Company's overall level of indebtedness,
simplify the Company's capital structure and provide it with access to
additional borrowings. See "Prospectus Summary--Refinancing Plan."
Following the implementation of the Refinancing Plan, the Company believes
that, based on current levels of operations and anticipated growth, cash flow
from operations, together with other available sources of funds, including
borrowings under the New Credit Agreement, will be adequate for the
foreseeable future to make required payments of principal and interest on the
Company's indebtedness, to fund anticipated capital expenditures and working
capital requirements and to comply with the terms of its debt agreements. The
ability of the Company to meet its debt service obligations and reduce its
total debt will be dependent upon the future performance of the Company and
its subsidiaries which, in turn, will be subject to general economic,
financial, business, competitive, legislative, regulatory and other
conditions, certain of which are beyond the Company's control. In addition,
there can be no assurance that the Company's operating results, cash flow and
capital resources will be sufficient for payment of its indebtedness in the
future. The Company expects that substantially all of its borrowings under
the New Credit Agreement will bear interest at floating rates; therefore, the
Company's financial condition will be affected by the changes in prevailing
interest rates. The Company expects to enter into interest rate protection
agreements to minimize the impact from a rise in interest rates. See "Risk
Factors--Risks Associated with Substantial Indebtedness" and "Description of
Certain Indebtedness."
TAX BENEFITS FROM NET OPERATING LOSSES
At September 27, 1997, the Company had net operating loss carryforwards
("NOLs") of approximately $71 million, which are due to expire in the years
2007 through 2012. These NOLs may be used to offset future taxable income
through 2012 and, thereby reduce or eliminate the Company's federal income
taxes otherwise payable. The Internal Revenue Code of 1986, as amended (the
"Code"), imposes significant limitations on the utilization of NOLs in the
event of an "ownership change," as defined in section 382 of the Code (the
"Section 382 Limitation"). The Section 382 Limitation is an annual limitation
on the amount of pre-ownership change NOLs that a corporation may use to
offset its post-ownership change income. The Section 382 Limitation is
calculated by multiplying the value of a corporation's stock immediately
before an ownership change by the long-term tax-exempt rate (as published by
the Internal Revenue Service). Generally, an ownership change occurs with
respect to a corporation if the aggregate increase in the percentage of stock
ownership (by value) of that corporation by one or more 5% shareholders
(including certain groups of shareholders who in the aggregate own at least
5% of that corporation's stock) exceeds 50 percentage points over a
three-year testing period. The Recapitalization caused the Company to
experience an ownership change. As a result, the Company currently is subject
to an annual Section 382 Limitation of approximately $5 million on the amount
of NOLs generated prior to the Recapitalization that the Company may utilize
to offset future taxable income. In addition, the Company believes that it
will generate approximately $42 million of NOLs in connection with the
24
<PAGE>
Refinancing Plan. Such NOLs will not be subject to the Section 382 Limitation
and may be utilized to offset future taxable income. However, there can be no
assurance that such NOLs will be able to be utilized by the Company to offset
future taxable income or that such NOLs will not become subject to limitation
due to future ownership changes. The Company does not believe that the
Offering will result in an ownership change.
YEAR 2000 COMPLIANCE
The Company has several computer software systems which will require
modification or upgrading to accomodate the year 2000 and thereafter. The
Company believes that all systems can be changed by the end of 1999 and does
not expect the cost of the changes to be material to the Company's financial
condition or results of operations.
SEASONALITY
In general, sales of drugstore items such as prescription drugs, OTC drugs
and health and beauty care products exhibit limited seasonality in the
aggregate, but do vary by product category. Quarterly results are primarily
affected by the timing of new store openings and the sale of seasonal
products. In view of the Company's recent expansion of seasonal
merchandising, the Company expects slightly greater revenue sensitivity
relating to seasonality in the future.
INFLATION
The Company believes that inflation has not had a material impact on
results of operations for the Company during the three years ended December
28, 1996 and the 39 weeks ended September 27, 1997.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," which requires the presentation of basic and
diluted earnings per share in a company's financial statements for reporting
periods ending subsequent to December 15, 1997. Early adoption of SFAS No.
128 is not permitted. The adoption of SFAS No. 128 is not expected to have a
material impact on the Company's consolidated financial statements.
As of September 27, 1997, there were outstanding options to purchase an
aggregate of 13,558,210.7 shares of Common Stock, which shares are not
included in the calculation of earnings per share for the 39 weeks ended
September 27, 1997 and would not be included in such calculation under the
guidance prescribed by SFAS No. 128 because of the anti-dilutive nature of
these instruments.
25
<PAGE>
BUSINESS
THE DRUGSTORE INDUSTRY
The U.S. drugstore industry generated approximately $91 billion of retail
sales in 1996 according to Drug Store News. The industry has experienced
strong and steady growth, having expanded at a 6.2% compound annual rate over
the ten years through 1996. The industry is expected to continue to grow as
the aging of the population drives long-term demand growth for prescription
drugs. The Company believes that prescription drug use generally rises with
age. In addition to these positive demographic trends, the shift to
increasing use of Third-Party Plans is increasing overall prescription drug
usage. Third-Party Plans tend to favor lower cost drug therapies over
alternative treatment methods such as surgery or in-hospital treatment.
Additionally, by reducing the out-of-pocket expense to the consumer and by
improving patients' compliance for prescription drug use, Third-Party Plans
have helped increase unit growth in prescription drugs.
In recent years, the drugstore industry has experienced significant
consolidation, as national chains have gained market share from independent
operators. According to Drug Store News, the number of drugstores has fallen
from approximately 54,000 in 1990 to approximately 40,000 in 1996. The share
of industry sales represented by independent drugstores (i.e., operators of
less than four stores) has fallen from 35% in 1991 to 24% in 1996. Over the
last ten years, sales at chain drugstores such as Duane Reade have grown at a
compound annual rate of 8.4% compared to the industry average of 6.2%.
The increased role of Third-Party Plans has contributed significantly to
industry consolidation. According to IMS America, pharmacy business
attributable to Third-Party Plans as a percentage of total pharmacy sales has
risen to 67% in 1996 from 45% in 1985. Third-Party Plans typically require
drugstores to enter into contracts with third party payors (such as insurance
plans, HMOs, preferred-provider organizations ("PPOs") and other managed care
providers) to provide prescription drugs at specified rates of reimbursement
for their membership. Although such Third-Party Plans typically result in
lower gross margins compared to cash purchases, management believes that the
lower gross margins are offset by the increased volume of pharmacy sales
generated by such Third-Party Plans. Drugstore chains such as the Company,
which have high penetration within their markets and are able to handle the
payment processing of such Third-Party Plans, are better able to service the
customers of the Third-Party Plans and are therefore gaining market share in
the sale of prescription drugs from independent drugstores and small chains.
Third-Party Plans typically seek to form alliances with drugstore chains
in order to benefit from the chains' multiple locations and to take advantage
of on-line management information systems that facilitate claims processing.
Management believes that penetration of Third-Party Plans in Manhattan has
historically lagged behind the penetration of such Third-Party Plans in the
rest of the United States because until 1994, neither Duane Reade nor most of
Manhattan's independent drugstores aggressively pursued alliances with
Third-Party Plans. The Company believes that its extensive network of
conveniently located stores, strong local market position, pricing policies
and reputation for high quality health care products and services provide
Duane Reade with a competitive advantage in attracting business from
individual customers as well as Third-Party Plans. While management believes
that Third-Party Plans have grown significantly in Manhattan since 1994, it
still remains relatively less penetrated than the rest of the country. The
Company believes that as Third-Party Plans continue to penetrate the
Manhattan market, the number of independent drugstores will decline due to
competitive pressures.
GENERAL
Duane Reade is the largest drugstore chain in New York City, with 58 of
its 67 stores located in Manhattan's high-traffic business and residential
districts. The Company operates almost twice as many stores in Manhattan as
its next largest competitor. Since opening its first store in 1960, the
Company has successfully executed a marketing and operating strategy tailored
to the unique characteristics of New York City, the largest and most densely
populated market in the United States. According to Drug Store News, Duane
Reade is the leading drugstore chain in the United States in terms of sales
per square foot,
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at $956 per square foot in 1996, which was more than two times the national
average for drugstore chains. For the fiscal year ended December 28, 1996,
the Company had sales of $381.5 million and EBITDA of $35.3 million,
increases of 13.2% and 28.6%, respectively, over the 1995 fiscal year. For
the 39 weeks ended September 27, 1997, the Company had sales of $313.8
million and EBITDA of $29.7 million, increases of 11.6% and 24.9%,
respectively, over the comparable 1996 period.
The Company enjoys strong brand name recognition in New York City, which
it believes results from the Company's many locations in high-traffic areas
of Manhattan and the 30 million shopping bags with the distinctive Duane
Reade logo that the Company distributes annually. Independent surveys
conducted in 1995 and 1996 indicated that nine out of ten people who work in
Manhattan recognize the Duane Reade name, and seven out of ten shopped at a
Duane Reade store in the past twelve months. The Company was also recently
named "Regional Drug Store Chain of the Year" for 1997 by Drug Store News.
The Company has developed an operating strategy designed to capitalize on
the unique characteristics of the New York City market, which include
high-traffic volume, above industry average inventory shrink, complex
distribution logistics and high costs of occupancy, media advertising and
personnel. The key elements of the Company's operating strategy are its (i)
everyday low price format and broad product offering, (ii) low cost operating
structure supported by its high volume stores and low advertising and
distribution costs and (iii) ability to design and operate its stores in a
wide variety of sizes and layouts.
The Company believes that its everyday low price format and broad product
offerings provide value and convenience for its customers and build customer
loyalty. The Company's everyday low price format results in prices that the
Company believes are, on average, approximately 10% lower than the prices
generally offered by its competitors.
The Company is able to keep its operating costs relatively low due to its
high per store sales volume, low warehouse and distribution costs and low
advertising expenditures. The Company's high volume stores allow it to
effectively leverage occupancy costs, payroll and other store operating
expenses. The Company's two primary distribution facilities are located
within five miles of all but one of its 67 stores and, combined with the
rapid turnover of inventory in Duane Reade's stores, result in relatively low
warehouse and distribution costs. The Company's strong brand name recognition
in New York City and everyday low price format allow the Company to minimize
its use of costly media and print advertising and to rely instead on
in-window displays and other less expensive promotional activities.
The Company has demonstrated its ability to successfully operate stores
using a wide variety of store configurations and sizes, which the Company
believes is necessary to succeed in the New York City market. For example,
the size of the Company's stores ranges from 2,600 to 12,300 square feet, and
it operates 29 bi-level stores. The Company believes that its flexibility in
configuring stores provides it with a competitive advantage in securing
locations for its new stores, as many of its competitors target more
standarized spaces for their stores, which are more difficult to find in New
York City. In addition, the Company's management team has extensive
experience and knowledge of the New York City real estate market, allowing it
to aggressively pursue attractive real estate opportunities.
The Company was founded in 1960. In 1992, Bain Capital acquired the
Company from its founders and, in June 1997, investment funds affiliated with
DLJMBPII acquired approximately 91.5% of the outstanding capital stock of the
Company from Bain Capital and certain other selling securityholders.
In 1994 and 1995 the Company experienced rapid expansion, growing from 40
stores to 59 stores. However, as a result of liquidity constraints and the
need for improved inventory controls, the Company was forced to suspend its
store expansion program in late 1995. In early 1996, a strengthened
management team led by Anthony Cuti, the Company's new Chairman and Chief
Executive Officer, took several measures to improve operations, including
improving inventory controls and decreasing out-of-stock occurrences,
creating a loss prevention function to control inventory shrink and
continuing to investing in MIS. In 1997, the Company resumed its store
expansion program, opening seven stores in 1997. During Mr. Cuti's tenure at
the Company, EBITDA has increased by 53.2% from $26.9 million for the 52
weeks ended March 29, 1996 to $41.2 million for the 52 weeks ended September
27, 1997.
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GROWTH STRATEGY
The Company believes that as a result of its successful operating history
and market position in New York City, it is well positioned to capitalize on
the growth opportunities in its market. The Company's strategy for continued
growth is to (i) open additional stores in Manhattan and the surrounding
boroughs, (ii) continue to capitalize on favorable pharmacy trends, (iii)
make opportunistic acquisitions of independent drugstores and pharmacy files
and (iv) continue to implement merchandising initiatives in non-pharmacy
areas.
Open Additional Stores. The Company believes that the Manhattan drugstore
market remains underpenetrated by drugstore chains, with only 45% of the
estimated $1.3 billion in annual drugstore-related sales controlled by
regional or national chains, compared to approximately 74% controlled by
chains nationally. This provides significant opportunities for the Company to
open additional stores in Manhattan as well as in the densely populated areas
of the surrounding boroughs. Some of the Company's most successful stores
have been opened in areas new to the Company, such as the residential areas
of the Upper East and West sides of Manhattan, Brooklyn, the Bronx and
Queens. The Company believes that its long-standing presence in, and
knowledge of, the New York City real estate market, combined with the use of
a proprietary site selection model that considers numerous demographic and
traffic flow variables, have allowed it to identify attractive store
locations. Since 1993, all of the Company's new stores have become profitable
on an operating basis within the first full year of operation. Over the next
two years, the Company plans to open approximately 30 to 40 stores, primarily
in Manhattan.
Continue to Capitalize on Favorable Pharmacy Trends. Sales of prescription
and OTC drugs have been growing rapidly throughout the drugstore industry.
The Company expects demographic trends, such as the aging of the U.S.
population, and industry changes, such as growth of Third-Party Plans, to
continue to drive increases in the prescription and OTC drug businesses.
Since 1994, the Company has focused on increasing its pharmacy sales by
entering into agreements to service Third-Party Plans and by upgrading the
appearance and service level of its store pharmacies. These initiatives,
designed to capitalize on industry trends, have resulted in the Company's
pharmacy sales growing at a compound annual growth rate of approximately 30%
since 1994. Although these initiatives have helped increase the average
number of prescriptions filled by Duane Reade per store per week from 640 in
1994 to 860 during 1997, the Company's average remains well below the
industry chain store average of approximately 1,200, providing significant
opportunity for continued pharmacy growth. The Company believes that
continued pharmacy growth will increase overall customer traffic, thereby
also benefitting its non-pharmacy sales.
Make Opportunistic Acquisitions of Independent Drugstores and Pharmacy
Files. The Company believes that the growth of Third-Party Plans and the
continued penetration of chain drugstores such as Duane Reade has put
increasing pressure on the approximately 420 operators of independent
drugstores in Manhattan. When appropriate, the Company considers acquiring
small local chains or independent drugstores. The Company also pursues the
purchase of pharmacy files of independent drugstores when such purchases are
economically attractive to the Company. The pharmacy files of independent
pharmacists tend to have a higher proportion of prescriptions not covered by
Third-Party Plans, which generates incremental revenue and higher margins.
When appropriate, the Company retains the services of the pharmacist, whose
personal relationship with the customers generally maximizes the retention
rate of the purchased file. In 1997, the Company acquired one independent
drugstore and seven such pharmacy files and intends to aggressively pursue
additional purchases.
Continue to Implement Merchandising Initiatives in Non-Pharmacy
Areas. Management has recently undertaken a number of merchandising
initiatives, including the expansion of certain high-margin categories such
as greeting cards, cosmetics, vitamins, photofinishing and photo supplies and
an expanded seasonal merchandising program. The Company also continues to
focus on category management, which it believes will improve gross margins
and increase non-pharmacy sales. For example, in 1997 the Company introduced
one-hour photofinishing service in three of its stores and intends to
introduce one-hour photofinishing service in approximately seven to ten
additional stores in 1998. The Company has also increased its emphasis on the
sale of its own private label products, which it believes provide a
high-quality, lower priced alternative to name brand products while
generating higher gross profit margins
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<PAGE>
than name brand products. In addition, by the end of 1997, Duane Reade will
have installed POS scanners in all of its stores and, by the end of the first
quarter of 1998, will have completed its planogramming initiative in all of
its stores. These systems and initiatives will allow the Company to better
analyze sales trends and merchandise its stores more effectively, which the
Company believes will ultimately increase its sales and profitability.
COMPANY OPERATIONS
Merchandising. Duane Reade's overall merchandising strategy is to provide
the broadest selection of branded and private label drugstore products
available in Manhattan and to sell them at everyday low prices. To further
enhance customer service and loyalty, the Company attempts to maintain a
consistent in-stock position in all merchandise categories. In addition to
prescription and OTC drugs, the Company offers health and beauty aids, food
and beverage items, tobacco products, cosmetics, housewares, hosiery,
greeting cards, photofinishing, photo supplies, seasonal merchandise and
other products. Health and beauty care products, including OTC drugs,
represent the largest of the Company's product categories. Duane Reade
drugstores offer a wide variety of brand name and private label products,
including oral, skin and hair products, bath supplies, vitamins and
nutritional supplements, feminine hygiene products, family planning products
and baby care products. Popular brands of health and beauty aids are given
ample shelf space, and large sizes are offered, which the Company believes
appeals to the value consciousness of many Manhattan consumers. Convenience
items such as candy, snacks and seasonal goods are positioned near the check
out registers to provide optimum convenience and stimulate impulse purchases
for the customers while allowing the store employees to monitor those product
categories that are particularly susceptible to inventory shrink.
In addition to the wide array of name brand products offered in its
stores, the Company offers its own private label products. Private label
products provide customers with high-quality, lower priced alternatives to
name brand products while generating higher gross profit margins than name
brand products. These offerings also enhance Duane Reade's reputation as a
value-oriented store. The Company currently offers approximately 400 private
label products. In 1996, these private label products accounted for
approximately 4.6% of non-pharmacy sales. The Company believes that its
strong brand image, reputation for quality and reliability in the New York
City market, and its economies of scale in purchasing allow it to
aggressively promote private label goods.
The Company has recently made efforts to increase the sales of certain
high-margin items, such as cosmetics, greeting cards and photofinishing. In
1996, the Company completed the remodeling of the cosmetics sections in 19
stores, which resulted in an approximately 23% increase in cosmetic sales in
those stores with no increase in linear footage. In the greeting cards
category, the Company increased seasonal selection and reformatted the card
section in many of its stores, resulting in a 26% increase in greeting card
sales in 1996 compared to 1995. Other merchandising initiatives completed
during 1996 include an expanded selection of seasonal merchandise, vitamins,
nutrition products and baby accessories, particularly in stores located in
residential areas. The Company believes there are additional opportunities to
continue to refine and improve the merchandise mix in its stores.
The Company also offers same-day photofinishing services in all of its
stores and has recently introduced one-hour photofinishing in three stores.
In 1998, the Company expects to introduce one-hour photofinishing in seven to
ten additional stores. Management believes that photofinishing services
contribute significantly to sales of other merchandise categories because of
customer traffic increases that result from the customer visiting a store
twice, in order to drop off film and pick up the processed photos.
Pharmacy. The Company believes that its pharmacy business will continue to
contribute significantly to the Company's growth. Management also believes
that a larger and stronger pharmacy business will enhance customer loyalty
and generate incremental customer traffic which is expected to increase sales
of Duane Reade's wide variety of OTC drugs and other non-pharmacy
merchandise. Duane Reade significantly grew its prescription drug sales in
1996 as reflected by its same-store pharmacy sales increase of 25.5% during
1996 and an increase of 25.4% for the 39 week period ended September 27,
1997. Sales of prescription and OTC drugs represented approximately 35% of
total sales in 1996 as compared with 33% of total sales in 1995 and
approximately 38% of total sales for the 39 week period ended
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<PAGE>
September 27, 1997. Although the average number of prescriptions filled by
Duane Reade per store per week has increased from 640 in 1994 to 860 during
1997, the Company's average remains well below the industry chain store
average of approximately 1,200, providing significant opportunity for
continued pharmacy growth. The Company believes continued pharmacy growth
will also increase overall customer traffic and benefit its non-pharmacy
sales.
The Company generally locates the pharmacy at the rear of the store in
order to maximize the pharmacy customer's exposure to other categories of
merchandise in the front of the store. Each pharmacy is staffed with a
registered pharmacist and a drug clerk at all times to ensure quick and high
quality service. Each store carries a complete line of both branded and
generic prescription drugs. In 1996, the Company began a program to upgrade
the quality of its pharmacy service. The Company believes that this
initiative has contributed to its strong growth in pharmacy sales and should
continue to benefit the Company as customer loyalty builds in response to
improved service levels.
In addition to customer service initiatives in its pharmacy business, the
Company has remodeled or redesigned 16 of its pharmacies since the beginning
of 1996. This remodeling has redesigned the pharmacy counter area to allow
pharmacists and customers to have more direct contact and provide a
consultation and waiting area for customers. By improving the store layout
and accessibility of the pharmacist and pharmacy area, the stores that have
been remodeled have achieved strong growth in their pharmacy business. All
stores opened since 1995 have the new pharmacy counter area design. The
Company currently operates 24 such stores. The Company has also launched
pharmacy marketing initiatives, such as home delivery and prescription-by-fax
services, which it believes have contributed to the increased sales and
customer loyalty of the pharmacy business.
The Company believes that its extensive network of conveniently located
stores, strong local market position, pricing policies and reputation for
high quality health care products and services provide it with a competitive
advantage in attracting pharmacy business from individual customers as well
as Third-Party Plans. The percentage of the Company's total prescription drug
sales attributable to Third-Party Plans increased to approximately 64% in
1996 from approximately 58% in 1995, and to approximately 73% for the 39 week
period ended September 27, 1997. Although gross margins on sales to
Third-Party Plans are generally lower than other prescription drug sales
because of the highly competitive nature of pricing for this business and the
purchasing power of Third-Party Plans, management believes that the lower
gross profit margins are offset by the higher volume of pharmacy sales to
Third-Party Plan customers allowing the Company to leverage other fixed store
operating expenses. In addition, the Company believes that Third-Party Plans
generate additional general merchandise sales by increasing customer traffic
in the stores. As of September 27, 1997, the Company had contracts with over
100 Third-Party Plans, including every major Third-Party Plan in the
Company's market areas.
Another important component of the Company's pharmacy growth strategy is
the continued acquisition of prescription files from independent pharmacies
in market areas currently served by existing Company stores. In 1997, the
Company purchased the prescription files of eight independent pharmacies for
an aggregate total of $830,000, which generated approximately $7 million in
revenues on an annualized basis. Independent pharmacists tend to have a
higher proportion of customers that are not Third Party Plans, which provide
the Company with incremental revenue and higher margin contribution. When
appropriate, the Company will retain the services of the pharmacist, whose
personal relationship with the customers generally maximizes the retention
rate of the purchased file. Since 1995, the Company has experienced an
estimated 80% customer retention rate with respect to prescription files
acquired. Presently, there are approximately 420 independent pharmacies in
Manhattan, and the Company believes that these stores will provide additional
acquisition opportunities in the future.
The Company's pharmacies employ computer systems that link all of the
Company's pharmacies and enable them to provide customers with a broad range
of services. The Company's pharmacy computer network profiles customer
medical and other relevant information, supplies customers with information
concerning their drug purchases for income tax and insurance purposes and
prepares prescription labels and receipts. The computer network also
expedites transactions with Third-Party Plans by electronically transmitting
prescription information directly to the Third-Party Plan and providing
on-line adjudication,
30
<PAGE>
which confirms at the time of sale customer eligibility, prescription
coverage and pricing and co-payment requirements and automatically bills the
respective plan. On-line adjudication reduces losses from rejected claims and
eliminates a portion of the Company's paperwork for billing and collection of
receivables and costs associated therewith.
Store Operations. The majority of the Company's stores are located in the
business and residential areas of Manhattan, the most densely populated area
in the United States. The Company's operations have been tailored to handle
high-volume customer traffic. During 1996, an average Duane Reade store
served approximately 2,500 customers per weekday, and 700 customers during
each of the peak lunch and commuting periods of the day. Some of the
Company's stores may operate up to 25 registers during peak demand periods.
Duane Reade stores range in size from 2,600 to 12,300 square feet, with an
average of 6,800 square feet. The Company's stores are designed to facilitate
customer movement and to minimize inventory shrink. The Company believes that
its wide, straight aisles and well-stocked shelves allow customers to find
merchandise easily and allow the store's employees (managers, security
guards, cashiers and stock clerks) to effectively monitor customer behavior.
The Company attempts to group merchandise logically in order to enable
customers to locate items quickly and to stimulate impulse purchases.
In 1996, the Company began planogramming its stores by using a
computerized space management system to design each store's layout and
product displays. The system seeks to maximize productivity per square foot
of selling space, maintain consistency in merchandising and reduce inventory
levels. To date, stores have been designed by the system. Management
believes that the Company's remaining stores will be planogrammed by the end
of the first quarter of 1998. As a result, the Company believes that it has
yet to realize the full benefits from this system.
The Company establishes each store's hours of operations in an attempt to
best serve customer traffic patterns and purchase habits and to optimize
store labor productivity. Stores in Manhattan's business districts are
generally open five days a week. In residential and appropriate
business/shopping districts, stores are open six or seven days a week with a
heavy emphasis on convenient, early morning and late evening openings. In
1997, the Company had seven stores which were open 24 hours a day, 365 days a
year. The Company intends to continue to identify stores in which extended
operating hours would improve customer service and convenience and contribute
to the Company's profitability. Each store is supervised by one store manager
and one or more assistant store managers. Stores are supplied by deliveries
from the Company's warehouses in Queens an average of three times a week,
allowing the stores to maintain a high in-stock position, maximize store
selling space and minimize inventory required to be held on hand.
The Company attempts to mitigate inventory shrink through (i) the
employment of full time security guards in each store, (ii) the use of a
state-of-the-art Electronic Article Surveillance ("EAS") system that detects
unremoved EAS tags on valuable or easily concealed merchandise and (iii)
merchandise delivery and stocking during non-peak hours. Additionally, all
store and warehouse employees are trained to monitor inventory shrink, and
the Company uses outside consulting services to monitor employee behavior.
Recently, the Company hired a full-time team of loss prevention professionals
and established an anonymous call-in line to allow employees to report
instances of theft. The Company also instituted ongoing audits of warehouse
picking and receiving and an anonymous reward line for the reporting of
theft. The Company believes that these programs will allow it to continue to
reduce inventory shrink.
Purchasing and Distribution. The Company purchases approximately 82% of
its merchandise directly from manufacturers. The Company distributes
approximately 84% of its merchandise through the Company's warehouses and
receives direct-to-store deliveries for approximately 16% of its purchases.
Direct-to-store deliveries are made for pharmaceuticals, greeting cards,
photofinishing, convenience foods and beverages. The Company purchases from
over 1,000 vendors. The Company believes that there are ample sources of
supply for the merchandise currently sold in its stores. The Company manages
its purchasing through a combination of forward buying, national buying and
vendor discount ("deal") buying in ways in which it believes maximizes its
buying power. For example, the Company uses a computerized forecasting and
investment program that is designed to determine optimal forward buying
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quantities before an announced or anticipated price increase has been
implemented. By forward buying, the Company stocks up on regularly carried
items when manufacturers temporarily reduce the cost of goods or when a price
increase has been announced or is anticipated.
The Company operates two warehouses, which are located within five miles
of all but one of its stores. The Company's primary warehouse contains
approximately 150,000 square feet devoted to inventory. The Company believes
that the close proximity of the warehouses to the stores allows the Company
to supply the stores frequently, thereby minimizing inventory and maximizing
distribution economies. The Company also owns a fleet of trucks and vans,
which it uses for all deliveries from the warehouses to the stores.
ADVERTISING AND PROMOTION
The Company regularly promotes key items at reduced retail prices during
four-week promotional periods. Store windows and in-store signs are utilized
to communicate savings and value to shoppers. Additionally, over 30 million
bags with the highly recognizable Duane Reade logo are used by its customers
each year, helping to promote the Company's name throughout New York City.
The Company also utilizes full color circulars to announce new stores and
heavily circulates them in local areas to attract customers. Typically, a new
store sells one to two times its regular volume during a grand opening
promotion, which generally lasts two to three weeks. The Company generally
does not rely heavily on the use of print or broadcast media to promote its
stores. Rather, because of its many high-traffic locations, the Company
typically relies on in-window displays as its primary method of advertising.
In 1997, the Company began using radio advertising. The radio advertising
focuses on the Company's pharmacy business, highlighting services enhanced by
the modern pharmacy computer system, pharmacist accessibility and enhanced
convenience.
PROPERTIES; LEASES
As of November 25, 1997, the Company is operating stores in the following
locations:
LOCATION TOTAL
Manhattan, NY ...................................... 58
Brooklyn, NY ....................................... 4
Bronx, NY .......................................... 2
Queens, NY ......................................... 2
Newark, NJ ......................................... 1
--
Total ............................................ 67
Store leases are generally for 15 year terms. The average year of
expiration for all the Company's leases is 2006. Lease rates are generally
subject only to increases based on inflation, real estate tax increases or
maintenance cost increases. The following table sets forth the lease
expiration dates of the Company's leased stores over each of the next five
years and thereafter. Of the stores with leases expiring in the next five
years, four have renewal options.
NUMBER OF
YEAR LEASES EXPIRING
1997 .......................................... 0
1998 .......................................... 3
1999 .......................................... 1
2000 .......................................... 4
2001 .......................................... 0
Thereafter .................................... 59
The Company owns a distribution facility and related land in Long Island
City, New York. The building contains approximately 150,000 square feet of
space, all of which is used for warehousing and distribution. The Company
also leases a 50,000 square foot distribution facility in Maspeth, New York,
which is only one mile from the Long Island City facility. The Company leases
space for its corporate headquarters, which is located in Manhattan.
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MANAGEMENT INFORMATION SYSTEMS
The Company currently has modern pharmacy and inventory management
information systems. In 1996, the Company completed the installation of a
host-based, modern pharmacy information system. The pharmacy information
system (PDX) has reduced the processing time for prescriptions from 50
seconds to seven seconds, and the inventory management information systems
(JDA merchandising and E3 replenishment) have allowed the Company to increase
inventory turns in the warehouses from 11 to 13 per year. In early 1997, the
Company began the process of installing POS systems in its stores. The
Company believes that these systems will better allow the Company to control
pricing, inventory and shrink, while maximizing the benefits derived from the
other parts of its systems installation program. POS will also provide sales
analysis that will enable the Company to improve labor scheduling, and will
help optimize planogram design by allowing detailed analysis of
stock-keeping-unit ("SKU") sales. The Company expects POS systems
installation to be completed by the end of 1997. Additionally, the Company
has upgraded its financial reporting systems and installed local and wide
area networks to facilitate the transfer of data between systems and from the
stores to headquarters.
COMPETITION
The Company's stores compete on the basis of, among other things,
convenience of location and store layout, product mix, selection, customer
service and price. The New York City drugstore market is highly fragmented
due to the complexities and costs of doing business in the most densely
populated area of the country. The diverse labor pool, local customer needs
and complex real estate market in New York City all favor regional chains and
independent drugstores that are familiar with the market. Duane Reade's store
format is designed to meet all of these requirements and has proven
successful in both the business and residential neighborhoods of Manhattan.
Because of the difficulties of operating in a densely populated area, the
New York City drugstore market remains under-penetrated by national chains as
compared to the rest of the country. According to industry sources, in 1996,
nationwide, approximately 74% of the drugstore market was controlled by
chains, while in Manhattan that number was approximately 45%.
Duane Reade believes that it has significant competitive advantages over
the approximately 420 independent drugstores in New York City, including
purchasing economies of scale, centrally located warehouses that minimize
store inventory and maximize selling space, a full line of in stock, brand
name merchandise and a convenient store format. Major chain competitors in
the New York City market include Rite-Aid, Genovese and CVS. See "Risk
Factors--Competition."
GOVERNMENT REGULATION
Duane Reade's stores and its distribution facilities are registered with
the federal DEA and are subject to various state and local licensing
requirements. Each of Duane Reade's pharmacies and pharmacists located in New
York are licensed by the State of New York. The pharmacy and pharmacists
employed at Duane Reade's store in Newark, New Jersey are licensed by the
State of New Jersey. In addition, Duane Reade has been granted cigarette tax
stamping licenses from the State of New York and from the City of New York,
which permit Duane Reade to buy cigarettes directly from the manufacturers
and stamp the cigarettes themselves. Duane Reade's stores possess cigarette
tax retail dealers licenses issued by the State of New York, the City of New
York and the State of New Jersey.
EMPLOYEES
As of September 27, 1997, Duane Reade had approximately 2,000 employees,
almost all of whom were full-time. Approximately 1,800 of the Company's 2,000
employees are represented by unions. Non-union employees include employees at
corporate headquarters and store management. The Company's distribution
facility employees are represented by the International Brotherhood of
Teamsters, Chauffeurs and Warehousemen and Helpers of America, Local 815, and
all store employees are represented by the Allied Trade Council. Duane
Reade's three year contracts with these two unions expire on August 31, 1999
and August 31, 1998, respectively. Duane Reade believes that its relations
with its employees are good.
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TRADEMARKS
The name "Duane Reade" and the "DR" logo are registered trademarks. The
Company believes that it has developed strong brand awareness within the New
York City area. As a result, the Company regards the Duane Reade logo as a
valuable asset.
LEGAL PROCEEDINGS
The Company is a party to certain legal actions arising in the ordinary
course of business. Based on information presently available to the Company,
the Company believes that it has adequate legal defenses or insurance
coverage for these actions and that the ultimate outcome of these actions
will not have a material adverse effect on the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors and executive officers of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Anthony J. Cuti .... 51 Chairman, Chief Executive Officer and President
William Tennant .... 50 Senior Vice President and Chief Financial Officer
Gary Charboneau .... 53 Senior Vice President--Sales and Merchandising
Jerry M. Ray ........ 49 Senior Vice President--Store Operations
Nicole S. Arnaboldi 39 Director
David L. Jaffe....... 39 Director
Andrew J. Nathanson . 39 Director
</TABLE>
Two additional directors will be elected by the Board of Directors (the
"Board") following the completion of the Offering.
ANTHONY J. CUTI has been Chairman and Chief Executive Officer of the
Company since April 1996. Prior to joining the Company, Mr. Cuti served as
President and as a member of the Board of Directors of Supermarkets General
and Pathmark from 1993 to 1996 and, prior to being named President of
Supermarkets General and Pathmark, Mr. Cuti was Executive Vice President and
Chief Financial Officer of Supermarkets General. From 1984 to 1990, he was
the Chief Financial Officer of the Bristol-Myers International Group of the
Bristol-Myers Company and prior to that was employed by the Revlon
Corporation.
WILLIAM TENNANT has been Senior Vice President and Chief Financial Officer
of the Company since February 1997. Prior to joining the Company, Mr. Tennant
was Senior Vice President and Chief Financial Officer of Tops Appliance City,
a consumer electronics retailer, from 1993 to 1996. From 1986 to 1993, Mr.
Tennant served as Vice President and Controller for the Great Atlantic &
Pacific Tea Company.
GARY CHARBONEAU has been Senior Vice President in charge of Sales and
Merchandising of the Company since February 1993. Prior to joining the
Company, Mr. Charboneau held various positions at CVS, a retail drugstore
chain, from 1978 to February 1993, most recently as Executive Vice President.
JERRY M. RAY has been Senior Vice President in charge of Store Operations
since July 1996 and served as Vice President of Pharmacy Operations from
April 1995 to June 1996. From 1991 to 1994, Mr. Ray served as President and
CEO of Begley Drugstores, Inc.
NICOLE S. ARNABOLDI has been a Director of the Company since June 1997.
Ms. Arnaboldi is a Managing Director of DLJMB. She joined the DLJ Merchant
Banking Group in March 1993 after six years with The Sprout Group, DLJ's
venture capital affiliate.
DAVID L. JAFFE has been a Director of the Company since June 1997. Mr.
Jaffe is a Managing Director of DLJMB. Mr. Jaffe joined DLJ Merchant Banking
in 1984 and became a Managing Director in 1995. He currently sits on the
Board of Directors of each of EZ Buy and EZ Sell Recycler Corporation, OHA
Financial, Inc., OSF, Inc., Terra Nova Group, Pharmaceutical Fine Chemicals
SA and Brand Scaffold Services, Inc.
ANDREW J. NATHANSON has been a Director of the Company since June 1997.
Mr. Nathanson is a Managing Director of DLJ. Mr. Nathanson joined DLJ in 1989
from Drexel Burnham Lambert, and has been a Managing Director of DLJ since
1991. Mr. Nathanson also serves on the Board of Directors of Specialty Foods,
Inc.
Directors of the Company are currently elected annually by its
stockholders to serve during the ensuing year or until their respective
successors are elected and qualified. Executive officers of the Company are
elected by the Board of Directors to serve until their respective successors
are elected and qualified.
35
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
Prior to the Offering, the Board of the Company had no formal committees.
In connection with the completion of the Offering, the Board will establish
two committees: (i) an Audit Committee and (ii) a Compensation Committee.
The Audit Committee will make recommendations to the Board regarding the
independent auditors, approve the scope of the annual audit activities of the
independent auditors and review audit results. It is expected that a majority
of the directors comprising the Audit Committee will be directors not
otherwise affiliated with the Company or its principal stockholders.
The duties of the Compensation Committee will be to provide a general
review of the Company's compensation and benefit plans to ensure that they
meet corporate objectives. In addition, the Compensation Committee will
review management's recommendations on (i) compensation of all officers of
the Company and (ii) adopting and changing major Company compensation
policies and practices, and report its recommendations to the entire Board
for approval and authorization. The Compensation Committee will administer
the Company's stock plans. The Board may also establish other committees to
assist in the discharge of its responsibilities.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the principal components of compensation of
the Chief Executive Officer and the other four highest compensated executive
officers of the Company (the "Named Executive Officers") for the year ended
December 28, 1996. The compensation set forth below fully reflects
compensation for services performed on behalf of the Company and its
subsidiaries.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- --------------
SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (#) COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Cuti............ 1996 $228,846(1) $340,000 $ 3,035,037.6 $
Chief Executive Officer -- --
Gary Charboneau............ 1996 220,000 120,000 -- 283,500.0 --
Senior Vice
President--Sales and
Merchandising
Jerry M. Ray............... 1996 167,308 100,000 -- 283,500.0 --
Senior Vice
President--Store
Operations
Barry Weston(2)............ 1996 290,000 217,000 -- 2,187,599.4 --
Hyman Needleman............ 1996 140,000 28,000 -- -- --
Vice President--Finance
</TABLE>
- ------------
(1) Reflects Mr. Cuti's salary for the partial year from April 15, 1996
when he joined the Company through December 28, 1996.
(2) Mr. Weston, the Company's former Chief Executive Officer, resigned from
the Company effective as of February 28, 1997. Mr. Weston's 1996 bonus
is attributable to both 1995 and 1996. In connection with Mr. Weston's
severance from the Company and the Recapitalization, Mr. Weston
received approximately $1.6 million from DLJMB and all of his
unexercised options were effectively cancelled.
36
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table discloses options granted during 1996 to the Named
Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Cuti (3). 3,035,037.6 51.0% $0.07 3/25/06 $134,890 $341,509
Gary Charboneau
(4)................ 283,500.0 4.8 0.07 4/12/06 12,600 31,900
Jerry M. Ray (4) ... 283,500.0 4.8 0.07 4/12/06 12,600 31,900
Barry Weston (5) ... 2,187,599.4 36.7 0.07 3/26/06 97,227 246,153
Hyman Needleman (4). -- -- -- -- -- --
</TABLE>
- ------------
(1) All of such options vest in five equal installments on each anniversary
of the grant date.
(2) Amounts reflect certain assumed rates of appreciation for the term of
the option as set forth in the executive compensation disclosure rules
of the Securities and Exchange Commission and are not intended to
forecast future appreciation of the Common Stock. Actual gains, if any,
on stock option exercises depend on future performance of the Company's
stock and overall market conditions. At an annual rate of appreciation
of 5% per year for the option term, the price of the Common Stock would
be approximately $0.115 per share as of the expiration date. At an
annual rate of appreciation of 10% per year for the option term, the
price of the Common Stock would be approximately $0.183 per share as of
the expiration date.
(3) All of such options were granted under separate agreements with the
Company.
(4) All of such options were granted under the Company's 1992 Plan (as
defined below). The options granted under such plan are subject to
repurchase provisions upon termination of employment. See "--Stock
Options."
(5) All such options were granted under separate agreements with the
Company. In connection with Mr. Weston's severance from the Company and
the Recapitalization, Mr. Weston received approximately $1.6 million
from DLJMB and all of his unexercised options were effectively
cancelled.
37
<PAGE>
FISCAL YEAR END OPTION VALUES
The following table summarizes the number and value of all unexercised
options held by the Named Executive Officers at the end of 1996. There were
no options exercised in the Company's last fiscal year.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON OPTIONS AT AT FISCAL YEAR END
NAME EXERCISE VALUE REALIZED FISCAL YEAR END ($)(1)
----------- -------------- --------------- --------------------
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
ANTHONY J. CUTI . -- -- 0/3,035,037.6 0/0
GARY CHARBONEAU . -- -- 109,714.5/356,643.0 0/0
JERRY M. RAY .... -- -- 18,285.8/356,643.0 0/0
BARRY WESTON .... -- -- 437,497.2/1,750,102.2 0/0
HYMAN NEEDLEMAN . -- -- 54,857.3/36,571.5 0/0
</TABLE>
- ------------
(1) Assumes the fair market value of the Common Stock as of December 28,
1996 is equal to $0.07 per share.
COMPENSATION OF DIRECTORS
Directors of the Company who are employees of the Company, DLJ or DLJMB or
their respective subsidiaries are not compensated for serving as directors.
Presently, the Company does not have directors who are not employees of the
Company, DLJ or DLJMB ("Non-Employee Directors"). However, the Company plans
to compensate future Non-Employee Directors for serving in such capacity and
for serving on committees of the Board of Directors, and reimburse
Non-Employee Directors for out-of-pocket expenses incurred in such capacity.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offering, the Company did not have a compensation committee.
Instead, compensation decisions regarding the Company's executive officers
were made by the Board. Each executive officer of the Company has an
employment agreement with the Company that establishes his annual
compensation. See "--Employment Agreements."
EMPLOYMENT AGREEMENTS
Effective June 18, 1997, the Company entered into an employment agreement
with Anthony J. Cuti (the "Cuti Employment Agreement"). Pursuant to the Cuti
Employment Agreement, Mr. Cuti serves as Chairman, President and Chief
Executive Officer of the Company. The Cuti Employment Agreement provides for
(i) a base salary of $425,000 per year, which will increase to $500,000 in
1998 and $550,000 in 1999 if certain EBITDA targets (as defined in the Cuti
Employment Agreement) are met and will increase every 18 months commencing
July 1, 2001 by not less than the percentage increase in a designated
consumer price index for such 18-month period, (ii) an annual incentive bonus
of up to 200% of base salary based on certain EBITDA targets and (iii)
participation in all benefit plans generally available to executive officers.
Pursuant to the Cuti Employment Agreement and the Equity Plan described
below, on June 18, 1997, Mr. Cuti was granted non-qualified stock options to
purchase an aggregate of 4,134,240 shares of Common Stock at an exercise
price of $1.00 per share. Subject to Mr. Cuti's continued employment with the
Company, the options generally will become 100% vested on the eighth
anniversary of the date of grant, but may vest sooner based on the Company's
achievement of certain specified financial targets. Furthermore, the vesting
of options will accelerate upon the occurrence of a Sale of the Company (as
defined in the Cuti Employment Agreement) on or prior to December 30, 2001,
based on the Company's achievement of specified financial targets prior to
the date of any such Sale of the Company.
38
<PAGE>
The Cuti Employment Agreement provides that following the Offering, Mr.
Cuti may generally only transfer up to 10% of his shares of Common Stock in
each calendar year while he is an employee of the Company, except pursuant to
certain rights and obligations (i) to transfer ("put") his shares to the
Company upon termination of employment and (ii) to transfer shares in
connection with certain transfers of Common Stock by DLJMBPII. The Cuti
Employment Agreement also provides that Mr. Cuti will be given the
opportunity to invest additional amounts in stock of the Company in the event
that DLJMBPII invests new equity in the Company or creates an intrument that
may be dilutive to Mr. Cuti's equity position relative to DLJMBPII.
Mr. Cuti's initial term of employment is for three years and, unless
terminated by notice of non-renewal by either the Company or Mr. Cuti, will
continue thereafter for successive one-year periods. Pursuant to the Cuti
Employment Agreement, if the Company terminates Mr. Cuti without "cause" (as
defined in the Cuti Employment Agreement) or by notice of non-renewal or Mr.
Cuti resigns with "good reason" (as defined in the Cuti Employment
Agreement), Mr. Cuti will be entitled to continued base salary and incentive
bonus payments (at the rate of two times base salary and bonus for the year
prior to termination, which can be increased to three times base salary and
bonus upon the occurrence of certain events, including a Sale of the Company)
and employee benefits for a two year period, which, under certain
circumstances, including Mr. Cuti's termination of employment prior to June
18, 2003 and within one year following a Sale of the Company, may be extended
by one year. Additionally, the vesting of Mr. Cuti's options may accelerate
upon such a termination of employment, based on the Company's financial
performance prior to such termination and whether a Sale of the Company has
occurred. The Cuti Employment Agreement also contains certain non-compete,
non-solicitation and confidentiality provisions. See also "Certain
Relationships and Related Transactions--Cuti Loan Agreement."
The Company has also entered into agreements with Messrs. Charboneau,
Needleman and Ray and certain other executives that provide for their initial
base salary as well as annual incentive bonuses based on certain EBITDA
targets. Each of Messrs. Charboneau, Needleman and Ray are entitled to
severance payments equalling 12 months of their respective salaries if they
are terminated without "cause" (as defined in the agreements).
The Company's agreement with Mr. Tennant provides for payment of an annual
base salary of $175,000 per year as well as for payment of annual incentive
bonuses based upon achievement of certain financial targets. Mr. Tennant's
agreement also provides for the grant of stock options to acquire an
aggregate of 567,000 shares of Common Stock at an exercise price of $0.882
per share and for 12 months of salary continuation in the event Mr. Tennant
is terminated without cause.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company has established the Supplemental Executive Retirement Plan
("SERP"), an unfunded retirement plan that provides a lump sum benefit equal
to the actuarial present value of a life annuity commencing at the later of
age 65 or termination of employment for any reason other than cause. The SERP
benefit is calculated as a percentage of a participant's Final Average
Earnings (defined as the average base salary and bonus for the five years
which produce the greatest amount multiplied by his years of services with
the Company). Currently, Mr. Cuti is the only SERP participant. Mr. Cuti's
estimated SERP benefit, based on his 1996 includable compensation, is
estimated to be $ , $ , $ , $ and $ based on 15, 20, 25, 30
and 35 years of service respectively. Pursuant to the Cuti Employment
Agreement, the Company is required to set aside funds in a "rabbi trust" to
pay Mr. Cuti's SERP benefit in specified circumstances, including a Sale of
the Company, termination without cause and resignation for "good reason" (as
defined). Furthermore, in the event of his termination without "cause" (as
defined) or by reason of the Company's non-renewal, his resignation for good
reason, or his death or disability, Mr. Cuti's SERP benefit will be
calculated on the basis of 20 years of employment regardless of his actual
number of years of employment with the Company.
39
<PAGE>
STOCK OPTIONS
1992 STOCK OPTION PLAN. The Company's Board of Directors adopted and the
Company's stockholders approved the 1992 Stock Option Plan (the "1992 Plan")
in September 1992. Under the 1992 Plan, the Board of Directors may grant to
executive and other key employees of the Company nonqualified stock options
to purchase up to an aggregate of 4,252,500 shares of Common Stock of the
Company at exercise prices and terms specified by the Board of Directors.
At September 27, 1997, there were outstanding nonqualified stock options
issued under the 1992 Plan to purchase up to an aggregate of 2,345,041.1
shares of Common Stock of the Company at exercise prices ranging from $0.07
to $4.91 per share. The 1992 Plan will be frozen as to the future grants
following the Offering. All options issued under the 1992 Plan are 100%
vested.
1997 EQUITY PARTICIPATION PLAN. As of June 18, 1997, the Board and
stockholders of the Company approved the 1997 Equity Participation Plan (the
"Equity Plan"). The Equity Plan will be administered by the Board. The Board
is authorized under the Equity Plan to select the individuals to whom awards
will be made (the "Participants") and determine the terms and conditions of
the awards under the Equity Plan. The Equity Plan provides that the Board may
grant or issue stock options, stock appreciation rights, restricted stock,
deferred stock, dividend equivalents, performance awards, stock payments, and
other stock related benefits, or any combination thereof, to any eligible
employee or consultant. Each such award will be set forth in a separate
agreement with the person receiving the award and will indicate the type,
terms and conditions of the award. An aggregate of 9 million shares of Common
Stock of the Company have been reserved for issuance under the Equity Plan,
subject to certain adjustments reflecting changes in the Company's
capitalization. The Equity Plan provides that no Participant may receive
awards relating to more than 4 million shares of Common Stock per year.
SECTION 162(M) LIMITATION. In general, under Section 162(m) of the Code
("Section 162(m)"), income tax deductions of publicly-held corporations may
be limited to the extent total compensation (including base salary, annual
bonus, stock option exercises and non-qualified benefits paid) for certain
executive officers exceeds $1 million (less the amount of any "excess
parachute payments" as defined in Section 280G of the Code) in any one year.
Under a Section 162(m) transition rule for compensation plans of corporations
which are privately held and which become publicly held in an initial public
offering, the Equity Plan will not be subject to Section 162(m) until the
"Transition Date" which is defined as the earliest of (i) the material
modification of the Equity Plan; (ii) the issuance of all Common Stock and
other compensation that has been allocated under the Equity Plan; and (iii)
the first meeting of stockholders at which directors are to be elected that
occurs after December 31, 2001. After the Transition Date, rights and awards
granted under the Equity Plan will not qualify as "performance-based
compensation" for purposes of Section 162(m) unless such rights and awards
are granted by an independent compensation committee, and such awards are
granted or vest upon pre-established objective performance goals, the
material terms of which are disclosed to and approved by the stockholders of
the Company. The transition rule will also apply to base salary and bonus
payments made pursuant to employment agreements in effect at the time of the
Offering.
The Board generally will have the power and authority to amend the Equity
Plan at any time without approval of the Company's stockholders, subject to
applicable federal securities and tax law limitations (including rules and
regulations of the ).
40
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DLJMB RELATIONSHIPS
In connection with the Recapitalization, DLJMBPII and certain of its
affiliates (the "DLJ Entities") purchased an aggregate of 78,125,299 shares
of Common Stock, certain members of management retained an aggregate of
2,371,475.971 shares of Common Stock, and certain other stockholders retained
an aggregate of 4,908,749.505 shares of Common Stock. The aggregate purchase
price for the shares acquired by the DLJ Entities was $79 million or $1.01
per share. Each of these shareholders other than members of management signed
the Stockholders and Registration Rights Agreement. See "--Stockholders and
Registration Rights Agreement." Mr. Jaffe and Ms. Arnaboldi, directors of the
Company, are Managing Directors of DLJMB, and Mr. Nathanson, also a director
of the Company, is a Managing Director of DLJ.
On September 30, 1997, the Company entered into the Existing Credit
Agreement in which DLJ Capital Funding, Inc., an affiliate of DLJMBPII, acted
as the arranger and syndication agent. In connection with the Existing Credit
Agreement, DLJ Capital Funding, Inc. received a customary funding fee.
DLJ (one of the Underwriters and an affiliate of DLJMBPII) acted as
financial advisor to the Company in connection with the structuring of the
Recapitalization and received customary fees for such services and
reimbursement for out-of-pocket expenses. The Company agreed to indemnify DLJ
in connection with its acting as financial advisor. In addition, DLJ will
receive its pro rata portion of the underwriters compensation set forth on
the cover page of this Prospectus.
CUTI LOAN AGREEMENT
Pursuant to the terms of the Cuti Employment Agreement and a Secured Loan
Agreement and related agreements among Mr. Cuti, the Company and DLJ (the
"Loan Documents"), on November 20, 1997, Mr. Cuti borrowed $1 million from
DLJ (the "Loan"). The Loan is secured by Mr. Cuti's pledge to DLJ of his
options granted under the Equity Plan and his option to purchase 4,134,240
shares of Common Stock, and all Common Stock and other proceeds payable upon
exercise or other disposition thereof (the "Pledged Security"). The Loan is
subject to interest at the Federal Mid-Term Rate as in effect from time to
time and is generally payable in five equal installments commencing within 30
days after Mr. Cuti has the ability to receive cash in exchange for any of
the Pledged Security. In addition, the Company may apply any amounts to which
Mr. Cuti is entitled upon termination of employment to repayment of the Loan.
The Cuti Employment Agreement and the Loan Documents further provide that in
the event of termination of Mr. Cuti's employment by reason of termination by
the Company without cause or the Company's non-renewal or his resignation
with good reason, the Company will reimburse Mr. Cuti for all interest
accrued as of the date of such termination if the Company has achieved
certain specified financial targets for the year prior to termination and the
year of such termination. The Loan Documents permit DLJ to assign the Loan to
certain of its affiliates, including the Company, and the Company is
obligated pursuant to the Cuti Employment Agreement to assume the Loan from
DLJ as soon as practicable after the Company and DLJ agree that the Company
may do so.
OTHER RELATIONSHIPS
The Company incurred aggregate fees owing to Credit Suisse First Boston
for financial services rendered from March 1995 through the consummation of
the Recapitalization in the aggregate amount of $3.6 million, of which $1.4
million was paid upon consummation of the Recapitalization and the remaining
$2.2 million will become payable upon consummation of the Offering.
STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT
In connection with the Recapitalization, certain of the shareholders of
the Company (the "Initial Shareholders") entered into a Stockholders and
Registration Rights Agreement, pursuant to which the Company has granted the
Initial Shareholders the right to cause the Company to register shares of
Common Stock (the "registrable securities") under the Securities Act. Upon
consummation of the
41
<PAGE>
Offering, 85,405,524.5 outstanding shares of Common Stock will constitute
registrable securities and therefore will be eligible for registration
pursuant to the Stockholders and Registration Agreement. Under the terms of
the Stockholders and Registration Agreement, at any time after the one year
anniversary date of the Offering, (i) the holders of at least a majority of
the registrable securities held by the DLJ Entities can require the Company,
subject to certain limitations, to file a registration statement under the
Securities Act covering all or part of the registrable securities held by the
DLJ Entities and (ii) the remaining Initial Shareholders can require the
Company, subject to certain limitations, to file a registration statement
covering all or part of the registrable securities held by such Initial
Shareholders (each, a "demand registration"). The Company is obligated to pay
all registration expenses (other than underwriting discounts and commissions
and subject to certain limitations) incurred in connection with the demand
registrations. In addition, the Stockholders and Registration Rights
Agreement provides the Initial Shareholders with "piggyback" registration
rights, subject to certain limitations, whenever the Company files a
registration statement on a registration form that can be used to register
securities held by such Initial Shareholders.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership (as defined by the regulations of the Securities and
Exchange Commission) of the Company's Common Stock (which constitutes the
only class of voting capital stock of the Company) by (i) each person known
to the Company to be the beneficial owner of 5% or more of the Common Stock,
(ii) each director, (iii) each Named Executive Officer and (iv) all executive
officers and directors as a group, based on data as of November 15, 1997.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
------------------------------------------
% OF CLASS % OF CLASS
PRIOR TO AFTER
NAME SHARES OFFERING OFFERING
- ---- -------------- ------------ ------------
<S> <C> <C> <C>
DLJ Merchant Banking Partners II, L.P. and related
investors(2) ..................................... 78,125,299.0 91.48%
Anthony Cuti....................................... 3,035,037.6 3.4%
David Jaffe(3) .................................... -- -- --
Nicole S. Arnaboldi(3)............................. -- -- --
Andrew J. Nathanson(3) ............................ -- -- --
Gary Charboneau ................................... 2,160,268.4 2.5%
Jerry M. Ray ...................................... 713,711.3 * *
Hyman Needleman ................................... 176,124.4 * *
Barry Weston....................................... -- -- --
All executive officers and directors as a group
(11 persons)(3) .................................. 6,793,891.7 7.9%
</TABLE>
- ------------
* Less than one percent
(1) For purposes of this table, a person or group is deemed to have
"beneficial ownership" of any shares that such person has the right to
acquire within 60 days after the date of this Prospectus. For purposes
of calculating the percentage of outstanding shares held by each person
named above, any shares that such person has the right to acquire
within 60 days after the date of this Prospectus are deemed to be
outstanding, but not for the purpose of calculating the percentage
ownership of any other person.
(2) Consists of 78,125,299 shares held directly by the following related
investors, each of whom is affiliated with DLJ: DLJ Merchant Banking
Partners II, L.P. ("DLJMBPII"), 49,213,098 shares; DLJ Merchant Banking
Partners II-A, L.P. ("DLJMBIIA"), 1,959,894 shares; DLJ Offshore
Partners II, C.V. ("DLJOPII"), 2,420,043 shares; DLJ Diversified
Partners, L.P. ("DLJDP"), 2,877,221 shares; DLJ Diversified Partners-A,
L.P. ("DLJDPA"), 1,068,502 shares; DLJMB Funding II, Inc. ("DLJMBFII"),
8,737,538 shares; DLJ Millennium Partners, L.P. ("Millennium"), 795,721
shares; DLJ Millennium-A, L.P. ("Millennium-A"), 155,198 shares; DLJ
EAB Partners, L.P. ("DLJEAB"), 220,960 shares; UK Investment Plan 1997
Partners ("UK Investment"), 1,302,088 shares; and DLJ First ESC L.P.
("DLJ ESC"), 9,375,036 shares. See "Certain Relationships and Related
Transactions--DLJMB Relationships." The address of each of DLJMBPII,
DLJMBIIA, DLJDP, DLJMBFII, Millennium, Millennium-A, DLJEAB, and DLJ
ESC is 277 Park Avenue, New York, New York 10172. The address of
DLJOPII is c/o John B. Gorsiraweg, 14 Willemstad, Curacao, Netherlands
Antilles. The address of UK Investment is 2121 Avenue of the Stars, Fox
Plaza, Suite 3000, Los Angeles, California 90067. As a general partner
of each of DLJMBPII, DLJMBIIA, DLJOPII, DLJDP, DLJDPA, DLJEAB,
Millennium and Millennium-A, DLJMB may be deemed to beneficially own
indirectly all of the shares held directly by DLJMBPII, DLJMBIIA,
DLJOPII, DLJDP, DLJDPA, DLJEAB, Millennium and Millennium-A, and as the
parent of each of DLJMB, DLJMBFII and DLJ LBO Plans Management
Corporation (the general partner of DLJ ESC and UK Investment),
Donaldson, Lufkin & Jenrette Inc., the parent of DLJ ("DLJ Inc.") may
be deemed to beneficially own indirectly all of the shares held by
DLJMBPII, DLJMBIIA, DLJOPII, DLJDP, DLJDPA, DLJEAB, Millennium,
Millennium-A, DLJMBFII, DLJ ESC and UK Investment. The address of DLJ
Merchant Banking, Inc. is 277 Park Avenue, New York, New York 10172.
(3) Mr. Jaffe and Ms. Arnaboldi are each Managing Partners of DLJMB, and
Mr. Nathanson is a Managing Director of DLJ. Share data shown for such
individuals excludes shares shown as held by DLJ Merchant Banking
Partners II, L.P. and related investors, as to which such individuals
disclaim beneficial ownership.
43
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
DESCRIPTION OF NEW CREDIT AGREEMENT
In connection with the Refinancing Plan, the Company will enter into the
New Credit Agreement pursuant to which DLJ Capital Funding, Inc., an
affiliate of DLJ, will act as a manager and syndication agent, and a
financial institution to be determined will act as administrative agent. The
New Credit Agreement is expected to provide for total lending commitments of
up to $235 million. The New Credit Agreement will be comprised of (i) a
Revolving Credit Facility and (ii) Term Loan Facilities. Borrowings under the
New Credit Agreement, together with the proceeds of the Offering, will be
used to repay the Company's existing indebtedness as described under "Use of
Proceeds." The proceeds of loans under the New Credit Agreement may also be
used to fund the Company's working capital needs, capital expenditures and
other general corporate purposes, including the issuance of letters of
credit.
Borrowings under the New Credit Agreement will bear interest annually, at
the Company's option, at the rate of either (i) LIBOR plus a spread or (ii)
the Base Rate (defined as, generally, the higher of the Federal Funds Rate,
as published by the Federal Reserve Bank of New York, plus 0.5%, or the
administrative agent's prime lending rate) plus a spread. In addition, the
Company must pay a fee on the face amount of each letter of credit
outstanding at a rate equal to the LIBOR margin.
It is expected that borrowings under the New Credit Agreement will be
guaranteed by, and secured by a pledge of all of the capital stock and assets
of, the Company's subsidiaries.
The New Credit Agreement will contain various covenants that limit or
restrict, among other things, subject to certain exceptions, the incurrence
of indebtedness, the creation of liens, transactions with affiliates,
restricted payments, investments and acquisitions, mergers, consolidations,
dissolutions, asset sales, dividends, distributions, and certain other
transactions and business activities by the Company.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of the Offering, the total amount of authorized capital
stock of the Company will consist of shares of Common Stock, par value
$0.01 per share, and 50 million shares of preferred stock, par value $0.01
per share (the "Preferred Stock"). Upon completion of the Offering,
shares of Common Stock will be outstanding and no shares of Preferred Stock
will be outstanding. Unless otherwise noted, the discussion herein describes
the Company's capital stock, the Amended and Restated Certificate of
Incorporation (the "Restated Certificate") and Amended and Restated Bylaws
(the "Bylaws") as anticipated to be in effect upon consummation of the
Offering. The following summary of certain provisions of the Company's
capital stock does not purport to be complete and is subject to and qualified
in its entirety by the Restated Certificate and the Bylaws of the Company
that are included as exhibits to the Registration Statement of which this
Prospectus forms a part and by the provisions of applicable law.
COMMON STOCK
The holders of the Company's Common Stock are entitled to one vote per
share for each share held of record on all matters submitted to a vote of
stockholders. The issued and outstanding shares of Common Stock are, and the
shares of Common Stock being offered hereby will, upon payment therefor, be
validly issued, fully paid and nonassessable. Subject to the rights of the
holders of any shares of Preferred Stock, the holders of outstanding shares
of Common Stock are entitled to receive dividends out of assets legally
available therefor at such times and in such amounts as the Board may from
time to time determine. See "Dividend Policy." The shares of Common Stock are
not be redeemable or convertible, and the holders thereof have no preemptive
or subscription rights to purchase any securities of the Company. Upon
liquidation, dissolution or winding up of the Company, the holders of shares
of Common Stock are entitled to receive on pro rata basis the assets of the
Company which are legally available for distribution, after payment of all
debts and other liabilities and subject to the preferential rights of any
holders of Preferred Stock.
The Company intends to apply for the listing of the Common Stock on
under the symbol "DRC."
PREFERRED STOCK
The Board of Directors has the authority, without further action of the
shareholders of the Company, to issue up to an aggregate of 50 million shares
of Preferred Stock in one or more series and to fix or determine the
designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each such series thereof, including the
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series.
The Board of Directors, without shareholder approval, can issue Preferred
Stock with voting and conversion rights that could adversely affect the
voting power of holders of Common Stock. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, may have the effect of
discouraging, delaying, or preventing a change in control of the Company.
CERTAIN PROVISIONS OF THE BYLAWS
The Bylaws provide that special meetings of shareholders may be called
only by the Chairman of the Board of Directors, the President, or the Board
of Directors of the Company and that no business shall be transacted and no
corporate action may be taken at a special meeting of shareholders other than
as stated in the notice of the meeting. The Bylaws also provide that the only
business that may be brought before an annual meeting of shareholders is
limited to matters (i) brought before the meeting at the direction of the
Board of Directors or (ii) specified in a written notice given by or on
behalf of a
45
<PAGE>
shareholder of the Company in accordance with certain procedural requirements
specified in the Bylaws. These provisions could have the effect of delaying
shareholder actions that are favored by the holders of a majority of the
outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the
Company's Common Stock because such person or entity, even if it acquired a
majority of the outstanding voting securities of the Company, would be unable
to call a special meeting of shareholders to take action as a shareholder
(such as electing new directors or approving a merger).
SECTION 203 OF DELAWARE LAW
Following the consummation of the Offering, the Company will be subject to
the "business combination" provisions of the Delaware General Corporation
Law. In general, such provisions prohibit a publicly-held Delaware
corporation from engaging in various "business combination" transactions with
any "interested stockholder" for a period of three years after the date of
the transaction in which the person became an "interested stockholder,"
unless (i) the transaction is approved by the board of directors prior to the
date the interested stockholder obtained such status, (ii) upon consummation
of the transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned by (a) persons who are directors and also officers and (b)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or subsequent to such
date the "business combination" is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned
by the "interested stockholder." A "business combination" is defined to
include mergers, asset sales and other transactions resulting in financial
benefit to a stockholder. In general, an "interested stockholder" is a person
who, together with affiliates and associates, owns (or, within three years,
did own) 15% or more of a corporation's voting stock. The statute could
prohibit or delay mergers or other takeover or change in control attempts
with respect to the Company and, accordingly, may discourage attempts to
acquire the Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated Certificate provides that, to the fullest extent permitted by
Delaware law, no director of the Company shall be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary
duties as a director. The effect of this provision is to eliminate the rights
of the Company and its stockholders (through stockholder derivative suits on
behalf of the Company) to recover monetary damages against a director for
breach of fiduciary duty as a director (including breaches resulting from
grossly negligent conduct). This provision does not, however, exonerate the
directors from liability under federal securities laws or for (i) breach of a
director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) certain willful or negligent acts in
connection with the payment of dividends or the repurchase or redemption of
securities, or (iv) any transaction from which the director derived an
improper personal benefit. The Bylaws provide for indemnification of the
officers and directors of the Company to the fullest extent permitted by
applicable law.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock will be .
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices of the Common Stock.
Upon the closing of the Offering, there will be shares of Common Stock
outstanding. The shares of Common Stock sold in the Offering will be
freely tradable without restriction or further registration under the
Securities Act, unless held by an "affiliate" of the Company, as that term is
defined in Rule 144 under the Securities Act, which shares will be subject to
the resale limitations of Rule 144. Of the outstanding shares, have not
been registered under the Securities Act and may not be sold unless they are
registered or unless an exemption from registration, such as the exemption
provided by Rule 144, is available.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (generally defined as securities
acquired from the Company or an affiliate of the Company in a non-public
transaction) for at least one year, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of one
percent of the outstanding Common Stock or the average weekly trading volume
in the Common Stock during the four calendar weeks preceding the date on
which notice of such sale is filed pursuant to Rule 144. Sales under Rule 144
are also subject to certain provisions regarding the manner of sale, notice
requirements and the availability of current public information about the
Company. A stockholder (or stockholders whose shares are aggregated) who is
not an affiliate of the Company for at least 90 days prior to a proposed
transaction and who has beneficially owned "restricted securities" for at
least two years is entitled to sell such shares under Rule 144 without regard
to the limitations described above. Beginning 180 days after completion of
the Offering, shares of Common Stock will be eligible for sale under Rule
144 without regard to the limitations described above but subject to the
lock-up agreements described below.
All of the Company's existing stockholders, including the officers and
directors of the Company, have agreed that they will not, without the prior
written consent of DLJ on behalf of the Underwriters, sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date
hereof. An aggregate of outstanding 85,405,524.5 shares of Common Stock are
subject to such agreement.
REGISTRATION RIGHTS
Pursuant to the Stockholders and Registration Rights Agreement, the
Company has granted the Initial Shareholders the right to cause the Company
to register shares of Common Stock (the "registrable securities") under the
Securities Act. Upon consummation of the Offering, outstanding shares of
Common Stock will constitute registrable securities and therefore will be
eligible for registration pursuant to the Stockholders and Registration
Agreement. Under the terms of the Stockholders and Registration Agreement, at
any time after the one year anniversary date of the Offering, (i) the holders
of at least a majority of the registrable securities held by the DLJ Entities
can require the Company, subject to certain limitations, to file a
registration statement under the Securities Act covering all or part of the
registrable securities held by the DLJ Entities and (ii) the remaining
Initial Shareholders can require the Company, subject to certain limitations,
to file a registration statement covering all or part of the registrable
securities held by such Initial Shareholders (each, a "demand registration").
The Company is obligated to pay all registration expenses (other than
underwriting discounts and commissions and subject to certain limitations)
incurred in connection with the demand registrations. In addition, the
Stockholders and Registration Rights Agreement provides the Initial
Shareholders with "piggyback" registration rights, subject to certain
limitations, whenever the Company files a registration statement on a
registration form that can be used to register the securities held by such
Initial Shareholders.
47
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement (the "Underwriting Agreement"), the Underwriters named below (the
"Underwriters"), for whom DLJ, Goldman, Sachs & Co. and Salomon Brothers Inc
are acting as representatives (the "Representatives"), have severally agreed
to purchase from the Company an aggregate of shares of Common Stock. The
number of shares of Common Stock that each Underwriter has agreed to purchase
is set forth opposite its name below:
NUMBER OF
UNDERWRITERS SHARES
Donaldson, Lufkin & Jenrette Securities Corporation ....
Goldman, Sachs & Co. ....................................
Salomon Brothers Inc ....................................
--------
Total ..................................................
========
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by
counsel and to certain other conditions. If any of the shares of Common Stock
are purchased by the Underwriters pursuant to the Underwriting Agreement, all
such shares (other than shares covered by the over-allotment option described
below) must be purchased.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers (who may include the Underwriters) at such price less a
concession not in excess of $ per share of Common Stock. The Underwriters
may allow, and such dealers may reallow, a discount not in excess of $ per
share of Common Stock on sales to any other Underwriter or certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company has granted an option to the Underwriters, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the initial public offering price set
forth on the cover page of this Prospectus, net of underwriting discounts and
commissions. Such option may be exercised at any time until 30 days after the
date of this Prospectus. To the extent that the Representatives exercise such
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
At the Company's request, the Underwriters have reserved up to shares
for sale at the initial public offering price to certain of the Company's
employees, members of their immediate families and other individuals who are
business associates of the Company. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent these
individuals purchase such reserved shares. Any reserved shares not purchased
will be offered by the Underwriters to the general public on the same basis
as the other shares offered hereby.
The Company and all of its existing shareholders, including its officers
and directors and certain of its employees, have agreed, subject to certain
exceptions, not to directly or indirectly sell, offer to sell, grant any
option for the sale of or otherwise dispose of (or transfer any portion of
the economic consequences associated with the ownership of) any shares of
Common Stock or securities convertible
48
<PAGE>
into or exchangeable or exercisable for Common Stock, or demand or exercise
any registration rights with respect to such securities, in each case,
without the prior written consent of DLJ, on behalf of the Underwriters, for
a period of 180 days after the date of this Prospectus. See "Shares Eligible
for Future Sale."
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined through
negotiations between the Company and the Representatives. Among the factors
considered in determining the initial public offering price, in addition to
prevailing market conditions, are price-earnings ratios of publicly traded
companies that the Representatives believe to be comparable to the Company,
certain financial information of the Company, the history of, and the
prospects for, the Company and the industry in which it competes and
assessment of the Company's management, its past and present operations, the
prospects for, and timing of, future revenues of the Company, the present
state of the Company's development and the above factors in relation to
market values and various valuation measures of other companies engaged in
activities similar to the Company. There can be no assurance that an active
trading market will develop for the Common Stock or that the Common Stock
will trade in the public market subsequent to the Offering at or above the
initial public offering price.
The Company intends to apply for the listing of the Common Stock on
under the symbol "DRC."
The Underwriters do not intend to confirm sales of the Common Stock
offered hereby to any accounts over which they exercise discretionary
authority.
In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. The Underwriters may bid for and
purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members
in the Offering, if the syndicate repurchases previously distributed Common
Stock in syndicate covering transactions, in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price
of the Common Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may discontinue these activities
at any time.
Under Rule 2720 of the Conduct Rules of the NASD ("Rule 2720"), the
Company is considered an affiliate of DLJ. This Offering is being conducted
in accordance with Rule 2720, which provides that, among other things, when
an NASD member participates in the underwriting of an affiliate's equity
securities, the public offering price per share can be no lower than that
recommended by a "qualified independent underwriter" meeting certain
standards ("QIU"). In accordance with this requirement, Goldman, Sachs & Co.
has assumed the responsibilities of acting as QIU and will recommend a public
offering price for the Common Stock in compliance with the requirements of
Rule 2720. In connection with the Offering, Goldman, Sachs & Co. is
performing due diligence investigations and reviewing and participating in
the preparation of this Prospectus and the Registration Statement of which
this Prospectus forms a part. As compensation for the services of Goldman,
Sachs & Co. as QIU, the Company has agreed to pay Goldman, Sachs & Co.
customary QIU fees.
DLJ Capital Funding, Inc. is one of the lenders under the Existing Credit
Agreement. The proceeds of the Offering, together with the proceeds from the
New Credit Agreement, are being used to effect the Refinancing, including the
repayment of the Existing Credit Agreement. DLJ Capital Funding, Inc., an
affiliate of DLJ, is expected to act as syndication agent and be a lender
under the New Credit Agreement. From time to time, DLJ provides investment
banking services to the Company, for which it receives customary
compensation. See "Certain Relationships and Related Transactions."
LEGAL MATTERS
The validity of the Common Stock being offered hereby and certain other
legal matters relating to the Offering will be passed upon for the Company by
Latham & Watkins, New York, New York. Latham & Watkins also represented
DLJMBPII in connection with the Recapitalization. Certain legal matters
relating to the Offering will be passed upon for the Underwriters by Weil,
Gotshal & Manges LLP, New York, New York.
49
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of December 30,
1995 and December 28, 1996 included in this Prospectus have been so included
in reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed the Registration Statement on Form S-1 with respect
to the Common Stock being offered hereby with the Commission under the
Securities Act. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain items of which are omitted in accordance with the rules
and regulations of the Commission. Statements contained in this Prospectus
concerning the provisions of documents filed with the Registration Statement
as exhibits are necessarily summaries of such documents, and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed as an exhibit to the Registration Statement. The
Registration Statement may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549; at its Chicago Regional Office, Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and at its New
York Regional Office, Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can be obtained from the public reference
section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a website on the Internet at
http://www.sec.gov that contains reports, proxy statements and other
information with respect to companies that file documents electronically with
the Commission. For further information pertaining to the Company and the
Common Stock being offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
DUANE READE HOLDING CORP. AND SUBSIDIARIES
PAGE
----
Report of Independent Accountants ........................................ F-2
Consolidated Balance Sheets as of December 30, 1995 and
December 28, 1996 ..................................................... F-3
Consolidated Statements of Operations for each of the 52 weeks
ended December 31, 1994, December 30, 1995 and December 28, 1996........ F-4
Consolidated Statements of Stockholders' Equity (Deficiency) for each
of the 52 weeks ended December 31, 1994, December 30, 1995 and
December 28, 1996....................................................... F-5
Consolidated Statements of Cash Flows for each of the 52 weeks ended
December 31, 1994, December 30, 1995 and December 28, 1996.............. F-6
Notes to Consolidated Financial Statements ............................... F-7
Consolidated Balance Sheet as of September 27, 1997 (Unaudited)........... F-16
Consolidated Statements of Operations for each of the 39 weeks ended
September 28, 1996 and September 27, 1997 (Unaudited)................... F-17
Consolidated Statement of Stockholders' Equity (Deficiency) for the 39
weeks ended September 27, 1997 (Unaudited).............................. F-18
Consolidated Statements of Cash Flows for the 39 weeks ended
September 28, 1996 and September 27, 1997 (Unaudited).................... F-19
Notes to Consolidated Financial Statements (Unaudited) ................... F-20
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Duane Reade Holding Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity/(deficiency) and
cash flows present fairly, in all material respects, the financial position
of Duane Reade Holding Corp. ("Holdings") and its subsidiaries at December
30, 1995 and December 28, 1996 and the results of their operations and their
cash flows for each of the 52 week periods ended December 31, 1994, December
30, 1995 and December 28, 1996 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Holdings' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 18, 1997, except as to Note 12, which is as of June 18, 1997.
F-2
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets
Cash................................................................... $ 2,133 $ 216
Government securities ................................................. 44 --
Receivables ........................................................... 5,740 7,171
Inventories ........................................................... 43,147 47,914
Prepaid expenses ...................................................... 1,355 1,165
-------- --------
TOTAL CURRENT ASSETS .................................................. 52,419 56,466
Property and equipment, net ............................................ 24,832 23,065
Goodwill, net of accumulated amortization of $11,306 and $14,785 ...... 127,848 124,369
Covenants not to compete, net of accumulated amortization of $48,660
and $60,000 ........................................................... 11,340 --
Other assets ........................................................... 19,421 18,576
-------- --------
TOTAL ASSETS ......................................................... $235,860 $222,476
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accounts payable....................................................... $ 20,427 $ 20,015
Accrued interest ...................................................... 3,797 3,873
Other accrued expenses ................................................ 6,102 8,157
Current portion of long-term debt ..................................... 5,625 12,000
Current portion of capital lease obligations .......................... 2,769 2,504
-------- --------
TOTAL CURRENT LIABILITIES ............................................ 38,720 46,549
Senior debt, less current portion ...................................... 163,475 149,975
Subordinated zero coupon debt, net of unamortized discount of $55,148
and $43,899 ........................................................... 68,232 79,481
Capital lease obligations, less current portion ........................ 4,003 1,697
Other non-current liabilities .......................................... 2,626 4,170
-------- --------
TOTAL LIABILITIES .................................................... 277,056 281,872
-------- --------
Commitments and Contingencies (Note 8)
Stockholders' deficiency
Common stock, Class P, $0.01 par; authorized 185,000 shares; issued
and outstanding 127,941.3 and 126,274.7 shares ....................... 1 1
Common stock, Class P-1, non-voting, $0.01 par; authorized 15,000
shares; issued and outstanding 11,111.1 shares ....................... -- --
Common stock, $0.01 par; authorized 1,650,000 shares; issued and
outstanding 1,151,470.5 and 1,136,470.5 shares ....................... 12 11
Common stock, Class A, non-voting, $0.01 par; authorized 150,000
shares; issued and outstanding 100,000 shares ........................ 1 1
Paid-in-capital ....................................................... 24,997 24,652
Accumulated deficit ................................................... (66,207) (84,061)
-------- --------
TOTAL STOCKHOLDERS' DEFICIENCY ....................................... (41,196) (59,396)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY ....................... $235,860 $222,476
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales .................................... $281,103 $336,922 $381,466
Cost of sales ................................ 209,678 259,827 288,505
-------- -------- --------
Gross profit ................................. 71,425 77,095 92,961
-------- -------- --------
Selling, general and administrative expenses 39,741 50,326 59,048
Amortization ................................. 18,238 11,579 16,217
Depreciation ................................. 1,184 1,929 3,015
Store pre-opening expenses ................... 1,220 1,095 139
-------- -------- --------
60,383 64,929 78,419
-------- -------- --------
Operating income ............................. 11,042 12,166 14,542
Interest expense, net ........................ 27,480 30,224 32,396
-------- -------- --------
Loss before income taxes ..................... (16,438) (18,058) (17,854)
Income taxes ................................. -- -- --
-------- -------- --------
NET LOSS..................................... $(16,438) $(18,058) $(17,854)
======== ======== ========
NET LOSS PER COMMON SHARE.................... $ (.19) $ (.21) $ (.21)
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING................................. 84,598 84,739 84,118
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------------------------------
CLASS P CLASS P-1 COMMON STOCK
--------------------- -------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- -------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance , January 1, 1994 . 127,524.5 $ 1 11,111.1 $-- 1,147,720.5 $11
Sale of common stock to
executives ................ 138.9 -- -- -- 1,250.0 --
Net loss ................... -- -- -- -- -- --
----------- -------- ---------- -------- ------------- --------
Balance, December 31, 1994 127,663.4 1 11,111.1 -- 1,148,970.5 11
Sale of common stock to
executives ................ 555.6 -- -- -- 5,000.0 1
Repurchase of common stock (277.7) -- -- -- (2,500.0) --
Net loss ................... -- -- -- -- -- --
----------- -------- ---------- -------- ------------- --------
Balance, December 30, 1995 127,941.3 1 11,111.1 -- 1,151,470.5 12
Repurchase of common stock (1,666.6) -- -- -- (15,000.0) (1)
Net loss ................... -- -- -- -- -- --
----------- -------- ---------- -------- ------------- --------
Balance, December 28, 1996 126,274.7 $ 1 11,111.1 $-- 1,136,470.5 $11
=========== ======== ========== ======== ============= ========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CLASS A
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- -------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Balance , January 1, 1994 . 100,000 $ 1 $24,941 $(31,711) $ (6,757)
Sale of common stock to
executives ................ -- -- 25 -- 25
Net loss ................... -- -- -- (16,438) (16,438)
--------- -------- --------- ------------- ----------
Balance, December 31, 1994 100,000 1 24,966 (48,149) (23,170)
Sale of common stock to
executives ................ -- -- 99 -- 100
Repurchase of common stock -- -- (68) -- (68)
Net loss ................... -- -- -- (18,058) (18,058)
--------- -------- --------- ------------- ----------
Balance, December 30, 1995 100,000 1 24,997 (66,207) (41,196)
Repurchase of common stock -- -- (345) -- (346)
Net loss ................... -- -- -- (17,854) (17,854)
--------- -------- --------- ------------- ----------
Balance, December 28, 1996 100,000 $ 1 $24,652 $(84,061) $(59,396)
========= ======== ========= ============= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $(16,438) $(18,058) $(17,854)
Adjustments to reconcile net loss to net
cash provided by operating activities .....
Depreciation and amortization of property
and equipment ............................ 1,184 1,929 3,015
Amortization of goodwill and other
intangibles .............................. 20,646 13,940 18,897
Accretion of principal of zero coupon debt 8,282 9,628 11,249
Other ..................................... 724 1,769 1,526
Changes in operating assets and liabilities
Receivables ............................... (225) (1,962) (1,431)
Inventories ............................... (4,838) (6,745) (4,767)
Accounts payable .......................... 5,716 7,382 (412)
Prepaid and accrued expenses .............. (110) (658) 2,321
Increase in other assets (liabilities)--net 356 (491) 51
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES . 15,297 6,734 12,595
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ........................ (9,947) (6,868) (1,247)
Systems development costs ................... (2,425) (6,268) (2,566)
Sale of government securities--net ......... 1,134 382 44
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES ..... (11,238) (12,754) (3,769)
-------- -------- --------
Cash flows from financing activities:
Financing costs ............................. -- (885) (952)
Repayments of term loan ..................... (8,000) (15,000) (5,625)
Proceeds from issuance of long-term debt ... -- 15,000 --
Net (repayments) borrowings--Revolving
credit ..................................... -- 4,000 (1,500)
Proceeds from issuance of stock ............. -- 25 --
Repurchase of stock ......................... -- (68) (95)
Capital lease financing ..................... 5,492 4,329 274
Repayments of capital lease obligations .... (432) (2,617) (2,845)
-------- -------- --------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES ................................ (2,940) 4,784 (10,743)
-------- -------- --------
Net increase (decrease) in cash ............. 1,119 (1,236) (1,917)
Cash at beginning of year ................... 2,250 3,369 2,133
-------- -------- --------
Cash at end of year.......................... $ 3,369 $ 2,133 $ 216
======== ======== ========
Supplementary disclosures of cash flow
information ................................
Cash paid for interest...................... $ 16,969 $ 18,298 $ 18,391
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Duane Reade Holding Corp. ("Holdings") was formed on June 16, 1992 for the
purpose of acquiring Daboco, Inc. ("Daboco"). The acquisition took place on
September 25, 1992. Daboco and Duane Reade Inc. ("DR Inc."), a subsidiary of
Daboco, are general partners in Duane Reade, which operates a chain of retail
drug stores (60 at December 28, 1996) in the New York City area.
Significant accounting policies followed in the preparation of the
consolidated financial statements are as follows:
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Holdings, Daboco, DR Inc. and Duane Reade (collectively, the
"Company"). All intercompany transactions and balances have been eliminated.
Certain prior period amounts have been reclassified to conform with the
current presentation.
REPORTING YEAR: The fiscal year for the Company is the 52/53 week
reporting period ending on the last Saturday in December.
RECEIVABLES: Receivables consist primarily of amounts due from various
insurance companies and governmental agencies under third party payment plans
for prescription sales and amounts due from vendors, a majority of which
relate to promotional programs.
INVENTORIES AND COST OF SALES: Substantially all inventories are stated on
the last-in, first-out retail dollar value method (LIFO). If current cost had
been used, inventories at December 30, 1995 and December 28, 1996 would not
be materially different from the amounts reflected on the accompanying
balance sheets. Cost of sales includes distribution and occupancy costs.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation and amortization are provided using the straight-line method
over estimated useful lives of assets as follows:
Buildings and improvements ............ 30 years
Furniture, fixtures and equipment .... 5-10 years
Leasehold improvements ................ Life of lease or, if shorter, asset
Property under capital leases.......... 7 years
OTHER ASSETS: Deferred financing costs arose in connection with borrowings
under the Term Loan and with the issuance of the Senior Notes and the Zero
Coupon Notes and are amortized using the straight-line method, the results of
which are not materially different from the interest method, over the term of
the respective debt issue.
Systems development costs, consisting principally of costs relating to the
new management information systems, are amortized using the straight-line
method commencing in 1996 over a period of seven years.
INTANGIBLE ASSETS: In September 1992, Holdings and Duane Reade entered
into agreements with certain former members of management of Duane Reade,
former shareholders of Daboco and shareholders of former partners of Duane
Reade (collectively, the "Group") precluding such persons from competing with
the operations of Duane Reade for a period of five years. The covenants not
to compete were recorded at acquisition cost and were being amortized over
the period of benefit using an accelerated method. During the first quarter
of 1997, Holdings and Duane Reade entered into agreements in which the
Company received consideration from the Group to terminate the non-compete
agreements. In accordance with APB Opinion No. 17, Intangible Assets, the
remaining carrying value of the non-compete agreements of $4.86 million as of
December 28, 1996 was written off and has been included
F-7
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in the accompanying consolidated statement of operations as amortization
expense. Goodwill is amortized on the straight-line method over 40 years. The
carrying value of goodwill is periodically reviewed by the Company based on
the expected future undiscounted operating cash flows and operating income.
PRE-OPENING EXPENSES: Store pre-opening costs, other than capital
expenditures, are expensed when incurred.
INCOME TAXES: Income taxes are accounted for under the liability method
prescribed by Statement of Financial Accounting Standards No. 109.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share ("FAS
128") which requires the presentation of basic and diluted earnings per share
in a company's financial statements for reporting periods ending subsequent
to December 15, 1997. Early adoption of FAS 128 is not permitted. The
adoption of FAS 128 is not expected to have material impact on the Company's
consolidated financial statements.
ACCOUNTING ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues, costs
and expenses during the reporting period. Actual results could differ from
those estimates.
NET LOSS PER COMMON SHARE: Net loss per common share is based on the
weighted average shares outstanding during each period (84,597,845 for the 52
weeks ended December 31, 1994, 84,739,038 for the 52 weeks ended December 30,
1995 and 84,117,959 for the 52 weeks ended December 28, 1996). Outstanding
share amounts have been restated to give effect to the recapitalization
described in Note 12.
2. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
DECEMBER 30, DECEMBER 28,
1995 1996
-------------- --------------
Land............................................ $ 489 $ 489
Buildings and building improvements ............ 4,514 4,523
Furniture, fixtures and equipment .............. 6,261 6,881
Leasehold improvements ......................... 12,684 13,134
Property under capital leases .................. 4,894 5,063
------- -------
28,842 30,090
Less--Accumulated depreciation and amortization 4,010 7,025
------- -------
$24,832 $23,065
======= =======
F-8
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. OTHER ASSETS
Other assets are summarized as follows (in thousands):
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
Deferred financing costs (net of accumulated
amortization of $7,737 and $10,417)................ $ 9,539 $ 7,811
Systems and integration costs (net of accumulated
amortization of $0 and $1,461) .................... 8,693 9,798
Other .............................................. 1,189 967
------- -------
$19,421 $18,576
======= =======
4. DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 30, DECEMBER 28,
1995 1996
-------------- --------------
Senior debt
Term loan facility (A)...................... $ 75,100 $ 69,475
Notes payable bank--revolving credit (A) .. 4,000 2,500
12% Senior Notes due September 15, 2002 (B) 90,000 90,000
Subordinated debt
15% Senior Subordinated Zero Coupon Notes
due
September 15, 2004 (C) .................... 68,232 79,481
-------- --------
237,332 241,456
Less--Current portion ...................... 5,625 12,000
-------- --------
$231,707 $229,456
======== ========
(A) Outstanding balances under a Credit Agreement dated as of September 24,
1992, as amended, with a syndicate of lending institutions bear interest at
floating rates, which at December 28, 1996 averaged 9.0%. In addition to the
term loans, the Credit Agreement provides for a revolving credit facility of
$10.0 million (less amounts of letters of credit issued under the Credit
Agreement) which may be used for general corporate purposes and which expires
on September 30, 1998. As of December 28, 1996, the borrowings outstanding
under the revolving credit facility were $2.5 million (classified as a
noncurrent liability) and $0.2 million in letters of credit had been issued,
leaving $7.3 million available for borrowing.
On March 23, 1995, the Credit Agreement, which provided an A Term loan and
a B Term loan, was amended providing the Company with a new Term loan (the "C
Term Loan") of $15.0 million and increasing the Company's existing capital
expenditure limits for its store expansion program.
The proceeds of such borrowing were used to prepay all amounts due under
the A Term Loan due during 1995 ($13.0 million) and a portion ($2.0 million)
of the payment due under the A Term Loan on March 31, 1996.
In 1996, the Credit Agreement was further amended providing for the
postponement of $2.5 million of principal payments due during 1997 until 1998
and $10.0 million of principal payments due during 1998 until 1999.
F-9
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 28, 1996, the aggregate principal amount of the term loan
matures during the fiscal year as follows (in thousands):
1997 ................................... $12,000
1998 ................................... 17,625
1999 ................................... 25,150
2000 ................................... 14,700
2001 ................................... --
-------
$69,475
=======
Subject to certain conditions, voluntary prepayments of the Term Loan are
permitted without premium or penalty. Mandatory prepayments are required with
respect to asset sales, permitted issuance of debt or equity and 75% of
excess cash flows, as defined in the Credit Agreement, as amended. For the 52
weeks ended December 31, 1994, December 30, 1995 and December 28, 1996, there
were no voluntary or mandatory prepayments.
Obligations under the Credit Agreement are secured by a pledge of all of
Duane Reade's tangible and intangible assets and are guaranteed by its
partners, Daboco and DR Inc., which have pledged 100% of their partnership
interests in support of such guarantees. The guarantees are joint and several
and full and unconditional. The Credit Agreement contains restrictions on
indebtedness, asset sales, dividends and other distributions, capital
expenditures, transactions with affiliates and other unrelated business
activities. Financial performance covenants include interest coverage,
leverage ratio, minimum earnings and working capital levels. In 1996, the
Company obtained an Amendment revising certain covenant requirements and
limiting capital expenditures. At December 28, 1996, the Company is in
compliance with all of the covenants in the Credit Agreement.
(B) On September 25, 1992, Duane Reade issued $90,000,000 aggregate
principal amount of 12% Senior Notes due September 15, 2002, at face value.
Interest is payable at 12% semiannually. The Senior Notes are guaranteed by
Daboco and DR Inc. All of Daboco's assets are pledged to secure indebtedness
under the Credit Agreement discussed in (A) above. As a result, such
indebtedness will have claim on those assets that is prior to the claim of
holders of the Senior Notes. To the extent that the amount of senior
indebtedness exceeds the value of the collateral securing such indebtedness,
the Senior Notes will rank pari passu with the Term Loans.
Duane Reade is required to make a sinking fund payment on September 15,
2001 sufficient to retire 50% of the aggregate principal amount of Senior
Notes originally issued. The Senior Notes are subject to redemption at the
option of the issuer at 104.5% of par, plus accrued interest, at the end of
1997, declining to par, plus accrued interest, at the end of 2000. In the
event of a change in control, Duane Reade shall be obligated to make an offer
to purchase all outstanding Senior Notes at a repurchase price of 101% of the
principal amount.
(C) On September 25, 1992, Holdings issued $123,380,000 aggregate
principal amount of 15% Senior Subordinated Zero Coupon Notes due September
15, 2004 (the "Zero Coupon Notes"), net of an $81,909,000 discount. The
discount accretes through the Final Accretion Date of September 15, 1999.
Thereafter, cash interest is payable at 15% semi-annually through maturity.
Interest expense is determined using the effective interest method, which
applies a constant yield to carrying value over the life of the Zero Coupon
Notes.
The Credit Agreement and the Senior Note Indenture referred to in (A) and
(B) above provide for subordination of Holdings' debt to partnership debt.
The notes are redeemable at the option of the issuer, in whole or in part,
at 107.50% of Accreted Value (as defined in the Zero Coupon Note Indenture),
plus accrued interest, at the end of 1997 declining to par, plus accrued
interest, at the end of 2002. In the event of a change in control, Holdings
shall be
F-10
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
obligated to make an offer to purchase all outstanding Zero Coupon Notes at a
repurchase price of 101% of Accreted Value (as defined in the Indenture) or
principal amount, as applicable. The Accreted Value of the Zero Coupon Notes
was $83,443,000 at December 28, 1996.
Purchasers of the Zero Coupon Notes received 15% of the fully diluted
common stock of Holdings, with registration rights, for aggregate
consideration of $3,529,000 (Note 10).
The Indentures governing the Zero Coupon Notes and the Senior Notes
include certain restrictive covenants. Subject to certain exceptions, the
Indentures restrict transactions with affiliates, the incurrence of
additional indebtedness, the payment of dividends, the creation of liens,
certain asset sales, mergers and consolidations and certain other payments.
The Company's debt is thinly traded in the market place. Accordingly,
management is unable to determine fair market values for such debt at
December 28, 1996.
The Zero Coupon Notes and the Senior Notes were issued pursuant to
Registration Rights Agreements under which Holdings and Duane Reade
consummated registered exchange offers pursuant to which Holdings and Duane
Reade exchanged the Zero Coupon Notes and the Senior Notes, respectively, for
identical notes which have been registered under the Securities Act of 1933,
as amended. Since 1994, the Company has not been required to follow the
periodic reporting requirements of the SEC.
5. CAPITAL LEASE OBLIGATIONS
During 1994, the Company commenced installation of new management
information systems. Capital requirements for hardware, software and
integration costs for the new systems were provided principally by capital
lease financing.
As of December 28, 1996, the present value of capital lease obligations
was $4.2 million (of which $2.5 million is payable during the next twelve
months). Such obligations are payable in monthly installments over three to
five year periods and bear interest at an average rate of 12.2%.
F-11
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between book and tax bases of the respective assets and liabilities at
December 30, 1995 and December 28, 1996 using a 44.7% combined federal, state
and local tax rate in each year and are comprised of (in thousands):
DECEMBER 30, DECEMBER 28,
1995 1996
-------------- --------------
Inventories...................... $ (3,238) $ (3,501)
-------- --------
Gross deferred tax liabilities . (3,238) (3,501)
-------- --------
Property and equipment .......... 719 955
Covenants not to compete ........ 4,318 1,851
Targeted jobs credit ............ 268 268
Zero Coupon debt discount ...... 9,885 14,041
Other ........................... 1,492 2,335
Net operating loss carryforward 49,217 50,072
-------- --------
Gross deferred tax assets ...... 65,899 69,522
-------- --------
Net deferred tax assets ......... 62,661 66,021
Valuation allowance ............. (62,661) (66,021)
-------- --------
$ -- $ --
======== ========
The Company deducted for income tax purposes for the period September 25
to December 31, 1992 approximately $88 million of payments made to former
partners of Duane Reade (the "Retirement Payments"). Approximately $38.5
million of the valuation allowance relates to these Retirement Payments. The
Retirement Payments and other current tax deductions resulted in a net
operating loss of approximately $112.0 million which may be available to
offset future taxable income of the Company through 2011. Due to the nature
of the Retirement Payments, future reductions in that portion of the
valuation allowance related to the Retirement Payments will be credited to
goodwill. Further, certain income tax law provisions may limit the use of the
available net operating loss carryforwards in the event of a significant
change in ownership interest.
F-12
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes for the 52 weeks ended December 31, 1994,
December 30, 1995 and December 28, 1996 differs from the amounts of income
tax determined by applying the applicable U.S. statutory federal income tax
rate to pretax loss as a result of the following (dollars in thousands):
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
DECEMBER 31, 1994 DECEMBER 30, 1995 DECEMBER 28, 1996
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Pretax accounting loss ....... $(16,438) 100.0% $(18,058) 100.0% $(17,854) 100.0%
======== ===== ======== ===== ======== =====
Statutory rate ............... (5,753) (35.0) (6,320) (35.0) (6,249) (35.0)
State and local taxes, net of
federal tax ................. (1,105) (6.7) (1,233) (6.8) (1,201) (6.7)
Goodwill amortization ........ 1,218 7.4 1,218 6.7 1,218 6.8
Net operating losses not
utilized .................... 5,213 31.7 5,828 32.3 5,534 31.0
Nondeductible interest
expense ..................... 504 3.1 585 3.2 684 3.8
Other ........................ (77) (0.5) (78) (0.4) 14 0.1
-------- ----- -------- ----- -------- -----
Effective tax rate ........... $ -- --% $ -- --% $ -- --%
======== ===== ======== ===== ======== =====
</TABLE>
7. STORE PRE-OPENING EXPENSES
Duane Reade opened eleven new store locations during the 52 weeks ended
December 31, 1994, eight new store locations during the 52 weeks ended
December 30, 1995 and one new store location during the 52 weeks ended
December 28, 1996.
8. COMMITMENTS AND CONTINGENCIES
LEASES
Duane Reade leases most store facilities under operating lease agreements
expiring on various dates through the year 2014. In addition to minimum
rentals, certain leases provide for annual increases based upon real estate
tax increases, maintenance cost increases and inflation. Rent expense for the
52 weeks ended December 31, 1994, December 30, 1995 and December 28, 1996 was
$17,373,000, $22,703,000 and $24,420,000, respectively.
Minimum annual rentals at December 28, 1996 (including obligations under a
new store lease entered into but not opened as of December 28, 1996) are as
follows (in thousands):
1997............................................... $ 23,213
1998 .............................................. 22,879
1999 .............................................. 22,940
2000 .............................................. 22,070
2001 .............................................. 21,739
Remaining lease terms ............................. 126,837
--------
Total ............................................. $239,678
========
LITIGATION
The Company from time to time is involved in routine legal matters
incidental to its business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
F-13
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MANAGEMENT AGREEMENTS
Pursuant to the terms of various employment and related agreements, the
Company and various executives entered into agreements pursuant to which (i)
executives' salary and bonuses were established and (ii) executives purchased
shares of Holdings' Class P common stock at a price of $162.00 per share and
shares of Holdings' common stock at a price of $2.00 per share, each
representing original cost. In the event of employment termination, all of
the stock may be repurchased by Holdings. As a result of the recapitalization
(Note 12), all outstanding shares were converted into Class B common stock.
As of December 28, 1996, an aggregate 4,065,386.9 shares of Class B common
stock are held by employees and former employees.
9. EMPLOYEE BENEFIT PLANS
On October 12, 1992, the Board of Directors of Holdings adopted the 1992
Stock Option Plan of Duane Reade Holding Corp. (the "Plan"). Under the Plan,
a committee designated by the Board of Directors of Holdings to administer
the Plan (the "Committee") may grant, to executive and other key employees of
the Company, nonqualified stock options to purchase up to an aggregate of
4,252,500 (adjusted for recapitalization--see Note 12) shares of common stock
of Holdings at an exercise price fixed by the Committee. The options are
exercisable at such time or times as the Committee determines at or
subsequent to grant. The term of the options set by the Committee shall not
exceed 10 years.
As permitted, the Company applies Accounting Principles Board Opinion No.
25 and related Interpretations in accounting for its stock-based compensation
plan. Had compensation cost for the Company's stock-based compensation plan
been determined based on the fair value at the grant dates for awards under
the Plan, consistent with the alternative method of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, the
effect on the Company's net loss for the 52 weeks ended December 30, 1995 and
December 28, 1996 would have been less than $100,000.
At December 28, 1996, there were outstanding nonqualified stock options to
purchase up to an aggregate of 6,830,578.1 (adjusted for recapitization--see
Note 12) shares of common stock (including options granted outside the Plan).
Options outstanding at each price level vest over five years at 20% each year
that the executive is employed. At December 28, 1996, there were 850,962.1
vested share options.
Changes in options outstanding during 1995 and 1996 are summarized as
follows (adjusted for recapitalization--see Note 12):
<TABLE>
<CAPTION>
52 WEEKS ENDED DECEMBER 30, 1995 52 WEEKS ENDED DECEMBER 28, 1996
-------------------------------- --------------------------------
OPTIONS OPTION PRICE OPTIONS OPTION PRICE
--------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Options outstanding, beginning
of year ......................... 3,062,863.1 $0.07 to 4.91 1,335,781.1 $0.07 to 4.91
Options granted .................. 284,350.5 $0.07 to 4.91 5,951,940.8 $0.07 to 4.91
Options canceled ................. (2,011,432.5) $0.07 to 4.91 (457,143.8) $0.07 to 4.91
--------------- -------------- ------------- --------------
Options outstanding, end of year 1,335,781.1 $0.07 to 4.91 6,830,578.1 $0.07 to 4.91
=============== ============== ============= ==============
</TABLE>
The Company maintains an employee savings plan pursuant to Section 401(k)
(the "401(k) Plan") of the Internal Revenue Code ("IRC") which covers
substantially all non union employees, excluding in 1996 all key employees as
defined by IRC. Eligible participating employees may contribute up to 10% of
their pretax salaries, subject to certain IRC limitations. The 401(k) Plan,
as amended, provides for employer matching provisions at the discretion of
the Company (to a maximum of 1% of pretax salaries) and has a feature under
which the Company may contribute additional amounts for all eligible
employees. The Company's policy is to fund such costs under the 401(k) Plan
as accrued. For the 52 weeks ended December 31, 1994 and December 30, 1995,
employer contributions to the 401(k) Plan were $158,000 and $166,000,
respectively. There were no employer contributions for the 52 weeks ended
December 28, 1996.
F-14
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Duane Reade is under contract with local unions to contribute to
multi-employer pension and welfare benefit plans for certain of its
employees. For the 52 weeks ended December 31, 1994, December 30, 1995 and
December 28, 1996, contributions to such plans were $3,899,000, $5,200,000
and $5,783,000, respectively.
10. STOCKHOLDERS' DEFICIENCY
In September 1992, pursuant to the terms of the Purchase Agreement
governing the Zero Coupon Notes (Note 4), purchasers of such notes received
15% of the fully diluted common stock of the Company for aggregate cash
consideration of $3,529,000.
Distributions made by the Company to the holders of its common stock,
which are restricted by the terms of the Indentures described in Note 4,
shall be made in the following order:
Class P voting and Class P-1 non-voting common stockholders are entitled
to the aggregate unpaid amount of approximately $19,210,000 accruing on
the outstanding shares at an annual rate of 15%, compounded quarterly.
Such holders are then entitled to the aggregate unreturned original cost
($162 per share) of the outstanding shares.
Common stockholders (together as a group, voting and Class A non-voting)
shall then receive an amount equal to the aggregate unreturned original
cost ($2 per share) of outstanding shares.
Final distribution of any remaining portion shall be made to all classes
of outstanding common stock.
In the event of a public offering of stock or a change of control, and
with a written request to the Company, each holder of Class A non-voting
common stock or Class P-1 non-voting common stock is entitled to convert its
stock, on a one-for-one basis, into voting common stock or Class P common
stock, respectively.
As a result of the recapitalization discussed in Note 12, all outstanding
classes of the Company's common stock were converted into a newly designated
class of common stock.
11. RELATED PARTY TRANSACTIONS
In 1992, the Company and its then principal stockholder entered into a
Professional Services Agreement whereby consulting, advisory, financial and
other services were provided at the Company's request, for a five year term.
During each of the 52 weeks ended December 31, 1994, December 30, 1995 and
December 28, 1996, such fees aggregated approximately $1,000,000.
12. SUBSEQUENT EVENT
During June 1997, the Company entered into a recapitalization agreement
(the "Agreement") with its stockholders ("Stockholders") and certain
investors ("Investors"). The Agreement provided for (i) the purchase by the
Investors from the Stockholders of substantially all their stock holdings in
the Company, (ii) a conversion of all of the outstanding shares of the
Company into a newly authorized class of Class B common stock and (iii) the
creation of a new authorized class of preferred stock which will carry the
rights and preferences granted by the Company's Board of Directors when
issued.
Shares were converted as follows:
APPROXIMATE
PRIOR CLASS CONVERSION RATE
----------- ---------------
Common and Common Class A .......... 28/1
Common Class P and Common Class P-1 355/1
Certain share and all per share amounts have been adjusted to reflect such
recapitalization.
F-15
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 27,
1997
---------------
<S> <C>
ASSETS
Current assets ............................................................
Cash ..................................................................... $ 218
Receivables .............................................................. 9,084
Inventories .............................................................. 65,872
Prepaid expenses ......................................................... 1,371
--------
TOTAL CURRENT ASSETS ................................................... 76,545
Property and equipment, net ............................................... 24,918
Goodwill, net of accumulated amortization of $17,397 ...................... 121,757
Other assets, net ......................................................... 16,300
--------
TOTAL ASSETS ........................................................... $239,520
========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accounts payable ......................................................... $ 30,710
Accrued interest ......................................................... 623
Other accrued expenses ................................................... 13,193
Current portion of senior debt ........................................... 660
Current portion of capital lease obligations ............................. 1,510
--------
TOTAL CURRENT LIABILITIES .............................................. 46,696
Senior debt, less current portion ......................................... 170,708
Subordinated zero coupon debt, net of unamortized discount of $34,277 .... 89,094
Capital lease obligations, less current portion ........................... 677
Other non-current liabilities ............................................. 5,906
--------
TOTAL LIABILITIES ...................................................... 313,081
--------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
Stockholders' Deficiency
Preferred stock, $0.01 par; authorized 50,000,000 shares; none issued or
outstanding.............................................................. --
Common stock, Class B, $0.01 par; authorized 110,000,000 shares; issued
and outstanding 85,405,524.5 shares ..................................... 854
Paid-in-capital .......................................................... 23,811
Accumulated deficit ...................................................... (98,226)
--------
TOTAL STOCKHOLDERS' DEFICIENCY ......................................... (73,561)
--------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY ......................... $239,520
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE 39 WEEKS ENDED
--------------------------------
SEPTEMBER 28, SEPTEMBER 27,
1996 1997
--------------- ---------------
<S> <C> <C>
Net Sales..................................... $281,093 $313,796
Cost of sales ................................ 215,797 236,413
-------- --------
Gross profit ................................. 65,296 77,383
-------- --------
Selling, general and administrative expenses 42,499 48,218
Amortization ................................. 8,514 3,826
Depreciation ................................. 2,295 2,584
Store pre-opening expenses ................... 139 600
Nonrecurring charges ......................... -- 10,887
-------- --------
53,447 66,115
-------- --------
Operating income ............................. 11,849 11,268
Interest expense, net ........................ 24,334 25,433
-------- --------
Loss before income taxes ..................... (12,485) (14,165)
Income taxes ................................. -- --
-------- --------
NET LOSS .................................. $(12,485) $(14,165)
======== ========
NET LOSS PER COMMON SHARE ................. $ (.15) $ (.17)
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................... 84,231 84,321
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED ------------------------------------------------------------------------------
STOCK CLASS P CLASS P-1 COMMON STOCK CLASS A
-------------- ------------------- ------------------ --------------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ----------- ------ ---------- ------ ------------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 28, 1996 . -- -- 126,274.7 $ 1 11,111.1 $-- 1,136,470.5 $ 11 100,000 $ 1
ISSUANCE OF COMMON STOCK ... -- -- -- -- -- -- 57,375.1 1 -- --
CONVERSION OF COMMON STOCK . -- -- (126,274,7) (1) (11,111.1) -- (1,193,845.6) (12) (100,000) (1)
NET LOSS .................... -- -- -- -- -- -- -- -- -- --
------ ------ ----------- ------ ---------- ------ ------------- ------ --------- ------
BALANCE, SEPTEMBER 27, 1997 -- -- -- $-- -- $-- -- $ -- -- $--
====== ====== =========== ====== ========== ====== ============= ====== ========= ======
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
CLASS B
-------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------ ------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 28, 1996 . -- $ -- $24,652 $(84,061) $(59,396)
ISSUANCE OF COMMON STOCK ... -- -- (1) -- --
CONVERSION OF COMMON STOCK . 85,405,524.5 854 (840) -- --
NET LOSS .................... -- -- -- (14,165) (14,165)
------------ ------ ------- ----------- ---------
BALANCE, SEPTEMBER 27, 1997 85,405,524.5 $854 $23,811 $(98,226) $(73,561)
============ ====== ======= =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE 39 WEEKS ENDED
--------------------------------
SEPTEMBER 28, SEPTEMBER 27,
1996 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... $(12,485) $(14,165)
Adjustments to reconcile net loss to net cash provided by/(used
in) operating activities .........................................
Depreciation and amortization of property and equipment ........ 2,295 2,584
Amortization of goodwill and other intangibles .................. 10,505 5,803
Accretion of principal of zero coupon debt ...................... 8,437 9,622
Other............................................................ 1,156 1,182
Changes in operating assets and liabilities:
Receivables .................................................... (385) (1,913)
Inventories .................................................... (1,844) (17,958)
Accounts payable ............................................... 1,546 10,695
Interest payable ............................................... (2,620) (3,250)
Prepaid and accrued expenses and other ......................... 51 4,197
-------- --------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES ............ 6,656 (3,203)
-------- --------
Cash flows from investing activities:
Proceeds from sale of capital assets ............................. -- 1,075
Capital expenditures ............................................. (913) (4,931)
Systems development costs ........................................ (2,068) --
Sale of government securities .................................... 44 --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ........................... (2,937) (3,856)
-------- --------
Cash flows from financing activities:
Deferred financing costs ......................................... (542) (309)
Repayments of senior debt ........................................ (4,625) (6,107)
Repayments of subordinated debt .................................. -- (9)
Proceeds from bank debt, revolving credit--net ................... 1,500 15,500
Capital lease financing .......................................... 274 --
Repayment of capital lease obligations ........................... (2,120) (2,014)
Repurchase of stock .............................................. (96) --
-------- --------
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES ............. (5,609) 7,061
-------- --------
Net (decrease)/increase in cash .................................... (1,890) 2
Cash at beginning of period ........................................ 2,133 216
-------- --------
Cash at end of period............................................... $ 243 $ 218
======== ========
Supplementary disclosure of cash flow information:
Cash paid for interest ........................................... $ 16,526 $ 16,541
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Holdings,
Daboco, DR Inc. and Duane Reade (collectively, the "Company"). All
intercompany transactions and balances have been eliminated.
The interim financial data is unaudited; however, in the opinion of the
Company, the interim date includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods. The results of operations for any interim period should not
necessarily be considered indicative of the results of operations for a full
year.
The accompanying unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto for the 52 weeks ended December 28, 1996 included elsewhere in this
prospectus.
RECEIVABLES: Receivables consist primarily of amounts due from vendors, a
majority of which relate to promotional programs. Receivables also arise as a
result of third party payment plans from the sale of prescription drugs;
commencing in May 1997, substantially all such receivables are sold without
recourse to a funding entity. The discount on the sale of such third party
receivables amounted to approximately $381,000 during the 39 weeks ended
September 27, 1997 and is included in interest expense.
INTANGIBLE ASSETS: Goodwill is amortized on the straight-line method over
40 years. The carrying value of goodwill is periodically reviewed by the
Company based on the expected future undiscounted operating cash flows and
operating income. In September 1992, Holdings and Duane Reade entered into
agreements with certain former members of management of Duane Reade, former
shareholders of Daboco and shareholders of former partners of Duane Reade
(collectively, the "Group") precluding such persons from competing with the
operations of Duane Reade for a period of five years. The covenants not to
compete were recorded at acquisition cost and were being amortized over the
period of benefit using an accelerated method. During the first quarter of
1997, Holdings and Duane Reade entered into agreements with the Group in
which the Company received consideration from the Group to terminate the
non-compete agreements. In accordance with APB Opinion No. 17, Intangible
Assets, the remaining carrying value of the non-compete agreements of $4.86
million as of December 28, 1996 was written off during the fourth quarter of
1996 and charged to amortization expense.
NET LOSS PER COMMON SHARE: Net loss per common share is based on the
weighted average shares outstanding during each period: 84,230,883 and
84,321,299 for the 39 weeks ended September 28, 1996 and September 27, 1997,
respectively (as adjusted for the recapitalization described in Note 10).
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share ("FAS
128") which requires the presentation of basic and diluted earnings per share
in a company's financial statements for reporting periods ending subsequent
to December 15, 1997. Early adoption of FAS 128 is not permitted. The
adoption of FAS 128 is not expected to have material impact on the Company's
consolidated financial statements.
F-20
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
SEPTEMBER 27, 1997
------------------
Land............................................ $ 312
Buildings and building improvements ............ 4,286
Furniture, fixtures and equipment .............. 9,468
Leasehold improvements ......................... 15,303
Property under capital leases .................. 5,102
-------
34,471
Less--Accumulated depreciation and amortization (9,553)
-------
$24,918
=======
3. OTHER ASSETS
Other assets are summarized as follows (in thousands):
SEPTEMBER 27, 1997
------------------
Deferred financing costs (net of accumulated
amortization of $11,585)............................... $ 6,144
Systems and integration costs (net of accumulated
amortization of $2,653) ............................... 8,364
Other .................................................. 1,792
-------
$16,300
=======
4. DEBT
Long-term debt consists of the following (in thousands):
SEPTEMBER 27, 1997
------------------
Senior debt
Term loan facility (A)....................... $ 65,475
Notes payable bank--revolving credit (A) ... 16,000
12% Senior Notes due September 15, 2002 (B) 89,893
Subordinated debt
15% Senior Subordinated Zero Coupon Notes
due September 15, 2004 (C) ................. 89,094
--------
260,462
Less--Current portion ........................ 660
--------
$259,802
========
(A) Outstanding balances under a Credit Agreement dated as of September
24, 1992, as amended, with a syndicate of lending institutions bear interest
at floating rates, which at September 27, 1997 averaged 10.5%. In addition to
the term loans, the Credit Agreement provides for a revolving credit facility
of $20.0 million (less amounts of letters of credit issued under the Credit
Agreement) which may be used for general corporate purposes and which expires
on September 30, 1998. As of September 27, 1997, the borrowings outstanding
under the revolving credit facility were $16.0 million (classified as a
noncurrent liability) and $0.3 million in letters of credit had been issued.
F-21
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
Subject to certain conditions, voluntary prepayments of the Term Loan are
permitted without premium or penalty. Mandatory prepayments are required with
respect to asset sales, permitted issuance of debt or equity and 75% of
excess cash flows, as defined in the Credit Agreement, as amended. For the 39
weeks ended September 27, 1997, there were no voluntary or mandatory
prepayments.
Obligations under the Credit Agreement are secured by a pledge of all of
Duane Reade's tangible and intangible assets and are guaranteed by its
partners, Daboco and DR Inc., which have pledged 100% of their partnership
interests in support of such guarantees. The guarantees are joint and several
and full and unconditional. The Credit Agreement contains restrictions on
indebtedness, asset sales, dividends and other distributions, capital
expenditures, transactions with affiliates and other unrelated business
activities. Financial performance covenants include interest coverage,
leverage ratio, minimum earnings and working capital levels. At September 27,
1997, the Company is in compliance with all of the covenants in the Credit
Agreement. See Note 13.
(B) On September 25, 1992, Duane Reade issued $90,000,000 aggregate
principal amount of 12% Senior Notes due September 15, 2002 (the "Senior
Notes"), at face value. Interest is payable at 12% semiannually. The Senior
Notes are guaranteed by Daboco and DR Inc. All of Daboco's assets are pledged
to secure indebtedness under the Credit Agreement discussed in (A) above. As
a result, such indebtedness will have claim on those assets that is prior to
the claim of holders of the Senior Notes. To the extent that the amount of
senior indebtedness exceeds the value of the collateral securing such
indebtedness, the Senior Notes will rank pari passu with the Term Loans.
Duane Reade is required to make a sinking fund payment on September 15,
2001 sufficient to retire 50% of the aggregate principal amount of Senior
Notes originally issued. The Senior Notes are subject to redemption at the
option of the issuer at 104.5% of par, plus accrued interest, at the end of
1997, declining to par, plus accrued interest, at the end of 2000. In the
event of a change in control, Duane Reade shall be obligated to make an offer
to purchase all outstanding Senior Notes at a repurchase price of 101% of the
principal amount. A change of control did occur in June 1997 (see Note 10).
(C) On September 25, 1992, Holdings issued $123,380,000 aggregate
principal amount of 15% Senior Subordinated Zero Coupon Notes due September
15, 2004 (the "Zero Coupon Notes"), net of an $81,909,000 discount. The
discount accretes through the Final Accretion Date of September 15, 1999.
Thereafter, cash interest is payable at 15% semi-annually through maturity.
Interest expense is determined using the effective interest method, which
applies a constant yield to carrying value over the life of the Zero Coupon
Notes.
The Credit Agreement and the Senior Note Indenture referred to in (A) and
(B) above provide for subordination of Holdings' debt to partnership debt.
The notes are redeemable at the option of the issuer, in whole or in part,
at 107.50% of Accreted Value (as defined in the Zero Coupon Note Indenture),
plus accrued interest, at the end of 1997 declining to par, plus accrued
interest, at the end of 2002. In the event of a change in control, Holdings
shall be obligated to make an offer to purchase all outstanding Zero Coupon
Notes at a repurchase price of 101% of Accreted Value (as defined in the
Indenture) or principal amount, as applicable. A change of control did occur
in June 1997 (see Note 10). The Accreted Value of the Zero Coupon Notes was
$92,840,000 at September 27, 1997.
Purchasers of the Zero Coupon Notes received 15% of the fully diluted
common stock of Holdings, with registration rights, for aggregate
consideration of $3,529,000.
The Indentures governing the Zero Coupon Notes and the Senior Notes
include certain restrictive covenants. Subject to certain exceptions, the
Indentures restrict transactions with affiliates, the incurrence of
additional indebtedness, the payment of dividends, the creation of liens,
certain asset sales, mergers and consolidations and certain other payments.
F-22
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
The Company's debt is thinly traded in the market place. Accordingly,
management is unable to determine fair market values for such debt at
September 27, 1997.
The Zero Coupon Notes and the Senior Notes were issued pursuant to
Registration Rights Agreements under which Holdings and Duane Reade
consummated registered exchange offers pursuant to which Holdings and Duane
Reade exchanged the Zero Coupon Notes and the Senior Notes, respectively, for
identical notes which have been registered under the Securities Act of 1933,
as amended.
5. CAPITAL LEASE OBLIGATIONS
As of September 27, 1997, the present value of capital lease obligations
was $2.2 million (of which $1.5 million is payable during the next twelve
months). Such obligations are payable in monthly installments over three to
five year periods and bear interest at an average rate of 12.2%.
6. INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between book and tax bases of the respective assets and liabilities at
September 27, 1997 using a 44.7% combined federal, state and local tax rate
and are comprised of (in thousands):
SEPTEMBER 27, 1997
------------------
Inventories .................... $ (3,382)
Gross deferred tax liabilities (3,382)
--------
Property and equipment ......... 734
Deferred rent .................. 2,398
Targeted jobs credit ........... 284
Zero Coupon debt discount ..... 17,580
Net operating loss
carryforward................... 31,791
Other .......................... 352
--------
Gross deferred tax assets ..... 53,139
--------
Net deferred tax assets ........ 49,757
Valuation allowance............. (49,757)
--------
$ --
========
The Company deducted for income tax purposes for the period September 25
to December 31, 1992 approximately $88 million of payments made to former
partners of Duane Reade (the "Retirement Payments"). Approximately $21
million of the valuation allowance relates to these Retirement Payments. The
Retirement Payments and other current tax deductions resulted in a net
operating loss of approximately $71 million which may be available to offset
future taxable income of the Company through 2012. Due to the nature of the
Retirement Payments, future reductions in that portion of the valuation
allowance related to the Retirement Payments will be credited to goodwill.
Further, due to the change in ownership arising as a result of the
recapitalization (see Note 10), certain income tax law provisions apply,
which limit the ability of the Company to utilize the available net operating
loss carryforwards. It is estimated that the annual limitation will be $5.1
million.
F-23
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
The provision for income taxes for the 39 weeks ended September 28, 1996
and September 27, 1997 differs from the amounts of income tax determined by
applying the applicable U.S. statutory federal income tax rate to pretax loss
as a result of the following (dollars in thousands):
<TABLE>
<CAPTION>
39 WEEKS ENDED 39 WEEKS ENDED
SEPTEMBER 28, 1996 SEPTEMBER 27, 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
Pretax accounting loss .................... $(12,485) 100% $(14,165) 100%
======== === ======== ===
Statutory rate............................. $ (4,370) (35.0)% $ (4,958) (35.0)%
State and local taxes, net of federal tax (837) (6.7) (262) (1.8)
Goodwill amortization ..................... 914 7.3 914 6.5
Net operating losses not utilized ........ 3,870 31.0 1,207 8.5
Nondeductible recapitalization costs ..... -- -- 2,485 17.5
Nondeductible interest expense ............ 513 4.1 596 4.2
Other ..................................... (90) (0.7) 18 0.1
-------- --- -------- ---
Effective tax rate......................... $ -- --% $ -- --%
======== === ======== ===
</TABLE>
7. STORE PRE-OPENING EXPENSES
Duane Reade opened one new store location during the 39 weeks ended
September 28, 1996 and five new stores during the 39 weeks ended September
27, 1997.
8. COMMITMENTS AND CONTINGENCIES
LEASES
Duane Reade leases all of its store facilities under operating lease
agreements expiring on various dates through the year 2014. In addition to
minimum rentals, certain leases provide for annual increases based upon real
estate tax increases, maintenance cost increases and inflation. Rent expense
for the 39 weeks ended September 28, 1996 and September 27, 1997 was
$18,248,000 and $19,572,000, respectively.
Minimum annual rentals at September 27, 1997 are as follows (in
thousands):
13 weeks ending December 27, 1997 . $ 6,074
1998............................... 27,518
1999 .............................. 27,069
2000 .............................. 26,274
2001 .............................. 25,959
2002 .............................. 25,404
Remaining lease terms ............. 135,497
--------
Total.............................. $273,795
========
LITIGATION
The Company from time to time is involved in routine legal matters
incidental to its business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
MANAGEMENT AGREEMENTS
Pursuant to the terms of various employment and related agreements, the
Company and various executives entered into agreements pursuant to which (i)
executives' salary and bonuses were established
F-24
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
and (ii) executives purchased shares of Holdings' previously issued Class P
common stock at a price of $162.00 per share and shares of Holdings' common
stock at a price of $2.00 per share, each representing original cost. In the
event of employment termination, all of the stock may be repurchased by
Holdings. As a result of the recapitalization (see Note 10), all shares were
converted into Class B common stock. As of September 27, 1997, an aggregate
of 4,065,386.9 shares of common stock are held by employees and former
employees.
COMMITMENTS
At September 27, 1997, the Company had a commitment of approximately $4.0
million in connection with the acquisition and installation of a point of
sale scanning system. The Company intends to finance substantially all of
such acquisition and installation costs through capital lease financing.
9. EMPLOYEE BENEFIT PLANS
On October 12, 1992, the Company adopted the 1992 Stock Option Plan of
Duane Reade Holding Corp. (the "Plan"). Under the Plan, a committee
designated by the Board of Directors to administer the Plan (the "Committee")
may grant, to executive and other key employees of the Company, nonqualified
stock options to purchase up to an aggregate of 4,252,500 (adjusted for the
recapitalization--See Note 10) shares of common stock of the Company at an
exercise price fixed by the Committee. The options are exercisable at such
time or times as the Committee determines at or subsequent to grant. The term
of the options set by the Committee shall not exceed 10 years.
At September 27, 1997, there were outstanding nonqualified stock options
to purchase up to an aggregate of 5,380,078.7 shares of common stock
(including options granted outside the Plan), all of which are vested.
During the second quarter of 1997, the Company adopted an Equity
Participation Plan under which options for a total of 9,000,000 shares of
common stock of the Company may be granted if the Company meets specific
performance targets. At September 27, 1997, options for 8,178,132 shares have
been granted to employees.
As permitted, the Company applies Accounting Principles Board Opinion No.
25 and related Interpretations in accounting for its stock-based compensation
plan. Had compensation cost for the Company's stock-based compensation plan
been determined based on the fair value at the grant dates for awards under
the Plan, consistent with the alternative method of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, the
effect on the Company's net loss for the 39 weeks ended September 28, 1996
and September 27, 1997 would have been less than $100,000 and $200,000,
respectively.
Changes in options outstanding during the 39 weeks ended September 27,
1997 are summarized as follows:
<TABLE>
<CAPTION>
NUMBER
OF OPTIONS OPTION PRICE
--------------- --------------
<S> <C> <C>
Options outstanding, beginning of period 6,830,578.1 $0.07 to 4.91
Options granted .......................... 8,915,232 $0.07 to 4.91
Options canceled.......................... (2,187,599.4) $0.07 to 4.91
------------- -------------
Options outstanding, end of period ....... 13,558,210.7 $0.07 to 4.91
============= =============
</TABLE>
The Company maintains an employee savings plan pursuant to Section 401(k)
(the "401(k) Plan") of the Internal Revenue Code ("IRC") which covers
substantially all non-union employees other than key employees as defined by
IRC. Eligible participating employees may contribute up to 10% of their
pretax
F-25
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
salaries, subject to certain IRC limitations. The 401(k) Plan, as amended,
provides for employer matching provisions at the discretion of the Company
(to a maximum of 1% of pretax salaries) and has a feature under which the
Company may contribute additional amounts for all eligible employees. The
Company's policy is to fund such costs under the 401(k) Plan as accrued.
There were no employer contributions for the 39 weeks ended September 28,
1996 and September 27, 1997.
Duane Reade is under contract with local unions to contribute to
multi-employer pension and welfare benefit plans for certain of its
employees. For the 39 weeks ended September 28, 1996 and September 27, 1997,
contributions to such plans were $4,121,000 and $4,844,000, respectively.
10. RECAPITALIZATION
During June 1997, the Company entered into a recapitalization agreement
(the "Agreement") with its stockholders ("Stockholders") and certain
investors ("Investors"). The Agreement provided for (i) the purchase by
Investors from the Stockholders of substantially all their stock holdings in
the Company, (ii) a conversion of all of the outstanding shares of the
Company into a newly authorized class of Class B Common stock and (iii) the
creation of a new authorized class of preferred stock which will carry the
rights and preferences granted by the Company's Board of Directors when
issued.
Shares were converted as follows:
APPROXIMATE
PRIOR CLASS CONVERSION RATE
----------- ---------------
Common and Common Class A ........... 28/1
Common Class P and Common Class P-1 355/1
In addition, because of the change in control, the Company was obligated
to and made offers to repurchase all outstanding Senior Notes and Zero Coupon
Notes at 101% of the principal amount or accreted value thereof respectively.
Such offers expired on September 12, 1997. The Company repurchased an
aggregate of $107,000 principal amount of Senior Notes and $9,000 of Zero
Coupon Notes pursuant to the offers.
These financial statements do not reflect any adjustments as a result of
the June 1997 change in control.
11. NONRECURRING CHARGES
During the first quarter of 1997, the Company considered a public offering
of its common stock and took certain steps in connection with these plans.
Such plans were abandoned upon consummation of the transaction discussed in
Note 10.
Costs and expenses incurred in connection with the abandoned public
offering and the recapitalization and the exchange offers referred to in Note
10 aggregated approximately $10.9 million, including approximately $4.7
million to an affiliate of the Investors and approximately $0.6 million to an
affiliate of the Stockholders, and are included in other accrued expenses as
of September 27, 1997.
12. RELATED PARTY TRANSACTIONS
In 1992, the Company and the then principal stockholder of the Company
(who has subsequently sold most of its shares--see Note 10) entered into a
professional services agreement whereby consulting, advisory, financial and
other services were provided at the Company's request, for a five year term.
During the 39 weeks ended September 28, 1996, such fees aggregated
approximately $742,000. See Note 11.
In addition, the Investors paid an executive approximately $0.8 million
for advisory services rendered and a former executive approximately $1.6
million for the repurchase and cancellation of exercisable stock options. The
accompanying financial statements do not reflect such payments.
F-26
<PAGE>
DUANE READE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
13. SUBSEQUENT EVENT--REFINANCING OF BANK DEBT
On September 30, 1997, the Company entered into a credit agreement with an
affiliate of the Investors and various financial institutions providing for a
term loan of $65,475,000 and a revolving credit facility of $30,000,000.
Proceeds of the term loan were used to repay outstanding term loans
($63,475,000) and revolving loans ($2,000,000) pursuant to the Credit
Agreement discussed in Note 4.
The term loan is payable in quarterly installments of $165,000 from
December 1997 through March 2001, $31,000,000 in June 2001, quarterly
installments of $165,000 from September 2001 through March 2002 and
$31,000,000 in June 2002. Outstanding term and revolving loans at September
27, 1997 have been classified in accordance with such repayment terms.
Costs incurred in connection with the refinancing aggregated approximately
$2.7 million (including a funding fee of $2.4 million to an affiliate of the
Investors) and will be amortized over the term of the new credit agreement.
Unamortized deferred financing costs of approximately $1.8 million at
September 27, 1997 relating to the prior credit agreement will be charged to
earnings in the fourth quarter of 1997.
F-27
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY,
THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ...................................................... 3
Risk Factors ............................................................ 9
Use of Proceeds ......................................................... 14
Dividend Policy ......................................................... 16
Capitalization .......................................................... 17
Dilution ................................................................ 18
Selected Consolidated Historical and Pro Forma Financial and
Operating Data ........................................................ 19
Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................. 21
Business ................................................................ 27
Management .............................................................. 36
Certain Relationship and Related Transactions ........................... 42
Principal Stockholders .................................................. 44
Description of Certain Indebtedness .................................... 45
Description of Capital Stock ............................................ 47
Shares Eligible for Future Sale ......................................... 49
Underwriting ............................................................ 50
Legal Matters ........................................................... 51
Experts ................................................................. 51
Additional Information .................................................. 52
Index to Financial Statements............................................ F-1
</TABLE>
---------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
===============================================================================
===============================================================================
SHARES
[LOGO]
DUANE READE CORPORATION
COMMON STOCK
------------
PROSPECTUS
------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
,
===============================================================================
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee .................................... $34,849
NASD filing fee ......................................... 12,000
-------
New York Stock Exchange original listing fee ........... *
Blue sky fees and expenses (including attorneys' fees
and expenses) .......................................... *
Printing and engraving expenses ......................... *
Transfer agent's fees and expenses ...................... *
Accounting fees and expenses ............................ *
Legal fees and expenses ................................. *
Miscellaneous expenses .................................. *
-------
Total.................................................... $ *
=======
</TABLE>
- ------------
* To be provided by amendment.
All amounts are estimated except for the SEC registration fee and the NASD
filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") provides that a Delaware corporation may indemnify any person who is,
or is threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation
or enterprise. The indemnity may include expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was illegal. A Delaware
corporation may indemnify any person who is, or is threatened to be made, a
party to any threatened, pending or completed action or suit by or in the
right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may include
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.
The Company's Amended and Restated Certificate of Incorporation provides
for the indemnification of directors and officers of the Company to the
fullest extent permitted by Section 145.
In that regard, the Amended and Restated Certificate of Incorporation
provides that the Company shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative
B-1
<PAGE>
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director or officer of the Company, or is or was
serving at the request of the Company as a director, officer or member of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Indemnification in
connection with an action or suit by or in the right of the Company to
procure a judgment in its favor is limited to payment of settlement of such
an action or suit except that no such indemnification may be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the indemnifying corporation unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine that, despite the adjudication of liability but in
consideration of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth in chronological order is information regarding all securities
sold and employee stock options granted by the Company since November 1994.
Further included is the consideration, if any, received by the Company for
such securities, and information relating to the section of the Securities
Act of 1933, as amended (the "Securities Act"), and the rules of the
Securities and Exchange Commission under which exemption from registration
was claimed. All awards of options did not involve any sale under the
Securities Act. No sale of securities involved the use of an underwriter, and
no commissions were paid in connection with the sales of any securities.
(1) On April 10, 1995, the Company issued 5,000 shares of the Company's
common stock (the "Common Stock") and 555.556 shares of the Company's
Class P common stock (the "Class P Stock") to Jerry M. Ray for $100,000,
pursuant to the exemption contained in Section 4(2) of the Securities Act.
(2) On June 9, 1997, the Company issued 9,639 shares of Common Stock to
Bankers Trust New York Corporation for 9,639 shares of the Company's Class
A common stock (the "Class A Stock"), pursuant to the exemption contained
in Section 3(a)(9) of the Securities Act.
(3) On June 18, 1997, in connection with the Recapitalization, the
Company issued to all holders of its then outstanding capital stock (the
"Retired Common Stock") shares of its newly authorized Class B Common
Stock in exchange for such Retired Common Stock. For each share of Common
Stock and Class A Stock, a stockholder received approximately 28 shares of
Class B Common Stock, and for each share of Class P Stock and the
Company's Class P-1 common stock (the "Class P-1 Stock"), a holder
received approximately 355 shares of Class B Common Stock. In total, the
Company issued an aggregate of 85,405,524.5 shares of Class B Common Stock
to its stockholders for an aggregate of 1,136,470.5 shares of Common
Stock, 100,000 shares of Class A Stock, 126,274.7 shares of Class P Stock
and 11,111.1 shares of Class P-1 Stock. Section3(a)(9) of the Securities
Act was relied upon for exemption of such issuance from registration. Set
forth in the table below are (i) each of the shareholders of the Company,
(ii) the number of shares of Retired Common Stock such shareholder
exchanged and (iii) the number of shares of Class B Common Stock that the
Company issued to such shareholder.
B-2
<PAGE>
<TABLE>
<CAPTION>
SHARES OF RETIRED COMMON STOCK EXCHANGED
---------------------------------------------------------------- SHARES OF CLASS B
SHAREHOLDERS CLASS A STOCK CLASS P STOCK CLASS P-1 STOCK COMMON STOCK COMMON STOCK ISSUED
- -------------------------------------- --------------- --------------- --------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
DLJ Merchant Banking Partners II, L.P. 90,361 122,386 11,111.1 943,960 78,125,299
BCIP Associates........................ 2,239.503 3,173.428 153,455.511
BCIP Trust Associates, L.P............. 111.614 1,047.855 32,870.714
Tyler Capital Fund, L.P. .............. 33,021.798 31,072.102 1,817,035.190
Tyler International, L.P.-II........... 1,979.812 1,862.888 108,938.062
Tyler Massachusetts, L.P. ............. 6,765.861 6,366.439 372,295.187
Jeffrey C. Hammes...................... 104.161 98.039 5,733.130
Karl E. Lutz........................... 325.528 306.372 17,916.030
Pearlman Family Partners............... 390.653 367,647 21,499.238
Thomas Stemberg ....................... 82.700 2,344.151
The Marion Trust....................... 1,686.800 47,820.735
Bankers Trust New York Corporation ... 9,639 273,261.344
Sigler & Co. .......................... 2,551 72,333.917
Muico, Inc............................. 6,426 182,174.320
Roton, Inc. ........................... 1,890 53,580.538
USL Capital Corporation................ 1,890 53,580.538
Bruce L. Weitz......................... 2,777.775 25,000 1,693,910.900
Gary Charboneau........................ 2,777.775 25,000 1,693,910.900
Mike Cirilli........................... 138.889 1,250 84,695.634
Frank DeMarco.......................... 138.889 1,250 84,695.634
Karen Durham........................... 138.889 1,250 84,695.634
Hyman Needleman........................ 138.889 1,250 84,695.634
Jerry M. Ray........................... 555.556 5,000 338,782.535
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
NUMBER DESCRIPTION
- ------ -----------
1.1* Form of Underwriting Agreement.
3.1(i)* Form of Amended and Restated Certificate of Incorporation of the
Company.
3.1(ii)* Form of Amended and Restated Bylaws of the Company.
4.1* Form of certificate representing shares of Common Stock, $0.01
par value per share.
5.1* Opinion of Latham & Watkins
10.1* Form of Duane Reade Holding Corp. 1997 Stock Incentive Plan.
10.2* Duane Reade Holding Corp. 1992 Stock Incentive Plan.
10.3* Employment Agreement, dated as of October 27, 1997, between the
Company and Anthony J. Cuti.
10.4* Employment Agreement, dated as of February 22, 1993, as amended,
between the Company and Gary Charboneau.
10.5* Employment Agreement, dated as of April 10, 1995, as amended,
between Duane Reade and Jerry M. Ray.
10.6* Employment Letter Agreement, dated as of October 9, 1996, between
Duane Reade and Joseph Lacko.
10.7* Employment Letter Agreement, dated as of February 12, 1997,
between the Company and William Tennant.
10.8* Agreement, dated as of November 22, 1996, between Duane Reade and
Drug, Chemical, Cosmetic, Plastics and Affiliated Industries
Warehouse Employees Local 815.
10.9* Agreement, dated July 16, 1992, as amended, between Duane Reade
and Allied Trades Council.
B-3
<PAGE>
NUMBER DESCRIPTION
- ------ -----------
10.10* Agreement, dated February 4, 1997, as amended, between Duane
Reade and The Pharmacy Fund, Inc.
10.11 Indenture, dated as of September 15, 1992, between Duane Reade
Holding Corp. and The Connecticut National Bank, as trustee.
10.12 Indenture, dated as of September 15, 1992, among Duane Reade,
Daboco Inc., Duane Reade Inc. and The Connecticut National Bank,
as trustee.
10.13* Stockholders and Registration Rights Agreement, dated as of June
18, 1997, among the Company, DLJMB Funding II, Inc., DLJ Merchant
Banking Partners II, L.P., DLJ Diversified Partners, L.P., DLJ
First ESC L.L.C., DLJ Offshore Partners, II, C.V., DLJ EAB
Partners, L.P., UK Investment Plan 1997 Partners, Bankers Trust
New York Corporation, Conac & Co., Muico & Co., Roton & Co.,
Putnam High Yield Trust, PaineWebber Managed Investment Trust on
behalf of PaineWebber High Income Fund, USL Capital Corporation,
Pearlman Family Partners, The Marion Trust, Bruce L. Weitz, BCIP
Associates, BCIP Trust Associates, L.P., Tyler Capital Fund L.P.,
Tyler International, L.P.-II, and Tyler Massachusetts, L.P.
10.14 Credit Agreement, dated as of September 30, 1997, among Duane
Reade, Duane Reade Holding Corp., Daboco Inc., Duane Reade Inc.,
various financial institutions, as Lenders, DLJ Capital Funding,
Inc., as Syndication Agent, Fleet National Bank, as
Administrative Agent, and Credit Lyonnais New York Branch, as
Documentation Agent.
10.15 Partnership Security Agreement, dated as of September 30, 1997,
among Daboco Inc., Duane Reade Inc. and Fleet National Bank, as
Administrative Agent.
10.16 Borrower Security Agreement, dated as of September 30, 1997,
between Duane Reade and Fleet National Bank, as Administrative
Agent.
10.17 Parent Pledge Agreement, dated as of September 30, 1997, among
Duane Reade Holding Corp., Daboco Inc. and Fleet National Bank,
as Administrative Agent.
10.18* New Credit Agreement.
11.1 Computation of Earnings Per Share.
21.1 Subsidiaries of the Company.
23.1 Consent of Price Waterhouse LLP.
23.2* Consent of Latham & Watkins (included in Exhibit 5.1).
24.1 Powers of Attorney (included in signature page).
27.1 Financial Data Schedule.
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules:
Schedules for which provision is made in the applicable accounting
regulations of the Commission are either not required under the related
instructions, are inapplicable or not material, or the information called for
thereby is otherwise included in the financial statements and therefore has
been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described in Item
B-4
<PAGE>
14, or otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed tobe the initial bona fide offering thereof.
B-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on November 26, 1997.
DUANE READE INC.
By: /s/ Anthony J. Cuti
-------------------------------
Name: Anthony J. Cuti
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Anthony J. Cuti and William Tennant and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (including his capacity as a director and/or officer
of Duane Reade Inc.), to sign any or all amendments (including post-effective
amendments) to this registration statement and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and Power of Attorney have been signed on November 26,
1997, by the following persons in the capacities indicated with respect to
Duane Reade Inc.:
SIGNATURE CAPACITY
--------- --------
/s/ Anthony J. Cuti
- -------------------------- Chairman, President, Chief Executive Officer and
Anthony J. Cuti Director (principal executive officer)
/s/ William J. Tennant
- -------------------------- Chief Financial Officer
William J. Tennant (principal accounting and financial officer)
/s/ Nicole S. Arnaboldi
- --------------------------
Nicole S. Arnaboldi Director
/s/ David L. Jaffe
- --------------------------
David L. Jaffe Director
/s/ Andrew J. Nathanson
- --------------------------
Andrew J. Nathanson Director
B-6
<PAGE>
EXHIBIT INDEX
The following documents are the exhibits to this Registration Statement on
Form S-1. For convenient reference, each exhibit is listed according to the
Exhibit Table of Regulation S-K. The page number, if any, listed opposite an
exhibit indicates the page number in the sequential numbering system in the
manually signed original of this Registration Statement on Form S-1 where
such exhibit can be found.
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
------ ------- ------
1.1* Form of Underwriting Agreement.
3.1(i)* Form of Amended and Restated Certificate of
Incorporation of the Company.
3.1(ii)* Form of Amended and Restated Bylaws of the Company.
4.1* Form of certificate representing shares of Common
Stock, $0.01 par value per share.
5.1* Opinion of Latham & Watkins
10.1* Form of Duane Reade Holding Corp. 1997 Stock Incentive
Plan.
10.2* Duane Reade Holding Corp. 1992 Stock Incentive Plan.
10.3* Employment Agreement, dated as of October 27, 1997,
between the Company and Anthony J. Cuti.
10.4* Employment Agreement, dated as of February 22, 1993, as
amended, between the Company and Gary Charboneau.
10.5* Employment Agreement, dated as of April 10, 1995, as
amended, between Duane Reade and Jerry M. Ray.
10.6* Employment Letter Agreement, dated as of October 9,
1996, between Duane Reade and Joseph Lacko.
10.7* Employment Letter Agreement, dated as of February 12,
1997, between the Company and William Tennant.
10.8* Agreement, dated as of November 22, 1996, between Duane
Reade and Drug, Chemical, Cosmetic, Plastics and
Affiliated Industries Warehouse Employees Local 815.
10.9* Agreement, dated July 16, 1992, as amended, between
Duane Reade and Allied Trades Council.
10.10* Agreement, dated February 4, 1997, as amended, between
Duane Reade and The Pharmacy Fund, Inc.
10.11 Indenture, dated as of September 15, 1992, between
Duane Reade Holding Corp. and The Connecticut National
Bank, as trustee.
10.12 Indenture, dated as of September 15, 1992, among Duane
Reade, Daboco Inc., Duane Reade Inc. and The
Connecticut National Bank, as trustee.
10.13* Stockholders and Registration Rights Agreement, dated
as of June 18, 1997, among the Company, DLJMB Funding
II, Inc., DLJ Merchant Banking Partners II, L.P., DLJ
Diversified Partners, L.P., DLJ First ESC L.L.C., DLJ
Offshore Partners, II, C.V., DLJ EAB Partners, L.P., UK
Investment Plan 1997 Partners, Bankers Trust New York
Corporation, Conac & Co., Muico & Co., Roton & Co.,
Putnam High Yield Trust, PaineWebber Managed Investment
Trust on behalf of PaineWebber High Income Fund, USL
Capital Corporation, Pearlman Family Partners, The
Marion Trust, Bruce L. Weitz, BCIP Associates, BCIP
Trust Associates, L.P., Tyler Capital Fund L.P., Tyler
International, L.P.-II, and Tyler Massachusetts, L.P.
<PAGE>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
------ ------- ------
10.14 Credit Agreement, dated as of September 30, 1997, among
Duane Reade, Duane Reade Holding Corp., Daboco Inc.,
Duane Reade Inc., various financial institutions, as
Lenders, DLJ Capital Funding, Inc., as Syndication
Agent, Fleet National Bank, as Administrative Agent,
and Credit Lyonnais New York Branch, as Documentation
Agent.
10.15 Partnership Security Agreement, dated as of September
30, 1997, among Daboco Inc., Duane Reade Inc. and Fleet
National Bank, as Administrative Agent.
10.16 Borrower Security Agreement, dated as of September 30,
1997, between Duane Reade and Fleet National Bank, as
Administrative Agent.
10.17 Parent Pledge Agreement, dated as of September 30,
1997, among Duane Reade Holding Corp., Daboco Inc. and
Fleet National Bank, as Administrative Agent.
10.18* New Credit Agreement.
11.1 Computation of Earnings Per Share.
21.1 Subsidiaries of the Company.
23.1 Consent of Price Waterhouse LLP.
23.2* Consent of Latham & Watkins (included in Exhibit 5.1).
24.1 Powers of Attorney (included in signature page).
27.1 Financial Data Schedule.
- ------------
* To be filed by amendment.
<PAGE>
================================================================================
DUANE READE HOLDING CORP.
and
THE CONNECTICUT NATIONAL BANK, Trustee
------------------------
INDENTURE
Dated as of September 15, 1992
------------------------
$123,380,000
15% Senior Subordinated Zero Coupon Notes
due September 15, 2004, Series A
and
15% Senior Subordinated Zero Coupon Notes
due September 15, 2004, Series B
================================================================================
<PAGE>
CROSS-REFERENCE TABLE TIA
TIA Indenture
Section Section
- ------- ---------
310(a)(1)....................................... 7.10
(a)(2)....................................... 7.10
(a)(3)....................................... N.A.
(a)(4)....................................... N.A.
(a)(5)....................................... 7.08; 7.10
(b).......................................... 7.08; 7.10
(c).......................................... N.A.
311(a).......................................... 7.11
(b).......................................... 7.11
(c).......................................... N.A.
312(a).......................................... 2.05
(b).......................................... 12.03
(c).......................................... 12.03
313(a).......................................... 7.06
(b)(1)....................................... N.A.
(b)(2)....................................... 7.06
(c).......................................... 7.06; 12.02
(d).......................................... 7.06
314(a).......................................... 4.07; 4.09;
12.02
(b).......................................... N.A.
(c)(1)....................................... 12.04
(c)(2)....................................... 12.04
(c)(3)....................................... N.A.
(d).......................................... N.A.
(e).......................................... 12.05
(f).......................................... N.A
315(a).......................................... 7.01(b)
(b).......................................... 7.05; 12.02
(c).......................................... 7.01(a)
(d).......................................... 7.01(c)
(e).......................................... 6.11
316(a)(last sentence)........................... 2.09
(a)(1)(A).................................... 6.05
(a)(1)(B).................................... 6.04
(a)(2)....................................... N.A.
(b).......................................... 6.07
317(a)(1)....................................... 6.08
(a)(2)....................................... 6.09
(b).......................................... 2.04
318(a).......................................... 12.01
(c).......................................... 12.01
- ----------
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
-i-
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
Page
----
1
Section 1.01 Definitions................................... 23
Section 1.02 IncorporatiOn by Reference of TIA.............
Section 1.03 Rules of Construction......................... 24
ARTICLE TWO
THE SECURITIES
Section 2.01 Form and Dating............................... 24
Section 2.02 Execution and Authentication.................. 25
Section 2.03 Registrar and Paying Agent.................... 26
Section 2.04 Paying Agent to Hold Assets in
Trust....................................... 27
Section 2.05 Securityholder Lists.......................... 28
Section 2.06 Transfer and Exchange......................... 28
Section 2.07 Replacement Securities........................ 30
Section 2.08 Outstanding Securities........................ 31
Section 2.09 Treasury Securities........................... 31
Section 2.10 Temporary Securities.......................... 32
Section 2.11 Cancellation.................................. 32
Section 2.12 Defaulted Interest............................ 32
Section 2.13 Home Office Payment Agreements................ 33
Section 2.14 CUSIP Number.................................. 33
ARTICLE THREE
REDEMPTION
Section 3.01 Notices to Trustee............................ 33
Section 3.02 Selection of Securities To Be
Redeemed................................... 34
Section 3.03 Notice of Redemption.......................... 34
Section 3.04 Effect of Notice of Redemption................ 35
Section 3.05 Deposit of Redemption Price................... 35
Section 3.06 Securities Redeemed in Part................... 36
Section 3.07 Offer To Purchase by Application
of Net Cash Proceeds........................ 36
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ARTICLE FOUR
COVENANTS
Section 4.01 Payment of Securities......................... 38
Section 4.02 Maintenance of Office or Agency............... 39
Section 4.03 Limitation on Dividends, Stock
Purchases and Certain Investments,
Loans and Advances.......................... 39
Section 4.04 Corporate Existence........................... 42
Section 4.05 Payment of Taxes and Other Claims............. 43
Section 4.06 Maintenance of Properties and
Insurance.................................. 43
Section 4.07 Compliance Certificate; Notice of
Default.................................... 44
Section 4.08 Compliance with Laws.......................... 45
Section 4.09 SEC Reports and Other Information............. 45
Section 4.10 Waiver of Stay, Extension or Usury
Laws....................................... 47
Section 4.11 Limitation on Transactions with
Affiliates................................. 48
Section 4.12 Limitation on Indebtedness.................... 49
Section 4.13 Limitation on Dividends and Other
Payment Restrictions Affecting
Subsidiaries............................... 50
Section 4.14 Limitation on Liens........................... 51
Section 4.15 Change of Control............................. 51
Section 4.16 Limitation on Asset Sales..................... 53
Section 4.17 Conduct of Business........................... 54
Section 4.18 Unrestricted Subsidiaries..................... 54
Section 4.19 Limitation on Guarantees by
Affiliates.................................. 55
Section 4.20 Restrictions on Sale of Stock of
Subsidiaries................................ 55
ARTICLE FIVE
SUCCESSOR CORPORATION
Section 5.01 When Company May Merge, Etc................... 56
Section 5.02 Successor Corporation Substituted............. 57
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ARTICLE SIX
DEFAULT AND REMEDIES
Section 6.01 Events of Default............................. 58
Section 6.02 Acceleration.................................. 60
Section 6.03 Other Remedies................................ 61
Section 6.04 Waiver of Past Defaults....................... 61
Section 6.05 Control by Majority........................... 62
Section 6.06 Limitation on Suits........................... 62
Section 6.07 Rights of Holders to Receive
Payment..................................... 63
Section 6.08 Collection Suit by Trustee.................... 63
Section 6.09 Trustee May File Proofs of Claim.............. 63
Section 6.10 Priorities.................................... 64
Section 6.11 Undertaking for Costs......................... 64
ARTICLE SEVEN
TRUSTEE
Section 7.01 Duties of Trustee............................. 65
Section 7.02 Rights of Trustee............................. 66
Section 7.03 Individual Rights of Trustee.................. 67
Section 7.04 Trustee's Disclaimer.......................... 67
Section 7.05 Notice of Default............................. 68
Section 7.06 Reports by Trustee to Holders................. 68
Section 7.07 CompensatiOn and Indemnity.................... 68
Section 7.08 Replacement of Trustee........................ 69
Section 7.09 Successor Trustee by Merger, Etc.............. 71
Section 7.10 E1igibility Disqualification................. 71
Section 7.11 Preferential Collection of Claims
Against Company.............................. 71
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
Section 8.01 Satisfaction, Discharge of the
Indenture and Defeasance of the
Securities.................................. 72
Section 8.02 Termination of Obligations upon
Cancellation of the Securities.............. 74
Section 8.03 Survival of Certain Obligations............... 74
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Section 8.04 Acknowledgment of Discharge by
Trustee..................................... 74
Section 8.05 Application of Trust Assets................... 75
Section 8.06 Repayment to the Company...................... 75
Section 8.07 Reinstatement................................. 75
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01 Without Consent of Holders.................... 76
Section 9.02 With Consent of Holders....................... 77
Section 9.03 Compliance with TIA........................... 78
Section 9.04 Revocation and Effect of Consents............. 78
Section 9.05 Notation on or Exchange of
Securities.................................. 79
Section 9.06 Trustee To Sign Amendments, Etc............... 79
ARTICLE TEN
MEETINGS OF SECURITYHOLDERS
Section 10.01 Purposes for Which Meetings May Be
Called..................................... 80
Section 10.02 Manner of Calling Meetings.................... 80
Section 10.03 Call of Meetings by Company or
Holders.................................... 81
Sect ion 10.04 Who May Attend and Vote at
Meetings................................... 81
Section 10.05 Regulations May Be Made by Trustee;
Conduct of the Meeting;
Voting Rights; Adjournment................. 82
Section 10.06 Voting at the Meeting and Record
To Be Kept................................. 83
Section 10.07 Exercise of Rights of Trustee or
Securityholders May Not Be Hindered
or Delayed by Call of
Meeting.................................... 83
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ARTICLE ELEVEN
SUBORDINATION
Section 11.01 Securities Subordinated to Senior
Indebtedness............................... 84
Section 11.02 No Payment on Securities in Certain
Circumstances.............................. 84
Section 11.03 Securities Subordinated to Prior Payment
of All Senior Indebtedness on
Dissolution, Liquidation or
Reorganization of the Company.............. 86
Section 11.04 Securityholders To Be Subrogated to
Rights of Holders of Senior
Indebtedness............................... 87
Section 11.05 Obligations of the Company
Unconditional.............................. 87
Section 11.06 Trustee Entitled to Assume Payments
Not Prohibited in Absence of Notice........ 88
Section 11.07 Application by Trustee of Assets
Deposited with It.......................... 88
Section 11.08 Subordination Rights Not Impaired by
Acts or Omissions of Company or
Holders of Senior Indebtedness............. 89
Section 11.09 Securityholders Authorize Trustee To
Effectuate Subordination of
Securities................................. 89
Section 11.10 Right of Trustee to Hold Senior
Indebtedness............................... 90
Section 11.11 Article Eleven Not To Prevent Events
of Default................................. 90
ARTICLE TWELVE
MISCELLANEOUS
Section 12.01 TIA Controls.................................. 90
Section 12.02 Notices....................................... 90
Section 12.03 Communications by Holders with Other
Holders.................................... 92
Section 12.04 Certificate and Opinion as to Conditions
Precedent.................................. 92
Section 12.05 Statements Required in Certificate or
Opinion.................................... 92
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Section 12.06 Rules by Trustee, Paying Agent,
Registrar.................................. 93
Section 12.07 Legal Holidays................................ 93
Section 12.08 Governing Law................................. 93
Section 12.09 No Adverse Interpretation of Other
Agreements................................. 93
Section 12.10 No Recourse Against Others.................... 94
Section 12.11 Holding Company Indebtedness.................. 94
Section 12.12 Successors.................................... 94
Section 12.13 Duplicate Originals........................... 94
Section 12.14 Severability.................................. 94
Signatures...................................................... 95
Exhibit A - Form of Series A Note............................. A-1
Exhibit B - Form of Series B Note............................. B-1
Exhibit C - Form of Legend for Book-Entry Securities.......... C-1
Exhibit D - Form of Transferee Certificate.................... D-l
Exhibit E - Accreted Value Per $1,000 Face Amount............. E-1
Note: This Table of Contents shall not, for any purpose, be deemed to be
part of the Indenture.
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<PAGE>
INDENTURE, dated as of September 15, 1992, between Duane Reade
Holding Corp., a Delaware corporation (the "Company"), and The Connecticut
National Bank, as Trustee (the "Trustee").
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's 15%
Senior Subordinated Zero Coupon Notes due September 15, 2004, Series A, and 15%
Senior Subordinated Zero Coupon Notes due September 15, 2004, Series B:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Accreted Value" means, at any date, with respect to the Securities,
the sum of (i) the Payment Amount of such Securities and (ii) that portion of
the original issue discount (the excess of the face amount over the Payment
Amount) which has been amortized at such time on the effective interest method
of accounting, using semi-annual compounding of interest on March 15 and
September 15 of each year, from the Issue Date of such Securities through the
date as of which the Accreted Value is being determined. That portion of the
original issue discount amortized during any period or portion thereof, other
than a semi-annual period ending on March 15 or September 15, shall be
determined in proportion to the number of days elapsed in such period or portion
thereof, based upon a semi-annual period of six 30-day months.
"Acquired Indebtedness" means Indebtedness of a person or any of its
Subsidiaries existing at the time such person becomes a Subsidiary of the
Company or assumed in connection with the acquisition of assets from such person
and not incurred by such person in connection with, or in anticipation or
contemplation of, such person becoming a Subsidiary of the Company or such
acquisition.
"Acquisition" means the Company's acquisition of Duane Reade through
(i) the acquisition of 100% of the outstanding capital stock of Daboco, one of
the partners of Duane Reade, and (ii) the redemption of the partnership
interests in Duane Reade owned by Dajaco Inc. and DLR Inc.
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"Affiliate" of any specified person means any other person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any 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
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of Section 4.11, the term "Affiliate" shall include any
person who, as a result of any transaction described in Section 4.11, would
become an Affiliate. Notwithstanding the foregoing, the term "Affiliate," with
respect to the Company and its Affiliates, shall not include BT Securities
Corporation or any of its Affiliates.
"Affiliate Transaction" has the meaning provided in Section 4.11.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Applicable Premium" means, with respect to a Security, the greater
of (i) 7.5% of the then outstanding Accreted Value or principal amount, as the
case may be, of a Security and (ii) the excess of (A) the present value of the
amount due on such Security as if such Security was redeemed on September 15,
1997, discounted back from September 15, 1997 to the Redemption Date computed
using a discount rate equal to the Treasury Rate plus the Applicable Spread,
over (B) the then outstanding Accreted Value of such Security.
"Applicable Spread" means 100 basis points.
"Asset Acquisition" means (i) an Investment by the Company or any
Subsidiary of the Company in any other person pursuant to which such person
shall become a Subsidiary of the Company or any Subsidiary of the Company or
shall be merged with the Company or any Subsidiary of the Company or (ii) the
acquisition by the Company or any Subsidiary of the Company of the assets of any
person which constitute all or substantially all of the assets of such person or
any division or line of business of such person.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, transfer, lease, assignment or other transfer for value by the
Company or any of its Subsidiaries (including
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any Sale/leaseback) to any person other than the Company or a wholly-owned
Subsidiary of the Company, in one transaction or a series of related
transactions, of (i) any Capital Stock of any Subsidiary of the Company; (ii)
all or substantially all of the properties and assets of any division or line of
business of the Company or any Subsidiary of the Company; or (iii) any other
properties or assets of the Company or any Subsidiary of the Company other than
in the ordinary course of business; provided that clause (iii) shall not apply
to an Asset Sale as such term is used in the definition of "Consolidated Fixed
Charge Coverage Ratio." For the purposes of this definition, the term "Asset
Sale" shall not include any Capital Stock of the Company or sale, issuance,
conveyance, transfer, lease or other disposition of properties or assets that is
governed by the provisions of Article Five.
"Asset Swap" shall mean any transaction, or series of related
transactions (whether by purchase or sale of assets or securities), whereby
assets of the Company or any of its Subsidiaries are exchanged by the Company or
any of such Subsidiaries for Productive Assets owned by a person other than the
Company or any of its Subsidiaries or any Affiliates thereof. If a transaction
otherwise constitutes an Asset Swap but also includes the receipt of Net Cash
Proceeds, such transaction shall be treated as a disposition of assets to the
extent of such Net Cash Proceeds for purposes of Section 4.16.
"Bain Capital" means, collectively, Bain Venture Capital, a
California limited partnership, BCIP Associates, BCIP Trust Associates, L.P.,
Tyler Capital Fund, L.P., Tyler Massachusetts, L.P., and Tyler International,
L.P.-II, and the partners (as of the date of determination) of each of the
foregoing.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any person, the Board of
Directors of such person or any committee of the Board of Directors of such
person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such person.
"Board Resolution" means, with respect to any person, a duly adopted
resolution of the Board of Directors or other equivalent governing body of such
person.
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"Book-Entry Security" means a Security represented by a Global
Security and registered in the name of the nominee of the Depository.
"Business Day" means a day that is not a Legal Holiday.
"Capital Lease," as applied to any person, means any lease of any
property (whether real, personal or mixed) by that person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that person.
"Capital Stock" means (i) with respect to any person, any and all
shares, interests, participations or other equivalents (however designated) of
corporate stock, including each class of common stock and preferred stock of
such person and (ii) with respect to Duane Reade or any other person formed
other than as a corporation, any and all partnership or other equity interests
of Duane Reade or such other person.
"Capitalized Lease Obligation" means, as to any person, the
obligations of such person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
Indenture, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued
by, or unconditionally guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's
Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by any
commercial bank organized under the laws of the United States of America or any
state
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-5-
thereof or the District of Columbia or any U.S. branch of a foreign bank having
at the date of acquisition thereof combined capital and surplus of not less than
$250,000,000; (v) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (iv) above;
and (vi) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company, Duane Reade or Daboco to any person or group of
related persons for purposes of Section 13(d) of the Exchange Act (a "Group"),
together with any Affiliates thereof (whether or not otherwise in compliance
with the provisions of the Indenture); (ii) the approval by the holders of
Capital Stock of the Company or Duane Reade or Daboco of any plan or proposal
for the liquidation or dissolution of the Company or Duane Reade or Daboco
(whether or not otherwise in compliance with the provisions of the Indenture);
(iii) the acquisition in one or more transactions of beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) by any person, entity
or Group (other than Bain Capital), in either case, of any securities of the
Company, Duane Reade or Daboco such that, as a result of such acquisition, such
person, entity or Group either (A) beneficially owns (within the meaning of Rule
13d-3 under the Exchange Act), directly or indirectly, at least 30% of the
Company's, Duane Reade's or Daboco's then outstanding voting securities entitled
to vote on a regular basis in an election for a majority of the Board of
Directors or other equivalent governing body thereof, unless at all times that
such person, entity, or Group so owns at least 30% of such voting securities
Bain Capital beneficially owns, directly or indirectly, at least 50% of the
voting securities of the entity (i.e., either the Company, Duane Reade or
Daboco) in which such person, entity or Group holds such 30% or more voting
interest or (B) otherwise has the ability to elect, directly or indirectly, a
majority of the members of the Company's, Duane Reade's or Daboco's Board of
Directors or other equivalent governing body; (iv) Bain Capital sells,
transfers, or otherwise disposes of more than 50% of the economic interest in
the Company, Duane Reade or Daboco held by Bain Capital on the Issue Date;
provided that, for purposes of this clause (iv), if Bain
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Capital transfers any Capital Stock of the Company, Duane Reade or Daboco to
management of the Company, Duane Reade or Daboco subsequent to the Issue Date,
then the economic interest deemed to be held by Bain Capital as of the Issue
Date shall be reduced by the economic interest of such Capital Stock so
transferred; or (v) the failure of Holdings to (a) own, directly or indirectly,
more than 50% of the voting securities of Duane Reade or (b) have the ability to
elect, directly or indirectly, a majority of the members of Duane Reade's Board
of Directors or other equivalent governing body.
"Change of Control Date" has the meaning provided in Section 4.15.
"Change of Control Offer" has the meaning provided in Section 4.15.
"Change of Control Payment Date" has the meaning provided in Section
4.15.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means such
successor.
"Consolidated EBITDA" means, with respect to any person, for any
period, the sum (without duplication) of (i) Consolidated Net Income, (ii) to
the extent Consolidated Net Income has been reduced thereby, all income taxes of
such person and its Subsidiaries paid or accrued in accordance with GAAP for
such period (other than income taxes attributable to extraordinary, unusual or
non-recurring gains or losses), Consolidated Interest Expense, amortization
expense and depreciation expense and (iii) other non-cash items other than
non-cash interest reducing Consolidated Net Income less other non-cash items
increasing Consolidated Net Income, all as determined on a consolidated basis
for such person and its Subsidiaries in conformity with GAAP (it being
understood that, for purposes of calculating Consolidated EBITDA notwithstanding
GAAP, rent expense shall only reduce Consolidated Net Income to the extent that
such rent is actually paid and no effect shall be given to rent deferrals or any
reversals thereof).
"Consolidated Fixed Charge Coverage Ratio" means, with respect to
any person, the ratio of Consolidated EBITDA of such person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated
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Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed
Charges of such person for the Four Quarter Period. For purposes of this
definition, prior to the date on which four full fiscal quarters have elapsed
subsequent to the Issue Date and financial statements with respect thereto are
available, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated, in the case of the Company, after giving effect to the Acquisition
on a pro forma basis as if it occurred on the first day of the Four Quarter
Period. In addition to and without limitation of the foregoing, for purposes of
this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to (i) the incurrence or repayment of any Indebtedness of such
person or any of its Subsidiaries (and the application of the proceeds thereof)
giving rise to the need to make such calculation and any incurrence or repayment
of other Indebtedness (and the application of the proceeds thereof) at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such person or one of its Subsidiaries (including any
person who becomes a Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness and also including
any Consolidated EBITDA associated with such Asset Acquisition) occurring during
the Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for any
such Indebtedness or Acquired Indebtedness) occurred on the first day of the
Four Quarter Period. If such person or any of its Subsidiaries directly or
indirectly guarantees Indebtedness of a third person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
person or any Subsidiary of such person had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in
<PAGE>
-8-
effect on the Transaction Date; (2) if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four Quarter
Period; (3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Swap Obligations, shall be deemed to accrue at
the rate per annum resulting after giving effect to the operation of such
agreements; and (4) the permanent retirement of any Indebtedness during the Four
Quarter Period or at any time subsequent to the last day of the Four Quarter
Period and on or prior to the Transaction Date shall be given effect as if it
occurred at the beginning of such Four Quarter Period. Furthermore, in
calculating "Consolidated Fixed Charges" for purposes of determining both the
denominator and the numerator of this "Consolidated Fixed Charge Coverage
Ratio," interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by Interest Rate Cap Agreements, shall be deemed
to accrue at the rate per annum resulting after giving effect to the operation
of such agreements.
"Consolidated Fixed Charges" means, with respect to any person for
any period, the sum, without duplication, of (i) Consolidated Interest Expense
(before amortization or write-off of debt issuance costs and before amortization
of any original issue discount associated with the issuance of Common Stock to
the Purchasers in connection with the initial issuance of the Series A Notes)
and (ii) the product of (x) the amount of all dividend payments on any series of
preferred stock of such person (except dividends for such period which are
accrued but unpaid) times (y) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective consolidated
federal, state and local tax rate of such person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any person
for any period, the aggregate of all cash and non-cash interest expense (net of
interest income) with respect to all outstanding Indebtedness of such person and
its Subsidiaries, including the net costs associated with Interest Swap
Obligations, for such period determined on a consolidated basis in conformity
with GAAP.
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"Consolidated Net Income" means, with respect to any person for any
period, the net income (or loss) of such person and its Subsidiaries, on a
consolidated basis for such period determined in conformity with GAAP; provided
that the net income of any person, in which such person or any Subsidiary of
such person has an ownership interest shall be included only to the extent of
the lesser of (y) such income that has actually been received by such person or
its Subsidiaries in the form of dividends or other distributions during such
period or (z) the net income of such person (which in no event shall be less
than zero); provided, further, that there shall be excluded (i) the income (or
deficit) of any person (acquired in a pooling of interests transaction) accrued
prior to the date it becomes a Subsidiary of such person or is merged into or
consolidated with such person or any Subsidiary, and (ii) any extraordinary,
unusual or nonrecurring gains or losses (and related tax effects) in accordance
with GAAP; provided, further, that notwithstanding the requirements of GAAP, in
calculating Consolidated Net Income the amortization of non-compete payments
relating to the Non-Compete Agreements shall be based upon a 25-year
amortization schedule and the amortization of debt issuance costs shall be over
the scheduled life of the debt (without regard to any early retirement) giving
rise to such debt issuance costs.
"Consolidated Net Worth" means, with respect to any person as at any
date of determination, the total of the amounts shown on the consolidated
balance sheet of such person and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP as (i) the par or stated value of all outstanding
Capital Stock of such person plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Capital Stock.
"Credit Agreement" means the Credit Agreement dated as of September
24, 1992, among Duane Reade, Daboco, Duane Reade Inc., the Lenders and Bankers
Trust Company, as Agent, or any successor agreement (whether or not Daboco and
Duane Reade Inc. are also parties thereto), together with the documents related
thereto, including, without limitation, any security agreements, pledge
agreements, mortgages and guaranties, in each case as such agreements may be
amended, restated, supplemented or otherwise modified from time to time and
includes any agreement renewing, extending the maturity of, refinancing
(including by way of placement or issuance of notes or
<PAGE>
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Permitted Preferred Stock) or restructuring (including the inclusion of
additional borrowers and/or the exclusion of Daboco and/or Duane Reade Inc. as
guarantors) all or any portion of the Indebtedness under such agreements.
"Credit Agreement Reinvestment Notice" means a notice of election to
reinvest Net Cash Proceeds of an Asset Sale given by Duane Reade pursuant to the
terms of the Credit Agreement; provided, however, that for purposes of this
Indenture only $500,000 of Net Cash Proceeds received in any fiscal year shall
be subject to such a notice.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Daboco" means Daboco, Inc., a New York corporation, which at the
Issue Date will be the owner of a 99% partnership interest in Duane Reade and
which is a wholly-owned Subsidiary of the Company.
"Default" means any event or condition the occurrence of which
would, with the passage of time or the giving of notice or both, become an Event
of Default.
"Depository" means, with respect to the Securities issued in the
form of one or more Book-Entry Securities, The Depository Trust Company or
another person designated as Depository by the Company, which must be a clearing
agency registered under the Exchange Act.
"Disqualified Capital Stock" means any class of Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the Maturity Date.
"Duane Reade" means Duane Reade, a New York general partnership,
which at the Issue Date will be 99% owned by Daboco and 1% owned by Duane Reade
Inc.
"Duane Reade Inc." means Duane Reade Inc., a Delaware corporation,
which at the Issue Date will be the owner of a 1% partnership interest in Duane
Reade and which is a wholly-owned Subsidiary of Daboco.
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"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Event of Default" has the meaning provided in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"Exchange Offer" means the registration by the Company under the
Securities Act of all the Series B Notes pursuant to a registration statement
under which the Company offers each Holder of Series A Notes the opportunity to
exchange all Series A Notes held by such Holder for Series B Notes in an
aggregate Accreted Value or principal amount, as the case may be, equal to the
aggregate Accreted Value or principal amount, as the case may be, of Series A
Notes held by such Holder, all in accordance with the terms and conditions of
the Registration Rights Agreement.
"Final Accretion Date" means September 15, 1999.
"GAAP" means generally accepted accounting principles as in effect
in the United States of America as of the date of this Indenture. If the Company
has changed one or more of the accounting principles used in the preparation of
its financial statements, then a Default or an Event of Default relating to
financial ratios or amounts, calculated under the new accounting principles,
shall not be considered a Default or an Event of Default if the required ratio
or amount would have been complied with had the Company continued to use those
generally accepted accounting principles employed as of the date of this
Indenture.
"Global Security" means a Security evidencing all or a part of the
Securities to be issued as Book-Entry Securities, issued to the Depository in
accordance with Section 2.02 and bearing the legend prescribed in Exhibit C.
"Holder" or "Securityholder" means the person in whose name a
Security is registered on the Registrar's books.
"Indebtedness" means with respect to any person, without
duplication, (i) all obligations of such person for borrowed money, (ii) all
obligations of such person evidenced by bonds, debentures, notes or other
similar instruments,
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(iii) all Capitalized Lease Obligations of such person, (iv) all obligations of
such person issued or assumed as the deferred purchase price of property or
services (excluding deferred rent expense), all conditional sale obligations and
all obligations under any title retention agreement (but excluding trade
accounts payable and accrued expenses arising in the ordinary course of
business), (v) all obligations of such person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction entered into in the ordinary course of business, (vi) all
obligations of any other person of the type referred to in clauses (i) through
(v) which are secured by any Lien on any property or asset of such first person
and the amount of such obligation shall be the lesser of the value of such
property or asset or the amount of the obligation so secured, (vii) all
guarantees of Indebtedness by such person, (viii) Disqualified Capital Stock
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued dividends, (ix) all obligations under Interest Swap
Obligations of such person and (x) any amendment, supplement, modification,
deferral, renewal, extension or refunding of any liability of the types referred
to in clauses (i) through (ix) above. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
this Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value to be
determined in good faith by the Board of Directors of the Company.
"Indenture" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
"Independent Financial Advisor" means a nationally recognized
reputable accounting, appraisal or investment banking firm that is, in the
reasonable judgment of the Board of Directors of the Company, qualified to
perform the task for which such firm has been engaged hereunder and
disinterested and independent with respect to the Company and its Affiliates.
"Initial Public Offering" means an underwritten public offering of
common stock of the Company at a time when the Company has not previously issued
or sold any equity securities
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pursuant to a registration statement filed pursuant to the Securities Act.
"Initial Public Offering Consummation Date" means the first date on
which the Company receives any proceeds from an Initial Public Offering.
"Interest Payment Date" means the stated maturity of an installment
of interest on the Securities.
"Interest Rate Cap Agreement" means any agreement pursuant to which
any person purchases a cap on the applicable rate of interest on specified
Indebtedness.
"Interest Swap Obligations" means the obligations of any person,
pursuant to any arrangement with any other person, whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
person calculated by applying a fixed or a floating rate of interest on the same
notional amount.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"Investment" as applied to any person, means any direct or indirect
purchase or other acquisition by that person of, or of a beneficial interest in,
stock or other securities of any other person or any direct or indirect loan,
advance (other than advances to employees for moving and travel expenses, loans
to management for purchases of common equity of the Company, drawing accounts
and deposits in connection with rental property and similar expenditures made
and credit extended in the ordinary course of business) or capital contribution
by that person to any other person (other than the Company), including all
indebtedness and accounts receivable from that other person that are not current
assets or did not arise in the ordinary course of business. The amount of any
Investment shall be the fair market value of such Investment, as determined in
good faith by the Board of Directors of the Company at the time such Investment
is made.
"Issue Date" means the date of first issuance of the Securities
under this Indenture.
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"Legal Holiday" has the meaning provided in Section 12.07.
"Lenders" means the lending institutions listed on the signature
pages of the Credit Agreement, together with any lending institutions that may
become a party to the Credit Agreement as therein provided.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Maturity Date" means September 15, 2004.
"Net Cash Proceeds" means, (i) with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents received by the Company or any of its Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (b) taxes paid or payable ((1) including,
without limitation, income taxes reasonably estimated to be actually payable as
a result of any disposition of property within two years of the date of
disposition and (2) after taking into account any reduction in tax liability due
to available tax credits or deductions and any tax sharing arrangements), and
(c) repayment of Indebtedness (other than the Securities or any Indebtedness
that is expressly subordinate in right of payment to the Securities) that is
required to be repaid in connection with such Asset Sale or (ii) with respect to
the sale of Capital Stock by any person, the aggregate net proceeds received by
such person after payment of expenses, commissions and other similar charges
incurred in connection therewith, whether such proceeds are in cash or in
property (valued at the fair market value thereof, as determined in good faith
by the Board of Directors or other equivalent governing body of such person, at
the time of receipt, whose determination shall be evidenced by a Board
Resolution).
"Net Proceeds Offer" has the meaning provided in Section 3.07.
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"Net Proceeds Offer Trigger Date" means, with respect to an Asset
Sale, (i) the date which is 180 days after the date of receipt of the Net Cash
Proceeds from the applicable Asset Sale, or (ii) in the case of an Asset Sale
for which a Credit Agreement Reinvestment Notice is given, 390 days.
Non-Compete Agreements" means the non-compete agreements with each
stockholder of Daboco, Dajaco, Inc., and DLR Inc. entered into in connection
with the Acquisition and the non-compete agreements with Eli D. Cohen, Jack D.
Cohen and Abraham D. Cohen in those certain employment and consulting agreements
entered into in connection with the Acquisition.
"Officer" means, with respect to any person, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Controller, or the Secretary of such person.
"Officers' Certificate" means, with respect to any person, a
certificate signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of such person and otherwise complying with
the requirements of Sections 12.04 and 12.05.
"Operating Lease" means, as applied to any person, any lease
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that person is the lessor.
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee complying with the requirements of Sections 12.04
and 12.05. Unless otherwise required by the TIA, the legal counsel may be an
employee of or counsel to the Company or the Trustee.
"Paying Agent" shall have the meaning provided in Section 2.03,
except that, for the purposes of Articles Three and Eight and Sections 4.15 and
4.16, the Paying Agent shall not be the Company or a Subsidiary of the Company.
"Payment Amount" means, with respect to any Security, $364.73 per
$1,000 face amount of such Security.
"Permitted Accreted Amount" means, at any date, with respect to any
Indebtedness, the proceeds of which are used to refinance Indebtedness
outstanding under the Credit Agreement,
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that portion of the original issue discount (i.e., the excess of the face amount
over the price paid therefor) which has been amortized at such time on the
effective interest method of accounting, using semi-annual compounding of
interest from the date of issuance of the relevant indebtedness through the date
as of which the Permitted Accreted Amount is being determined.
"Permitted Indebtedness" means (i) any Indebtedness under the Term
Loan Facility and all guarantees thereof in an aggregate amount not to exceed
$90 million less any permanent reductions thereof, (ii) any Indebtedness in
respect of the Working Capital Facility and all guarantees thereof in an
aggregate amount not to exceed $10 million less any permanent reductions in
availability thereunder, (iii) the Senior Notes and all guarantees thereof, (iv)
the Securities, (v) purchase money Indebtedness and any Indebtedness incurred
for Capitalized Lease Obligations not to exceed $10 million in the aggregate,
(vi) Interest Swap Obligations designed to protect Duane Reade against
fluctuations in interest rates on borrowings under the Credit Agreement and
other Interest Swap Obligations covering other Indebtedness of the Company or
any Subsidiary of the Company which bears interest at fluctuating interest rates
to the extent the notional principal amount of such Interest Swap Obligation
does not exceed the principal amount of the Indebtedness to which such Interest
Swap Obligation relates, (vii) additional Indebtedness not to exceed $25
million, (viii) Indebtedness owed by the Company or any of its wholly owned
Subsidiaries to any of the Company's wholly owned Subsidiaries, (ix) any
renewals, extensions, substitutions, refundings, refinancings or replacements of
any Indebtedness described in the preceding clauses (i), (ii), (iii) and (iv)
above, so long as such renewal, extension, substitution, refunding, refinancing
or replacement does not result in an increase in the aggregate principal amount
of the outstanding Indebtedness represented thereby, (x) any guarantees of the
foregoing, (xi) any notes issued by the Company to management of the Company and
its Subsidiaries in connection with the repurchase of Capital Stock of the
Company so long as such notes are subordinated in right of payment to the
Securities, (xii) trade accounts payable to the extent they constitute
Indebtedness, and (xiii) additional Indebtedness in the form of Permitted
Accreted Amount and/or Permitted PIK Interest in an aggregate amount not to
exceed $9,000,000 less the aggregate liquidation preference of any Permitted PIK
Preferred Stock at any time outstanding.
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"Permitted Investment" means (i) cash and Cash Equivalents, (ii) any
Investment by the Company or any of its Subsidiaries in the Company or any
wholly owned Subsidiary of the Company, (iii) the incurrence of Permitted
Indebtedness and (iv) any Investment made by Duane Reade or Daboco or any wholly
owned Subsidiary of Duane Reade or Daboco (other than in an Unrestricted
Subsidiary) not to exceed $1,000,000 in the aggregate at any one time
outstanding.
"Permitted Liens" means (i) Liens imposed by law, such as carriers',
warehousemen's and mechanics' Liens or bankers' Liens incurred in the ordinary
course of business for sums which are not yet due or are being contested in good
faith and for which adequate provision has been made, (ii) Liens for taxes not
yet subject to penalties for non-payment or which are being contested in good
faith and by appropriate proceedings, if adequate reserve, as may be required by
generally accepted accounting principles then in effect, shall have been made
therefor, (iii) any interest or title of a lessor under any lease of a
Subsidiary of the Company, including Liens arising from UCC financing statements
regarding leases, (iv) Liens securing Indebtedness of the Company permitted
pursuant to Section 4.12 to the extent the Securities are secured by such Lien
(the relative priorities of such Liens to correspond to the relative rankings of
such Indebtedness as compared to the Securities), (v) Liens on assets of
Subsidiaries of the Company permitted pursuant to the Credit Agreement and (vi)
Liens permitted pursuant to the indenture governing the Senior Notes as in
effect on the Issue Date.
"Permitted PIK Interest" means the aggregate principal amount of all
debt securities issued as interest (whether in lieu of cash or otherwise) on
Indebtedness, all of the proceeds of which are used to repay permanently
Indebtedness outstanding under the Credit Agreement.
"Permitted PIK Preferred Stock" means Preferred Stock issued as
dividends (whether in lieu of cash dividends or otherwise) on Permitted
Preferred Stock. For purposes of Section 4.20(a), dividends that accrue on
Permitted Preferred Stock but remain unpaid on and after the date such dividends
are otherwise payable shall be deemed to have been paid through the issuance of
Preferred Stock.
"Permitted Preferred Stock" means Preferred Stock issued by any
Subsidiary of the Company to any non-affiliate of either Duane Reade or the
Company (i) all of the proceeds of
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which are used td repay permanently Indebtedness outstanding under the Credit
Agreement, (ii) having a liquidation preference not in excess of the cash
proceeds received in exchange therefor plus accrued but unpaid dividends, (iii)
which pays a fixed or floating dividend and (iv) which may be entitled to pay
contingent dividends based upon the Company's future performance such that,
after giving effect to the payment of any such contingent dividends through the
inclusion of such dividends in the computation of Consolidated Fixed Charges,
the Company shall be in compliance with Section 4.12(b).
"person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof.
"Plan of Liquidation" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"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 or partnership interests, whether
outstanding on the date hereof or issued after the date of this Indenture, and
including, without limitation, all classes and series of preferred or preference
stock or partnership interests of such person.
"principal" of any Indebtedness (including the Securities) means the
principal of such Indebtedness plus the premium, if any, on such Indebtedness.
"Proceeds Purchase Date" shall have the meaning provided in Section
3.07.
"Productive Assets" means assets (including Capital Stock) of a kind
used or useable in the business of the Company
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and its Subsidiaries as it is conducted in accordance with Section 4.17.
"pro forma" means, with respect to any calculation made or required
to be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act as interpreted by the
Company's Board of Directors in consultation with its independent certified
public accountants.
"Purchase Agreement" means the Purchase Agreement between the
Company and the Purchasers, dated as of September 25, 1992, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms thereof, providing for the purchase of the Securities.
"Purchasers" means the Purchasers named on the execution pages
attached to the Purchase Agreement.
"Qualified Capital Stock" means, with respect to any person, any
Capital Stock of such person that is not Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Record Date" means the Record Dates specified in the Securities;
provided that if any such date is a Legal Holiday, the Record Date shall be the
first day immediately preceding such specified day that is not a Legal Holiday.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Securities.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and the Securities.
"Registrar" has the meaning provided in Section 2.03.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company and the Purchasers, dated as of September 25,
1992, as the same may be amended, supplemented or otherwise modified from time
to time in accordance with the terms thereof.
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"Representative" means the indenture trustee or other trustee, agent
or representative of any Senior Indebtedness.
"Restricted Payment" has the meaning provided in Section 4.03.
"Restricted Security" has the meaning provided in the Purchase
Agreement.
"Sale/leaseback" means any lease, whether an Operating Lease or a
Capital Lease, whereby the Company or any of its Subsidiaries, directly or
indirectly, becomes or remains liable as lessee or as guarantor or other surety,
of any property (whether real or personal or mixed) whether now owned or
hereafter acquired, (i) that the Company or any of its Subsidiaries, as the case
may be, has sold or transferred or is to sell or transfer to any other person
(other than the Company), or (ii) that the Company or any of its Subsidiaries,
as the case may be, intends to use for substantially the same purpose as any
other property that has been or is to be sold or transferred by the Company or
any such Subsidiary to any person (other than the Company) in connection with
such lease.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Series A Notes and the Series B Notes.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Senior Indebtedness" means any guarantee by the Company of the
principal of and interest on (i) any Indebtedness of any Subsidiary of the
Company under the Credit Agreement, (ii) the Senior Notes or any refinancing,
refunding, replacement or extension thereof, and (iii) any Indebtedness
described under clause (vii) of the definition of the term "Permitted
Indebtedness" hereunder, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular guarantee,
the instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such guarantee shall not be senior in right
of payment to the Securities. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include that portion of any Indebtedness which at the
time of issuance is issued in violation of the Indenture.
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"Senior Notes" means the $90,000,000 aggregate principal amount of
Duane Reade's 12% Senior Notes due September 15, 2002, Series A or Series B, as
the case may be, issued pursuant to an Indenture dated as of September 15, 1992
among Duane Reade and Daboco and Duane Reade Inc., as Guarantors, and The
Connecticut National Bank, as Trustee, which Senior Notes are guaranteed by
Daboco and Duane Reade Inc., as amended or supplemented from time to time in
accordance with the terms thereof.
"Series A Notes" means the Company's 15% Senior Subordinated Zero
Coupon Notes due September 15, 2004, Series A, as amended or supplemented from
time to time in accordance with the terms hereof, that are issued pursuant to
this Indenture.
"Series B Notes" means the Company's 15% Senior Subordinated Zero
Coupon Notes due September 15, 2004, Series B, as amended or supplemented from
time to time in accordance with the terms hereof, that are issued pursuant to
this Indenture.
"Significant Subsidiary" means any Subsidiary of the Company that
satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(v)
of Regulation S-X under the Securities Act, but shall not include any
Unrestricted Subsidiary.
"Subsidiary" of any person means (i) any corporation of which the
outstanding capital stock having at least a majority of the votes entitled to be
cast in the election of directors under ordinary circumstances shall at the time
be owned, directly or indirectly, by such person or (ii) any other person of
which at least a majority of the voting interest under ordinary circumstances is
at the time owned, directly or indirectly, by such person. Unrestricted
Subsidiaries shall not be included in the definition of Subsidiaries for any
purpose of the Indenture.
"Term Loan Facility" means the term loan facilities (or any similar
facilities) under the Credit Agreement.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. SS
77aaa-77bbbb), as amended, as in effect on the date of the execution of this
Indenture until such time as this Indenture is qualified under the TIA, and
thereafter as in effect on the date on which this Indenture is qualified under
the TIA, except as otherwise provided in Section 9.03.
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"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities maturing closest to September
15, 1997 (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) which has become publicly available at least two
Business Days prior to the date fixed for prepayment or redemption (or, if such
Statistical Release is no longer published, any publicly available source of
similar market data)).
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"Unrestricted Subsidiary" means a newly-formed or newly-acquired
entity that would, but for the last sentence of the definition of the term
"Subsidiary" herein, be a Subsidiary of the Company (a) no portion of the
Indebtedness or any other obligation (contingent or otherwise) of which (i) is
guaranteed by the Company or any Subsidiary of the Company, (ii) is recourse to
or obligates the Company or any Subsidiary of the Company in any way or (iii)
subjects any property or asset of the Company or any Subsidiary of the Company,
directly or indirectly, contingently or otherwise, to satisfaction thereof, (b)
with which the Company or any Subsidiary of the Company has no contract,
agreement, arrangement, understanding or is subject to an obligation of any
kind, whether written or oral, other than a transaction on terms no less
favorable to the Company or any Subsidiary of the Company than those which might
be obtained at the time from persons who are not Affiliates of the Company, (c)
with which neither the Company nor any Subsidiary of the Company has any
obligation (other than as required by the terms of this Indenture) (i) to
subscribe for additional shares of Capital Stock, or other equity interest
therein, or (ii) to maintain or preserve such Subsidiary's financial condition
or to cause such Subsidiary to achieve certain levels of operating results, (d)
which has been designated at the time of its formation or acquisition in a Board
Resolution of the Company as an Unrestricted Subsidiary, (e) having no
Indebtedness outstanding at any time, the breach or violation of the terms of
which causes or would cause a default under, or gives or would give the holders
of any Indebtedness of the Company or any Subsidiary of the Company the right to
accelerate, any
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Indebtedness of the Company or any Subsidiary of the Company, and (f) any
Subsidiary of an entity that satisfies the criteria described in the foregoing
clauses (a) through (e).
"U.S. Government Obligations" has the meaning provided in Section
8.01.
"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"wholly owned Subsidiary" means any Subsidiary all of the shares of
Capital Stock of which (except directors' qualifying shares) are at the time
directly or indirectly owned by the Company.
"Working Capital Facility" means (i) the revolving credit facility
(or any similar facility) available under the Credit Agreement including any
related letters of credit or (ii) any other credit facility secured by accounts
receivable and/or inventory and proceeds thereof.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute
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or defined by SEC rule and not otherwise defined herein have the meanings
assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision.
All references herein to "Accreted Value or principal amount, as the
case may be," shall mean Accreted Value prior to the Final Accretion Date and
principal amount thereafter.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Securities and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A or Exhibit B hereto, as the case may
be. The Securities may have notations, legends or endorsements required by law,
stock exchange rule or usage. The Company and the Trustee shall approve the form
of the Securities and any notation, legend or endorsement on them. Each Security
shall be dated the date of its authentication.
The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this
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Indenture and, to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign,
or one Officer shall sign and one Officer or an Assistant Secretary (each of
whom shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Securities for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall nevertheless be valid.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate Securities for original issue in the
aggregate principal amount of up to $123,380,000 upon receipt of a written order
of the Company in the form of an Officers' Certificate. The Officers'
Certificate shall specify the amount of Securities to be authenticated and the
date on which the Securities are to be authenticated. The aggregate principal
amount of Securities outstanding at any time may not exceed $123,380,000, except
as provided in Section 2.07 and except as provided in the last sentence of this
paragraph. Upon the written order of the Company in the form of an Officers'
Certificate, the Trustee shall authenticate Securities in substitution of
Securities originally issued to reflect any name change of the Company. Upon the
written order of the Company in the form of an Officers' Certificate, the
Trustee shall authenticate Securities in the aggregate principal amount
necessary to pay additional interest pursuant to the Registration Rights
Agreement on each date on which it is necessary to pay such additional interest.
Series B Notes may be issued only in exchange for a like principal
amount of Series A Notes pursuant to an Exchange Offer.
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Subject to Section 2.13, the principal and interest on Book-Entry
Securities shall be payable to the Depository or its nominee, as the case may
be, as the sole registered owner and the sole holder of the Book-Entry
Securities represented thereby. Except as otherwise provided in Section 4.3 of
the Purchase Agreement and Section 2.13, the principal and interest on
Securities in certificate form shall be payable at the office or agency of the
Company maintained for such purpose in the Borough of Manhattan in The City of
New York, or at such other office or agency of the Company as may be maintained
for such purpose; provided, however, that at the option of the Company interest
may be paid by check mailed to the addresses of the persons entitled thereto as
such addresses shall appear with either the Registrar or Paying Agent.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise provided
in the appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
If the Securities are to be issued in the form of one or more Global
Securities, then the Company shall execute and the Trustee shall authenticate
and deliver one or more Global Securities that (i) shall represent and shall be
in minimum denominations of $1,000 or in the approximate equivalent amount, (ii)
shall be registered in the name of the Depository for such Global Security or
Securities or the nominee of such Depository, (iii) shall be delivered by the
Trustee to such Depository or pursuant to such Depository's instructions and
(iv) shall bear the legend set forth in Exhibit C.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
notices and demands to or upon the Company in respect of
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the Securities and this Indenture may be served. The Company may also from time
to time designate one or more other offices or agencies where the Securities may
be presented or surrendered for any or all such purposes and may from time to
time rescind such designations; 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 Borough of Manhattan, The City of New York, for such
purposes. The Company may act as its own Registrar or Paying Agent except that
for the purposes of Articles Three and Eight and Sections 4.15 and 4.16 neither
the Company nor any Subsidiary of the Company nor any of their Affiliates shall
act as Paying Agent. The Registrar shall keep a register of the Securities and
of their transfer and exchange. The Company, upon notice to the Trustee, may
have one or more co-Registrars and one or more additional paying agents
reasonably acceptable to the Trustee. The term "Paying Agent" includes any
additional paying agent. The Company initially appoints the Trustee as Registrar
and Paying Agent until such time as the Trustee has resigned or a successor has
been appointed.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee, in advance, of the name and address of any such Agent. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such.
SECTION 2.04. Paying Agent to Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that each Paying Agent shall hold in trust for the benefit
of the Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of, or interest on, the Securities (whether such assets
have been distributed to it by the Company or any other obligor on the
Securities), and shall notify the Trustee of any Default by the Company (or any
other obligor on the Securities) in making any such payment. If the Company or a
Subsidiary of the Company acts as Paying Agent, it shall segregate such assets
and hold them as a separate trust fund. The Company at any time may require a
Paying Agent to distribute all assets held by it to the Trustee and account for
any assets disbursed and the Trustee may at any time during the continuance of
any payment Default, upon written request to a Paying Agent, require such Paying
Agent to distribute all assets held by it
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to the Trustee and to account for any assets distributed. Upon distribution to
the Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent shall have no further liability for such assets.
SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders. If the Trustee is not the Registrar, the Company shall furnish to
the Trustee on each March 15 and September 15 and at such other times as the
Trustee may request in writing a list as of such date and in such form as the
Trustee may reasonably require of the names and addresses of the Holders, which
list may be conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
When Securities in certificated form are presented to the Registrar
or a co-Registrar with a request to register the transfer of such Securities or
to exchange such Securities for an equal principal amount of Securities of other
authorized denominations, the Registrar or co-Registrar shall register the
transfer or make the exchange as requested if its requirements for such
transaction are met; provided, however, that the Securities surrendered for
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Registrar or
co-Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing. To permit registration of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Securities at the
Registrar's or co-Registrar's request. No service charge shall be made for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchanges or transfers pursuant to Section
2.02, 2.10, 3.06, 4.15, 4.16 or 9.05). The Registrar or co-Registrar shall not
be required to register the transfer of or exchange of any Security (i) during a
period beginning at the opening of business 15 days before the mailing of a
notice of redemption of Securities and ending at the close of business on the
day of such mailing and (ii) selected for redemption in whole or in part
pursuant to Article Three, except the unredeemed portion of any Security being
redeemed in part.
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If a Series A Note is a Restricted Security in certificated form,
then as provided in this Indenture and subject to the limitations herein set
forth, the Holder, provided it is a Qualified Institutional Buyer, may exchange
such Security for a Book-Entry Security by instructing the Trustee (by
completing the Transferee Certificate attached to the Security) to arrange for
such Series A Note to be represented by a beneficial interest in a Global
Security in accordance with the customary procedures of the Depository.
The Company may at any time determine not to have Securities (other
than Restricted Securities) represented in certificated form, in which event the
Holder of a Security (other than Restricted Securities) in certificated form may
be required to exchange such Security for a Book-Entry Security.
A Global Security is exchangeable for Securities in certificated
form only if (x) the Depository is at any time unwilling or unable to continue
as depository and a successor depository is not appointed by the Company within
30 days or (y) there shall have occurred and be continuing an Event of Default
or (z) the Company may at any time determine not to have Securities represented
by a Global Security. In addition, in accordance with the provisions of this
Indenture and subject to certain limitations herein set forth including the
preceding sentence and the delivery of a certificate in the form of Exhibit D
hereto, an owner of a beneficial interest in a Global Security which is a Series
A Note may request a Security in certificated form, in exchange in whole or in
part, as the case may be, for such beneficial owner's interest in the Global
Security.
Upon any exchange provided for in the preceding paragraph, the
Company shall execute and the Trustee shall authenticate and deliver to the
person specified by the Depository a new Security or Securities registered in
such names and in such authorized denominations as the Depository, pursuant to
the instructions of the beneficial owner of the Securities requesting the
exchange, shall instruct the Trustee. Thereupon, the beneficial ownership of
such Global Security shown on the records maintained by the Depository or its
nominee shall be reduced by the amounts so exchanged and an appropriate
endorsement shall be made by or on behalf of the Trustee on the Global Security.
Notwithstanding any other provision of this Section 2.06, unless and
until it is exchanged in whole or in
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part for Series A Notes in certificated registered form, a Global Security
representing Book-Entry Securities may not be transferred, except as a whole by
the Depository to a nominee of the Depository or by a nominee of the Depository
to the Depository or another nominee of the Depository or by the Depository or
any such nominee to a successor depository or a nominee of such successor
depository.
Notwithstanding the foregoing, no Global Security shall be
registered for transfer or exchange, or authenticated and delivered, whether
pursuant to this Section, Section 2.07, 2.10 or 3.06 or otherwise, in the name
of a person other than the Depository for such Global Security or its nominee
until (i) the Depository notifies the Company that it is unwilling or unable to
continue as Depository for such Global Security or if at any time the Depository
ceases to be a clearing agency registered under the Exchange Act, and a
successor depository is not appointed by the Company within 30 days, (ii) the
Company executes and delivers to the Trustee a Company order that all such
Global Securities shall be exchangeable or (iii) there shall have occurred and
be continuing an Event of Default. Upon the occurrence in respect of any Global
Security representing the Securities of any one or more of the conditions
specified in clause (i), (ii) or (iii) of the preceding sentence, such Global
Security may be registered for transfer or exchange for Series A Notes
registered in the names of, authenticated and delivered to, such persons as the
Trustee or the Depository, as the case may be, shall direct.
Except as provided above, any Security authenticated and delivered
upon registration of transfer of, or in exchange for, or in lieu of, any Global
Security, whether pursuant to this Section, Section 2.07, 2.10 or 3.06 or
otherwise, shall also be a Global Security and bear the legend specified in
Exhibit C.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements are met. If required by the
Trustee or the Company, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a
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Security is replaced. The Company may charge such Holder for its reasonable,
out-of-pocket expenses in replacing a Security, including reasonable fees and
expenses of counsel. Every replacement Security shall constitute an additional
obligation of the Company.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those canceled by it, those delivered
to it for cancellation and those described in this Section as not outstanding. A
Security does not cease to be outstanding because the Company or any of its
Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than the Company or a Subsidiary of the Company) holds U.S. Legal Tender or U.S.
Government Obligations sufficient to pay all of the principal and interest due
on the Securities payable on that date, then on and after that date such
Securities cease to be outstanding and interest on them ceases to accrue;
provided, however that to the extent the Trustee is enjoined from making
payments to the Holders, interest will continue to accrue until such time as the
Trustee is not so enjoined.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required Accreted Value or
principal amount, as the case may be, of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded, except that, for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Securities that the Trustee knows are so
owned shall be disregarded.
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SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon receipt of
a written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Securities to be
authenticated and the date on which the temporary Securities are to be
authenticated. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate upon receipt of a written order
of the Company pursuant to Section 2.02 definitive Securities in exchange for
temporary Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than the Company or a Subsidiary of the Company), and no one else, shall
cancel and, at the written direction of the Company, shall dispose of all
Securities surrendered for transfer, exchange, payment or cancellation. Subject
to Section 2.07, the Company may not issue new Securities to replace Securities
that it has paid or delivered to the Trustee for cancellation. If the Company
shall acquire any of the Securities, such acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such Securities
unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Securities,
it shall, unless the Trustee fixes another record date pursuant to Section 6.10,
pay the defaulted interest, plus (to the extent lawful) any interest payable on
the defaulted interest to the persons who are Holders on a subsequent special
record date, which date shall be the fifteenth day next preceding the date fixed
by the Company for the payment of defaulted interest or the next succeeding
Business Day if such date is not a Business Day. At least 15 days before the
subsequent special record date, the Company shall mail to
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each Holder, with a copy to the Trustee, a notice that states the subsequent
special record date, the payment date and the amount of defaulted interest, and
interest payable on such defaulted interest, if any, to be paid.
SECTION 2.13. Home Office Payment Agreements.
Notwithstanding any provisions of the Indenture and of the
Securities to the contrary, payments of principal and interest on Restricted
Securities shall be made by the Paying Agent directly to the Holder of such
certificated Security without surrender or presentation thereof to the Paying
Agent in accordance with the provision of Section 4.3 of the Purchase Agreement.
SECTION 2.14. CUSIP Number.
The Company in issuing the Securities may use a "CUSIP" number, and
if so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Securities, and that reliance may be
placed only on the other identification numbers printed on the Securities.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Securities pursuant to Paragraph 7
of the Securities, it shall notify the Trustee and the Paying Agent in writing
of the Redemption Date and the Accreted Value or principal amount, as the case
may be, of the Securities to be redeemed and whether it wants the Trustee to
give notice of redemption to the Holders (at the Company's expense) at least 30
days (unless a shorter notice shall be satisfactory to the Trustee) but not more
than 60 days before the Redemption Date. Any such notice may be canceled at any
time prior to notice of such redemption being mailed to any Holder and shall
thereby be void and of no effect.
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SECTION 3.02. Selection of Securities To Be Redeemed.
If fewer than all of the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed in compliance with the requirements
of the principal national securities exchange, if any, on which the Securities
being redeemed are listed, or, if the Securities are not listed on a national
securities exchange, on a pro rata basis.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the Accreted Value or principal
amount, as the case may be, thereof to be redeemed. Securities in denominations
of $1,000 may be redeemed only in whole. The Trustee may select for redemption
portions (equal to $1,000 or any integral multiple thereof) of the principal of
Securities that have denominations larger than $1,000. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first class mail to each Holder
whose Securities are to be redeemed, with a copy to the Trustee. At the
Company's request, the Trustee shall give the notice of redemption in the
Company s name and at the Company's expense. Each notice for redemption shall
identify the Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(5) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
or after the Redemption
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Date, and the only remaining right of the Holders of such Securities is to
receive payment of the Redemption Price upon surrender to the Paying Agent
of the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of the
Accreted Value or principal amount, as the case may be, of such Security
to be redeemed and that, after the Redemption Date, and upon surrender of
such Security, a new Security or Securities in the aggregate Accreted
Value or principal amount, as the case may be, equal to the unredeemed
portion thereof will be issued; and
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate Accreted Value or principal amount, as
the case may be, of Securities to be redeemed and the aggregate Accreted
Value or principal amount, as the case may be, of Securities to be
outstanding after such partial redemption.
SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price. Upon surrender to the Trustee or Paying Agent, such
Securities called for redemption shall be paid at the Redemption Price.
SECTION 3.05. Deposit of Redemption Price.
On or before the Redemption Date, the Company shall deposit with the
Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price of all
Securities to be redeemed on that date (other than Securities or portions
thereof called for redemption on that date which have been delivered by the
Company to the Trustee for cancellation). The Paying Agent shall promptly return
to the Company any U.S. Legal Tender so deposited which is not required for that
purpose upon the written request of the Company, except with respect to monies
owed as obligations to the Trustee pursuant to Article Seven.
If the Company complies with the preceding paragraph, then, unless
the Company defaults in the payment of such Redemption Price, interest on the
Securities to be redeemed
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will cease to accrue on and after the applicable Redemption Date, whether or
not such Securities are presented for payment.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part, the
Trustee shall authenticate for the Holder a new Security or Securities equal in
principal amount to the unredeemed portion of the Security surrendered.
SECTION 3.07. Offer To Purchase by Application of Net Cash Proceeds.
(a) The Company shall provide the Trustee with prompt notice of the
occurrence of a Net Proceeds Offer Trigger Date; provided that the Company shall
only be required to give such notice if after such Net Proceeds Offer Trigger
Date the Company is required to make a Net Proceeds Offer. Such notice shall be
accompanied by an Officers' Certificate setting forth (a) a statement to the
effect that the Company or a Subsidiary of the Company, as the case may be, has
made an Asset Sale and (b) the aggregate principal amount of Securities offered
to be purchased and the basis of calculation in determining such aggregate
principal amount. Upon the occurrence of any Net proceeds Offer Trigger Date,
the Company shall make an offer (a "Net Proceeds Offer") to purchase, at a price
equal to 102% of the Accreted Value or principal amount, as the case may be, of
Securities to be repurchased plus accrued interest thereon to the Proceeds
Purchase Date (as defined below), such aggregate principal amount of Securities
equal to such Net Cash Proceeds, less any amounts applied in accordance with
Section 4.16(iii)(A), (B) or (C).
(b) The notice of a Net Proceeds Offer shall be sent, by first class
mail, by the Company (or caused to be mailed by the Company) with a copy to the
Trustee not more than 10 days after the Net Proceeds Offer Trigger Date to the
Holders at their last registered addresses. The Net Proceeds Offer shall remain
open from the time of mailing until three days before the Proceeds Purchase
Date. The notice to the Holders shall contain all instructions and materials
necessary to enable such Holders to tender Securities pursuant to the Net
Proceeds Offer. Such notice shall state:
(1) that the Net Proceeds Offer is being made pursuant to Section
3.07 and 4.16;
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(2) the purchase price (including an amount of accrued interest) and
the purchase date (which shall be no earlier than 10 days nor later than
20 days from the date notice is mailed) (the "proceeds Purchase Date");
(3) that any Security not tendered will continue to accrue interest;
(4) that unless the Company defaults in making payment therefor, any
Security accepted for payment pursuant to the Net proceeds Offer shall
cease to accrue interest after the Proceeds Purchase Date;
(5) that Holders electing to have a Security purchased pursuant to a
Net Proceeds Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the last page of the
Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day prior to the
proceeds Purchase Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, no later than two Business Days prior to the
proceeds Purchase Date, a telegram, telex, facsimile transmission or
letter stating fully the name of the Holder, the principal amount of the
Securities the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Security purchased;
(7) that if Securities in a principal amount in excess of the
principal amount of the Securities to be acquired pursuant to the Net
Proceeds Offer are tendered and not withdrawn pursuant to the Net proceeds
Offer, the Company shall purchase Securities on a pro rata basis (with
such adjustment as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000 or integral multiples of $1,000
shall be so acquired); and
(8) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount equal to the unpurchased
portion of the Securities surrendered.
On or before a Proceeds Purchase Date, the Company shall (i) accept
for payment Securities or portions thereof tendered pursuant to the Net Proceeds
Offer (on a pro rata
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basis if required pursuant to paragraph (7) above), (ii) deposit with the Paying
Agent U.S. Legal Tender or Securities acquired in the manner described in clause
(a) of this Section 3.07 sufficient to pay the purchase price of all Securities
or portions thereof so accepted or to be credited against the Net Proceeds Offer
and (iii) deliver to the Trustee Securities so accepted together with an
Officers' Certificate identifying the Securities or portions thereof accepted
for payment by the Company. The Paying Agent shall promptly mail or deliver to
Holders of Securities so accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate and mail or deliver to such
Holders new Securities equal in principal amount to any unpurchased portion of
the Securities surrendered. Any Securities not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company will
publicly announce the results of the Net Proceeds Offer as promptly as
practicable following the Proceeds Purchase Date. For purposes of this Section
3.07, the Trustee shall act as the Paying Agent.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the Accreted Value or principal, as the case
may be, of and interest on the Securities on the dates and in the manner
provided in the Securities. An installment of principal of or interest on the
Securities shall be considered paid on the date it is due if the Trustee or
Paying Agent (other than the Company or a Subsidiary of the Company) holds on
that date U.S. Legal Tender designated for and sufficient to pay the
installment.
The Company shall pay interest on overdue principal at the rate set
forth in the second paragraph of Paragraph 1 of the Securities and it shall pay
interest on overdue installments of interest at the same rate, to the extent
lawful.
Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required to do so by law, deduct
or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
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SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of
New York, the office or agency required under Section 2.03. The Company shall
give prior notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 12.02.
SECTION 4.03. Limitation on Dividends, Stock Purchases and Certain
Investments, Loans and Advances.
The Company may not, directly or indirectly, (a) declare or pay any
dividend or make any distribution on its Capital Stock, or otherwise, to its
shareholders (other than dividends or distributions payable in its Qualified
Capital Stock and other than dividends on permitted preferred Stock), (b)
purchase, redeem or otherwise acquire or retire for value, or permit any
Subsidiary of the Company to purchase, redeem or otherwise acquire for value,
any Qualified Capital Stock of the Company or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock, (c) purchase,
redeem, prepay, decrease or otherwise acquire or retire for value, or permit any
of its Subsidiaries to, directly or indirectly, purchase, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment, Disqualified
Capital Stock or Indebtedness of the Company that is expressly subordinate in
right of payment to the Securities or (d) make, or permit any of its
Subsidiaries to make, any Investment (excluding any Permitted Investment) (each
of the foregoing actions set forth in clauses (a), (b), (c) and (d) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto, (i) a Default or an Event of
Default shall have occurred and be continuing, (ii) the Company's Consolidated
Fixed Charge Coverage Ratio for the last four completed fiscal quarters
preceding such Restricted Payment, calculated on a pro forma basis, as if such
Restricted Payment had been made at the beginning of such period, shall be less
than 1.7 to 1.0 or (iii) Restricted Payments made subsequent to the Issue Date
(the amount expended for such purposes, if other than in cash, shall be the fair
market value of such property as determined by senior management of the Company
or, if the market value of
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such property exceeds $1,000,000, by the Board of Directors of the Company in
good faith (which determination shall be evidenced by a Board Resolution)) shall
exceed the sum of:
(x) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the
Company earned subsequent to the Issue Date and prior to the date the
Restricted Payment occurs (treating such period as a single accounting
period);
(y) 100% of the aggregate net proceeds, including the fair market
value of property other than cash as determined by senior management of
the Company or, if the market value of such property exceeds $1,000,000,
by the Board of Directors of the Company in good faith (which
determination shall be evidenced by a Board Resolution), received by the
Company from any person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date of Qualified Capital Stock
of the Company (excluding (A) Qualified Capital Stock paid as a dividend
on any Capital Stock or as interest on any Indebtedness and (B) any net
proceeds from issuances and sales financed directly or indirectly using
funds borrowed from the Company or any Subsidiary of the Company, until
and to the extent such borrowing is repaid); provided that the foregoing
shall exclude any proceeds referred to in clause (2) below that were taken
into account to permit the making of any payment by the Company in
accordance with said clause (2); provided, further that the, foregoing
shall exclude the $20,000,000 of proceeds received by the Company on or
prior to the Issue Date from the issuance of Qualified Capital Stock in
connection with the Acquisition; and
(z) 100% of the aggregate net proceeds, including the fair market
value of property other than cash as determined by senior management of
the Company or if the market value of such property exceeds $1,000,000, by
the Board of Directors of the Company in good faith (which determination
shall be evidenced by a Board Resolution), received by the Company from
any person (other than a Subsidiary of the Company) from the issue and
sale of Disqualified Capital Stock and/or Indebtedness, in each case that
has been converted into or exchanged for Qualified Capital Stock of the
Company after the Issue Date.
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Notwithstanding the foregoing, the provisions of this Section 4.03
shall not prohibit:
(1) the payment of any dividend within 60 days after the date of its
declaration if the dividend would have been permitted on the date of
declaration;
(2) the Company from redeeming or repurchasing the Company's common
equity or options in respect thereof, in connection with the repurchase
provisions under employee stock option or stock purchase agreements or
other agreements to compensate management employees; provided that such
redemptions or repurchases shall not exceed $5,000,000 in the aggregate
(the amount considered redeemed or repurchased pursuant to this clause (2)
shall be reduced (but not below $0) by any proceeds received in connection
with reissuances of securities of the same class to other management
employees following any such redemptions or repurchases, which proceeds
shall not have otherwise been taken into account under clause (y) above
with respect to the Company's ability to make any Restricted Payment under
clause (iv) above);
(3) the acquisition of Capital Stock of the Company or Indebtedness
of the Company that is expressly subordinate in right of payment to the
Securities either (i) solely in exchange for shares of Qualified Capital
Stock or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of
shares of Qualified Capital Stock;
(4) the acquisition of Indebtedness of the Company that is expressly
subordinate in right of payment to the Securities either (i) solely in.
exchange for Indebtedness of the Company which is expressly subordinate in
right of payment to the Securities at least to the extent that the
Indebtedness being acquired is subordinated to the Securities and has no
scheduled principal prepayment dates prior to the scheduled final maturity
date of the Indebtedness being exchanged or (ii) through the application
of net proceeds of a substantially concurrent sale for cash (other than to
a subsidiary of the Company) of Indebtedness of the Company which is
expressly subordinate in right of payment to the Securities at least to
the extent that the Indebtedness being acquired is subordinated to the
Securities and has no scheduled principal prepayment
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dates prior to the scheduled final maturity date of the Indebtedness being
refinanced; and
(5) the Investment by the Company or any of its Subsidiaries in one
or more Unrestricted Subsidiaries not to exceed $5,000,000 in the
aggregate (calculated at the time any such Investment is made);
provided that in the case of clauses (2) through (5), no Default or Event of
Default shall have occurred and be continuing at the time of such payment or as
a result thereof.
In determining the aggregate amount of Restricted Payments
permissible under clause (iii) of the first paragraph of this Section 4.03,
amounts expended, incurred or outstanding pursuant to clauses (1), (2) and (3)
of the second paragraph of this Section 4.03 shall be included as Restricted
Payments; provided that any proceeds received from the issuance of Qualified
Capital Stock pursuant to clause (3) of the second paragraph of this Section
4.03 shall be included in calculating the amount referred to in clause (y) or
clause (z), as the case may be, of the first paragraph under this Section 4.03.
Prior to any Restricted Payment under the first paragraph of this
Section 4.03, the Company shall deliver to the Trustee an Officers' Certificate
setting forth the computation by which the amount available for Restricted
Payments pursuant to such paragraph was determined. The Trustee shall have no
duty or responsibility to determine the accuracy or correctness of this
computation and shall be fully protected in relying on such Officers'
Certificate.
SECTION 4.04. Corporate Existence.
Except as otherwise permitted by Article Five, the Company shall do
or cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate or other existence of each of
its Subsidiaries in accordance with the respective organizational documents of
each such Subsidiary and the material rights (charter and statutory) and
franchises of the Company and each such Subsidiary; provided, however, that the
Company shall not be required to preserve, with respect to itself, Daboco, Duane
Reade Inc. and Duane Reade, any material right or franchise, and with respect to
any of its Subsidiaries (other than Daboco, Duane Reade Inc. or Duane Reade),
any such existence, material right or franchise, if the Board of Directors or
other
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governing body of the Company or such Subsidiary, as the case may be, shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company or any such Subsidiary.
SECTION 4.05. 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, (i) all taxes, assessments
and governmental charges (including withholding taxes and any penalties,
interest and additions to taxes) levied or imposed upon it or any of its
Subsidiaries or properties of it or any of its Subsidiaries and (ii) all lawful
claims for labor, materials and supplies that, if unpaid, might by law become a
Lien upon the property of it or any of its Subsidiaries; 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 if either (a) the amount,
applicability or validity thereof is being contested in good faith by
appropriate proceedings and an adequate reserve has been established therefor to
the extent required by generally accepted accounting principles then in effect
or (b) the failure to make such payment or effect such discharge (together with
all other such failures) would not have a material adverse effect on the
financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole.
SECTION 4.06. Maintenance of Properties and Insurance.
(a) The Company shall cause all properties used or useful in the
conduct of its business or the business of any of its Subsidiaries to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in its
judgment may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times unless the
failure to so maintain such properties (together with all other such failures)
would not have a material adverse effect on the financial condition or results
of operations of the Company and its Subsidiaries taken as a whole; provided,
however, that nothing in this Section 4.06 shall prevent the Company or any
Subsidiary of the Company from discontinuing the operation or maintenance of any
of such properties, or disposing of any of them, if such discontinuance or
disposal is either (i) in the ordinary course of business, (ii) in the good
faith judgment of the Board of Directors or
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other equivalent governing body of the Company or the Subsidiary concerned, or
of the senior officers of the Company or such Subsidiary, as the case may be,
desirable in the conduct of the business of the Company or such Subsidiary, as
the case may be, or (iii) is otherwise permitted by this Indenture.
(b) The Company shall provide or cause to be provided, for itself
and each of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the reasonable, good faith opinion
of the Company are adequate and appropriate for the conduct of the business of
the Company and such Subsidiaries in a prudent manner, with reputable insurers
or with the government of the United States of America or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be customary, in the reasonable, good faith opinion of the
Company, for companies similarly situated in the industry, unless the failure to
provide such insurance (together with all other such failures) would not have a
material adverse effect on the financial condition or results of operations of
the Company and its Subsidiaries, taken as a whole.
SECTION 4.07. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee, within 120 days after
the end of the Company's fiscal year, an Officers' Certificate stating that a
review of its activities and the activities of its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether it has kept, observed, performed and
fulfilled its obligations under this Indenture and further stating, as to each
such Officer signing such certificate, that to the best of his knowledge the
Company during such preceding fiscal year has kept, observed, performed and
fulfilled each and every such covenant and no Default or Event of Default
occurred during such year and at the date of such certificate there is no
Default or Event of Default that has occurred and is continuing or, if such
signers do know of such Default or Event of Default, the certificate shall
describe the Default or Event of Default and its status with particularity. The
Officers' Certificate shall also include all calculations necessary to show
covenant compliance. The Officers' Certificate shall also notify the Trustee
should the Company elect to change the manner in which it fixes its fiscal year
end.
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(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the Company shall
deliver to the Trustee within 120 days after the end of each fiscal year a
written statement by the Company's independent certified public accountants
stating (A) that their audit examination has included a review of the terms of
this Indenture and the Securities as they relate to accounting matters, and (B)
whether, in connection with their audit examination, any Default has come to
their attention and if such a Default has come to their attention, specifying
the nature and period of existence thereof.
(c) (i) If any Default or Event of Default has occurred and is
continuing, (ii) if the Trustee or any Holder takes any enforcement action with
respect to a claimed default under the Indenture or the Securities or (iii) if
the trustee for or the holder of any other evidence of Indebtedness of the
Company or any Subsidiary takes any enforcement action with respect to a claimed
default (other than with respect to Indebtedness in the principal amount of less
than $12,500,000), the Company shall deliver to the Trustee by registered or
certified mail or by telegram, telex or facsimile transmission followed by hard
copy by registered or certified mail an Officers' Certificate specifying such
event, notice or other action within five Business Days of its occurrence.
SECTION 4.08. Compliance with Laws.
The Company shall comply, and shall cause each of its Subsidiaries
and Unrestricted 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 department, commission,
board, regulatory authority, bureau, agency and instrumentality of the
foregoing, in respect of the conduct of their respective businesses and the
ownership of their respective properties, except such as are being contested in
good faith and by appropriate proceedings and 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 4.09. SEC Reports and Other Information.
(a) At all times when the Company is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act, the Company (at its own
expense) shall file with
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the SEC and shall file with the Trustee within 5 days after it files them with
the SEC copies of the annual reports and of the information, documents, and
other reports (or copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribe) to be filed pursuant to Section 13 or 15(d)
of the Exchange Act. If the Company is not subject to the requirements of such
Section 13 or 15(d) of the Exchange Act, the Company (at its own expense) shall
file with the Trustee and mail to Holders at their addresses appearing in the
register of Securities maintained by the Registrar at the time of such mailing,
so long as such Holders covenant and agree to keep such information
confidential, within 5 days after it would have been required to file such
information with the SEC, all information and financial statements, including
any notes thereto and with respect to annual reports, an auditors' report by an
accounting firm of established national reputation, and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
comparable to the disclosure that the Company would have been required to
include in annual and quarterly reports, information, documents or other
reports, including, without limitation, reports on Forms 10-K, l0-Q and 8-K, if
the Company was subject to the requirements of such Section 13 or 15(d) of the
Exchange Act. To the extent permitted by law, the Company shall also provide the
foregoing information to prospective purchasers of Securities (it being
understood that the Company will be furnishing any such information to any such
prospective purchasers on the premise that such information shall be used by
such prospective purchasers solely in connection with deciding whether or not to
purchase the Securities). Upon qualification of this Indenture under the TIA,
the Company shall also comply with the provisions of TIA ss. 314(a).
(b) At any time after a registered public offering under the
Securities Act of the common stock of the Company, at the Company's expense, the
Company shall cause an annual report if furnished by it to stockholders
generally and each quarterly or other financial report if furnished by it to
stockholders generally to be filed with the Trustee and mailed to the Holders at
their addresses appearing in the register of Securities maintained by the
Registrar at the time of such mailing or furnishing to stockholders. If the
Company is not required to furnish annual or quarterly reports to its
stockholders pursuant to the Exchange Act, the Company shall cause its financial
statements, including any notes thereto and with respect to annual reports, an
auditors' report by an accounting firm of established national reputation, and a
"Management's Discussion
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and Analysis of Financial Condition and Results of Operations," to be so mailed
to the Holders at their addresses appearing in the register of Securities
maintained by the Registrar at the time of such mailing, so long as such Holders
covenant and agree to keep such information confidential, within 105 (or, at
such time as the Company is subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, 90) days after the end of each of the Company's
fiscal years and within 60 (or, at such time as the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, 45) days
after the end of each of the first three quarters of each fiscal year. If the
Trustee (at the Company's request and expense) is to mail the foregoing
information to the Holders, the Company shall supply such information to the
Trustee at least five days prior thereto.
(c) The Company will, upon request, provide to any Holder of
Securities or any prospective transferee of any such Holder any information
concerning the Company (including financial statements) necessary in order to
permit such Holder to sell or transfer Securities in compliance with Rule 144A
under the Securities Act.
(d) At any time when the Company is not subject to Section 13 or
15(d) of the Exchange Act, upon the request of a Holder of a Series A Note, the
Company will promptly furnish or cause to be furnished such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto) to such Holder or to a prospective purchaser of such Series
A Note designated by such Holder, as the case may be, in order to permit
compliance by such Holder with Rule 144A under the Securities Act.
SECTION 4.10. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this Indenture; and (to
the extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power
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herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
SECTION 4.11. Limitation on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with or for the
benefit of, an Affiliate of the Company or any Subsidiary or Unrestricted
Subsidiary of the Company (other than transactions between the Company and a
wholly owned Subsidiary of the Company or among wholly owned Subsidiaries of the
Company) (an "Affiliate Transaction"), other than (x) Affiliate Transactions
permitted under Section 4.11(b) and (y) Affiliate Transactions (including lease
transactions) on terms that are no less favorable in the aggregate than those
that might reasonably have been obtained in a comparable transaction on an arm's
length basis (as determined in good faith by the Board of Directors of the
Company, as evidenced by a Board Resolution) from a person that is not an
Affiliate; provided that, except as otherwise provided by Section 4.11(b),
neither the Company nor any of its Subsidiaries shall enter into an Affiliate
Transaction or series of related Affiliate Transactions involving or having a
value of more than $5,000,000 unless the Company or such Subsidiary, as the case
may be, has received an opinion from an Independent Financial Advisor, with a
copy thereof to the Trustee, to the effect that the financial terms of such
Affiliate Transaction are fair and reasonable to the Company or such Subsidiary,
as the case may be, and is on terms no less favorable to the Company or such
Subsidiary, as the case may be, than those that could be obtained in a
comparable transaction on an arm's length basis with a person that is not an
Affiliate.
(b) The provisions of Section 4.11(a) shall not apply to (i) any
Restricted Payment that is made in compliance with the provisions of Section
4.03, (ii) the payment by Duane Reade of management fees to Bain Capital in an
amount equal to $1,000,000 per twelve-month period (the "Annual Management Fee
Amount") ending on September 30 of each year subsequent to the Issue Date (each
an "Annual Period"), beginning with the Annual Period ending on September 30,
1993, plus out-of-pocket expenses not to exceed $156,000 in any such Annual
Period. The Annual Management Fee Amount shall be payable in equal quarterly
installments of $250,000 on or after the last day of each
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calendar quarter ("Quarterly Payments") and out-of-pocket expenses shall be
payable as and when incurred; provided that, after giving effect to such payment
(unless such payment has already been accrued) in the event that the Company's
Consolidated Fixed Charge Coverage Ratio for the twelve-month period ending on
each such calendar quarter is less than 1.0 to 1.0, then the Quarterly Payments
shall be reduced by an amount equal to the sum of $125,000 plus the amount of
out-of-pocket expenses paid by Duane Reade to Bain Capital in such calendar
quarter; provided, further, that in determining the Company's Consolidated Fixed
Charge Coverage Ratio for purpose of the immediately preceding proviso only,
interest expense on Indebtedness outstanding under the Credit Agreement shall be
calculated based upon interest rates in effect on the Issue Date; provided,
further, that prior to making any Quarterly Payment, the Company shall have
delivered to the Trustee an Officers' Certificate stating that such contemplated
Quarterly Payment will not violate the provisions of this Section 4.11(b);
provided, further, that for the period from the Issue Date through September 30,
1992, Bain Capital shall be entitled to be paid a management fee equal to
$16,500; (iii) the payment of a transaction fee to Bain Capital in connection
with the closing of the Acquisition in an amount not to exceed $2,500,000 plus
reasonable expenses and (iv) employment compensation arrangements with officers
of the Company and its Subsidiaries in the ordinary course of business.
SECTION 4.12. Limitation on Indebtedness.
(a) Except as set forth in this Section 4.12, the Company shall not,
and shall not permit any of its Subsidiaries to, after the Issue Date, directly
or indirectly, create, incur, assume, guarantee, become liable, contingently or
otherwise, with respect to, or otherwise become responsible for the payment of
(collectively "incur") any Indebtedness other than Permitted Indebtedness.
(b) Notwithstanding Section 4.12(a), the Company or any of its
Subsidiaries may incur Indebtedness (including Acquired Indebtedness) if (A) no
Default or Event of Default shall have occurred and be continuing at the time of
or as a consequence of the incurrence of such Indebtedness and (B) the
Consolidated Fixed Charge Coverage Ratio of the Company, measured on the date of
the incurrence of such Indebtedness, is greater than 1.5 to 1.0 if such date is
on or prior to September 15, 1994; greater than 1.75 to 1.0 if such date is
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after September 15, 1994 and on or prior to September 15, 1996; and greater than
2.0 to 1.0 thereafter.
(c) Notwithstanding Sections 4.12(a) and (b), the Company shall not
incur any Indebtedness unless such Indebtedness is expressly subordinate in
right of payment to the Securities. The restriction set forth in this Section
4.12(c) shall not apply to guarantees by the Company of Indebtedness of any of
the Company's Subsidiaries referred to in clauses (i), (ii) and (iii) of the
definition of the term "Senior Indebtedness" herein.
SECTION 4.13. Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Subsidiary
of the Company to (a) pay dividends or make any other distributions on its
Capital Stock, or any other interest or participation in, or measured by, its
profits, owned by the Company or any Subsidiary of the Company, or pay any
Indebtedness owed to the Company or a Subsidiary of the Company, (b) make loans
or advances to the Company or a Subsidiary of the Company, or (c) transfer any
of its properties or assets to the Company, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, (ii) this
Indenture, (iii) customary nonassignment provisions of any lease governing a
leasehold interest of the Company or any Subsidiary of the Company, (iv) any
instrument governing Indebtedness of a person acquired by the Company or any
Subsidiary of the Company at the time of such acquisition, which encumbrance or
restriction is not applicable to any person, or the properties or assets of any
person, other than the person or its Subsidiaries so acquired, (v) Indebtedness
existing on the Issue Date, including, without limitation, the Senior Notes, the
Term Loan Facility and the Working Capital Facility or any refinancing,
refunding, replacement or extension of the Senior Notes, the Term Loan Facility
or the Working Capital Facility; provided that any such encumbrance or
restriction contained in any refinancing, refunding, replacement or extension of
the Senior Notes, the Term Loan Facility or the Working Capital Facility shall
be no more restrictive than such encumbrance or restriction contained in the
Credit Agreement as in effect on the Issue Date, or (vi) Indebtedness permitted
to be incurred under the indenture governing the Senior Notes, the Credit
Agreement and this
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Indenture; provided that any such encumbrance or restriction contained in any
such Indebtedness shall be no more restrictive than such encumbrance or
restriction contained in the Credit Agreement as in effect on the Issue Date.
SECTION 4.14. Limitation on Liens.
The Company will not, and will not permit any of its Subsidiaries
to, create, incur, assume or suffer to exist any Liens upon any of its assets,
except for permitted Liens.
SECTION 4.15. Change of Control.
(a) In the event of a Change of Control, the Company shall be
obligated to make an offer to purchase all outstanding Securities pursuant to
the offer described in paragraph (b), below (the "Change of Control Offer"), at
a purchase price equal to 101% of the Accreted Value or principal amount, as the
case may be, thereof plus accrued interest, if any, to the date of purchase.
Prior to the repurchase of Securities pursuant to this Section 4.15(a), the
Company shall have or shall have caused each Subsidiary of the Company to have
(i) repurchased in full all outstanding Indebtedness pursuant to the Credit
Agreement, the Senior Notes and all Senior Indebtedness of the Company which
pursuant to its terms is required to be repurchased upon such Change of Control,
or shall have offered to repurchase and shall have repurchased such Indebtedness
from any holder of such Indebtedness who accepted such offer, or (ii) obtained
the requisite consents from holders of such Indebtedness to permit the
repurchase of the Securities as provided for under this Section 4.15(a). Failure
to have satisfied this condition precedent to the repurchase of the Securities
shall constitute a Default under Section 6.01(3) and shall not constitute a
payment default under Section 6.01(2). Within 10 days after the date upon which
the Change of Control occurred (the "Change of Control Date") requiring the
Company to make a Change of Control Offer pursuant to this Section 4.15, the
Company shall so notify the Trustee.
(b) The notice to the Holders shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to the
Change of Control Offer. Within 20 Business Days following any Change of Control
Date, the Company shall send, by first class mail, a notice to each Holder, with
copies to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state:
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(1) that the Change of Control Offer is being made pursuant to this
Section 4.15 and that all Securities tendered will be accepted for
payment;
(2) the purchase price (including the amount of accrued interest)
and the purchase date (which shall be no earlier than 20 Business Days nor
later than 40 Business Days from the date such notice is mailed, other
than as may be required by law) (the "Change of Control Payment Date");
(3) that any Security not tendered will continue to accrue interest
if interest is then accruing;
(4) that, unless the Company defaults in making payment therefor,
any Security accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant to a
Change of Control Offer will be required to surrender the Security, with
the form entitled "Option of Holder to Elect Purchase" on the last page of
the Security completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the Business Day prior to the
Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later, than two Business Days prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of
the Securities the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Security purchased;
(7) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount equal to the unpurchased
portion of the Securities surrendered; and
(8) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company shall
(i) accept for payment Securities or portions
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thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the
Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all
Securities so tendered and (iii) deliver to the Trustee Securities so accepted
together with an Officers' Certificate stating the Securities or portions
thereof being purchased by the Company. The Paying Agent shall promptly mail to
the Holders of Securities so accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate and mail to such Holders new
Securities equal in principal amount to any unpurchased portion of the
Securities surrendered. Any Securities not so accepted shall be promptly mailed
by the Company to the Holder thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date. For purposes of this Section 4.15, the Trustee
shall act as the Paying Agent.
SECTION 4.16. Limitation on Asset Sales.
The Company will not, and will not permit any of its Subsidiaries
to, make any Asset Sale, unless (i) the Company or the applicable Subsidiary, as
the case may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets sold or otherwise disposed of (as
determined in good faith by the Board of Directors of the Company, as evidenced
by a Board Resolution; provided that to the extent the consideration received in
connection with an Asset Sale exceeds $2,000,000, such fair market value shall
be corroborated by an Independent Financial Advisor), (ii) at least 80% of the
consideration received by the Company or such Subsidiary, as the case may be,
from such Asset Sale shall be cash or Cash Equivalents (except in the case of
any Asset Sale which constitutes an Asset Swap) and (iii) upon the consummation
of an Asset Sale, the Company shall either (A) reinvest or cause its Subsidiary
to reinvest, the Net Cash Proceeds of any Asset Sale in Productive Assets within
180 days of the receipt of such Net Cash Proceeds, except in the case of an
Asset Sale for which a Credit Agreement Reinvestment Notice has been given, as
to which the time period to reinvest in Productive Assets shall be 360 days, (B)
to the extent such Net Cash Proceeds are required by the terms of the Credit
Agreement to be applied to repay, and permanently reduce the commitments under,
any outstanding Indebtedness under the Credit Agreement, apply or cause such Net
Cash Proceeds to be applied to the repayment of outstanding Indebtedness under
the Credit Agreement within 120 days of the receipt of such Net Cash Proceeds
(except as to Net Cash Proceeds relating to an Asset Sale for which a Credit
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Agreement Reinvestment Notice has been given and not reinvested in Productive
Assets within 360 days, as to which the time period shall be within 390 days of
the receipt of such Net Cash Proceeds), (C) to the extent such Net Cash Proceeds
are required by the terms of the indenture governing the Senior Notes to be
applied to repurchase any Senior Notes, to apply or cause such Net Cash Proceeds
to be applied to the repurchase of Senior Notes within 120 days of the receipt
of such Net Cash Proceeds (except as to Net Cash Proceeds relating to an Asset
Sale for which a Credit Agreement Reinvestment Notice has been given and not
reinvested in Productive Assets within 360 days, as to which the time period
shall be within 390 days of the receipt of such Net Cash Proceeds), or (D) after
the occurrence of a Net Proceeds Offer Trigger Date, make a Net Proceeds Offer
pursuant to Section 3.07; provided, however, that if at any time any non-cash
consideration received by the Company or any Subsidiary of the Company, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash, then such conversion or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof
shall be applied in accordance with clause (iii) of this Section 4.16; provided,
further, that the Company may defer making a Net Proceeds Offer until the
aggregate Net Cash Proceeds from Asset Sales to be applied equals or exceeds
$2,000,000.
SECTION 4.17. Conduct of Business.
The Company and its Subsidiaries will not engage in any businesses
which are not the same, similar or related to the businesses in which the
Company or its Subsidiaries is engaged on the Issue Date, it being understood
that nothing in this Section 4.17 shall limit the ability of the Company or its
Subsidiaries to introduce or sell new product lines into its stores from time to
time.
SECTION 4.18. Unrestricted Subsidiaries.
(a) The Company shall not transfer to any Unrestricted Subsidiary
any Capital Stock of Daboco owned by the Company on the Issue Date. Daboco and
Duane Reade Inc. shall not transfer any equity interests in Duane Reade to any
Unrestricted Subsidiary.
(b) Promptly after the adoption of any Board Resolution designating
an entity as an Unrestricted Subsidiary, a copy thereof shall be filed with the
Trustee, together with an
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Officers' Certificate stating that the provisions of this Section have been
complied with in connection with such designation.
(c) The Company shall not designate any Unrestricted Subsidiary as a
Subsidiary.
(d) At the date of this Indenture there shall be no Unrestricted
Subsidiaries.
SECTION 4.19. Limitation on Guarantees by Affiliates.
The Company will not permit any of its Affiliates to guarantee the
payment of any Indebtedness of the Company, unless such Affiliate simultaneously
executes and delivers a supplemental indenture evidencing its senior guarantee
of the Company's obligations under the Securities and this Indenture.
SECTION 4.20. Restrictions on Sale of Stock of Subsidiaries.
(a) The Company will not permit any of its Subsidiaries to issue any
Preferred Stock (other than to the Company or to a wholly owned Subsidiary of
the Company and other than (i) Permitted Preferred Stock and (ii) Permitted PIK
Preferred Stock having a liquidation preference not to exceed $9,000,000 in the
aggregate less any Permitted Accreted Amount and less any Permitted PIK Interest
at any time outstanding) or permit any person (other than the Company or a
wholly owned Subsidiary of the Company) to own any Preferred Stock of any
Subsidiary of the Company (other than (i) Permitted Preferred Stock and (ii)
Permitted PIK Preferred Stock having a liquidation preference not to exceed
$9,000,000 in the aggregate less any Permitted Accreted Amount and less any
Permitted PIK Interest at any time outstanding).
(b) The Company will not permit any of its Subsidiaries to issue any
Capital Stock (other than Preferred Stock (which is governed by clause (a)
above) and other than to the Company or to a wholly owned Subsidiary of the
Company) or permit any person (other than the Company or a wholly owned
Subsidiary of the Company) to own any Capital Stock (other than Preferred Stock
(which is governed by clause (a) above)) of any Subsidiary of the Company (other
than in the case of a sale of 100% of the Capital Stock of a Subsidiary of the
Company); provided that this Section 4.20(b) shall not apply to any Subsidiary
of the Company (other than a wholly owned Subsidiary) that
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became a Subsidiary of the Company pursuant to the making of an Investment that
complied with Section 4.03.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc.
(a) The Company shall not, in a single transaction or through a
series of related transactions, (i) consolidate with or merge with or into any
other person, or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties and assets as an entirety or
substantially as an entirety to another person or group of affiliated persons or
(ii) adopt a Plan of Liquidation, unless, in either case:
(1) either the Company is the continuing person, or the person (if
other than the Company) formed by such consolidation or into which the
Company is merged or to which all or substantially all of the properties
and assets of the Company as an entirety or substantially as an entirety
are transferred (or, in the case of a Plan of Liquidation, any person to
which assets are transferred) (the Company or such other person being
hereinafter referred to as the "Surviving Person") 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
expressly assumes, by an indenture supplemental hereto, executed and
delivered to the Trustee on or prior to the consummation of such
transaction, in form satisfactory to the Trustee, all the obligations of
the Company under the Securities and this Indenture;
(2) immediately after giving effect to such transaction on a pro
forma basis (including any Indebtedness incurred or anticipated to be
incurred in connection with such transaction), the Consolidated Net Worth
of the Surviving Person (as adjusted to include any preferred stock (other
than Disqualified Capital Stock) to be outstanding after giving effect to
such transaction) is at least equal to the Consolidated Net Worth of the
Company immediately prior to such transaction;
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(3) immediately after giving effect to such transaction on a pro
forma basis (including any Indebtedness incurred or anticipated to be
incurred in connection with such transaction), the Consolidated Fixed
Charge Coverage Ratio of the Surviving Person is at least equal to the
Consolidated Fixed Charge Coverage Ratio of the Company immediately prior
to such transaction;
(4) immediately after giving effect to such transaction and the
assumption of the obligations as set forth in clause (1) above and the
incurrence or anticipated incurrence of any Indebtedness to be incurred in
connection therewith, no Default or Event of Default shall have occurred
and be continuing; and
(5) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer or adoption and such supplemental
indenture comply with this Article Five, that the Surviving Person agrees
to be bound hereby, and that all conditions precedent herein provided
relating to such transaction have been satisfied.
(b) For purposes of the foregoing, the sale, assignment, transfer,
lease, conveyance, sale or other disposition, in a single transaction or series
of transactions, of all or substantially all of the properties and assets of one
or more Subsidiaries of the Company, the Capital Stock of which constitutes all
or substantially all of the properties and assets of the Company shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any transfer of assets in
accordance with Section 5.01, the successor person formed by such consolidation
or into which the Company is merged or to which such transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
person had been named as the Company herein. When a successor corporation
assumes all of the obligations of the Company hereunder and under the Securities
and agrees to be bound hereby and thereby, the predecessor shall be released
from such obligations.
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ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any
Securities when the same becomes due and payable and the Default continues
for a period of 30 days, whether or not such payment is prohibited by
Article Eleven hereof;
(2) the Company defaults in the payment of the stated principal
amount or Accreted Value, as the case may be, of any Securities when the
same becomes due and payable at maturity, upon acceleration, or redemption
pursuant to an offer to purchase required hereunder or otherwise, whether
or not such payment is prohibited by Article Eleven hereof;
(3) the Company fails to comply in all material respects with any of
its other agreements contained in the Securities or this Indenture and the
Default continues for the period and after the notice specified below;
(4) there shall be a default under any bond, debenture, or other
evidence of Indebtedness of the Company or any Significant Subsidiary or
under any mortgage, indenture or other instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness of
the Company or any Significant Subsidiary whether such Indebtedness now
exists or shall hereafter be created, if both (a) such default either (i)
results from the failure to pay any such Indebtedness at its stated final
maturity (that is, the date of the last principal installment of any
installment Indebtedness under the instrument or agreement pursuant to or
under which such Indebtedness was created or is evidenced) or (ii) relates
to an obligation other than the obligation to pay any principal of such
Indebtedness at its stated final maturity and results in the holder or
holders of such Indebtedness causing such Indebtedness to become due prior
to its stated maturity and (b) the principal amount of such Indebtedness,
together with the principal amount of any
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other such Indebtedness in default for failure to pay principal at stated
final maturity or the maturity of which has been so accelerated, is
$12,500,000 or more individually or in the aggregate;
(5) one or more judgments, orders or decrees for the payment of
money which either individually or in the aggregate at any one time
exceeds $12,500,000 shall be rendered against the Company (or, at such
time as the Credit Agreement has been terminated and all amounts
thereunder have been paid in full, any Significant Subsidiary) by a court
of competent jurisdiction and shall remain undischarged and unbonded for a
period (during which execution shall not be effectively stayed) of 60
consecutive days after such judgment becomes final and nonappealable;
(6) the Company or any Significant Subsidiary (A) admits in writing
its inability to pay its debts generally as they become due, (B) commences
a voluntary case or proceeding under any Bankruptcy Law with respect to
itself, (C) consents to the entry of a judgment, decree or order for
relief against it in an involuntary case or proceeding under any
Bankruptcy Law, (D) consents to the appointment of a Custodian of it or
for substantially all of its property, (E) consents to or acquiesces in
the institution of a bankruptcy or an insolvency proceeding against it,
(F) makes a general assignment for the benefit of its creditors, or (G)
takes any corporate action to authorize or effect any of the foregoing;
and
(7) a court of competent jurisdiction enters a judgment , decree or
order for relief in respect of the Company or any Significant Subsidiary
in an involuntary case or proceeding under any Bankruptcy Law, which shall
(A) approve as properly filed a petition seeking reorganization,
arrangement, adjustment or composition in respect of the Company or any
Significant Subsidiary, (B) appoint a Custodian of the Company or any
Significant Subsidiary or for substantially all of its property or (C)
order the winding-up or liquidation of its affairs; and such judgment,
decree or order shall remain unstayed and in effect for a period of 60
consecutive days.
A Default under clause (3) above (other than in the case of any
Default under Section 4.15 or 5.01) is not an Event of Default until the Trustee
notifies the Company, or the
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Holders of at least 25% in Accreted Value or principal amount, as the case may
be, of the outstanding Securities notify the Company and the Trustee of the
Default, and the Company does not cure the Default within 30 days after receipt
of the notice. The notice must specify the Default, demand that it be remedied
and state that the notice is a Notice of Default." Such notice shall be given by
the Trustee if so requested by the Holders of at least 25% in Accreted Value or
principal amount, as the case may be, of the Securities then outstanding. A
Default under clause (5) above shall be an Event of Default with the notice
specified in this paragraph but without the passage of time referred to in this
paragraph.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
Section 6.01(6) or (7) with respect to the Company) occurs and is continuing,
the Trustee may, by notice to the Company, or the Holders of at least 25% in
Accreted Value or principal amount, as the case may be, of the Securities then
outstanding may, by written notice to the Company and the Trustee, and the
Trustee shall, upon the request of such Holders, declare the aggregate Accreted
Value or principal amount, as the case may be, of the Securities outstanding,
together with accrued but unpaid interest thereon to the date of payment, to be
due and payable and, upon any such declaration, the same shall become and be due
and payable; provided, however, that the Trustee shall be under no obligation to
follow any request of any of the Holders unless such Holders shall have offered
to the Trustee, after request by the Trustee, reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred by it in
compliance with such request, order or direction; provided, further, that such
declaration shall not be effective until the earlier to occur of (i) 5 days
following delivery of a written notice of such acceleration to the agent under
the Credit Agreement and (ii) the acceleration of any Indebtedness (or other
amounts) under the Credit Agreement. If an Event of Default specified in Section
6.01(6) or (7) occurs with respect to the Company, all Accreted Value or unpaid
principal, as the case may be, and accrued interest on the Securities then
outstanding shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Securityholder.
Upon payment of such Accreted Value or principal amount, as the case may be, and
interest, all of the Company's obligations under the Securities and this
Indenture, other than obligations under Section 7.07, shall terminate. The
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Holders of a majority in Accreted Value or principal amount, as the case may be,
of the Securities then outstanding by notice to the Trustee may rescind an
acceleration and its consequences if (i) all existing Events of Default, other
than the non-payment of the principal and interest on the Securities which have
become due solely by such declaration of acceleration, have been cured or
waived, (ii) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid, and (iii) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction. No such rescission shall affect any subsequent default
or impair any right consequent thereto. In the event that a declaration of
acceleration under Section 6.01(4) above has occurred and is continuing, such
declaration of acceleration shall be automatically annulled if the Indebtedness
that is the subject of such Event of Default has been discharged or paid or the
holders of such Indebtedness shall have rescinded their declaration of
acceleration in respect of such Indebtedness within 60 days thereafter and no
other Event of Default has occurred during such 60-day period which has not been
cured or waived.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Subject to Sections 6.07 and 9.02, the Holders of a majority in
Accreted Value or principal amount, as the case may be, of the outstanding
Securities by notice to the Trustee may waive an existing Default or Event of
Default and its
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consequences, except a Default in the payment of principal of or interest on any
Security as specified in clauses (1) and (2) of Section 6.01.
SECTION 6.05. Control by Majority.
The Holders of a majority in Accreted Value or principal amount, as
the case may be, of the outstanding Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it including, without limitation, any
remedies provided for in Section 6.03. Subject to Section 7.01, however, the
Trustee may refuse to follow any direction that conflicts with any law or this
Indenture that the Trustee determines may be unduly prejudicial to the rights of
another Securityholder, or that may involve the Trustee in personal liability;
provided that the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(1) the Holder gives to the Trustee notice of a continuing Event of
Default;
(2) Holders of at least 25% in Accreted Value or principal amount,
as the case may be, of the outstanding Securities make a written request
to the Trustee to pursue the remedy;
(3) such Holders offer to the Trustee reasonable indemnity against
any loss, liability or expense to be incurred in compliance with such
request;
(4) the Trustee does not comply with the request within 45 days
after receipt of the request and the offer of satisfactory indemnity; and
(5) during such 45-day period the Holders of a majority in Accreted
Value or principal amount, as the case may be, of the outstanding
Securities do not give the Trustee a direction which, in the opinion of
the Trustee, is inconsistent with the request.
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A Securityholder may not use this Indenture to prejudice the rights
of another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Securities for the whole amount of principal
and accrued interest remaining unpaid, together with interest on overdue
principal and, to the extent that payment of such interest is lawful, interest
on overdue installments of interest, in each case at the rate per annum borne by
the Securities and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses, taxes,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relating to the Company or
any other obligor upon the Securities, any of their respective creditors or any
of their respective property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Securityholder 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 Securityholders, to pay to the Trustee
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any amount due to it for the reasonable compensation, expenses, taxes,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Securityholder any plan of reorganization, arrangement, adjustment
or composition affecting the Securities or the rights of any Holder thereof, or
to authorize the Trustee to vote in respect of the claim of any Securityholder
in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six, it
shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: if the Holders are forced to proceed against the Company
directly without the Trustee, to Holders for their collection costs;
Third: to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Fourth: to the Company or any other obligor on the Securities, as
their interests may appear, or as a court of competent jurisdiction may
direct.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for any payment to Securityholders pursuant to this Section
6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the
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claims or defenses made by the party litigant. This Section 6.11 does not apply
to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07, or a suit
by a Holder or Holders of more than 10% in Accreted Value or principal amount,
as the case may be, of the outstanding Securities.
ARTICLE SEVEN
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein expressed.
SECTION 7.01. Duties of Trustee.
(a) If a Default or 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 its exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) The Trustee need perform only those duties as are specifically
set forth in this Indenture and no covenants or obligations shall be
implied in this Indenture that are adverse to the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
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(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Sections 6.02 or 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or 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.
(e) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree with the Company. Assets
held in trust by the Trustee need not be segregated from other assets except to
the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in acting or
refraining from acting upon any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 12.04 and 12.05. The Trustee
shall not be
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liable for any action it takes or omits to take in good faith in reliance
on such certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith which it believes to be authorized or within
its rights or powers.
(e) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled, upon reasonable
notice to the Company, to examine the books, records, and premises of the
Company, personally or by agent or attorney.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred by it in compliance with such request,
order or direction.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy
of this Indenture or the Securities, it shall not be accountable for the
Company's use of the proceeds from
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the Securities, and it shall not be responsible for any statement in the
Securities other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if
it is known to the Trustee, the Trustee shall mail to each Securityholder, as
their names and addresses appear on the Securityholder list described in Section
2.05, notice of the uncured Default or Event of Default within 90 days after the
Trustee obtains actual knowledge that such Default or Event of Default has
occurred. The provisions of TIA S 3.15(b) are specifically excluded from this
Indenture.
SECTION 7.06. Reports by Trustee to Holders.
This Section 7.06 shall not be operative as a part of this Indenture
until this Indenture is qualified under the TIA, and, until such qualification,
this Indenture shall be construed as if this Section 7.06 were not contained
herein.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, the Trustee shall, to the extent that any of the
events described in TIA ss. 313(a) occurred within the previous twelve months,
but not otherwise, mail to each Securityholder a brief report dated as of such
May 15 that complies with TIA S 313(a). The Trustee also shall comply with TIA
ss. 313(b) and 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed.
The Company shall notify the Trustee if the Securities become listed
on any stock exchange.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all tax obligations imposed on the
Trustee related to this Indenture and all reasonable out-of-pocket expenses
incurred or made by it. Such expenses shall
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include the reasonable fees and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee and its agents for, and hold
them harmless against, any loss, liability or expense incurred by them except
for such actions to the extent caused by any negligence or bad faith on their
part, arising out of or in connection with the administration of this trust
including the reasonable costs and expenses of defending themselves against any
claim or liability in connection with the exercise or performance of any of
their rights, powers or duties hereunder. The Trustee shall notify the Company
promptly of any claim asserted against the Trustee for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall cooperate in
the defense. The Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel; provided that the Company will not
be required to pay such fees and expenses if it assumes the Trustee's defense
and there is no conflict of interest between the Company and the Trustee in
connection with such defense as reasonably determined by the Trustee. The
Company need not pay for any settlement made without its written consent. The
Company need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence, bad
faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a lien prior to the Securities on all assets or money
held or collected by the Trustee, in its capacity as Trustee, except assets or
money held in trust to pay principal of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(6) or (7) occurs, such expenses and the
compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign by so notifying the Company. The Holders of a
majority in Accreted Value or principal amount, as the case may be, of the
outstanding Securities may remove the Trustee by so notifying the Company and
the Trustee and may appoint a successor trustee. The Company may remove the
Trustee if:
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(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in Accreted Value or
principal amount, as the case may be, of the Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office. within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in Accreted Value or principal amount, as the case
may be, of the outstanding Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
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SECTION 7.09. Successor Trustee by Merger. Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA ss.ss.310(a)(1) and 310(a)(5). The Trustee (or in the case of
a corporation included in a bank holding company system, the related bank
holding company) shall have a combined capital and surplus of at least
$100,000,000 as set forth in its most recent published annual report of
condition. In addition, if the Trustee is a corporation included in a bank
holding company system, the Trustee, independently of such bank holding company,
shall meet the capital requirements of TIA ss.310(a)(2). The Trustee shall
comply with TIA ss.310(b); provided, however, that there shall be excluded from
the operation of TIA ss.310(b)(l) any indenture or indentures under which other
securities, or certificates of interest or participation in other securities, of
the Company are outstanding, if the requirements for such exclusion set forth in
TIA ss.310(b)(l) are met.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA ss.311(a), excluding any creditor
relationship listed in TIA ss.311(b). A Trustee who has resigned or been removed
shall be subject to TIA ss.311(a) to the extent indicated therein.
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ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. Satisfaction, Discharge of the Indenture and Defeasance of the
Securities.
The Company shall be deemed to have paid and discharged the entire
Indebtedness on the Securities and the provisions of this Indenture (subject to
Section 8.03), if:
(1) The Company irrevocably deposits in trust with the Trustee,
pursuant to an irrevocable trust and security agreement in form and
substance satisfactory to the Trustee, U.S. Legal Tender or direct
non-callable obligations of, or non-callable obligations guaranteed by,
the United States of America for the payment of which obligation or
guarantee the full faith and credit of the United States of America is
pledged ("U.S. Government Obligations") maturing as to principal and
interest in such amounts and at such times as are sufficient, without
consideration of the reinvestment of such interest and after payment of
all Federal, state and local taxes or other charges or assessments in
respect thereof payable by the Trustee, in the opinion of the Chief
Financial Officer of the Company expressed in a written certification
thereof (in form and substance reasonably satisfactory to the Trustee)
delivered to the Trustee, to pay the principal of and interest on the
outstanding Securities on the dates (including any Redemption Date) on
which any such payments are due and payable in accordance with the terms
of the Indenture and of the Securities;
(2) Such deposits shall not cause the Trustee to have a conflicting
interest as defined in and for purposes of the TIA;
(3) No Default or Event of Default (i) shall have occurred and be
continuing on the date of such deposit or (ii) shall occur on or before
the 91st day after the date of such deposit;
(4) Such deposit will not result in a Default under this Indenture
or a breach or violation of, or constitute a default under, any other
instrument or agreement (including, without limitation, the Credit
Agreement) to
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which the Company or any Subsidiary of the Company is a party or by which
it or its property is bound;
(5) The Company shall deliver to the Trustee an Opinion of Counsel,
in form and substance reasonably satisfactory to the Trustee, to the
effect that Holders of the Securities will not recognize income, gain or
loss for Federal income tax purposes as a result of such deposit and the
defeasance contemplated hereby and will be subject to Federal income tax
in the same amounts and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred;
(6) The deposit shall not result in the Company, the Trustee or the
trust becoming or being deemed to be an "investment company" under the
Investment Company Act of 1940;
(7) The Holders shall have a perfected security interest under
applicable law in the U.S. Legal Tender or u.s. Government Obligations
deposited pursuant to Section 8.01(1) above;
(8) The Company shall have delivered to the Trustee an Opinion of
Counsel, in form and substance reasonably satisfactory to the Trustee, to
the effect that, after the passage of 90 days following the deposit, the
trust funds will not be subject to any applicable bankruptcy, insolvency,
reorganization or similar law affecting creditors' rights generally; and
(9) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent specified herein relating to the defeasance contemplated by this
Section 8.01 have been complied with; provided, however, that no deposit
under clause (1) above shall be effective to terminate the obligations of
the Company under the Securities or this Indenture prior to 90 days
following any such deposit.
In the event all or any portion of the Securities are to be redeemed
through such irrevocable trust, the Company must make arrangements satisfactory
to the Trustee, at the time of such deposit, for the giving of the notice of
such redemption or redemptions by the Trustee in the name and at the expense or
the Company. In connection with the issuance of debt
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securities the proceeds of which will be used to redeem all the Securities then
outstanding, neither Sections 4.12, 4.13 nor Section 4.14 shall be violated by
the issuance of such debt securities to the extent the Company complies with all
of the provisions of this Section 8.01 other than Section 8.0l(3)(ii).
SECTION 8.02. Termination of Obligations upon Cancellation of the Securities.
In addition to the Company's rights under Section 8.01, the Company
may terminate all of its obligations under this Indenture (subject to Section
8.03) when:
(1) all Securities theretofore authenticated and delivered (other
than Securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 2.07) have been delivered to
the Trustee for cancellation;
(2) the Company has paid or caused to be paid all other sums payable
hereunder and under the Securities by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent specified herein relating to the satisfaction and discharge of
this Indenture have been complied with.
SECTION 8.03. Survival of Certain Obligations.
Notwithstanding the satisfaction and discharge of this Indenture and
of the Securities referred to in Section 8.01 or 8.02, the respective
obligations of the Company and the Trustee under Sections 2.02, 2.03, 2.04,
2.05, 2.06, 2.07, 2.13, 4.01, 4.02, 6.07, 7.07, 7.08, 8.05, 8.06 and 8.07 shall
survive until the Securities are no longer outstanding, and thereafter the
obligations of the Company and the Trustee under Sections 7.07, 8.05, 8.06 and
8.07 shall survive. Nothing contained in this Article Eight shall abrogate any
of the obligations or duties of the Trustee under this Indenture.
SECTION 8.04. Acknowledgment of Discharge by Trustee.
Subject to Section 8.07, after (i) the conditions of Section 8.01 or
8.02 have been satisfied, (ii) the Company has paid or caused to be paid all
other sums payable hereunder by the Company and (iii) the Company has delivered
to the Trustee
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an Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent referred to in clause (i) above relating to the
satisfaction and discharge of this Indenture have been complied with, the
Trustee upon written request shall acknowledge in writing the discharge of the
Company's obligations under this Indenture except for those surviving
obligations specified in Section 8.03.
SECTION 8.05. Application of Trust Assets.
The Trustee shall hold any U.S. Legal Tender or U.S. Government
Obligations deposited with it in the irrevocable trust established pursuant to
Section 8.01. The Trustee shall apply the deposited U.S. Legal Tender or the
U.S. Government Obligations, together with earnings thereon, through the Paying
Agent (other than the Company or any Subsidiary of the Company), in accordance
with this Indenture and the terms of the irrevocable trust agreement established
pursuant to Section 8.01, to the payment of principal of and interest on the
Securities. The U.S. Legal Tender or U.S. Government Obligations so held in
trust and deposited with the Trustee in compliance with Section 8.01 shall not
be part of the trust estate under this Indenture, but shall constitute a
separate trust fund for the benefit of all Holders entitled thereto.
SECTION 8.06. Repayment to the Company.
Upon termination of the trust established pursuant to Section 8.01,
the Trustee and the Paying Agent shall promptly pay to the Company upon request
any excess U.S. Legal Tender or U.S. Government Obligations held by them.
The Trustee and the Paying Agent shall pay to the Company upon
request, and, if applicable, in accordance with the irrevocable trust
established pursuant to Section 8.01 or 8.02, any U.S. Legal Tender or U.S.
Government Obligations held by them for the payment of principal of or interest
on the Securities that remain unclaimed for one year after the date on which
such payment shall have become due. After payment to the Company, Holders
entitled to such payment must look to the Company for such payment as general
creditors unless an applicable abandoned property law designates another person.
SECTION 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance
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with Section 8.01 or 8.02 by reason of any legal proceeding or by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.01 or 8.02 until such time as the
Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S.
Government Obligations in accordance with Section 8.01 or 8.02.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company, when authorized by a Board Resolution, and the Trustee,
together, may amend or supplement this Indenture or the Securities without
notice to or consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency; provided that
such amendment or supplement does not adversely affect the rights of any
Holder;
(2) to comply with Article Five;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(4) to make any other change that does not materially adversely
affect the rights of any Securityholders hereunder; or
(5) to comply with any requirements of the SEC in connection with
the qualification of this Indenture under the TIA;
provided that the Company has delivered to the Trustee an Opinion of Counsel and
an Officers' Certificate, each stating that such amendment or supplement
complies with the provisions of this Section 9.01.
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SECTION 9.02. With Consent of Holders.
Subject to Section 6.07, the Company, when authorized by a Board
Resolution, and the Trustee, together, with the written consent of the Holder or
Holders of at least a majority in aggregate Accreted Value or principal amount,
as the case may be, of the outstanding Securities, may amend or supplement this
Indenture or the Securities, without notice to any other Securityholders.
Subject to Section 6.07, the Holder or Holders of a majority in aggregate
Accreted Value or principal amount, as the case may be, of the outstanding
Securities may waive compliance by the Company with any provision of this
Indenture or the Securities without notice to any other Securityholder. Without
the consent of each Securityholder affected, however, no amendment, supplement
or waiver, including a waiver pursuant to Section 6.04, may:
(1) change the Accreted Value or principal amount, as the case may
be, of Securities whose Holders must consent to an amendment, supplement
or waiver of any provision of this Indenture or the Securities;
(2) reduce the rate or extend the time for payment of interest on
any Security;
(3) reduce the rate of accretion of purchase discount on any
Security;
(4) reduce the stated principal amount of any Security at the
Maturity Date or the Accreted Value;
(5) change the Maturity Date of any Security, or alter the
redemption provisions contained in Paragraph 7 of the Securities in a
manner adverse to any Holder;
(6) make any changes in the provisions concerning waivers of
Defaults or Events of Defaults by Holders of the Securities or the rights
of Holders to recover the principal of, interest on, or redemption
payments or payments arising out of offers to purchase with respect to,
any Security;
(7) make any changes in Section 6.04, 6.07 or this third sentence of
this Section 9.02;
(8) make the principal of, or the interest on any Security payable
in money other than as provided for in
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the Indenture and the Securities as in effect on the date hereof; or
(9) affect the ranking of the Securities in a manner adverse to the
Holders.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. Compliance with TIA.
From the date on which the Indenture is qualified under the TIA,
every amendment, waiver or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is not
made on any Security. However, any such Holder or subsequent Holder may revoke
the consent as to his Security or portion of his Security by notice to the
Trustee or the Company received before the date on which the Trustee receives an
Officers' Certificate certifying that the Holders of the requisite Accreted
Value or principal amount, as the case may be, of Securities have consented (and
not theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
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notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (8) of Section 9.02, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided that any such waiver
shall not impair or affect the right of any Holder to receive payment of
principal of and interest on a Security, on or after the respective due dates
expressed in such Security, or to bring suit for the enforcement of any such
payment on or after such respective dates without the consent of such Holder.
SECTION 9.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture. Such Opinion of Counsel shall not be an expense of the Trustee.
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ARTICLE TEN
MEETINGS OF SECURITYHOLDERS
SECTION 10.01. Purposes for Which Meetings May Be Called.
A meeting of Securityholders may be called at any time and from time
to time pursuant to the provisions of this Article Ten for any of the following
purposes:
(a) to give any notice to the Company or to the Trustee, or to give
any directions to the Trustee, or to waive or to consent to the waiving of
any Default or Event of Default hereunder and its consequences, or to take
any other action authorized to be taken by Securityholders pursuant to any
of the provisions of Article Six;
(b) to remove the Trustee or appoint a successor Trustee pursuant to
the provisions of Article Seven;
(c) to consent to an amendment, supplement or waiver pursuant to the
provisions of Section 9.02; or
(d) to take any other action (i) authorized to be taken by or on
behalf of the Holders of any specified aggregate Accreted Value or
principal amount, as the case may be, of the Securities under any other
provision of this Indenture, or authorized or permitted by law or (ii)
which the Trustee deems necessary or appropriate in connection with the
administration of this Indenture.
SECTION 10.02. Manner of Calling Meetings.
The Trustee may at any time call a meeting of Securityholders to
take any action specified in Section 10.01, to be held at such time and at such
place in The City of New York, New York or elsewhere as the Trustee shall
determine. Notice of every meeting of Securityholders, setting forth the time
and place of such meeting and in general terms the action proposed to be taken
at such meeting, shall be mailed by the Trustee, first-class postage prepaid,
to the Company and to the Holders at their last addresses as they shall appear
on the registration books of the Registrar not less than 10 nor more than 60
days prior to the date fixed for a meeting.
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Any meeting of Securityholders shall be valid without notice if the
Holders of all Securities then outstanding are present in person or by proxy, or
if notice is waived before or after the meeting by the Holders of all Securities
outstanding, and if the Company and the Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived notice.
SECTION 10.03. Call of Meetings by Company or Holders.
In case at any time the Company, pursuant to a Board Resolution, or
the Holders of not less than 10% in aggregate Accreted Value or principal
amount, as the case may be, of the Securities then outstanding shall have
requested the Trustee to call a meeting of Securityholders to take any action
specified in Section 10.01, by written request setting forth in reasonable
detail the action proposed to be taken at the meeting, and the Trustee shall not
have mailed the notice of such meeting within 20 days after receipt of such
request, then the Company or the Holders of Securities in the amount above
specified may determine the time and place in The City of New York, New York or
elsewhere for such meeting and may call such meeting for the purpose of taking
such action, by mailing or causing to be mailed notice thereof as provided in
Section 10.02, or by causing notice thereof to be published at least once in
each of two successive calendar weeks (on any Business Day during such week) in
a newspaper or newspapers printed in the English language, customarily published
at least five days a week and of a general circulation in The City of New York,
State of New York, the first such publication to be not less than 10 nor more
than 60 days prior to the date fixed for the meeting.
SECTION 10.04. Who May Attend and Vote at Meetings.
To be entitled to vote at any meeting of Securityholders, a person
shall (a) be a registered Holder of one or more Securities, or (b) be a person
appointed by an instrument in writing as proxy for the registered Holder or
Holders of Securities. The only persons who shall be entitled to be present or
to speak at any meeting of Securityholders shall be the persons entitled to vote
at such meeting and their counsel and any representatives of the Trustee and its
counsel and any representatives of the Company and its counsel.
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SECTION 10.05. Regulations May Be Made by Trustee; Conduct of the Meeting;
Voting Rights; Adjournment.
Notwithstanding any other provision of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any action by
or any meeting of Securityholders, in regard to proof of the holding of
Securities and of the appointment of proxies, and in regard to the appointment
and duties of inspectors of votes, and submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think appropriate. Such
regulations may fix a record date and time for determining the Holders of record
of Securities entitled to vote at such meeting, in which case those and only
those persons who are Holders of Securities at the record date and time so
fixed, or their proxies, shall be entitled to vote at such meeting whether or
not they shall be such Holders at the time of the meeting.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Securityholders as provided in Section 10.03, in which case the
Company or the Securityholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the Holders of a majority
in Accreted Value or principal amount, as the case may be, of the Securities
represented at the meeting and entitled to vote.
At any meeting each Securityholder or proxy shall be entitled to one
vote for each $1,000 principal amount of Securities held or represented by him;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Securities challenged as not outstanding and ruled by the
chairman of the meeting to be not outstanding. The chairman may adjourn any such
meeting if he is unable to determine whether any Holder or proxy shall be
entitled to vote at such meeting. The chairman of the meeting shall have no
right to vote other than by virtue of Securities held by him or instruments in
writing as aforesaid duly designating him as the proxy to vote on behalf of
other Securityholders. Any meeting of Securityholders duly called pursuant to
the provisions of Section 10.02 or Section 10.03 may be adjourned from time to
time by vote of the Holders of a majority in aggregate Accreted Value or
principal amount, as the case may be, of the
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Securities represented at the meeting and entitled to vote, and the meeting may
be held as so adjourned without further notice.
SECTION 10.06. Voting at the Meeting and Record To Be Kept.
The vote upon any resolution submitted to any meeting of
Securityholders shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities or of their representatives by proxy and
the Accreted Value or principal amount, as the case may be, of the Securities
voted by the ballot. The permanent chairman of the meeting shall appoint two
inspectors of votes, who shall count all votes cast at the meeting for or
against any resolution and who shall make and file with the secretary of the
meeting their verified written reports in duplicate of all votes cast at the
meeting. A record in duplicate of the proceedings of each meeting of
Securityholders shall be prepared by the secretary of the meeting and there
shall be attached to such record the original reports of the inspectors of votes
on any vote by ballot taken thereat and affidavits by one or more persons having
knowledge of the facts, setting forth a copy of the notice of the meeting and
showing that such notice was mailed as provided in Section 10.02 or published as
provided in Section 10.03. The record shall be signed and verified by the
affidavits of the permanent chairman and the secretary of the meeting and one of
the duplicates shall be delivered to the Company and the other to the Trustee to
be preserved by the Trustee, the latter to have attached thereto the ballots
voted at the meeting.
Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
SECTION 10.07. Exercise of Rights of Trustee or Securityholders May Not Be
Hindered or Delayed by Call of Meeting.
Nothing contained in this Article Ten shall be deemed or construed
to authorize or permit, by reason of any call of a meeting of Securityholders or
any rights expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any right or rights conferred upon or
reserved to the Trustee or to the Securityholders under any of the provisions of
this Indenture or of the Securities.
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ARTICLE ELEVEN
SUBORDINATION
SECTION 11.01. Securities Subordinated to Senior Indebtedness.
The Company, for itself and its successors, and each Holder, by its
acceptance of Securities, agrees, that the payment of the principal of and
interest on the Securities is subordinated in right of payment, to the extent
and in the manner provided in this Article Eleven, to the prior payment in full
of all Senior Indebtedness, including interest accruing after the filing of a
petition initiating any proceeding pursuant to any Bankruptcy Law, whether or
not such interest is an allowed claim.
This Article Eleven shall constitute a continuing offer to all
persons who, in reliance upon such provisions, become holders of, or continue to
hold, Senior Indebtedness, and such provisions are made for the benefit of the
holders of Senior Indebtedness, and such holders are made obligees hereunder and
they and/or each of them may enforce such provisions.
SECTION 11.02. No Payment on Securities in Certain Circumstances.
(a) Upon any default in the payment of any Senior Indebtedness when
due and payable, whether at maturity, upon any redemption, by declaration or
otherwise, such Senior Indebtedness shall first be paid in full, or such payment
duly provided for, before any payment is made on account of principal of or
interest on the Securities or to acquire any of the Securities or on account of
the redemption provisions for the Securities.
(b) Upon the occurrence of any other event of default with respect
to any Senior Indebtedness, as such event of default is defined therein,
permitting the holders to accelerate the maturity thereof, and, upon written
notice thereof given to the Company and the Trustee by one or more holders of
such Senior Indebtedness or their Representative (a "Default Notice"), then,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist or the Trustee receives notice from such holder or holders
of Senior Indebtedness (or such Representative) terminating the Blockage Period
(as defined below), no payment shall be made by the
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Company with respect to the principal of or interest on the Securities or to
acquire any of the Securities or on account of the redemption provisions for the
Securities; provided, however, that if such Senior Indebtedness has not been
accelerated or become the subject of judicial proceedings within 180 days after
the delivery of such Default Notice (the "Blockage Period"), then the Company
shall resume making any and all required payments in respect of the Securities.
At the expiration of such Blockage Period the Company shall, subject to
subsection (a) of this Section 11.02, promptly pay to the Trustee all sums not
paid during such Blockage Period as a result of this subsection (b).
Notwithstanding the foregoing, (i) not more than one Default Notice shall be
given with respect to the Senior Indebtedness within a period of 360 consecutive
days, (ii) no default which existed or was continuing on the date of any Default
Notice shall be made the basis for the giving of a subsequent Default Notice and
(iii) if the Company or the Trustee receives any Default Notice, a similar
notice relating to or arising out of the same default or facts giving rise to
such default (whether or not such default is on the same issue of Senior
Indebtedness) shall not be effective for purposes of this subsection (b).
(c) In furtherance of the provisions of Section 11.01 and in the
event that, notwithstanding the foregoing provisions of Sections 11.02(a) and
(b), any payment on account of the principal of or interest on the Securities or
on account of the redemption provisions shall be made by or on behalf of the
Company, and received by the Trustee, by any Holder or by any Paying Agent (or,
if the Company is acting as its own Paying Agent, money for any such payment
shall be segregated and held in trust), at a time when such payment was
prohibited by the provisions of this Section 11.02, then, unless and until such
payment is no longer prohibited by this Section 11.02, such payment (subject to
the provisions of Sections 11.06 and 11.07) shall be held in trust for the
benefit of, and shall be immediately paid over to, the holders of Senior
Indebtedness or their respective Representatives, ratably according to the
aggregate amount of Senior Indebtedness held or represented by each, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to pay all Senior Indebtedness in full in accordance with its
terms, after giving effect to any concurrent payment or distribution or
provision therefor to or for the holders of Senior Indebtedness.
The Company shall give prompt written notice to the Trustee of any
default for failure to make payments of
<PAGE>
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principal or interest on any Senior Indebtedness or a default which results in
the acceleration of any Senior Indebtedness, under any Senior Indebtedness or
under any agreement pursuant to which Senior Indebtedness may have been issued.
Failure to give such notice shall not affect the subordination of the Securities
to the Senior Indebtedness provided in this Article Eleven.
SECTION 11.03. Securities Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or Reorganization of
the Company.
Upon any distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon any
dissolution, winding up, liquidation or reorganization of the Company (whether
in voluntary or involuntary bankruptcy, insolvency or receivership proceedings
or upon any assignment for the benefit of creditors or otherwise):
(1) the holders of all Senior Indebtedness shall first receive
payment in full of the principal and interest and other amounts due
thereon (or have such payments duly provided for) before the Holders are
entitled to receive any payment on account of the principal of or interest
on or the redemption of the Securities;
(2) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities to which the Holders
or the Trustee on behalf of the Holders would be entitled except for the
provisions of this Article Eleven shall be paid by the Company, the
liquidating trustee or agent or other person making such a payment or
distribution, directly to the holders of Senior Indebtedness (pro rata to
such holders on the basis of the respective amounts of Senior Indebtedness
held by such holders) or their Representative, to the extent necessary to
make payment in full of all Senior Indebtedness remaining unpaid, after
giving effect to any concurrent payment or distribution or provision
therefor to the holders of such Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, shall be received by the Trustee or the
Holders or any Paying Agent (or, if the Company is acting as its own
Paying Agent, money for any such payment or
<PAGE>
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distribution shall be segregated or held in trust) on account of principal
of or interest on the Securities or on account of the redemption
provisions before all Senior Indebtedness is paid in full, or effective
provision made for its payment, then such payment or distribution shall be
received and held in trust for the benefit of and shall be immediately
paid over to the holders of the Senior Indebtedness remaining unpaid or
unprovided for (pro rata as to each of such holders on the basis of the
respective amounts of Senior Indebtedness held by them) or their
respective Representatives, for application to the payment of all Senior
Indebtedness until such Senior Indebtedness shall have been paid in full,
after giving effect to any concurrent payment or distribution or provision
therefor to the holders of such Senior Indebtedness.
The Company shall give prompt written notice to the Trustee of any
dissolution, winding up, liquidation or reorganization of the Company, but
failure to give such notice shall not affect the subordination of the Securities
tO the Senior Indebtedness provided in this Article Eleven.
SECTION 11.04. Securityholders To Be Subrogated to Rights of Holders of Senior
Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the
Holders of Securities shall be subrogated to the rights of the Holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until all amounts owing on the Securities
shall be paid in full, and for the purpose of such subrogation no such payments
or distributions to the holders of Senior Indebtedness by or on behalf of the
Company or by or on behalf of the Holders by virtue of this Article Eleven,
which otherwise would have been made to the Holders, shall, as between the
Company and the Holders, be deemed to be payment by the Company to or on account
of the Senior Indebtedness, it being understood that the provisions of this
Article Eleven are and are intended solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
SECTION 11.05. Obligations of the Company Unconditional.
Nothing contained in this Article Eleven or elsewhere in this
Indenture or in any Security is intended to or shall impair, as between the
Company and the Holders, the obligation
<PAGE>
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of the Company, which is absolute and unconditional, to pay the principal of and
interest on the Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders and creditors of the Company other than the holders of the
Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or
any Holder from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article Eleven of the holders of Senior Indebtedness in respect of cash,
property or securities of the Company received upon the exercise of any such
remedy. Upon any event requiring subordination in this Article Eleven, the
Trustee, subject to the provisions of Sections 7.01 and 7.02, and the Holders
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other person making any distribution to the Trustee or to
the Holders for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of Senior Indebtedness and other Indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article Four.
SECTION 11.06. Trustee Entitled to Assume Payments Not Prohibited in Absence of
Notice.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee unless and until the Trustee shall have received written notice
thereof from the Company or from one or more holders of Senior Indebtedness or
their respective Representatives and, prior to the receipt of any such written
notice, the Trustee, subject to the provisions of Sections 7.01 and 7.02, shall
be entitled in all respects conclusively to assume that no such fact exists.
SECTION 11.07. Application by Trustee of Assets Deposited with It.
U.S. Legal Tender or U.S. Government Obligations deposited in trust
with the Trustee pursuant to and in accordance with Section 8.01 shall be for
the sole benefit of Securityholders and, to the extent allocated for the payment
of Securities, shall not be subject to the subordination provisions of this
Article Eleven. Otherwise, any deposit of assets
<PAGE>
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by the Company with the Trustee or any Paying Agent (whether or not in trust)
for the payment of principal of or interest on any Securities shall be subject
to the provisions of Sections 11.01, 11.02, 11.03 and 11.04 except that, if at
least five Business Days prior to the date on which by the terms of this
Indenture any such assets may become payable for any purpose (including, without
limitation, the payment of either principal of or interest on any Security) the
Trustee shall not have received the notice provided for in Section 11.06, then
the Trustee shall have full power and authority to receive such assets and to
apply the same to the purpose for which they were received, and neither the
Trustee nor the Securityholders shall be affected by any notice to the contrary
which may be received by the Trustee on or after such date.
SECTION 11.08. Subordination Rights Not Impaired by Acts or Omissions of Company
or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness
to enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or be otherwise charged with.
The holders of Senior Indebtedness may extend, renew, modify or amend the terms
of Senior Indebtedness or any security therefor and release, sell or exchange
such security and otherwise deal freely with the Company, all without affecting
the liabilities and obligations of the parties to the Indenture or the Holders
of the Securities or the rights of such Senior Indebtedness hereunder.
SECTION 11.09. Securityholders Authorize Trustee To Effectuate Subordination of
Securities.
Each Holder by its acceptance thereof authorizes and expressly
directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate, as between the Holders and the holders
of Senior Indebtedness, the subordination provided in this Article Eleven and to
protect the rights of the Holders pursuant to this Indenture, and appoints the
Trustee its attorney-in-fact for such purpose, including, in the event of any
dissolution, winding up, liquidation or reorganization of the Company (whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment
<PAGE>
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for the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of the Company, the immediate filing of a claim for the
unpaid balance of its Securities in the form required in said proceedings and
cause said claim to be approved. If the Trustee does not file a proper claim or
proof of debt in the form required in such proceeding prior to 30 days before
the expiration of the time to file such claim or proof, then the holders of
Senior Indebtedness or their Representative shall have the right to file and are
hereby authorized to file an appropriate claim or proof for and on behalf of the
Holders.
SECTION 11.10. Right of Trustee to Hold Senior Indebtedness.
The Trustee shall be entitled to all of the rights set forth in
this Article Eleven in respect of any Senior Indebtedness at any time held by it
to the same extent as any other holder of Senior Indebtedness, and nothing in
this Indenture shall be construed to deprive the Trustee of any of its rights as
such holder.
SECTION 11.11. Article Eleven Not To Prevent Events of Default.
The failure to make a payment on account of principal or interest on
the Securities by reason of any provision of this Article Eleven shall not be
construed as preventing the occurrence of an Event of Default under Section 6.01
or 6.02.
ARTICLE TWELVE
MISCELLANEOUS
SECTION 12.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by the
TIA, the required provision shall control.
SECTION 12.02. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or
<PAGE>
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registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
if to the Company:
Duane Reade Holding Corp.
c/o Bain Capital
Two Copley Place
Boston, MA 02116
Attention: Adam Kirsch
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Karl E. Lutz, P.C. and
Jeffrey C. Hammes, Esq.
if to the Trustee:
The Connecticut National Bank
777 Main Street
Hartfort, Connecticut 06103
Attention: Corporate Trust Administration
Each of the Company and the Trustee by written notice to each other
such person may designate additional or different addresses for notices to such
person. Any notice or communication to the Company or the Trustee shall be
deemed to have been given or made as of the date so delivered if personally
delivered; when answered back, if telexed; when receipt is acknowledged, if
faxed; and five (5) calendar days after mailing if sent by registered or
certified mail, postage prepaid (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be
mailed to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
<PAGE>
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Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 12.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss.312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other person shall
have the protection of TIA ss.312(c).
SECTION 12.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate, in form and substance satisfactory to
the Trustee, stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.07, shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
<PAGE>
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(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with.
SECTION 12.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules in accordance with the
Trustee's customary practices for action by or at a meeting of Securityholders.
The Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 12.07. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment
is a Saturday, a Sunday or a day on which banking institutions in New York, New
York or at such place of payment are not required to be open. If a payment date
is a Legal Holiday at such place, payment may be made at such place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
SECTION 12.08. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS. Each of the parties hereto agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Indenture.
SECTION 12.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of any of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
<PAGE>
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SECTION 12.10. No Recourse Against Others.
A director, officer, employee, stockholder or incorporator, as such,
of the Company shall not have any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creations. Each Securityholder by
accepting a Security waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the Securities.
SECTION 12.11. Holding Company Indebtedness.
Each Securityholder acknowledges that the Company is the sole
obligor of the Securities and no Subsidiary of the Company is a co-obligor or a
guarantor of the Securities.
SECTION 12.12. Successors.
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 12.13. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
SECTION 12.14. Severability.
In case any one or more of the provisions in this Indenture or in
the Securities shall be held invalid, illegal or unenforceable, in any respect
for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
<PAGE>
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the date first written above.
Dated: September 25, 1992
DUANE READE HOLDING CORP.
By: /s/ Adam Kirsch
---------------------------
Name: Adam Kirsch
Title: President
THE CONNECTICUT NATIONAL BANK
as Trustee
By: /s/ Michael M. Hopkins
---------------------------
Name: MICHAEL M. HOPKINS
Title: VICE PRESIDENT
<PAGE>
EXHIBIT A
[FORM OF NOTE]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF AT ANY TIME IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM REGISTRATION. THE HOLDER
OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS THREE YEARS AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY) ONLY (A) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (B) IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (C) TO
AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(l),
(2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT THAT IS ACQUIRING THE
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION (WITHIN THE MEANING OF
THE SECURITIES ACT), (D) TO THE COMPANY OR BT SECURITIES CORPORATION, THE
PLACEMENT AGENT, (E) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT OR (F) PURSUANT TO AN EXEMPTION FROM
REGISTRATION AS CONFIRMED IN DOCUMENTATION (WHICH AT THE COMPANY'S DISCRETION
SHALL INCLUDE AN OPINION OF COUNSEL (WHICH MAY BE IN-HOUSE COUNSEL)) IN FORM AND
SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY (PROVIDED, HOWEVER, THAT IN THE
CASE OF CLAUSES (B) AND (C), EITHER THE TRANSFEREE OR A U.S. REGISTERED
BROKER-DEALER ON ITS BEHALF HAS DELIVERED TO THE COMPANY C/O THE TRUSTEE A
TRANSFEREE CERTIFICATE IN THE FORM ATTACHED TO THIS SECURITY). WITH RESPECT TO
TRANSFERS PURSUANT TO CLAUSES (A), (B) AND (C) ABOVE, THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, REPRESENTS AND AGREES, FOR THE BENEFIT OF THE COMPANY,
THAT IT IS (i) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
OR (ii) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(l), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT THAT IS
HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION (WITHIN
THE MEANING OF THE SECURITIES ACT) OR (iii) A NON-U.S. PERSON THAT IS OUTSIDE
THE U.S. WITHIN THE MEANING OF (OR ACCOUNTS SATISFYING THE REQUIREMENTS OF
PARAGRAPH (O)(ii) OF RULE 902 UNDER) REGULATION S.
A-l
<PAGE>
[THIS SECURITY HAS ORIGINAL ISSUE DISCOUNT FOR FEDERAL INCOME TAX PURPOSES,
DETERMINED PURSUANT TO SECTIONS 1272 THROUGH 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, AND THE PROPOSED TREASURY REGULATIONS PROMULGATED
THEREUNDER, IN THE AMOUNT OF $____________ PER $1,000 FACE AMOUNT OF THIS
SECURITY. THE SECURITY WAS ISSUED ON SEPTEMBER 25, 1992, AND HAS A YIELD TO
MATURITY (INCLUSIVE OF CASH INTEREST) OF _________% BASED ON SEMIANNUAL
COMPOUNDING. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ALLOCABLE TO THE SHORT
INITIAL ACCRUAL PERIOD IS $____________ PER $1,000 FACE AMOUNT DETERMINED ON THE
BASIS OF THE [APPROXIMATE] METHOD.](1)
DUANE READE HOLDING CORP.
15% Senior Subordinated Zero Coupon Note
due September 15, 2004, Series A
No. $
DUANE READE HOLDING CORP., a Delaware corporation (the "Company,"
which term includes any successor entity), for value received promises to pay to
____________ or registered assigns, the principal sum of _________ Dollars, on
September 15, 2004.
Interest Payment Dates: March 15 and September 15
Record Dates: March 1 and September 1
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
- ----------
(1) To be included and completed upon a public sale.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
Dated: September 25, 1992
DUANE READE HOLDING CORP.
By: __________________________________
Name:
Title:
This is one of the Securities described in the within-mentioned
Indenture.
THE CONNECTICUT NATIONAL BANK
as Trustee
By__________________________________
Authorized Signatory
A-3
<PAGE>
DUANE READE HOLDING CORP.
15% Senior Subordinated Zero Coupon Note
due September 15, 2004, Series A
1. Interest.
DUANE READE HOLDING CORP., a Delaware corporation (the "Company"),
promises to pay cash interest on the principal amount of this Security from the
Final Accretion Date until maturity at the rate per annum shown above. The
Company will pay cash interest semi-annually in arrears on March 15 and
September 15 of each year (the "Interest Payment Date"), commencing March 15,
2000. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal and interest on
overdue installments of interest, to the extent lawful, at a rate equal to 17%
per annum.
2. Method of Payment.
Commencing on the Issue Date, accretion of the purchase discount
will occur on each Semiannual Accretion Date in respect of the preceding
semiannual period, through and including the Final Accretion Date, in an amount
equal to the Accretion Amount for such period. Payment of the principal of this
Security or such lesser or greater amount payable upon the acceleration of the
maturity of the Securities will include accretion of the purchase discount to
the date of such payment. Commencing on the Final Accretion Date, the Company
shall pay interest on the Securities (except defaulted interest) to the persons
who are the registered Holders at the close of business on the Record Date
immediately preceding the Interest Payment Date even if the Securities are
cancelled on registration of transfer or registration of exchange after such
Record Date. Holders must surrender Securities to a Paying Agent to collect
principal payments. The Company shall pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts ("U.S. Legal Tender"). However, the Company may pay principal
and interest by wire transfer of Federal funds, or interest by its check payable
in such U.S. Legal Tender. The Company may deliver any such interest payment to
the Paying Agent or to a Holder at the Holder's registered address.
Notwithstanding the foregoing, the Company shall pay or cause to be paid all
amounts payable with respect to Restricted Securities or non-
A-4
<PAGE>
DTC eligible Securities by wire transfer of Federal funds to the account of the
Holders of such Securities. If this Security is a Global Security, all payments
in respect of this Security will be made to the Depository or its nominee in
immediately available funds in accordance with customary procedures established
from time to time by the Depository. If this Security is a Global Security and a
Restricted Security, only Qualified Institutional Buyers (as defined in Rule
144A under the Securities Act) may hold a beneficial interest herein.
"Final Accretion Date" means September 15, 1999.
"Semiannual Accretion Date" means each March 15 and September 15 in
each year commencing on the Issue Date and ending on the Final Accretion Date.
"Accretion Amount" means that portion of the purchase discount
(which shall be deemed to be the excess of the face amount over the Payment
Amount) which has been accreted from the preceding Semiannual Accretion Date
calculated by applying an accretion rate of 15% per annum to such Payment Amount
using semiannual compounding on March 15 and September 15 of each year from the
first Semiannual Accretion Date to the Final Accretion Date.
"Payment Amount" means an amount equal to $364.73 per S1,000 of face
amount of a Security.
3. Paying Agent and Registrar.
Initially, The Connecticut National Bank (the "Trustee"), will act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders. The Company or any of
its Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or co-Registrar.
4. Indenture.
The Company issued the Securities under an Indenture, dated as of
September 15, 1992 (the "Indenture"), between the Company and the Trustee. This
Security is one of a duly authorized issue of Securities of the Company
designated as its 15% Senior Subordinated Zero Coupon Notes Due 2004, Series A
(the "Series A Securities"), limited (except as otherwise provided in the
Indenture) in aggregate principal amount to $123,380,000, which may be issued
under the Indenture. Capitalized terms herein are used as defined in the
Indenture unless otherwise defined herein. The terms of the Securities include
those stated in the Indenture and those made part of
A-5
<PAGE>
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss.77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until
such time as the Indenture is qualified under the TIA, and thereafter as in
effect on the date on which the Indenture is qualified under the TIA.
Notwithstanding anything to the contrary herein, the Securities are subject to
all such terms, and Holders of Securities are referred to the Indenture and said
Act for a statement of them. The Securities are general unsecured obligations of
the Company limited in aggregate principal amount to $123,380,000, except as
otherwise provided in the Indenture.
5. Registration Rights.
Pursuant to the Registration Rights Agreement between the Company
and the Holders of the Series A Securities, the Company will be obligated to
consummate an exchange offer pursuant to which the Holder of this Security shall
have the right to exchange this Security for 15% Senior Subordinated Zero Coupon
Notes Due 2004, Series B, of the Company (the "Series B Securities"), which have
been registered under the Securities Act, in like principal amount and having
identical terms as the Series A Securities. The Holders of Series A Securities
shall be entitled to receive certain additional interest payments in the event
such exchange offer is not consummated and upon certain other conditions, all
pursuant to and in accordance with the terms of the Registration Rights
Agreement. The Series A Securities and the Series B Securities are together
referred to herein as the "Securities."
6. Subordination.
The Indebtedness evidenced by the Securities is, to the extent and
in the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness (including,
without limitation, interest on such Senior Indebtedness that would accrue but
for the filing of a petition initiating any proceeding under any Bankruptcy Law,
whether or not such claim is allowable in such proceeding) as defined in the
Indenture, and this Security is issued subject to such provisions. Each Holder
of this Security, by accepting the same, (a) agrees to and shall be bound by
such provisions, (b) authorizes and directs the Trustee, on behalf of such
Holder, to take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (c) appoints the Trustee
attorney-in-fact of such Holder for such purpose.
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<PAGE>
7. Optional Redemption.
The Securities may not be redeemed at the option of the Company
prior to September 15, 1997. Thereafter, the Company may redeem all or any of
the Securities at any time at redemption prices (expressed in percentages of the
Accreted Value or principal amount, as the case may be), set forth below plus
accrued interest, if any, to the Redemption Date if redeemed during the 12-month
period beginning on September 15 in the years indicated below:
Year Percentage
---- ----------
1997 .................................... 107.5%
1998 .................................... 106.0%
1999 .................................... 104.5%
2000 .................................... 103.0%
2001 .................................... 101.5%
2002 and thereafter ..................... 100.0%
Notwithstanding the foregoing, prior to September 15, 1997, the
Company may use the net proceeds of an Initial Public Offering (as defined in
the Indenture) to redeem all or any portion of the Securities at a redemption
price equal to the sum of (i) the then outstanding Accreted Value thereof plus
(ii) accrued and unpaid interest, if any, to the Redemption Date plus (iii) the
Applicable Premium (as defined in the Indenture). In order to effect the
foregoing redemption, the Company shall send the notice required by Section 3.03
of the Indenture not later than 30 days after the Initial Public Offering
Consummation Date (as defined in the Indenture).
8. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder of Securities to be
redeemed at such Holder's registered address. Securities in denominations larger
than $1,000 may be redeemed in part.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent for redemption on such Redemption
Date, then, unless the Company defaults in the payment of such Redemption Price,
the Securities called for redemption will cease to bear interest and purchase
discount will cease to accrue and the only right of the Holders of such
Securities will be to receive payment of the Redemption Price.
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<PAGE>
9. Change of Control Offer.
In the event of a Change of Control, upon the satisfaction of the
conditions set forth in the Indenture, the Company shall be required to offer to
purchase all of the then outstanding Securities pursuant to a Change of Control
Offer at a purchase price equal to 101% of the Accreted Value or principal
amount, as the case may be, thereof plus accrued interest, if any, to the date
of purchase. Holders of Securities which are the subject of such an offer to
repurchase shall receive an offer to repurchase and may elect to have such
Securities repurchased in accordance with the provisions of the Indenture
pursuant to and in accordance with the terms of the Indenture.
10. Limitation on Disposition of Assets.
Under certain circumstances the Company is required to apply the net
proceeds from Asset Sales to repurchase Securities at a price equal to 102% of
the aggregate Accreted Value or principal amount, as the case may be, thereof,
plus accrued interest to the date of purchase.
11. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption.
If this Series A Security is a Restricted Security in certificated
form, then as provided in the Indenture and subject to certain limitations
therein set forth, the Holder, provided it is a Qualified Institutional Buyer,
may exchange this Series A Security for a Book-Entry Security by instructing the
Trustee (by completing the Transferee Certificate attached to this Security) to
arrange for such Series A Security to be represented by a beneficial interest in
a Global Security in accordance with the customary procedures of the Depository.
In addition, the Company may at any time determine not to have Series A
Securities represented in certificated form, in which event the Holder of a
Series A Security in certificated form may be required to exchange this Series A
Security for a Book-Entry Security.
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<PAGE>
If this Series A Security is a Global Security, it is exchangeable
for Series A Securities in certificated form only if (x) the Depository is at
any time unwilling or unable to continue as depository and a successor
depository is not appointed by the Company within 30 days or (y) there shall
have occurred and be continuing an Event of Default or (z) the Company may at
any time determine not to have Series A Securities represented by a Global
Security. In addition, in accordance with the provisions of the Indenture and
subject to certain limitations therein set forth, an owner of a beneficial
interest in a Global Security may request a Series A Security in certificated
form, in exchange in whole or in part, as the case may be, for such beneficial
owner's interest in the Global Security. In any such instance, an owner of a
beneficial interest in a Global Security will be entitled to physical delivery
in certificated form of Series A Securities in authorized denominations equal in
principal amount to such beneficial interest and to have such Series A
Securities registered in its name.
12. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
With respect to Global Securities, the Depository may grant proxies
and otherwise authorize Holders of Book-Entry Securities to give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action which a Holder of a Security is entitled to give or take under this
Indenture.
13. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed
for one year, the Trustee and the Paying Agents will pay the money back to the
Company at its request. After that, all liability of the Trustee and such Paying
Agents with respect to such money shall cease.
14. Discharge Prior to Redemption or Maturity.
If the Company at any time deposits with the Trustee U.S. Legal
Tender or U.S. Government Obligations sufficient to pay the principal of and
interest on the Securities to redemption or maturity and complies with the other
provisions of the Indenture relating thereto, the Company will be discharged
from certain provisions of the Indenture and the Securities (including the
financial covenants, but excluding its obligation to pay the principal of and
interest on the Securities).
A-9
<PAGE>
15. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may
be amended or supplemented with the written consent of the Holders of at least a
majority in aggregate Accreted Value or principal amount, as the case may be, of
the Securities then outstanding, and any existing Default or Event of Default or
compliance with any provision may be waived with the consent of the Holders of a
majority in aggregate Accreted Value or principal amount, as the case may be, of
the Securities then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Securities to,
among other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Securities in addition to or in place of certificated Securities,
comply with Article Five of the Indenture or comply with any requirements of the
SEC in connection with the qualification of the Indenture under the TIA, or make
any other change that does not adversely affect the rights of any Holder of a
Security.
16. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Subsidiaries to, among other things, incur additional
Indebtedness or Liens, make payments in respect of its Capital Stock and merge
or consolidate with any other person and sell, lease, transfer or otherwise
dispose of substantially all of certain of its properties or assets. The
limitations are subject to a number of important qualifications and exceptions.
The Company must annually report to the Trustee on compliance with such
limitations.
17. Successors.
When a successor assumes all the obligations of its predecessor
under the Securities and the Indenture, the predecessor will be released from
those obligations.
18. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate Accreted Value or principal amount, as the
case may be, of Securities then outstanding may declare all the Securities to be
due and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Securities may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee is not obligated to enforce the
Indenture or the Securities unless it has received indemnity satisfactory to it.
The Indenture permits, subject to certain limitations
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<PAGE>
therein provided, Holders of a majority in aggregate Accreted Value or principal
amount, as the case may be, of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of any continuing Default or Event of Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in their interest.
19. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
20. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as
such, of the Company shall have any liability for any obligation of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of, such obligations or their creation. Each Holder of a Security
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
21. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on this Security.
22. Governing Law.
The Laws of the State of New York shall govern this Security and the
Indenture.
23. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
24. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the
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<PAGE>
Company will cause CUSIP numbers to be printed on the Securities immediately
prior to the qualification of the Indenture under the TIA as a convenience to
the Holders of the Securities. No representation is made as to the accuracy of
such numbers as printed on the Securities and reliance may be placed only on the
other identification numbers printed hereon.
25. Indenture.
Each Holder, by accepting a Security, agrees to be bound by all of
the terms and provisions of the Indenture, as the same may be amended from time
to time.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
DUANE READE HOLDING CORP., c/o Bain Capital, Two Copley Place, Boston, MA 02116,
Attn: Adam Kirsch.
26. Certain Information Obligations.
At any time when the Company is not subject to Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Company shall furnish the Trustee
and the Holders and, under certain circumstances, prospective purchasers with
the information that the Company would have had to provide to the SEC if the
Company had been subject to Section 13 or 15(d) of the Securities Exchange Act
of 1934. Also, at any time when the Company is not subject to Section 13 or
15(d) of the Securities Exchange Act of 1934, upon the request of a Holder of a
Series A Security, the Company will promptly furnish or cause to be furnished
such information as is specified pursuant to Rule 144A(d)(4) under the
Securities Act (or any successor provision thereto) to such Holder or to a
prospective purchaser of such Series A Security, as the case may be, in order to
permit compliance by such Holder with Rule 144A under the Securities Act.
27. Holding Company Indebtedness.
Each Holder acknowledges that the Company is the sole obligor of the
Securities and no Subsidiary of the Company is a co-obligor or a guarantor of
the Securities.
[The Transferee Certificate (Exhibit D to the Indenture) will be
attached to the Series A Note.]
A-12
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign this Security to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other
identifying number of assignee
_______________________________________________
and irrevocably appoint ____________________ agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.
Dated: _____________________ Signed: ___________________________________________
________________________________________________________________________________
(Sign exactly as your name appears on
the front of this Security)
Signature Guarantee: ___________________________________________________________
A-13
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state
the amount:
$
Date: __________ Signature: __________________________________________
(Sign exactly as your name appears on
the front of this Security)
Signature Guarantee: ___________________________________________________________
A-14
<PAGE>
EXHIBIT B
[FORM OF NOTE]
THIS SECURITY HAS ORIGINAL ISSUE DISCOUNT FOR FEDERAL INCOME TAX PURPOSES,
DETERMINED PURSUANT TO SECTIONS 1272 THROUGH 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, AND THE PROPOSED TREASURY REGULATIONS PROMULGATED
THEREUNDER, IN THE AMOUNT OF $____________ PER $1,000 FACE AMOUNT OF THIS
SECURITY. THE SECURITY WAS ISSUED ON SEPTEMBER 25, 1992, AND HAS A YIELD TO
MATURITY (INCLUSIVE OF CASH INTEREST) OF ____________% BASED ON SEMIANNUAL
COMPOUNDING. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ALLOCABLE TO THE SHORT
INITIAL ACCRUAL PERIOD IS $____________ PER $1,000 FACE AMOUNT DETERMINED ON THE
BASIS OF THE [APPROXIMATE] METHOD.
DUANE READE HOLDING CORP.
15% Senior Subordinated Zero Coupon Note
due September 15, 2004, Series B
No. $
DUANE READE HOLDING CORP., a Delaware corporation (the "Company,"
which term includes any successor entity), for value received promises to pay to
_________________ or registered assigns, the principal sum of ________ Dollars,
on September 15, 2004.
Interest Payment Dates: March 15 and September 15
Record Dates: March 1 and September 1
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
Dated: September 25, 1992
DUANE READE HOLDING CORP.
By: ________________________________
Name:
Title:
This is one of the Securities described in the within-mentioned
Indenture.
THE CONNECTICUT NATIONAL BANK
as Trustee
By_____________________________________
Authorized Signatory
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<PAGE>
DUANE READE HOLDING CORP.
15% Senior Subordinated Zero Coupon Note
due September 15, 2004, Series B
1. Interest.
DUANE READE HOLDING CORP., a Delaware corporation (the "Company"),
promises to pay cash interest on the principal amount of this Security from the
Final Accretion Date until maturity at the rate per annum shown above. The
Company will pay cash interest semi-annually in arrears on March 15 and
September 15 of each year (the "Interest Payment Date"), commencing March 15,
2000. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal and interest on
overdue installments of interest, to the extent lawful, at a rate equal to 17%
per annum.
2. Method of Payment.
Commencing on the Issue Date, accretion of the purchase discount
will occur on each Semiannual Accretion Date in respect of the preceding
semiannual period, through and including the Final Accretion Date, in an amount
equal to the Accretion Amount for such period. Payment of the principal of this
Security or such lesser or greater amount payable upon the acceleration of the
maturity of the Securities will include accretion of the purchase discount to
the date of such payment. Commencing on the Final Accretion Date, the Company
shall pay interest on the Securities (except defaulted interest) to the persons
who are the registered Holders at the close of business on the Record Date
immediately preceding the Interest Payment Date even if the Securities are
cancelled on registration of transfer or registration of exchange after such
Record Date. Holders must surrender Securities to a Paying Agent to collect
principal payments. The Company shall pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts ("U.S. Legal Tender"). However, the Company may pay principal
and interest by wire transfer of Federal funds, or interest by its check payable
in such U.S. Legal Tender. The Company may deliver any such interest payment to
the Paying Agent or to a Holder at the Holder's registered address.
Notwithstanding the foregoing, the Company shall pay or cause to be paid all
amounts payable with respect to Restricted Securities or
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<PAGE>
non-DTC eligible Securities by wire transfer of Federal funds to the account of
the Holders of such Securities. If this Security is a Global Security, all
payments in respect of this Security will be made to the Depository or its
nominee in immediately available funds in accordance with customary procedures
established from time to time by the Depository.
"Final Accretion Date" means September 15, 1999.
"Semiannual Accretion Date" means each March 15 and September 15 in
each year commencing on the Issue Date and ending on the Final Accretion Date.
"Accretion Amount" means that portion of the purchase discount
(which shall be deemed to be the excess of the face amount over the Payment
Amount) which has been accreted from the preceding Semiannual Accretion Date
calculated by applying an accretion rate of 15% per annum to such Payment Amount
using semiannual compounding on March 15 and September 15 of each year from the
first Semiannual Accretion Date to the Final Accretion Date.
"Payment Amount" means an amount equal to $364.73 per $1,000 of face
amount of a Security.
3. Paying Agent and Registrar.
Initially, The Connecticut National Bank (the "Trustee"), will act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders. The Company or any of
its Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or co-Registrar.
4. Indenture.
The Company issued the Securities under an Indenture, dated as of
September 15, 1992 (the "Indenture"), between the Company and the Trustee. This
Security is one of a duly authorized issue of Securities of the Company
designated as its 15% Senior Subordinated Zero Coupon Notes Due 2004, Series B
(the "Series B Securities"), limited (except as otherwise provided in the
Indenture) in aggregate principal amount to $123,380,000, which may be issued
under the Indenture. Capitalized terms herein are used as defined in the
Indenture unless otherwise defined herein. The terms of the Securities include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.77aaa-77bbbb) (the
"TIA"), as in effect on the date of the Indenture until such time as the
Indenture is
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<PAGE>
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and Holders of Securities
are referred to the Indenture and said Act for a statement of them. The
Securities are general unsecured obligations of the Company limited in aggregate
principal amount to $123,380,000, except as otherwise provided in the Indenture.
5. Exchange Offer.
The Series B Securities were issued pursuant to an exchange offer
pursuant to which 15% Senior Subordinated Zero Coupon Notes Due 2004, Series A,
of the Company (the "Series A Securities"), in like principal amount and having
substantially identical terms as the Series B Securities, were exchanged for the
Series B Securities. The Series A Securities and the Series B Securities are
together referred to herein as the "Securities."
6. Subordination.
The Indebtedness evidenced by the Securities is, to the extent and
in the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness (including,
without limitation, interest on such Senior Indebtedness that would accrue but
for the filing of a petition initiating any proceeding under any Bankruptcy Law,
whether or not such claim is allowable in such proceeding) as defined in the
Indenture, and this Security is issued subject to such provisions. Each Holder
of this Security, by accepting the same, (a) agrees to and shall be bound by
such provisions, (b) authorizes and directs the Trustee, on behalf of such
Holder, to take such action as may be necessary or appropriate to effectuate
the subordination as provided in the Indenture and (c) appoints the Trustee
attorney-in-fact of such Holder for such purpose.
7. Optional Redemption.
The Securities may not be redeemed at the option of the Company
prior to September 15, 1997. Thereafter, the Company may redeem all or any of
the Securities at any time at redemption prices (expressed in percentages of the
Accreted Value or principal amount, as the case may be), set forth below plus
accrued interest, if any, to the Redemption Date if redeemed during the 12-month
period beginning on September 15 in the years indicated below:
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<PAGE>
Year Percentage
---- ----------
1997 .................................... 107.5%
1998 .................................... 106.0%
1999 .................................... 104.5%
2000 .................................... 103.0%
2001 .................................... 101.5%
2002 and thereafter ..................... 100.0%
Notwithstanding the foregoing, prior to September 15, 1997, the
Company may use the net proceeds of an Initial Public Offering (as defined in
the Indenture) to redeem all or any portion of the Securities at a redemption
price equal to the sum of (i) the then outstanding Accreted Value thereof plus
(ii) accrued and unpaid interest, if any, to the Redemption Date plus (iii) the
Applicable Premium (as defined in the Indenture). In order to effect the
foregoing redemption, the Company shall send the notice required by Section 3.03
of the Indenture not later than 30 days after the Initial Public Offering
Consummation Date (as defined in the Indenture).
8. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder of Securities to be
redeemed at such Holder's registered address. Securities in denominations larger
than $1,000 may be redeemed in part.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent for redemption on such Redemption
Date, then, unless the Company defaults in the payment of such Redemption Price,
the Securities called for redemption will cease to bear interest and purchase
discount will cease to accrue and the only right of the Holders of such
Securities will be to receive payment of the Redemption Price.
9. Change of Control Offer.
In the event of a Change of Control, upon the satisfaction of the
conditions set forth in the Indenture, the Company shall be required to offer to
purchase all of the then outstanding Securities pursuant to a Change of Control
Offer at a purchase price equal to 101% of the Accreted Value or principal
amount, as the case may be, thereof plus accrued interest, if any, to the date
of purchase. Holders of Securities which are the subject of such an offer to
repurchase shall receive an offer to repurchase and may elect to have such
Securities
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<PAGE>
repurchased in accordance with the provisions of the Indenture pursuant to and
in accordance with the terms of the Indenture.
10. Limitation on Disposition of Assets.
Under certain circumstances the Company is required to apply the net
proceeds from Asset Sales to repurchase Securities at a price equal to 102% of
the aggregate Accreted Value or principal amount, as the case may be, thereof,
plus accrued interest to the date of purchase.
11. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption. The Company
may at any time determine not to have Series B Securities represented in
certificated form, in which event the Holder of a Series B Security in
certificated form may be required to exchange this Series B Security for a
Book-Entry Security.
If this Series B Security is a Global Security, it is exchangeable
for Series B Securities in certificated form only if (x) the Depository is at
any time unwilling or unable to continue as depository and a successor
depository is not appointed by the Company within 30 days or (y) there shall
have occurred and be continuing an Event of Default or (z) the Company may at
any time determine not to have Series B Securities represented by a Global
Security. In any such instance, an owner of a beneficial interest in a Global
Security will be entitled to physical delivery in certificated form of Series B
Securities in authorized denominations equal in principal amount to such
beneficial interest and to have such Series B Securities registered in its name.
12. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
With respect to Global Securities, the Depository may grant proxies
and otherwise authorize Holders of Book-Entry Securities to give or take any
request, demand, authorization,
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<PAGE>
direction, notice, consent, waiver or other action which a Holder of a Security
is entitled to give or take under this Indenture.
13. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed
for one year, the Trustee and the Paying Agents will pay the money back to the
Company at its request. After that, all liability of the Trustee and such Paying
Agents with respect to such money shall cease.
14. Discharge Prior to Redemption or Maturity.
If the Company at any time deposits with the Trustee U.S. Legal
Tender or U.S. Government Obligations sufficient to pay the principal of and
interest on the Securities to redemption or maturity and complies with the other
provisions of the Indenture relating thereto, the Company will be discharged
from certain provisions of the Indenture and the Securities (including the
financial covenants, but excluding its obligation to pay the principal of and
interest on the Securities).
15. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may
be amended or supplemented with the written consent of the Holders of at least a
majority in aggregate Accreted Value or principal amount, as the case may be, of
the Securities then outstanding, and any existing Default or Event of Default or
compliance with any provision may be waived with the consent of the Holders of a
majority in aggregate Accreted Value or principal amount, as the case may be, of
the Securities then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Securities to,
among other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Securities in addition to or in place of certificated Securities,
comply with Article Five of the Indenture or comply with any requirements of the
SEC in connection with the qualification of the Indenture under the TIA, or make
any other change that does not adversely affect the rights of any Holder of a
Security.
16. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Subsidiaries to, among other things, incur additional
Indebtedness or Liens, make payments in respect of its Capital Stock and merge
or consolidate with any other person and sell, lease, transfer or otherwise
dispose
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<PAGE>
of substantially all of certain of its properties or assets. The limitations are
subject to a number of important qualifications and exceptions. The Company must
annually report to the Trustee on compliance with such limitations.
17. Successors.
When a successor assumes all the obligations of its predecessor
under the Securities and the Indenture, the predecessor will be released from
those obligations.
18. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate Accreted Value or principal amount, as the
case may be, of Securities then outstanding may declare all the Securities to be
due and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Securities may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee is not obligated to enforce the
Indenture or the Securities unless it has received indemnity satisfactory to it.
The Indenture permits, subject to certain limitations therein provided, Holders
of a majority in aggregate Accreted Value or principal amount, as the case may
be, of the Securities then outstanding to direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of Securities notice
of any continuing Default or Event of Default (except a Default in payment of
principal or interest) if it determines that withholding notice is in their
interest.
19. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
20. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as
such, of the Company shall have any liability for any obligation of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of, such obligations or their creation. Each Holder of a Security
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
B-9
<PAGE>
21. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on this Security.
22. Governing Law.
The Laws of the State of New York shall govern this Security and the
Indenture.
23. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
24. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities immediately prior to the qualification of the
Indenture under the TIA as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
25. Indenture.
Each Holder, by accepting a Security, agreed to be bound by all of
the terms and provisions of the Indenture, as the same may be amended from time
to time.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
DUANE READE HOLDING CORP., c/o Bain Capital, Two Copley Place, Boston, MA 02116,
Attn: Adam Kirsch.
26. Holding Company Indebtedness.
Each Holder acknowledges that the Company is the sole obligor of the
Securities and no Subsidiary of the Company is a co-obligor or a guarantor of
the Securities.
B-10
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign this Security to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other
identifying number of assignee
_______________________________________________
and irrevocably appoint ____________________agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.
Dated: _____________________ Signed: ___________________________________________
________________________________________________________________________________
(Sign exactly as your name appears on
the front of this Security)
Signature Guarantee: ___________________________________________________________
B-11
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state
the amount:
$
Date: __________ Signature: __________________________________________
(Sign exactly as your name appears on
the front of this Security)
Signature Guarantee: ___________________________________________________________
B-12
<PAGE>
EXHIBIT C
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Security authenticated and delivered hereunder shall bear
a legend (which would be in addition to any other legends required in the case
of a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY
(OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A
NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE
DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
C-1
<PAGE>
EXHIBIT D
FORM OF TRANSFEREE CERTIFICATE
[Letterhead of Prospective Purchaser or
U.S. Registered Broker-Dealer]
Duane Reade Holding Corp. Date: ________________
c/o Bain Capital
Two Copley Plaza
Boston, Massachusetts 02116
Attention:
Dear Sirs:
I. We hereby request that $ _________ aggregate principal amount of
15% Senior Subordinated Zero Coupon Notes Due 2004, Series A (the "Notes"), of
Duane Reade Holding Corp., a Delaware corporation ("Duane Reade Holdings"), be
registered in the name set forth below and confirm that either:
[Check One]
[ ] (a) each person in whose name the Notes are to be registered
upon transfer (or, in the case of a transfer to a nominee, each beneficial owner
of such Note) has been advised that such Note has been sold or transferred to it
in reliance upon Regulation S under the Securities Act of 1933, as amended (the
"Securities Act"), and the address of the person in whose name the Notes are to
be registered upon transfer is an address outside the United States (as defined
in Regulation S) and such person is not a U.S. Person (as defined in Regulation
S).
[ ] (b) the new beneficial owner is an institutional "accredited
investor" (as defined in Rule 501(a)(l), (2), (3) or (7) of Regulation D under
the Securities Act) that is acquiring the notes for investment purposes and not
for distribution (within the meaning of the Securities Act); it has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its
D-1
<PAGE>
investment in the Notes, and it and any accounts for which it is acting are each
able to bear the economic risk of its investment; it is acquiring the Notes
purchased by it for its own account or for one or more accounts as to each of
which it exercises sole investment discretion.
If this letter is being filled out by a prospective purchaser, the
undersigned purchaser confirms that the Notes will only be transferred in
accordance with the legend on the Notes, and further, that it understands that
in connection with any such transfer, Duane Reade Holdings and the Trustee may
request, and if so requested the undersigned purchaser will furnish, such
certificates and other information as may reasonably be required to confirm that
any such transfer complies with the restrictions set forth therein.
We also confirm that we will only transfer the Notes in accordance
with the legend on the Notes.
II. For Qualified Institutional Buyers:
[ ] The Notes are being transferred to a "Qualified Institutional
Buyer" (as defined in Rule 144A under the Securities Act), which person has been
advised that the Notes have been sold or transferred to it in reliance upon Rule
144A, and the transferee wishes the Trustee to arrange for the transferred Notes
to be represented by a beneficial interest in a global security and held in
book-entry form in accordance with the customary procedures of The Depository
Trust Company.
III. The Notes should be registered as follows (unless the box under
II above is checked):
Name:
Address:
Tax Identification Number:
Physical Location of Notes (including address):
Address:
Contact:
D-2
<PAGE>
IV. If this letter is being completed by a U.S. registered
broker-dealer on behalf of the transferee, the undersigned broker-dealer
confirms that (a) it has delivered to the transferee a notice regarding the
restrictions on transfer of the Notes by such transferee as set forth in the
legend on the Notes and (b) to the best of its knowledge, the information
provided herein about the transferee is true and correct.
You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
[Name of Prospective Purchaser
or U.S. Registered Broker-
Dealer]
By: ___________________________
Title:
D-3
<PAGE>
Exhibit E
Accreted Value Per $1,000 Face
Amount
Date Accreted Value
---- --------------
Sept. 15, 1992 $363.31
March 15, 1993 390.56
Sept. 15, 1993 419.85
March 15, 1994 451.34
Sept. 15, 1994 485.19
March 15, 1995 521.58
Sept. 15, 1995 560.70
March 15, 1996 602.75
Sept. 15, 1996 647.96
March 15, 1997 696.56
--------------------------------------------------------
Sept. 15, 1997 748.80
March 15, 1998 804.96
Sept. 15, 1998 865.33
March 15, 1999 930.23
Sept. 15, 1999 and thereafter 1,000.00
E-1
<PAGE>
================================================================================
DUANE READE,
as Issuer
and
DABOCO INC.
and
DUANE READE INC.,
as Guarantors
and
THE CONNECTICUT NATIONAL BANK,
as Trustee
-------------------------
INDENTURE
Dated as of September 15, 1992
-------------------------
$90,000,000
12% Senior Notes
due September 15, 2002, Series A
and
12% Senior Notes
due September 15, 2002, Series B
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- ---------
310(a)(1) .................................................... 7.10
310(a)(2) .................................................... 7.10
(a)(3) .................................................... N.A.
(a)(4) .................................................... N.A.
(a)(5) .................................................... 7.08; 7.10
(b) ....................................................... 7.08; 7.10
(c) ....................................................... N.A.
311(a) ....................................................... 7.11
(b) ....................................................... 7.11
(c) ....................................................... N.A.
312(a) ....................................................... 2.05
(b) ....................................................... 12.03
(c) ....................................................... 12.03
313(a) ....................................................... 7.06
(b)(1) .................................................... N.A.
b)(2) ..................................................... 7.06
(c) ....................................................... 7.06; 12.02
(d) ....................................................... 7.06
314(a) ....................................................... 4.07; 4.09;
............................................................. 12.02
(b) ....................................................... N.A.
(c)(1) .................................................... 12.04
(c)(2) .................................................... 12.04
(c)(3) .................................................... N.A.
(d) ....................................................... N.A.
(e) ....................................................... 12.05
(f) ....................................................... N.A.
315(a) ....................................................... 7.01(b)
(b) ....................................................... 7.05; 12.02
(c) ....................................................... 7.01(a)
(d) ....................................................... 7.01(c)
(e) ....................................................... 6.11
316(a)(last sentence) ........................................ 2.09
(a)(1)(A) ................................................. 6.05
(a)(1)(B) ................................................. 6.04
(a)(2) .................................................... N.A.
(b) ....................................................... 6.07
317(a)(1) .................................................... 6.08
(a)(2) .................................................... 6.09
(b) ....................................................... 2.04
318(a) .................................................... 12.01
(c) ....................................................... 12.01
- ----------
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
-i-
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
Page
----
Section 1.01 Definitions ................................ 1
Section 1.02 Incorporation by Reference of TIA .......... 23
Section 1.03 Rules of Construction ...................... 23
ARTICLE TWO
THE SECURITIES
Section 2.01 Form and Dating ............................ 24
Section 2.02 Execution and Authentication ............... 24
Section 2.03 Registrar and Paying Agent ................. 26
Section 2.04 Paying Agent To Hold Assets in
Trust .................................... 27
Section 2.05 Securityholder Lists ....................... 27
Section 2.06 Transfer and Exchange ...................... 28
Section 2.07 Replacement Securities ..................... 30
Section 2.08 Outstanding Securities ..................... 30
Section 2.09 Treasury Securities ........................ 31
Section 2.10 Temporary Securities ....................... 31
Section 2.11 Cancellation ............................... 32
Section 2.12 Defaulted Interest ......................... 32
Section 2.13 Home Office Payment Agreements ............. 32
Section 2.14 CUSIP Number ............................... 33
Section 2.15 Designation ................................ 33
ARTICLE THREE
REDEMPTION
Section 3.01 Notices to Trustee ......................... 33
Section 3.02 Selection of Securities To Be
Redeemed ................................. 34
Section 3.03 Notice of Redemption ....................... 34
Section 3.04 Effect of Notice of Redemption ............. 35
Section 3.05 Deposit of Redemption Price ................ 35
Section 3.06 Securities Redeemed in Part ................ 36
-ii-
<PAGE>
Page
----
Section 3.07 Offer To Purchase by Application
of Net Cash Proceeds ..................... 36
ARTICLE FOUR
COVENANTS
Section 4.01 Payment of Securities ...................... 38
Section 4.02 Maintenance of Office or Agency ............ 39
Section 4.03 Limitation on Distributions, Stock
Purchases and Certain
Investments, Loans and Advances .......... 39
Section 4.04 Corporate Existence ........................ 44
Section 4.05 Payment of Taxes and Other Claims .......... 44
Section 4.06 Maintenance of Properties and
Insurance ................................ 45
Section 4.07 Compliance Certificate; Notice of
Default .................................. 46
Section 4.08 Compliance with Laws ....................... 47
Section 4.09 SEC Reports and Other Information .......... 47
Section 4.10 Waiver of Stay, Extension or Usury
Laws ..................................... 49
Section 4.11 Limitation on Transactions with
Affiliates ............................... 49
Section 4.12 Limitation on Indebtedness ................. 50
Section 4.13 Limitation on Dividend and Other
Payment Restrictions Affecting
Subsidiaries ............................. 51
Section 4.14 Limitation on Liens ........................ 52
Section 4.15 Change of Control .......................... 52
Section 4.16 Limitation on Asset Sales .................. 54
Section 4.17 Limitation on Transfer of Assets
to Subsidiaries .......................... 55
Section 4.18 Limitation on Guarantees by
Subsidiaries ............................. 55
Section 4.19 Restrictions on Preferred Stock of
Subsidiaries ............................. 55
Section 4.20 Conduct of Business ........................ 56
Section 4.21 Unrestricted Subsidiaries .................. 56
-iii-
<PAGE>
Page
----
ARTICLE FIVE
SUCCESSOR CORPORATION
Section 5.01 When Company May Merge, Etc. ............... 57
Section 5.02 Successor Corporation Substituted .......... 58
ARTICLE SIX
DEFAULT AND REMEDIES
Section 6.01 Events of Default .......................... 59
Section 6.02 Acceleration ............................... 61
Section 6.03 Other Remedies ............................. 62
Section 6.04 Waiver of Past Defaults .................... 62
Section 6.05 Control by Majority ........................ 62
Section 6.06 Limitation on Suits ........................ 63
Section 6.07 Rights of Holders To Receive
Payment .................................. 63
Section 6.08 Collection Suit by Trustee ................. 64
Section 6.09 Trustee May File Proofs of Claim ........... 64
Section 6.10 Priorities ................................. 65
Section 6.11 Undertaking for Costs ...................... 65
ARTICLE SEVEN
TRUSTEE
Section 7.01 Duties of Trustee .......................... 66
Section 7.02 Rights of Trustee .......................... 67
Section 7.03 Individual Rights of Trustee ............... 68
Section 7.04 Trustee's Disclaimer ....................... 68
Section 7.05 Notice of Default .......................... 69
Section 7.06 Reports by Trustee to Holders .............. 69
Section 7.07 Compensation and Indemnity ................. 69
Section 7.08 Replacement of Trustee ..................... 70
Section 7.09 Successor Trustee by Merger, Etc. .......... 71
Section 7.10 Eligibility; Disqualification .............. 72
Section 7.11 Preferential Collection of Claims
Against Company .......................... 72
-iv-
<PAGE>
Page
----
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
Section 8.01 Satisfaction, Discharge of the
Indenture and Defeasance of the
Securities ............................... 72
Section 8.02 Termination of Obligations upon
Cancellation of the Securities ........... 74
Section 8.03 Survival of Certain Obligations ............ 75
Section 8.04 Acknowledgment of Discharge by
Trustee .................................. 75
Section 8.05 Application of Trust Assets ................ 75
Section 8.06 Repayment to the Company ................... 76
Section 8.07 Reinstatement .............................. 76
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01 Without Consent of Holders ................. 77
Section 9.02 With Consent of Holders .................... 77
Section 9.03 Compliance with TIA ........................ 79
Section 9.04 Revocation and Effect of Consents .......... 79
Section 9.05 Notation on or Exchange of
Securities ............................... 80
Section 9.06 Trustee To Sign Amendments, Etc. ........... 80
ARTICLE TEN
MEETINGS OF SECURITYHOLDERS
Section 10.01 Purposes for Which Meetings May Be
Called ................................... 80
Section 10.02 Manner of Calling Meetings ................. 81
Section 10.03 Call of Meetings by Company or
Holders .................................. 81
Section 10.04 Who May Attend and Vote at
Meetings ................................. 82
Section 10.05 Regulations May Be Made by Trustee;
Conduct of the Meeting;
Voting Rights; Adjournment ............... 82
Section 10.06 Voting at the Meeting and Record
To Be Kept ............................... 83
-v-
<PAGE>
Page
Section 10.07 Exercise of Rights of Trustee or
Securityholders May Not Be
Hindered or Delayed by Call of
Meeting .................................. 84
ARTICLE ELEVEN
GUARANTEE OF SECURITIES
Section 11.01 Unconditional Guarantee .................... 84
Section 11.02 Severability ............................... 86
Section 11.03 Release of a Guarantor ..................... 86
Section 11.04 Guarantors May Consolidate, Etc., on
Certain Terms ............................ 86
Section 11.05 Contribution ............................... 87
Section 11.06 Waiver of Subrogation ...................... 87
Section 11.07 Execution of Guarantee ..................... 88
ARTICLE TWELVE
MISCELLANEOUS
Section 12.01 TIA Controls ............................... 89
Section 12.02 Notices .................................... 89
Section 12.03 Communications by Holders with Other
Holders .................................. 90
Section 12.04 Certificate and Opinion as to
Conditions Precedent ..................... 90
Section 12.05 Statements Required in Certificate or
Opinion .................................. 91
Section 12.06 Rules by Trustee, Paying Agent,
Registrar ................................ 91
Section 12.07 Legal Holidays ............................. 91
Section 12.08 Governing Law .............................. 92
Section 12.09 No Adverse Interpretation of Other
Agreements ............................... 92
Section 12.10 No Recourse Against Others ................. 92
Section 12.11 Successors ................................. 92
Section 12.12 Duplicate Originals ........................ 92
Section 12.13 Severability ............................... 93
Signatures ................................................... 94
-vi-
<PAGE>
Page
----
Exhibit A - Form Of Series A Note ............................ A-1
Exhibit B - Form of Series B Note ............................ B-1
Exhibit C - Form of Legend for Book-Entry Securities ......... C-1
Exhibit D - Form of Transferee Certificate ................... D-l
Note: This Table of Contents shall not, for any purpose, be deemed to be part of
the Indenture.
-vii-
<PAGE>
INDENTURE, dated as of September 15, 1992, among Duane Reade, a New
York general partnership (the "Company"), Daboco Inc., a New York corporation,
and Duane Reade Inc., a Delaware corporation, as Guarantors, and The Connecticut
National Bank, as Trustee (the "Trustee").
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's 12%
Senior Notes due September 15, 2002, Series A and 12% Senior Notes due September
15, 2002, Series B:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a person or any of its
Subsidiaries existing at the time such person becomes a Subsidiary of the
Company or assumed in connection with the acquisition of assets from such person
and not incurred by such person in connection with, or in anticipation or
contemplation of, such person becoming a Subsidiary of the Company or such
acquisition.
"Acquisition" means DR Holdings' acquisition of the Company through
(i) the acquisition of 100% of the outstanding capital stock of Daboco, one of
the partners of the Company, and (ii) the redemption of the partnership
interests in the Company owned by Dajaco Inc. and DLR Inc.
"Adjusted Net Assets" has the meaning provided in Section 11.05.
"Affiliate" of any specified person means any other person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any 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
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of Section 4.11, the term "Affiliate" shall include
<PAGE>
-2-
any person who, as a result of any transaction described in Section 4.11, would
become an Affiliate. Notwithstanding the foregoing, the term "Affiliate," with
respect to the Company and its Affiliates, shall not include BT Securities
Corporation or any of its Affiliates.
"Affiliate Transaction" has the meaning provided in Section 4.11.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Asset Acquisition" means (i) an Investment by the Company or any
Subsidiary of the Company in any other person pursuant to which such person
shall become a Subsidiary of the Company or any Subsidiary of the Company or
shall be merged with the Company or any Subsidiary of the Company or (ii) the
acquisition by the Company or any Subsidiary of the Company of the assets of any
person which constitute all or substantially all of the assets of such person or
any division or line of business of such person.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, transfer, lease, assignment or other transfer for value by the
Company, any of its Subsidiaries or any Guarantor (including any Sale/leaseback)
to any person other than the Company or a wholly-owned Subsidiary of the
Company, in one transaction or a series of related transactions, of (i) any
Capital Stock of any Subsidiary of the Company; (ii) all or substantially all of
the properties and assets of any division or line of business of the Company,
any Subsidiary of the Company or any Guarantor; or (iii) any other properties or
assets of the Company, any Subsidiary of the Company or any Guarantor other than
in the ordinary course of business; provided that clause (iii) shall not apply
to an Asset Sale as such term is used in the definition of "Consolidated Fixed
Charge Coverage Ratio." For the purposes of this definition, the term "Asset
Sale" shall not include Capital Stock of the Company or any sale, issuance,
conveyance, transfer, lease or other disposition of properties or assets that is
governed by the provisions of Article Five.
"Asset Swap" shall mean any transaction, or series of related
transactions (whether by purchase or sale of assets or securities), whereby
assets of the Company, any of its Subsidiaries or any Guarantor are exchanged by
the Company, any of such Subsidiaries or any Guarantor for Productive Assets
owned
<PAGE>
-3-
by a person other than the Company, any of its Subsidiaries or any Guarantor or
any Affiliates thereof. If a transaction otherwise constitutes an Asset Swap but
also includes the receipt of Net Cash Proceeds, such transaction shall be
treated as a disposition of assets to the extent of such Net Cash Proceeds for
purposes of Section 4.16.
"Bain Capital" means, collectively, Bain Venture Capital, a
California limited partnership, BCIP Associates, BCIP Trust Associates, L.P.,
Tyler Capital Fund, L.P., Tyler Massachusetts, L.P., and Tyler International,
L.P.-II, and the partners (as of the date of determination) of each of the
foregoing.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any person, the Board of
Directors of such person or any committee of the Board of Directors of such
person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such person.
"Board Resolution" means, with respect to any person, a duly adopted
resolution of the Board of Directors or other equivalent governing body of such
person.
"Book-Entry Security" means a Security represented by a Global
Security and registered in the name of the nominee of the Depository.
"Business Day" means a day that is not a Legal Holiday.
"Capital Lease," as applied to any person, means any lease of any
property (whether real, personal or mixed) by that person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that person.
"Capital Stock" means (i) with respect to any person, any and all
shares, interests, participations or other equivalents (however designated) of
corporate stock, including each class of common stock and preferred stock of
such person and (ii) with respect to the Company or any other person formed
other than as a corporation, any and all partnership or other equity interests
of the Company or such other person.
<PAGE>
-4-
"Capitalized Lease Obligation" means, as to any person, the
obligations of such person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
Indenture, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued
by, or unconditionally guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Corporation or at least P-l from Moody's
Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia or any U.S. branch of a foreign bank
having at the date of acquisition thereof combined capital and surplus of not
less than $250,000,000; (v) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (iv)
above; and (vi) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (i) through (v)
above.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company, DR Holdings or Daboco to any person or group of
related persons for purposes of Section 13(d) of the Exchange Act (a "Group"),
together with any Affiliates thereof (whether or not otherwise in compliance
with the provisions of the Indenture); (ii) the approval by the holders of
Capital Stock
<PAGE>
-5-
of the Company or DR Holdings or Daboco of any plan or proposal for the
liquidation or dissolution of the Company or DR Holdings or Daboco (whether or
not otherwise in compliance with the provisions of the Indenture); (iii) the
acquisition in one or more transactions of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) by any person, entity or Group
(other than Bain Capital) of any securities of the Company, DR Holdings or
Daboco such that, as a result of such acquisition, such person, entity or Group
either (A) beneficially owns (within the meaning of Rule 13d-3 under the
Exchange Act), directly or indirectly, at least 30% of the Company's, DR
Holdings' or Daboco's then outstanding voting securities entitled to vote on a
regular basis in an election for a majority of the Board of Directors or other
equivalent governing body thereof, unless at all times that such person, entity
or Group so owns at least 30% of such voting securities Bain Capital
beneficially owns, directly or indirectly, at least 50% of the voting securities
of the entity (i.e., either the Company, DR Holdings or Daboco) in which such
person, entity or Group holds such 30% or more voting interest or (B) otherwise
has the ability to elect, directly or indirectly, a majority of the members of
the Company's, DR Holdings' or Daboco's Board of Directors or other equivalent
governing body; or (iv) Bain Capital sells, transfers, or otherwise disposes of
more than 50% of the economic interest in the Company, DR Holdings or Daboco
held by Bain Capital on the Issue Date; provided that for purposes of clause
(iv) above, if Bain Capital transfers any Capital Stock of the Company, DR
Holdings or Daboco to management of the Company, DR Holdings or Daboco
subsequent to the Issue Date, then the economic interest deemed to be held by
Bain Capital as of the Issue Date shall be reduced by the economic interest of
such Capital Stock so transferred.
"Change of Control Date" has the meaning provided in Section 4.15.
"Change of Control Offer" has the meaning provided in Section 4.15.
"Change of Control Payment Date" has the meaning provided in Section
4.15.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means such
successor.
<PAGE>
-6-
"Consolidated EBITDA" means, with respect to any person, for any
period, the sum (without duplication) of (i) Consolidated Net Income, (ii) to
the extent Consolidated Net Income has been reduced thereby, all income taxes of
such person and its Subsidiaries paid or accrued in accordance with GAAP for
such period (other than income taxes attributable to extraordinary, unusual or
non-recurring gains or losses), Consolidated Interest Expense, amortization
expense and depreciation expense and (iii) other non-cash items other than
non-cash interest reducing Consolidated Net Income less other non-cash items
increasing Consolidated Net Income, all as determined on a consolidated basis
for such person and its Subsidiaries in conformity with GAAP (it being
understood that, for purposes of calculating Consolidated EBITDA,
notwithstanding GAAP, rent expense shall only reduce Consolidated Net Income to
the extent that such rent is actually paid and no effect shall be given to rent
deferrals or any reversals thereof).
"Consolidated Fixed Charge Coverage Ratio" means, with respect to
any person, the ratio of Consolidated EBITDA of such person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such person for the Four Quarter Period. For purposes of this definition, prior
to the date on which four full fiscal quarters have elapsed subsequent to the
Issue Date, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated, in the case of the Company, after giving effect to the Acquisition
on a pro forma basis as if it occurred on the first day of the Four Quarter
Period. In addition to and without limitation of the foregoing, for purposes of
this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to (i) the incurrence or repayment of any Indebtedness of such
person or any of its Subsidiaries (and the application of the proceeds thereof)
giving rise to the need to make such calculation and any incurrence or repayment
of other Indebtedness (and the application of the proceeds thereof) at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such person or one of its
<PAGE>
-7-
Subsidiaries (including any person who becomes a Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA associated with such
Asset Acquisition) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Indebtedness or Acquired
Indebtedness) occurred on the first day of the Four Quarter Period. If such
person or any of its Subsidiaries directly or indirectly guarantees Indebtedness
of a third person, the preceding sentence shall give effect to the incurrence of
such guaranteed Indebtedness as if such person or any Subsidiary of such person
had directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (1) interest on Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on the Transaction Date; (2)
if interest on any Indebtedness actually incurred on the Transaction Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date will be deemed to have been in
effect during the Four Quarter Period; (3) notwithstanding clause (1) above,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to Interest Swap Obligations, shall
be deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements; and (4) the permanent retirement of any
Indebtedness during the Four Quarter Period or at any time subsequent to the
last day of the Four Quarter Period and on or prior to the Transaction Date
shall be given effect as if it occurred at the beginning of such Four Quarter
Period. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining both the denominator and the numerator of this "Consolidated Fixed
Charge Coverage Ratio," interest on Indebtedness determined on a fluctuating
basis, to the extent such interest is covered by Interest Rate Cap Agreements,
shall be deemed to accrue at the rate per annum resulting after giving effect to
the operation of such agreements.
<PAGE>
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"Consolidated Fixed Charges" means, with respect to any person for
any period, the sum, without duplication, of (i) Consolidated Interest Expense
(before amortization or write-off of debt issuance costs and excluding, in the
case of the Company, any original issue discount in connection with the issuance
of any securities of DR Holdings required to be "pushed-down" to the Company or
any of its Subsidiaries in accordance with GAAP) and (ii) the product of (x) the
amount of all dividend payments on any series of preferred stock of such person
(except dividends for such period which are accrued but unpaid) times (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated federal, state and local tax rate
of such person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any person
for any period, the aggregate of all cash and non-cash interest expense (net of
interest income) with respect to all outstanding Indebtedness of such person and
its Subsidiaries, including the net costs associated with Interest Swap
Obligations, for such period determined on a consolidated basis in conformity
with GAAP. With respect to the Company, Consolidated Interest Expense shall
include cash and non-cash interest payable by DR Holdings on the Senior
Subordinated Notes subsequent to the seven-year anniversary of the issuance of
the Senior Subordinated Notes.
"Consolidated Net Income" means, with respect to any person for any
period, the net income (or loss) of such person and its Subsidiaries, on a
consolidated basis for such period determined in conformity with GAAP; provided
that the net income of any person, in which such person or any Subsidiary of
such person has an ownership interest shall be included only to the extent of
the lesser of (y) such income that has actually been received by such person or
its Subsidiaries in the form of dividends or other distributions during such
period or (z) the net income of such person (which in no event shall be less
than zero); provided, further, that there shall be excluded (i) the income (or
deficit) of any person (acquired in a pooling of interests transaction) accrued
prior to the date it becomes a Subsidiary of such person or is merged into or
consolidated with such person or any Subsidiary and (ii) any extraordinary,
unusual or nonrecurring gains or losses (and related tax effects) in accordance
with GAAP; provided, further that notwithstanding the requirements of GAAP, in
calculating Consolidated Net Income the amortization of non-compete payments
relating to the Non-Compete Agreements shall be based upon a
<PAGE>
-9-
25-year amortization schedule and the amortization of debt issuance costs shall
be over the scheduled life of the debt (without regard to early retirement)
giving rise to such debt issuance costs.
"Consolidated Net Worth" means, (i) with respect to the Company as
at any date of determination, the consolidated partners' equity of the Company
and its Subsidiaries as of the date of the then most recently available annual
or quarterly consolidated balance sheet of the Company prepared in accordance
with GAAP consistently applied, plus (a) the amount, if any, of contributions by
partners and net proceeds from the issuance and sale of Capital Stock of the
Company since the date of such balance sheet (to the extent the same will be
added in computing partners' equity as of the next succeeding annual or
quarterly balance sheet date), minus (b) the amount, if any, of partnership
distributions made since the date of such balance sheet (to the extent the same
was not deducted in computing partners' equity as of the date of such balance
sheet but will be deducted in computing partners' equity as of the next
succeeding annual or quarterly balance sheet date), or (ii) with respect to any
person organized as a corporation as at any date of determination, the total of
the amounts shown on the balance sheet of such person and its consolidated
Subsidiaries, determined on a consolidated basis in accordance with GAAP as (i)
the par or stated value of all outstanding Capital Stock of such person plus
(ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Capital Stock.
"Credit Agreement" means the Credit Agreement dated as of September
24, 1992, among the Company, the Guarantors, the Lenders and Bankers Trust
Company, as Agent, or any successor agreement (whether or not the Guarantors are
also parties thereto), together with the documents related thereto, including,
without limitation, any security agreements, pledge agreements, mortgages and
guaranties, in each case as such agreements may be amended, restated,
supplemented or otherwise modified from time to time and includes any agreement
renewing, extending the maturity of, refinancing (including by way of placement
or issuance of notes or Permitted Preferred Stock) or restructuring (including
the inclusion of additional borrowers and/or the exclusion of Daboco and/or
Duane Reade Inc. as guarantors) all or any portion of the Indebtedness under
such agreements.
<PAGE>
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"Credit Agreement Reinvestment Notice" means a notice of election to
reinvest Net Cash Proceeds of an Asset Sale given by the Company pursuant to the
terms of the Credit Agreement; provided, however, that for purposes of this
Indenture only $500,000 of Net Cash Proceeds received in any fiscal year shall
be subject to such a notice.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Daboco" means Daboco, Inc., a New York corporation, which as of the
Issue Date will be the owner of a 99% partnership interest in the Company and
which is a wholly-owned Subsidiary of DR Holdings.
"Default" means any event or condition the occurrence of which
would, with the passage of time or the giving of notice or both, become an Event
of Default.
"Depository" means, with respect to the Securities issued in the
form of one or more Book-Entry Securities, The Depository Trust Company or
another person designated as Depository by the Company, which must be a clearing
agency registered under the Exchange Act.
"Disqualified Capital Stock" means any class of Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the Maturity Date.
"DR Holdings" means Duane Reade Holding Corp., a Delaware
corporation.
"Duane Reade Inc." means Duane Reade Inc., a Delaware corporation,
which as of the Issue Date will be the owner of a 1% partnership interest in the
Company and which is a wholly-owned Subsidiary of Daboco.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Event of Default" has the meaning provided in Section 6.01.
<PAGE>
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"Exchange Offer" means the registration by the Company under the
Securities Act of all the Series B Notes pursuant to a registration statement
under which the Company offers each Holder of Series A Notes the opportunity to
exchange all Series A Notes held by such Holder for Series B Notes in an
aggregate principal amount equal to the aggregate principal amount of Series A
Notes held by such Holder, all in accordance with the terms and conditions of
the Registration Rights Agreement.
"GAAP" means generally accepted accounting principles as in effect
in the United States of America as of the date of this Indenture. If the Company
has changed one or more of the accounting principles used in the preparation of
its financial statements, then a Default or an Event of Default relating to
financial ratios or amounts, calculated under the new accounting principles,
shall not be considered a Default or an Event of Default if the required ratio
or amount would have been complied with had the Company continued to use those
generally accepted accounting principles employed as of the date of this
Indenture.
"Global Security" means a Security evidencing all or a part of the
Securities to be issued as Book-Entry Securities, issued to the Depository in
accordance with Section 2.02 and bearing the legend prescribed in Exhibit C.
"Guarantee" means the guarantee of each Guarantor set forth in
Article Eleven and any additional guarantee of the Securities executed by any
Subsidiary of the Company after the Issue Date pursuant to Sections 4.17 and
4.18.
"Guarantors" mean (i) Daboco, (ii) Duane Reade Inc. and (iii) each
Subsidiary of the Company which becomes a guarantor of the Securities after the
Issue Date pursuant to Sections 4.17 and 4.18.
"Holder" or "Securityholder" means the person in whose name a
Security is registered on the Registrar's books.
"Indebtedness" means with respect to any person, without
duplication, (i) all obligations of such person for borrowed money, (ii) all
obligations of such person evidenced
<PAGE>
-12-
by bonds, debentures, notes or other similar instruments, (iii) all Capitalized
Lease Obligations of such person, (iv) all obligations of such person issued or
assumed as the deferred purchase price of property or services (excluding
deferred rent expense), all conditional sale obligations and all obligations
under any title retention agreement (but excluding trade accounts payable and
accrued expenses arising in the ordinary course of business, (v) all obligations
of such person for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction entered into in the ordinary
course of business, (vi) all obligations of any other person of the type
referred to in clauses (i) through (v) which are secured by any Lien on any
property or asset of such first person and the amount of such obligation shall
be the lesser of the value of such property or asset or the amount of the
obligation so secured, (vii) all guarantees of Indebtedness by such person,
(viii) Disqualified Capital Stock valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends, (ix) all
obligations under Interest Swap Obligations of such person and (x) any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any liability of the types referred to in clauses (i) through (ix) above. For
purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value to be determined in good faith by the
Board of Directors of the Company.
"Indenture" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
"Independent Financial Advisor" means a nationally recognized
reputable accounting, appraisal or investment banking firm that is, in the
reasonable judgment of the Board of Directors or other equivalent governing body
of the Company, qualified to perform the task for which such firm has been
engaged hereunder and disinterested and independent with respect to the Company
and its Affiliates.
"Interest Payment Date" means the stated maturity of an installment
of interest on the Securities.
<PAGE>
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"Interest Rate Cap Agreement" means any agreement pursuant to which
any person purchases a cap on the applicable rate of interest on specified
Indebtedness.
"Interest Swap Obligations" means the obligations of any person,
pursuant to any arrangement with any other person, whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
person calculated by applying a fixed or a floating rate of interest on the same
notional amount.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"Investment" as applied to any person, means any direct or indirect
purchase or other acquisition by that person of, or of a beneficial interest in,
stock or other securities of any other person, or any direct or indirect loan,
advance (other than advances to employees for moving and travel expenses, loans
to management for purchases of common equity of DR Holdings, drawing accounts
and deposits in connection with rental property and similar expenditures made
and credit extended in the ordinary course of business) or capital contribution
by that person to any other person (other than the Company or a Guarantor),
including all indebtedness and accounts receivable from that other person that
are not current assets or did not arise in the ordinary course of business. The
amount of any Investment shall be the fair market value of such Investment, as
determined in good faith by the Board of Directors or other equivalent governing
body of the Company at the time such Investment is made.
"Issue Date" means the date of first issuance of the Securities
under this Indenture.
"Legal Holiday" has the meaning provided in Section 12.07.
"Lenders" means the lending institutions listed on the signature
pages of the Credit Agreement, together with any lending institutions that may
become a party to the Credit Agreement as therein provided.
<PAGE>
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"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Maturity Date" means September 15, 2002.
"Net Cash Proceeds" means, (i) with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents received by the Company, any of its Subsidiaries or any Guarantor
from such Asset Sale net of (a) reasonable out-of-pocket expenses and fees
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees and sales commissions), (b) taxes paid or payable
((1) including, without limitation, income taxes reasonably estimated to be
actually payable as a result of any disposition of property within two years of
the date of disposition and (2) after taking into account any reduction in tax
liability due to available tax credits or deductions and any tax sharing
arrangements), and (c) repayment of Indebtedness (other than the Securities or
any Indebtedness expressly subordinated in right of payment to the Securities)
that is required to be repaid in connection with such Asset Sale or (ii) with
respect to the sale of Capital Stock by any person, the aggregate net proceeds
received by such person after payment of expenses, commissions and other similar
charges incurred in connection therewith, whether such proceeds are in cash or
in property (valued at the fair market value thereof, as determined in good
faith by the Board of Directors or other equivalent governing body of such
person, at the time of receipt, whose determination shall be evidenced by a
Board Resolution).
"Net Proceeds Offer" has the meaning provided in Section 3.07.
"Net Proceeds Offer Trigger Date" means, with respect to an Asset
Sale, the earliest of (i) the date which is 180 days after the date of receipt
of the Net Cash Proceeds from the applicable Asset Sale or (ii) in the case of
an Asset Sale for which a Credit Agreement Reinvestment Notice is given, 390
days.
"Non-Compete Agreements" means the non-compete agreements with
each stockholder of Daboco, Dajaco, Inc., and DLR
<PAGE>
-15-
Inc. entered into in connection with the Acquisition and the non-compete
agreements with Eli D. Cohen, Jack D. Cohen and Abraham D. Cohen in those
certain employment and consulting agreements entered into in connection with the
Acquisition.
"Officer" means, with respect to any person, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Controller, or the Secretary of such person.
"Officers' Certificate" means, with respect to any person, a
certificate signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of such person and otherwise complying with
the requirements of Sections 12.04 and 12.05.
"Operating Lease" means, as applied to any person, any lease
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that person is the lessor.
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee complying with the requirements of Sections 12.04
and 12.05. Unless otherwise required by the TIA, the legal counsel may be an
employee of or counsel to the Company or the Trustee.
"Paying Agent" has the meaning provided in Section 2.03, except
that, for the purposes of Articles Three and Eight and Sections 4.15 and 4.16,
the Paying Agent shall not be the Company or a Subsidiary of the Company.
"Permitted Accreted Amount" means at any date, with respect to any
Indebtedness, the proceeds of which are used to refinance Indebtedness
outstanding under the Credit Agreement, that portion of the original issue
discount (i.e., the excess of the face amount over the price paid therefor)
which has been amortized at such time on the effective interest method of
accounting, using semi-annual compounding of interest from the date of issuance
of the relevant Indebtedness through the date as of which the Permitted Accreted
Amount is being determined.
"Permitted Indebtedness" means (i) any Indebtedness under the Term
Loan Facility and all guarantees thereof in an aggregate amount not to exceed
$90 million less any permanent reductions thereof, (ii) any Indebtedness in
respect of the
<PAGE>
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Working Capital Facility and all guarantees thereof in an aggregate amount not
to exceed $10 million less any permanent reductions in availability thereunder,
(iii) the Securities and the Guarantees, (iv) purchase money Indebtedness and
any Indebtedness incurred for Capitalized Lease Obligations not to exceed $10
million in the aggregate, (v) Interest Swap Obligations designed to protect the
Company against fluctuations in interest rates on borrowings under the Credit
Agreement and other Interest Swap Obligations covering other Indebtedness of the
Company, the Guarantors or any Subsidiary of the Company which bears interest at
fluctuating interest rates to the extent the notional principal amount of such
Interest Swap Obligation does not exceed the principal amount of the
Indebtedness to which such Interest Swap Obligation relates, (vi), additional
Indebtedness not to exceed $22 million, (vii) Indebtedness owed by the Company,
any Guarantor or any of their respective wholly owned Subsidiaries to the
Company, any Guarantor or any of their respective wholly owned Subsidiaries,
(viii) any renewals, extensions, substitutions, refundings, refinancings or
replacements of any Indebtedness described in the preceding clauses (i), (ii)
and (iii) above, so long as such renewal, extension, substitution, refunding,
refinancing or replacement does not result in an increase in the aggregate
principal amount of the outstanding Indebtedness represented thereby, (ix) any
guarantees of the foregoing, (x) any notes issued by the Company to management
of DR Holdings or the Company and its Subsidiaries in connection with the
repurchase of Capital Stock of DR Holdings so long as such notes are
subordinated in right of payment to the Securities, (xi) trade accounts payable
to the extent they constitute Indebtedness, and (xii) additional Indebtedness in
the form of Permitted Accreted Amount and/or Permitted PIK Interest in an
aggregate amount not to exceed $9,000,000.
"Permitted Investment" means (i) cash and Cash Equivalents, (ii) any
Investment by the Company or any of its Subsidiaries in the Company or any
wholly owned Subsidiary of the Company, (iii) the incurrence of Permitted
Indebtedness and (iv) in the case of the Company, the Guarantors and their
Subsidiaries, any Investment (other than in an Unrestricted Subsidiary) not to
exceed $1,000,000 in the aggregate at any one time outstanding.
"Permitted Liens" means (i) pledges or deposits by such person under
worker's compensation laws, unemployment insurance laws or similar legislation,
or good faith deposits in connection with bids, tenders, contracts (other than
for the
<PAGE>
-17-
payment of Indebtedness) or leases to which such person is a party, or deposits
to secure public statutory obligations of such person or deposits to secure
surety or appeal bonds to which such person is a party, or deposits as security
for contested taxes or import duties or for the payment of rent, (ii) Liens
imposed by law, such as carriers', warehousemen's and mechanics' Liens or
bankers' Liens incurred in the ordinary course of business for sums which are
not yet due or are being contested in good faith and for which adequate
provision has been made, (iii) Liens for taxes not yet subject to penalties for
non-payment or which are being contested in good faith and by appropriate
proceedings, if adequate reserve, as may be required by generally accepted
accounting principles then in effect, shall have been made therefor, (iv) Liens
in favor of issuers of surety bonds or appeal bonds issued pursuant to the
request of and for the account of such person in the course of its business, (v)
Liens to support trade letters of credit issued in the ordinary course of
business, (vi) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions on
the use of real property, (vii) Liens securing Indebtedness permitted under
clause (iv) of the definition of Permitted Indebtedness; provided that the value
of the asset at the time of the incurrence of the Indebtedness subject to the
Lien shall not exceed the principal amount of the Indebtedness secured, (viii)
any interest or title of a lessor under any lease, including Liens arising from
UCC financing statements regarding leases, (ix) Liens with respect to Acquired
Indebtedness permitted to be incurred under Section 4.12; provided that such
Liens secured such Acquired Indebtedness at the time of the incurrence of such
Acquired Indebtedness by the Company or a Subsidiary of the Company or any
Guarantor and were not incurred in connection with, or in anticipation of, the
incurrence of such Acquired Indebtedness by the Company or a Subsidiary of the
Company or any Guarantor; and provided, further, that such Liens do not extend
to or cover any property or assets of the Company or any Subsidiary of the
Company or any Guarantor other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Subsidiary of the Company or any Guarantor and
are no more favorable to the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired Indebtedness by the
Company or a Subsidiary of the Company or any Guarantor and (x) Liens arising
from judgments, decrees or
<PAGE>
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attachments in circumstances not constituting an Event of Default under Section
6.01(5).
"Permitted PIK Interest" means the aggregate principal amount of all
debt securities issued as interest (whether in lieu of cash or otherwise) on
Indebtedness, all of the proceeds of which are used to repay permanently
Indebtedness outstanding under the Credit Agreement.
"Permitted Preferred Stock" means Preferred Stock issued by any
Subsidiary of DR Holdings to any non-affiliate of the Company or DR Holdings (i)
all of the proceeds of which are used to repay permanently Indebtedness
outstanding under the Credit Agreement, (ii) having a liquidation preference not
in excess of the cash proceeds received in exchange therefor plus accrued but
unpaid dividends, (iii) which pays a fixed or floating dividend and (iv) which
may be entitled to pay contingent dividends based upon the Company's future
performance such that, after giving effect to the payment of any such contingent
dividends through inclusion of such dividends in the computation of Consolidated
Fixed Charges, the Company shall be in compliance with Section 4.12(b).
"person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or other agency or political subdivision thereof.
"Plan of Liquidation" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"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 outstanding on the date
hereof or issued after the date of this Indenture, and including, without
limitation, all classes and series of preferred or preference stock of such
person.
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"principal" of any Indebtedness (including the Securities) means the
principal of such Indebtedness plus the premium, if any, on such Indebtedness.
"Proceeds Purchase Date" shall have the meaning provided in Section
3.07.
"Productive Assets" means assets (including Capital Stock) of a kind
used or useable in the business of the Company and its Subsidiaries as it is
conducted in accordance with Section 4.20.
"pro forma" means, with respect to any calculation made or required
to be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act as interpreted by the
Company's Board of Directors or other equivalent governing body in consultation
with its independent certified public accountants.
"Purchase Agreement" means the Purchase Agreement among the Company,
the Guarantors and the Purchasers, dated as of September 25, 1992, as the same
may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof, providing for the purchase of the Securities.
"Purchasers" means the Purchasers named on the execution pages
attached to the Purchase Agreement.
"Qualified Capital Stock" means, with respect to any person, any
Capital Stock of such person that is not Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Record Date" means the Record Dates specified in the Securities;
provided that if any such date is a Legal Holiday, the Record Date shall be the
first day immediately preceding such specified day that is not a Legal Holiday.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Securities.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and the Securities.
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"Registrar" has the meaning provided in Section 2.03.
"Registration Rights Agreement" means the Registration Rights
Agreement among the Company, the Guarantors and the Purchasers, dated as of
September 25, 1992, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Restricted Payment" has the meaning provided in Section 4.03.
"Restricted Security" has the meaning provided in the Purchase
Agreement.
"Sale/leaseback" means any lease, whether an Operating Lease or a
Capital Lease, whereby the Company or any of its Subsidiaries, directly or
indirectly, becomes or remains liable as lessee or as guarantor or other surety,
of any property (whether real or personal or mixed) whether now owned or
hereafter acquired, (i) that the Company or its Subsidiaries, as the case may
be, has sold or transferred or is to sell or transfer to any other person (other
than the Company or any of the Guarantors), or (ii) that the Company or its
Subsidiaries, as the case may be, intends to use for substantially the same
purpose as any other property that has been or is to be sold or transferred by
the Company or any such Subsidiary to any person (other than the Company or any
of the Guarantors) in connection with such lease.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Series A Notes and the Series B Notes.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Senior Subordinated Note Indenture" means the indenture between DR
Holdings and The Connecticut National Bank, as Trustee, relating to the Senior
Subordinated Notes as in effect on the Issue Date as amended or supplemented
from time to time in accordance with the terms thereof.
"Senior Subordinated Note Registration Rights Agreement" means the
registration rights agreement between DR Holdings and the purchasers of the
Senior Subordinated Notes
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relating to the Senior Subordinated Notes as in effect on the Issue Date.
"Senior Subordinated Notes" means the $123,380,000 in aggregate
principal amount of 15% Senior Subordinated Zero Coupon Notes due 2004 of DR
Holdings Series A or Series B, as the case may be, issued pursuant to an
Indenture dated as of September 15, 1992 between DR Holdings and The Connecticut
National Bank, as Trustee, as amended or supplemented from time to time in
accordance with the terms thereof.
"Series A Notes" means the Company's 12% Senior Notes due September
15, 2002, Series A, as amended or supplemented from time to time in accordance
with the terms hereof, that are issued pursuant to the Indenture.
"Series B Notes" means the Company's 12% Senior Notes due September
15, 2002, Series B, as amended or supplemented from time to time in accordance
with the terms hereof, that are issued pursuant to the Indenture.
"Significant Subsidiary" means any Subsidiary of the Company that
satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(v)
of Regulation S-X under the Securities Act, but shall not include any
Unrestricted Subsidiary.
"Subsidiary" of any person means (i) any corporation of which the
outstanding capital stock having at least a majority of the votes entitled to be
cast in the election of directors under ordinary circumstances shall at the time
be owned, directly or indirectly, by such person or (ii) any other person of
which at least a majority of the voting interest under ordinary circumstances is
at the time owned, directly or indirectly, by such person. Unrestricted
Subsidiaries shall not be included in the definition of Subsidiaries for any
purpose of the Indenture.
"Term Loan Facility" means the term loan facilities (or any similar
facilities) under the Credit Agreement.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb), as amended, as in effect on the date of the execution of this
Indenture until such time as this Indenture is qualified under the TIA, and
thereafter as in effect on the date on which this Indenture is qualified under
the TIA, except as otherwise provided in Section 9.03.
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"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"Unrestricted Subsidiary" means a newly-formed or newly-acquired
entity that would, but for the last sentence of the definition of the term
"Subsidiary" herein, be a Subsidiary of the Company (a) no portion of the
Indebtedness or any other obligation (contingent or otherwise) of which (i) is
guaranteed by the Company or any Subsidiary of the Company, (ii) is recourse to
or obligates the Company or any Subsidiary of the Company in any way or (iii)
subjects any property or asset of the Company or any Subsidiary of the Company,
directly or indirectly, contingently or otherwise, to satisfaction thereof, (b)
with which the Company or any Subsidiary of the Company has no contract,
agreement, arrangement, understanding or is subject to an obligation of any
kind, whether written or oral, other than a transaction on terms no less
favorable to the Company or any Subsidiary of the Company than those which might
be obtained at the time from persons who are not Affiliates of the Company, (c)
with which neither the Company nor any Subsidiary of the Company has any
obligation (other than as required by the terms of this Indenture) (i) to
subscribe for additional shares of Capital Stock, or other equity interest
therein, or (ii) to maintain or preserve such Subsidiary's financial condition
or to cause such Subsidiary to achieve certain levels of operating results, (d)
which has been designated at the time of its formation or acquisition in a Board
Resolution of the Company as an Unrestricted Subsidiary, (e) having no
Indebtedness outstanding at any time, the breach or violation of the terms of
which causes or would cause a default under, or gives or would give the holders
of any Indebtedness of the Company or any Subsidiary of the Company the right to
accelerate, any Indebtedness of the Company or any Subsidiary of the Company or
any Guarantor and (f) any Subsidiary of an entity that satisfies the criteria
described in the foregoing clauses (a) through (e).
"U.S. Government Obligations" has the meaning provided in Section
8.01.
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"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"wholly owned Subsidiary" means any Subsidiary all of the shares of
Capital Stock of which (except directors' qualifying shares) are at the time
directly or indirectly owned by the Company.
"Working Capital Facility" means (i) the revolving credit facility
(or any similar facility) available under the Credit Agreement including any
related letters of credit or (ii) any other credit facility secured by accounts
receivable and/or inventory and proceeds thereof.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, any
Guarantor or any other obligor on the Securities or the Guarantees.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
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(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Securities, the notation thereon relating to the Guarantees and
the Trustee's certificate of authentication shall be substantially in the form
of Exhibit A or Exhibit B hereto, as the case may be. The Securities may have
notations, legends or endorsements required by law, stock exchange rule or
usage. The Company and the Trustee shall approve the form of the Securities and
any notation, legend or endorsement on them. Each Security shall be dated the
date of its authentication.
The terms and provisions contained in the Securities and the
Guarantee shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company, the Guarantors and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign,
or one Officer shall sign and one Officer or an Assistant Secretary (each of
whom shall, in each case, have been duly authorized by all requisite corporate
actions) shall
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attest to, the Securities for the Company by manual or facsimile signature. Each
Guarantor shall execute the Guarantee in the manner set forth in Section 11.07.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall nevertheless be valid.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate Securities for original issue in the
aggregate principal amount of up to $90,000,000 upon receipt of a written order
of the Company in the form of an Officers' Certificate. The Officers'
Certificate shall specify the amount of Securities to be authenticated and the
date on which the Securities are to be authenticated. The aggregate principal
amount of Securities outstanding at any time may not exceed $90,000,000, except
as provided in Section 2.07. Upon the written order of the Company in the form
of an Officers' Certificate, the Trustee shall authenticate Securities in
substitution of Securities originally issued to reflect any name change of the
Company.
Series B Notes may be issued only in exchange for a like principal
amount of Series A Notes pursuant to an Exchange Offer.
Subject to Section 2.13, the principal and interest on Book-Entry
Securities shall be payable to the Depository or its nominee, as the case may
be, as the sole registered owner and the sole holder of the Book-Entry
Securities represented thereby. Except as otherwise provided in Section 4.3 of
the Purchase Agreement and Section 2.13, the principal and interest on
Securities in certificated form shall be payable at the office or agency of the
Company maintained for such purpose in the Borough of Manhattan in The City of
New York, or at such other office or agency of the Company as may be maintained
for such purpose; provided, however, that at the option of the Company interest
may be paid by check mailed to the addresses of the persons entitled thereto as
such addresses shall appear with either the Registrar or Paying Agent.
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The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise provided
in the appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
If the Securities are to be issued in the form of one or more Global
Securities, then the Company shall execute and the Trustee shall authenticate
and deliver one or more Global Securities (each having an executed Guarantee
endorsed thereon) that (i) shall represent and shall be in minimum denominations
of $1,000 or in the approximate equivalent amount, (ii) shall be registered in
the name of the Depository for such Global Security or Securities or the nominee
of such Depository, (iii) shall be delivered by the Trustee to such Depository
or pursuant to such Depository's instructions and (iv) shall bear the legend set
forth in Exhibit C.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company may also from time to time designate one or
more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; 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 Borough of Manhattan, The City of New York, for such purposes. The
Company may act as its own Registrar or Paying Agent except that for the
purposes of Articles Three and Eight and Sections 4.15 and 4.16 neither the
Company, any Guarantor, any Subsidiary of the Company or any Guarantor nor any
of their Affiliates shall act as Paying Agent. The Registrar shall keep a
register of the Securities and of their transfer and exchange.
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The Company, upon notice to the Trustee, may have one or more co-Registrars and
one or more additional paying agents reasonably acceptable to the Trustee. The
term "Paying Agent" includes any additional paying agent. The Company initially
appoints the Trustee as Registrar and Paying Agent until such time as the
Trustee has resigned or a successor has been appointed.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee, in advance, of the name and address of any such Agent. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that each Paying Agent shall hold in trust for the benefit
of the Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of, or interest on, the Securities (whether such assets
have been distributed to it by the Company or any other obligor on the
Securities), and shall notify the Trustee of any Default by the Company (or any
other obligor on the Securities) in making any such payment. If the Company or a
Subsidiary of the Company acts as Paying Agent, it shall segregate such assets
and hold them as a separate trust fund. The Company at any time may require a
Paying Agent to distribute all assets held by it to the Trustee and account for
any assets disbursed and the Trustee may at any time during the continuance of
any payment Default, upon written request to a Paying Agent, require such Paying
Agent to distribute all assets held by it to the Trustee and to account for any
assets distributed. Upon distribution to the Trustee of all assets that shall
have been delivered by the Company to the Paying Agent, the Paying Agent shall
have no further liability for such assets.
SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders. If the Trustee is not the Registrar, the Company shall furnish to
the Trustee before each Record Date and at such other times as the Trustee may
request in writing a list as of such date and in such form as
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the Trustee may reasonably require of the names and addresses of the Holders,
which list may be conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
When Securities in certificated form are presented to the Registrar
or a co-Registrar with a request to register the transfer of such Securities or
to exchange such Securities for an equal principal amount of Securities of other
authorized denominations, the Registrar or co-Registrar shall register the
transfer or make the exchange as requested if its requirements for such
transaction are met; provided, however, that the Securities surrendered for
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Registrar or
co-Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing. To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Securities at the
Registrar's or co-Registrar's request. No service charge shall be made for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchanges or transfers pursuant to Sections
2.02, 2.10, 3.06, 4.15, 4.16 or 9.05). The Registrar or co-Registrar shall not
be required to register the transfer of or exchange of any Security (i) during a
period beginning at the opening of business 15 days before the mailing of a
notice of redemption of Securities and ending at the close of business on the
day of such mailing and (ii) selected for redemption in whole or in part
pursuant to Article Three, except the unredeemed portion of any Security being
redeemed in part.
If a Series A Note is a Restricted Security in certificated form,
then as provided in this Indenture and subject to the limitations herein set
forth, the Holder, provided it is a Qualified Institutional Buyer, may exchange
such Security for a Book-Entry Security by instructing the Trustee (by
completing the Transferee Certificate attached to the Security) to arrange for
such Series A Note to be represented by a beneficial interest in a Global
Security in accordance with the customary procedures of the Depository.
The Company may at any time determine not to have Securities (other
than Restricted Securities) represented in
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certificated form, in which event the Holder of a Security (other than
Restricted Securities) in certificated form may be required to exchange such
Security for a Book-Entry Security.
A Global Security is exchangeable for Securities in certificated
form only if (x) the Depository is at any time unwilling or unable to continue
as depository and a successor depository is not appointed by the Company within
30 days or (y) there shall have occurred and be continuing an Event of Default
or (z) the Company may at any time determine not to have Securities represented
by a Global Security. In addition, in accordance with the provisions of this
Indenture and subject to certain limitations herein set forth including the
preceding sentence and the delivery of a certificate in the form of Exhibit D
hereto, an owner of a beneficial interest in a Global Security which is a Series
A Note may request a Security in certificated form, in exchange in whole or in
part, as the case may be, for such beneficial owner's interest in the Global
Security.
Upon any exchange provided for in the preceding paragraph, the
Company shall execute and the Trustee shall authenticate and deliver to the
person specified by the Depository a new Security or Securities registered in
such names and in such authorized denominations as the Depository, pursuant to
the instructions of the beneficial owner of the Securities requesting the
exchange, shall instruct the Trustee. Thereupon, the beneficial ownership of
such Global Security shown on the records maintained by the Depository or its
nominee shall be reduced by the amounts so exchanged and an appropriate
endorsement shall be made by or on behalf of the Trustee on the Global Security.
Notwithstanding any other provision of this Section 2.06, unless and
until it is exchanged in whole or in part for Series A Notes in certificated
registered form, a Global Security representing Book-Entry Securities may not be
transferred, except as a whole by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a successor depository or
a nominee of such successor depository.
Notwithstanding the foregoing, no Global Security shall be
registered for transfer or exchange, or authenticated and delivered, whether
pursuant to this Section, Section 2.07, 2.10 or 3.06 or otherwise, in the name
of a person other than
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the Depository for such Global Security or its nominee until (i) the Depository
notifies the Company that it is unwilling or unable to continue as Depository
for such Global Security or if at any time the Depository ceases to be a
clearing agency registered under the Exchange Act, and a successor depository is
not appointed by the Company within 30 days, (ii) the Company executes and
delivers to the Trustee a Company order that all such Global Securities shall be
exchangeable or (iii) there shall have occurred and be continuing an Event of
Default. Upon the occurrence in respect of any Global Security representing the
Securities of any one or more of the conditions specified in clause (i), (ii) or
(iii) of the preceding sentence, such Global Security may be registered for
transfer or exchange for Series A Notes registered in the names of,
authenticated and delivered to, such persons as the Trustee or the Depository,
as the case may be, shall direct.
Except as provided above, any Security authenticated and delivered
upon registration of transfer of, or in exchange for, or in lieu of, any Global
Security, whether pursuant to this Section, Section 2.07, 2.10 or 3.06 or
otherwise, shall also be a Global Security and bear the legend specified in
Exhibit C.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements are met. If required by the
Trustee or the Company, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Security is replaced. The Company may charge such Holder for its
reasonable, out-of-pocket expenses in replacing a Security, including reasonable
fees and expenses of counsel. Every replacement Security shall constitute an
additional obligation of the Company and the Guarantors.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding. A
Security
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does not cease to be outstanding because the Company or any of its Affiliates
holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than the Company, any Guarantor or a Subsidiary of the Company or any Guarantor)
holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of
the principal and interest due on the Securities payable on that date, then on
and after that date such Securities cease to be outstanding and interest on them
ceases to accrue; provided, however, that to the extent the Trustee is enjoined
from making payments to the Holders, interest will continue to accrue until such
time as the Trustee is not so enjoined.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company, the Guarantors or any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any Guarantor, as the case may be, shall be disregarded, except that,
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Securities that the
Trustee knows are so owned shall be disregarded.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon receipt of
a written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Securities to be
authenticated and the date on which the temporary Securities are to be
authenticated. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall
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prepare and the Trustee shall authenticate upon receipt of a written order of
the Company pursuant to Section 2.02 definitive Securities in exchange for
temporary Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than the Company, any Guarantor or a Subsidiary of the Company or any
Guarantor), and no one else, shall cancel and, at the written direction of the
Company, shall dispose of all Securities surrendered for transfer, exchange,
payment or cancellation. Subject to Section 2.07, the Company may not issue new
Securities to replace Securities that it has paid or delivered to the Trustee
for cancellation. If the Company or any Guarantor shall acquire any of the
Securities, such acquisition shall not operate as a redemption or satisfaction
of the Indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Securities,
it shall, unless the Trustee fixes another record date pursuant to Section 6.10,
pay the defaulted interest, plus (to the extent lawful) any interest payable on
the defaulted interest to the persons who are Holders on a subsequent special
record date, which date shall be the fifteenth day next preceding the date fixed
by the Company for the payment of defaulted interest or the next succeeding
Business Day if such date is not a Business Day. At least 15 days before the
subsequent special record date, the Company shall mail to each Holder, with a
copy to the Trustee, a notice that states the subsequent special record date,
the payment date and the amount of defaulted interest, and interest payable on
such defaulted interest, if any, to be paid.
SECTION 2.13. Home Office Payment Agreements.
Notwithstanding any provisions of the Indenture and of the
Securities to the contrary, payments of principal and interest on Restricted
Securities shall be made by the Paying Agent directly to the Holder of such
certificated Security
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without surrender or presentation thereof to the Paying Agent in accordance with
the provision of Section 4.3 of the Purchase Agreement.
SECTION 2.14. CUSIP Number.
The Company in issuing the Securities may use a "CUSIP" number, and
if so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Securities, and that reliance may be
placed only on the other identification numbers printed on the Securities.
SECTION 2.15. Designation.
The Indebtedness evidenced by the Securities is hereby irrevocably
designated as "senior indebtedness" or such other term denoting seniority for
the purposes of any future Indebtedness of the Company or any Guarantor, as the
case may be, which the Company or any Guarantor, as the case may be, expressly
makes subordinate to any senior indebtedness or such other term denoting
seniority. In connection with the issuance of any such future subordinated
Indebtedness, the Company or any Guarantor, as the case may be, shall take all
necessary steps to effectuate the foregoing.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem or is required to redeem Securities
pursuant to Paragraph 6 or Paragraph 7 of the Securities, it shall notify the
Trustee and the Paying Agent in writing of the Redemption Date and the principal
amount of the Securities to be redeemed and whether it wants the Trustee to give
notice of redemption to the Holders (at the Company's expense) at least 30 days
(unless a shorter notice shall be satisfactory to the Trustee) but not more than
60 days before the Redemption Date. Any such notice may be cancelled at any time
prior to notice of such redemption being mailed to any Holder and shall thereby
be void and of no effect.
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No later than 45 days (unless a shorter notice shall be satisfactory
to the Trustee) prior to the date on which the sinking fund payment is to be
made pursuant to Paragraph 7 of the Securities, if the Company desires to reduce
the principal amount of securities to be redeemed pursuant to such mandatory
redemption provisions, it shall provide to the Trustee an Officers' Certificate
specifying the amount of and basis for the reduction. If the Company desires to
credit against any such redemption Securities not previously delivered to the
Trustee for cancellation, the Company shall deliver such Securities with the
Officers' Certificate.
SECTION 3.02. Selection of Securities To Be Redeemed.
If fewer than all of the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed in compliance with the requirements
of the principal national securities exchange, if any, on which the Securities
being redeemed are listed, or, if the Securities are not listed on a national
securities exchange, on a pro rata basis.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denominations of $1,000 may be redeemed only in whole.
The Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Securities that have denominations larger
than $1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first class mail to each Holder
whose Securities are to be redeemed, with a copy to the Trustee. At the
Company's request, the Trustee shall give the notice of redemption in the
Company's name and at the Company's expense. Each notice for redemption shall
identify the Securities to be redeemed and shall state:
(1) the Redemption Date;
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(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(5) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date, and the only remaining right of the Holders
of such Securities is to receive payment of the Redemption Price upon
surrender to the Paying Agent of the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
Redemption Date, and upon surrender of such Security, a new Security or
Securities in the aggregate principal amount equal to the unredeemed
portion thereof will be issued; and
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption.
SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price. Upon surrender to the Trustee or Paying Agent, such
Securities called for redemption shall be paid at the Redemption Price.
SECTION 3.05. Deposit of Redemption Price.
On or before the Redemption Date, the Company shall deposit with the
Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price of all
Securities to be redeemed on that date (other than Securities or portions
thereof called for redemption on that date which have been delivered by the
Company to the Trustee for cancellation). The Paying Agent shall promptly return
to the Company any U.S. Legal Tender so
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deposited which is not required for that purpose upon the written request of
the Company, except with respect to monies owed as obligations to the Trustee
pursuant to Article Seven.
If the Company complies with the preceding paragraph, then, unless
the Company defaults in the payment of such Redemption Price, interest on the
Securities to be redeemed will cease to accrue on and after the applicable
Redemption Date, whether or not such Securities are presented for payment.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part, the
Trustee shall authenticate for the Holder a new Security or Securities equal in
principal amount to the unredeemed portion of the Security surrendered.
SECTION 3.07. Offer To Purchase by Application of Net Cash Proceeds.
(a) The Company shall provide the Trustee with prompt notice of the
occurrence of a Net Proceeds Offer Trigger Date; provided that the Company shall
only be required to give such notice if after such Net Proceeds Offer Trigger
Date the Company or any Guarantor is required to make a Net Proceeds Offer. Such
notice shall be accompanied by an Officers' Certificate setting forth (a) a
statement to the effect that the Company, a Subsidiary of the Company or a
Guarantor, as the case may be, has made an Asset Sale and (b) the aggregate
principal amount of Securities offered to be purchased and the basis of
calculation in determining such aggregate principal amount. Upon the occurrence
of any Net Proceeds Offer Trigger Date, the Company shall make an offer (a "Net
Proceeds Offer") to purchase, at a price equal to 100% of the principal amount
of Securities to be repurchased plus accrued interest thereon to the Proceeds
Purchase Date (as defined below), such aggregate principal amount of Securities
equal to such Net Cash Proceeds, less any amounts applied in accordance with
Section 4.16(iii)(A) or (B).
(b) The notice of a Net Proceeds Offer shall be sent, by first class
mail, by the Company (or caused to be mailed by the Company) with a copy to the
Trustee not more than 10 days after the Net Proceeds Offer Trigger Date to the
Holders at their last registered addresses. The Net Proceeds Offer shall remain
open from the time of mailing until three days before the Proceeds Purchase
Date. The notice to the Holders
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shall contain all instructions and materials necessary to enable such Holders to
tender Securities pursuant to the Net Proceeds Offer. Such notice shall state:
(1) that the Net Proceeds Offer is being made pursuant to Section
3.07 and 4.16;
(2) the purchase price (including an amount of accrued interest) and
the purchase date (which shall be no earlier than 10 days nor later than
20 days from the date notice is mailed) (the "Proceeds Purchase Date");
(3) that any Security not tendered will continue to accrue interest;
(4) that unless the Company defaults in making payment therefor, any
Security accepted for payment pursuant to the Net Proceeds Offer shall
cease to accrue interest after the Proceeds Purchase Date;
(5) that Holders electing to have a Security purchased pursuant to a
Net Proceeds Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the last page of the
Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day prior to the
Proceeds Purchase Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, no later than two Business Days prior to the
Proceeds Purchase Date, a telegram, telex, facsimile transmission or
letter stating fully the name of the Holder, the principal amount of the
Securities the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Security purchased;
(7) that if Securities in a principal amount in excess of the
principal amount of the Securities to be acquired pursuant to the Net
Proceeds Offer are tendered and not withdrawn pursuant to the Net Proceeds
Offer, the Company shall purchase Securities on a pro rata basis (with
such adjustment as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000 or integral multiples of $1,000
shall be so acquired); and
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(8) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount equal to the unpurchased
portion of the Securities surrendered.
On or before a Proceeds Purchase Date, the Company shall (i) accept
for payment Securities or portions thereof tendered pursuant to the Net Proceeds
Offer (on a pro rata basis if required pursuant to paragraph (7) above), (ii)
deposit with the Paying Agent U.S. Legal Tender or Securities acquired in the
manner described in clause (a) of this Section 3.07 sufficient to pay the
purchase price of all Securities or portions thereof so accepted or to be
credited against the Net Proceeds Offer and (iii) deliver to the Trustee
Securities so accepted together with an Officers' Certificate identifying the
Securities or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail or deliver to Holders of Securities so accepted
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail or deliver to such Holders new Securities equal in
principal amount to any unpurchased portion of the Securities surrendered. Any
Securities not so accepted shall be promptly mailed or delivered by the Company
to the Holder thereof. The Company will publicly announce the results of the Net
Proceeds Offer as promptly as practicable following the Proceeds Purchase Date.
For purposes of this Section 3.07, the Trustee shall act as the Paying Agent.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities. An
installment of principal of or interest on the Securities shall be considered
paid on the date it is due if the Trustee or Paying Agent (other than the
Company, any Guarantor or a Subsidiary of the Company or any Guarantor) holds on
that date U.S. Legal Tender designated for and sufficient to pay the
installment.
Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required
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to do so by law, deduct or withhold income or other similar taxes imposed by the
United States of America from principal or interest payments hereunder.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of
New York, the office or agency required under Section 2.03. The Company shall
give prior notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 12.02.
SECTION 4.03. Limitation on Distributions, Stock Purchases and Certain
Investments, Loans and Advances.
The Company and the Guarantors will not, and they will not permit
any of their Subsidiaries to, directly or indirectly, (a) make any distribution
on the Company's Capital Stock to holders of such Capital Stock (other than
dividends or distributions payable in Qualified Capital Stock of the Company and
other than dividends on Permitted Preferred Stock), (b) purchase, redeem or
otherwise acquire or retire for value any Qualified Capital Stock of the Company
or any warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock, other than the exchange of such Capital Stock for Qualified
Capital Stock, (c) purchase, redeem, prepay, decrease or otherwise acquire or
retire for value, prior to any scheduled maturity, scheduled repayment or
scheduled sinking fund payment, Disqualified Capital Stock or Indebtedness of
the Company, any Subsidiary of the Company or any Guarantor (which shall not
include Indebtedness under the Credit Agreement) that is expressly subordinate
in right of payment to the Securities or the Guarantees or (d) make any
Investment (excluding any Permitted Investment) (each of the foregoing actions
set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted
Payment"), if at the time of such Restricted Payment or immediately after giving
effect thereto, (i) a Default or an Event of Default shall have occurred and be
continuing, (ii) the Company's Consolidated Fixed Charge Coverage Ratio for the
last four completed fiscal quarters preceding such Restricted Payment,
calculated on a pro forma basis, as if such Restricted Payment had been made at
the beginning of such period, shall be less than 2.75 to 1.0 or (iii) Restricted
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Payments made subsequent to the Issue Date (the amount expended for such
purposes, if other than in cash, shall be the fair market value of such property
as determined by senior management of the Company or, if the market value of
such property exceeds $1,000,000, by the Board of Directors or other equivalent
governing body of the Company in good faith (which determination shall be
evidenced by a Board Resolution)) shall exceed the sum of:
(x) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the
Company earned subsequent to the Issue Date and prior to the date the
Restricted Payment occurs (treating such period as a single accounting
period);
(y) 100% of the aggregate net proceeds, including the fair market
value of property other than cash as determined by senior management of
the Company or, if the market value of such property exceeds $1,000,000,
by the Board of Directors or other equivalent governing body of the
Company in good faith (which determination shall be evidenced by a Board
Resolution), received by the Company from any person (other than a
Subsidiary of the Company) from capital contributions subsequent to the
Issue Date or from the issuance and sale subsequent to the Issue Date of
Qualified Capital Stock of the Company (excluding (A) Qualified Capital
Stock made as a distribution on any Capital Stock or as interest on any
Indebtedness and (B) any net proceeds from issuances and sales financed
directly or indirectly using funds borrowed from the Company or any
Subsidiary of the Company, until and to the extent such borrowing is
repaid); provided that the foregoing shall exclude any proceeds referred
to in the parenthetical contained in clause (2) below that were taken into
account to permit the making of any payment to the Company in accordance
with said clause (2); and
(z) 100% of the aggregate net proceeds, including the fair market
value of property other than cash as determined by senior management of
the Company or, if the market value of such property exceeds $1,000,000,
by the Board of Directors or other equivalent governing body of the
Company in good faith (which determination shall be evidenced by a Board
Resolution), received by the Company from any person (other than a
Subsidiary of the Company) from the issue and sale of Disqualified Capital
Stock
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and/or Indebtedness, in each case that has been converted into or
exchanged for Qualified Capital Stock of the Company after the Issue Date.
Notwithstanding the foregoing, the provisions of this Section 4.03
shall not prohibit:
(1) the making of any distribution within 60 days after the date of
its declaration if the distribution would have been permitted on the date
of declaration;
(2) the Company from making payments for the purpose of and in an
amount equal to the amount required to permit DR Holdings to redeem or
repurchase DR Holdings' common equity or options in respect thereof in
connection with the repurchase provisions under employee stock option or
stock purchase agreements or other agreements to compensate management
employees; provided that such redemptions or repurchases shall not exceed
$5,000,000 in the aggregate (the amount considered redeemed or repurchased
pursuant to this clause (2) shall be reduced (but not below $0) by any
proceeds received in connection with reissuances of securities of the same
class to other management employees following any such redemptions or
purchases, which proceeds shall not have otherwise been taken into account
under clause (y) above) with respect to the Company's ability to make any
Restricted Payment under clause (iv) above;
(3) the making of distributions, loans or advances in an amount not
to exceed $500,000 per annum sufficient to permit DR Holdings to pay the
ordinary operating expenses of DR Holdings (including all reasonable
professional fees and expenses) in connection with its complying with its
reporting obligations and obligations to prepare and distribute business
records in the ordinary course of business and DR Holdings' costs and
related expenses relating to insurance premiums, surety bonds, insurance
brokers' fees and consulting fees (other than to Bain Capital);
(4) the making of distributions, loans or advances in an amount not
in excess of the lesser of (i) the aggregate of the separate return
federal income tax liability (if any) of the affiliated group (as defined
in Section 1504(a) of the Internal Revenue Code) of which Daboco would be
the common parent and (ii) the actual federal tax
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liability (if any) of the DR Holdings affiliated group (which taxes are
attributable to the operations of Daboco and its Subsidiaries); provided
that such payments can be made by the Company no earlier than the date,
and no greater in amount, than that which DR Holdings is required to make
as payments of income tax (or required as estimated tax payments) to the
Internal Revenue Service. In the event that DR Holdings and any member of
the DR Holdings affiliated group join in filing any combined or
consolidated (or similar) state or local income or franchise tax returns,
or in the event that any Guarantor and any member of such Guarantor's
affiliated group join in filing any combined or consolidated (or similar)
state or local income or franchise tax returns or in the event any of the
Guarantors file separate state or local income or franchise tax returns,
then the making of distributions, loans or advances to DR Holdings or to
any Guarantor shall be allowed in a manner as similar as possible to that
provided in the preceding sentence for federal income taxes;
(5) the making of distributions, loans or advances in an amount
sufficient to permit DR Holdings to pay its obligations to register
securities with the SEC (including all reasonable professional fees and
expenses) pursuant to the Registration Rights Agreement;
(6) distributions, loans or advances necessary to make interest
payments on the Senior Subordinated Notes subsequent to the seven-year
anniversary of the issuance of the Senior Subordinated Notes and, if
necessary, to pay liquidated damages pursuant to the Senior Subordinated
Note Registration Rights Agreement in cash to the extent such liquidated
damages cannot be satisfied through the issuance of additional Senior
Subordinated Notes;
(7) the acquisition of Capital Stock of the Company or Indebtedness
of the Company that is expressly subordinate in right of payment to the
Securities either (i) solely in exchange for shares of Qualified Capital
Stock or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of
shares of Qualified Capital Stock;
(8) the acquisition of Indebtedness of the Company that is expressly
subordinate in right of payment to the Securities either (i) solely in
exchange for Indebtedness
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of the Company which is expressly subordinate in right of payment to the
Securities at least to the extent that the Indebtedness being acquired is
subordinated to the Securities and has no scheduled principal prepayment
dates prior to the scheduled final maturity date of the Indebtedness being
exchanged or (ii) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of Indebtedness of the Company which is expressly subordinate in
right of payment to the Securities at least to the extent that the
Indebtedness being acquired is subordinated to the Securities and has no
scheduled principal prepayment dates prior to the scheduled final maturity
date of the Indebtedness being refinanced;
(9) the Investment by the Company or any of its Subsidiaries in one
or more Unrestricted Subsidiaries not to exceed $5,000,000 in the
aggregate (calculated at the time such Investment is made); and
(10) distributions, loans or advances payable directly or indirectly
necessary to permit DR Holdings to make the payments required by Sections
4.15 and 4.16 of the Senior Subordinated Note Indenture as in effect on
the Issue Date upon compliance with all of the terms set forth therein.
provided, that in the case of clauses (2), (6), (7), (8), (9) and (10), no
Default or Event of Default shall have occurred and be continuing at the time of
such payment or as a result thereof.
In determining the aggregate amount of Restricted Payments
permissible under clause (iii) of the first paragraph of this Section 4.03,
amounts expended, incurred or outstanding pursuant to clauses (1), (2), (7) and
(10) of the second paragraph of this Section 4.03 shall be included as
Restricted Payments; provided that any proceeds received from the issuance of
Qualified Capital Stock pursuant to clause (7) of the second paragraph of this
Section 4.03 shall be included in calculating the amount referred to in clause
(y) or clause (z), as the case may be, of the first paragraph under this Section
4.03.
Prior to any Restricted Payment under the first paragraph of this
Section 4.03, the Company shall deliver to the Trustee an Officers' Certificate
setting forth the computation by which the amount available for Restricted
Payments pursuant
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to such paragraph was determined. The Trustee shall have no duty or
responsibility to determine the accuracy or correctness of this computation and
shall be fully protected in relying on such Officers' Certificate.
SECTION 4.04. Corporate Existence.
Except as otherwise permitted by Article Five, each of the Company
and the Guarantors shall do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate or other existence and the
corporate or other existence of each of their Subsidiaries in accordance with
the respective organizational documents of each such Subsidiary and the material
rights (charter and statutory) and franchises of the Company, the Guarantors and
each such Subsidiary; provided, however, that each of the Company and the
Guarantors shall not be required to preserve, with respect to themselves, any
material right or franchise, and with respect to any of their Subsidiaries
(other than the Company and Duane Reade Inc.) any such existence, material right
or franchise, if the Board of Directors or other equivalent governing body of
the Company, the Guarantors or such Subsidiary, as the case may be, shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company, the Guarantors or any such Subsidiary.
SECTION 4.05. Payment of Taxes and Other Claims.
Each of the Company and the Guarantors shall pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, (i) all
taxes, assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon it or any of
its Subsidiaries or properties of it or any of its Subsidiaries and (ii) all
lawful claims for labor, materials and supplies that, if unpaid, might by law
become a Lien upon the property of it or any of its Subsidiaries; provided,
however, that the Company and the Guarantors shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim if either (a) the amount, applicability or validity thereof is being
contested in good faith by appropriate proceedings and an adequate reserve has
been established therefor to the extent required by generally accepted
accounting principles then in effect or (b) the failure to make such payment or
effect such discharge (together with all other such failures) would not have a
material adverse
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effect on the financial condition or results of operations of the Company and
its Subsidiaries, taken as a whole.
SECTION 4.06. Maintenance of Properties and Insurance.
(a) Each of the Company and the Guarantors shall cause all
properties used or useful in the conduct of its business or the business of any
of its Subsidiaries to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment and shall cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in its judgment may be necessary, so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times unless the failure to so maintain such properties (together with all other
such failures) would not have a material adverse effect on the financial
condition or results of operations of the Company and its Subsidiaries taken as
a whole; provided, however, that nothing in this Section 4.06 shall prevent the
Company, any Guarantor or any Subsidiary of the Company or any Guarantor from
discontinuing the operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposal is either (i) in
the ordinary course of business, (ii) in the good faith judgment of the Board of
Directors or other equivalent governing body of the Company, any Guarantor or
such Subsidiary concerned, or of the senior officers of the Company, any
Guarantor or such Subsidiary, as the case may be, desirable in the conduct of
the business of the Company, the Guarantor or such Subsidiary, as the case may
be, or (iii) is otherwise permitted by this Indenture.
(b) Each of the Company and the Guarantors shall provide or cause to
be provided, for itself and each of its Subsidiaries, insurance (including
appropriate self-insurance) against loss or damage of the kinds that, in the
reasonable, good faith opinion of the Company are adequate and appropriate for
the conduct of the business of the Company, such Guarantor and such Subsidiaries
in a prudent manner, with reputable insurers or with the government of the
United States of America or an agency or instrumentality thereof, in such
amounts, with such deductibles, and by such methods as shall be customary, in
the reasonable, good faith opinion of the Company or such Guarantor, for
companies similarly situated in the industry, unless the failure to provide such
insurance (together with all other such failures) would not have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole.
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SECTION 4.07. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee, within 120 days after
the end of the Company's fiscal year, an Officers' Certificate stating that a
review of its activities and the activities of its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether it has kept, observed, performed and
fulfilled its obligations under this Indenture and further stating, as to each
such Officer signing such certificate, that to the best of his knowledge the
Company during such preceding fiscal year has kept, observed, performed and
fulfilled each and every such covenant and no Default or Event of Default
occurred during such year and at the date of such certificate there is no
Default or Event of Default that has occurred and is continuing or, if such
signers do know of such Default or Event of Default, the certificate shall
describe the Default or Event of Default and its status with particularity. The
Officers' Certificate shall also include all calculations necessary to show
covenant compliance. The Officers' Certificate shall also notify the Trustee
should the Company elect to change the manner in which it fixes its fiscal year
end.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the Company shall
deliver to the Trustee within 120 days after the end of each fiscal year a
written statement by the Company's independent certified public accountants
stating (A) that their audit examination has included a review of the terms of
this Indenture and the Securities as they relate to accounting matters, and (B)
whether, in connection with their audit examination, any Default has come to
their attention and if such a Default has come to their attention, specifying
the nature and period of existence thereof.
(c)(i) If any Default or Event of Default has occurred and is
continuing, (ii) if the Trustee or any Holder takes any enforcement action with
respect to a claimed default under this Indenture or the Securities or (iii) if
the trustee for or the holder of any other evidence of Indebtedness of the
Company or any Subsidiary takes any enforcement action with respect to a claimed
default (other than with respect to Indebtedness in the principal amount of less
than $10,000,000), the Company shall deliver to the Trustee by registered or
certified mail or by telegram, telex or facsimile transmission followed by hard
copy by registered or certified mail an
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Officers' Certificate specifying such event, notice or other action within five
Business Days of its occurrence.
SECTION 4.08. Compliance with Laws.
The Company shall comply, and shall cause each of its Subsidiaries
and Unrestricted Subsidiaries to comply, and the Guarantors shall 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 department, commission, board, regulatory authority, bureau, agency
and instrumentality of the foregoing, in respect of the conduct of their
respective businesses and the ownership of their respective properties, except
such as are being contested in good faith and by appropriate proceedings and
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 4.09. SEC Reports and Other Information.
(a) At all times when the Company is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act, the Company (at its own
expense) shall file with the SEC and shall file with the Trustee within 5 days
after it files them with the SEC copies of the annual reports and of the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) to be filed
pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not
subject to the requirements of such Section 13 or 15(d) of the Exchange Act, the
Company (at its own expense) shall file with the Trustee and mail to Holders at
their addresses appearing in the register of Securities maintained by the
Registrar at the time of such mailing so long as such Holders covenant and agree
to keep such information confidential, within 5 days after it would have been
required to file such information with the SEC, all information and financial
statements, including any notes thereto and with respect to annual reports, an
auditors' report by an accounting firm of established national reputation, and a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," comparable to the disclosure that the Company would have been
required to include in annual and quarterly reports, information, documents or
other reports, including, without limitation, reports on Forms 10-K, 10-Q and
8-K, if the Company was subject to the requirements of such
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Section 13 or 15(d) of the Exchange Act. To the extent permitted by law, the
Company shall also provide the foregoing information to prospective purchasers
of Securities (it being understood that the Company will be furnishing any such
information to any such prospective purchasers on the premise that such
information shall be used by such prospective purchasers solely in connection
with deciding whether or not to purchase the Securities). Upon qualification of
this Indenture under the TIA, the Company shall also comply with the provisions
of TIA ss. 314(a).
(b) At any time after a registered public offering under the
Securities Act of the common stock of DR Holdings, at the Company's expense, the
Company shall cause an annual report if furnished by it to stockholders
generally and each quarterly or other financial report if furnished by it to
stockholders generally to be filed with the Trustee and mailed to the Holders at
their addresses appearing in the register of Securities maintained by the
Registrar at the time of such mailing or furnishing to stockholders. If the
Company is not required to furnish annual or quarterly reports to its
stockholders pursuant to the Exchange Act, the Company shall cause its financial
statements, including any notes thereto and with respect to annual reports, an
auditors' report by an accounting firm of established national reputation, and a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," to be so mailed to the Holders at their addresses appearing in the
register of Securities maintained by the Registrar at the time of such mailing,
so long as such Holders covenant and agree to keep such information
confidential, within 105 (or, at such time as the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, 90) days
after the end of each of the Company's fiscal years and within 60 (or, at such
time as the Company is subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, 45) days after the end of each of the first three
quarters of each fiscal year. If the Trustee (at the Company's request and
expense) is to mail the foregoing information to the Holders, the Company shall
supply such information to the Trustee at least five days prior thereto.
(c) The Company will, upon request, provide to any Holder of
Securities or any prospective transferee of any such Holder any information
concerning the Company or any Guarantor (including financial statements)
necessary in order to permit such Holder to sell or transfer Securities in
compliance with Rule 144A under the Securities Act.
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(d) At any time when the Company is not subject to Section 13 or
15(d) of the Exchange Act, upon the request of a Holder of a Series A Note, the
Company will promptly furnish or cause to be furnished such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto) to such Holder or to a prospective purchaser of such Series A
Note designated by such Holder, as the case may be, in order to permit
compliance by such Holder with Rule 144A under the Securities Act.
SECTION 4.10. Waiver of Stay, Extension or Usury Laws.
Each of the Company and the Guarantors covenants (to the extent that
it may lawfully do so) that it will not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive the
Company or any Guarantor from paying all or any portion of the principal of or
interest on the Securities as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that it may lawfully do so)
each of the Company and the Guarantors hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
SECTION 4.11. Limitation on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its
Subsidiaries to, and the Guarantors will not, directly or indirectly, enter into
or permit to exist any transaction (including, without limitation, the purchase,
sale, lease or exchange of any property or the rendering of any service) with or
for the benefit of, an Affiliate of the Company or any Subsidiary or
Unrestricted Subsidiary of the Company or the Guarantors (other than
transactions between the Company and a wholly owned Subsidiary of the Company or
among the Company, the Guarantors and any of their wholly owned Subsidiaries)
(an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted
under Section 4.11(b) and (y) Affiliate Transactions (including lease
transactions) on terms that are no less favorable in the aggregate than those
that might reasonably have been obtained in a comparable transaction on an
arm's-length basis (as determined in good faith by the Board of Directors or
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other equivalent governing body of the Company, as evidenced by a Board
Resolution) from a person that is not an Affiliate; provided that, except as
otherwise provided by Section 4.11(b), neither the Company, any of its
Subsidiaries nor any Guarantor shall enter into an Affiliate Transaction or
series of related Affiliate Transactions involving or having a value of more
than $5,000,000 unless the Company, such Subsidiary or Guarantor, as the case
may be, has received an opinion from an Independent Financial Advisor, with a
copy thereof to the Trustee, to the effect that the financial terms of such
Affiliate Transaction are fair and reasonable to the Company, such Subsidiary or
Guarantor, as the case may be, and is on terms no less favorable to the Company,
such Subsidiary or Guarantor, as the case may be, than those that could be
obtained in a comparable transaction on an arm's-length basis with a person that
is not an Affiliate.
(b) The provisions of Section 4.11(a) shall not apply to (i) any
Restricted Payment that is made in compliance with the provisions of Section
4.03, (ii) the payment by the Company of management fees to Bain Capital in an
amount equal to $1,000,000 per twelve-month period ending on September 30 of
each year subsequent to the Issue Date (each an "Annual Period"), beginning with
the Annual Period ending on September 30, 1993, plus out-of-pocket expenses not
to exceed $156,000 in any such Annual Period; provided that for the period from
the Issue Date through September 30, 1992, Bain Capital shall be entitled to be
paid a management fee equal to $16,500, (iii) the payment of a transaction fee
to Bain Capital in connection with the closing of the Acquisition in an amount
not to exceed $2,500,000 plus reasonable expenses and (iv) employment
compensation arrangements with officers of the Company and its Subsidiaries in
the ordinary course of business.
SECTION 4.12. Limitation on Indebtedness.
(a) Except as set forth in this Section 4.12, the Company shall not,
and shall not permit any of its Subsidiaries to, and the Guarantors shall not,
after the Issue Date, directly or indirectly, create, incur, assume, guarantee,
become liable, contingently or otherwise, with respect to, or otherwise become
responsible for the payment of (collectively "incur") any Indebtedness other
than Permitted Indebtedness.
(b) Notwithstanding Section 4.12(a), the Company or any Guarantors
that are not Subsidiaries of the Company may
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incur Indebtedness (including Acquired Indebtedness) if (A) no Default or Event
of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of such Indebtedness and (B) the Consolidated
Fixed Charge Coverage Ratio of the Company, measured on the date of the
incurrence of such Indebtedness, is greater than 2.25 to 1.0 if such date is on
or prior to September 15, 1994; greater than 2.5 to 1.0 if such date is after
September 15, 1994 and on or prior to September 15, 1996; and greater than 2.75
to 1.0 thereafter.
SECTION 4.13. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries
to, and the Guarantors will not, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Subsidiary of the Company or any Subsidiary of the Guarantors
(other than the Company) to (a) pay dividends or make any other distributions on
its Capital Stock, or any other interest or participation in, or measured by,
its profits, owned by the Company, the Guarantors or any Subsidiary of the
Company or the Guarantors, or pay any Indebtedness owed to the Company, the
Guarantors or a Subsidiary of the Company or the Guarantors, (b) make loans or
advances to the Company, the Guarantors or a Subsidiary of the Company or the
Guarantors, or (c) transfer any of its properties or assets to the Company or
the Guarantors, except for such encumbrances or restrictions existing under or
by reason of (i) applicable law, (ii) this Indenture, (iii) customary
nonassignment provisions of any lease governing a leasehold interest of the
Company or any Subsidiary of the Company, (iv) any instrument governing
Indebtedness of a person acquired by the Company or any Subsidiary of the
Company at the time of such acquisition, which encumbrance or restriction is not
applicable to any person, or the properties or assets of any person, other than
the person or its Subsidiaries so acquired, (v) Indebtedness existing on the
Issue Date, including, without limitation, the Term Loan Facility and the
Working Capital Facility or any refinancing, refunding, replacement or extension
of the Term Loan Facility or the Working Capital Facility; provided that any
such encumbrance or restriction contained in any refinancing, refunding,
replacement or extension of the Senior Notes, the Term Loan Facility or the
Working Capital Facility shall be no more restrictive than such encumbrance or
restriction contained in the Credit Agreement as in effect on the Issue Date, or
(vi) Indebtedness permitted to be incurred under the Credit Agreement; provided
that any such
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encumbrance or restriction contained in any such Indebtedness shall be no more
restrictive than such encumbrance or restriction contained in the Credit
Agreement as in effect on the Issue Date.
SECTION 4.14. Limitation on Liens.
The Company will not, and will not permit any of its Subsidiaries
to, and the Guarantors will not, directly or indirectly, create, incur, assume
or suffer to exist any Liens upon any of their respective properties or assets,
whether now owned or acquired after the Issue Date, or any income or profits
therefrom, unless the Securities are equally and ratably secured by such
properties or assets, except for (i) Liens existing as of the Issue Date, (ii)
Liens securing Indebtedness incurred under the Credit Agreement and (iii)
Permitted Liens.
SECTION 4.15. Change of Control.
(a) In the event of a Change of Control, the Company shall be
obligated to make an offer to purchase all outstanding Securities pursuant to
the offer described in paragraph (b), below (the "Change of Control Offer"), at
a purchase price equal to 101% of the principal amount, thereof plus accrued
interest, if any, to the date of purchase. Within 10 days after the date upon
which the Change of Control occurred (the "Change of Control Date") requiring
the Company to make a Change of Control Offer pursuant to this Section 4.15, the
Company shall so notify the Trustee.
(b) The notice to the Holders shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to the
Change of Control Offer. Within 20 Business Days following any Change of Control
Date, the Company shall send, by first class mail, a notice to each Holder, with
copies to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.15 and that all Securities tendered will be accepted for
payment;
(2) the purchase price (including the amount of accrued interest)
and the purchase date (which shall be no earlier than 20 Business Days
nor later than 40 Business Days from the date such notice is mailed, other
than as
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may be required by law) (the "Change of Control Payment Date");
(3) that any Security not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor,
any Security accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant to a
Change of Control Offer will be required to surrender the Security, with
the form entitled "Option of Holder to Elect Purchase" on the last page of
the Security completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the Business Day prior to the
Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than two Business Days prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of
the Securities the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Security purchased;
(7) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount equal to the unpurchased
portion of the Securities surrendered; and
(8) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company shall
(i) accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price of all Securities so tendered and (iii)
deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to the Holders of Securities so
accepted payment in an amount equal to the purchase price, and the
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Trustee shall promptly authenticate and mail to such Holders new Securities
equal in principal amount to any unpurchased portion of the Securities
surrendered. Any Securities not so accepted shall be promptly mailed by the
Company to the Holder thereof. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date. For purposes of this Section 4.15, the Trustee shall act
as the Paying Agent.
SECTION 4.16. Limitation on Asset Sales.
The Company will not, and will not permit any of its Subsidiaries
to, and the Guarantors will not, make any Asset Sale, unless (i) the Company,
the applicable Subsidiary or the applicable Guarantor, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the fair
market value of the assets sold or otherwise disposed of (as determined in good
faith by the Board of Directors or other equivalent governing body of the
Company or such Guarantor, as the case may be, as evidenced by a Board
Resolution); provided that to the extent the consideration received in
connection with an Asset Sale exceeds $2,000,000, such fair market value shall
be corroborated by an Independent Financial Advisor, (ii) at least 80% of the
consideration received by the Company, such Subsidiary or such Guarantor, as the
case may be, from such Asset Sale shall be cash or Cash Equivalents (except in
the case of any Asset Sale which constitutes an Asset Swap) and (iii) upon the
consummation of an Asset Sale, the Company or such Guarantor shall either (A)
reinvest or, in the case of the Company, cause its Subsidiary to reinvest, the
Net Cash Proceeds of any Asset Sale in Productive Assets within 180 days of the
receipt of such Net Cash Proceeds, except in the case of an Asset Sale for which
a Credit Agreement Reinvestment Notice has been given, as to which the time
period to reinvest in Productive Assets shall be 360 days, (B) to the extent
such Net Cash Proceeds are required by the terms of the Credit Agreement to be
applied to repay, and permanently reduce the commitments under, any outstanding
Indebtedness under the Credit Agreement, apply or cause such Net Cash Proceeds
to be applied to the repayment of outstanding Indebtedness under the Credit
Agreement within 120 days of the receipt of such Net Cash Proceeds, or (except
as to Net Cash Proceeds relating to an Asset Sale for which a Credit Agreement
Reinvestment Notice has been given and not reinvested in Productive Assets
within 360 days, as to which the time period shall be within 390 days of the
receipt of such Net Cash Proceeds); (C) after the occurrence of a Net Proceeds
Offer Trigger Date, make a Net Proceeds Offer pursuant
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to Section 3.07; provided, however, that if at any time any non-cash
consideration received by the Company, any Subsidiary of the Company or any
Guarantor, as the case may be, in connection with any Asset Sale is converted
into or sold or otherwise disposed of for cash, then such conversion or
disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash proceeds thereof shall be applied in accordance with clause (iii) of this
Section 4.16; provided, further, that the Company may defer making a Net
Proceeds Offer until the aggregate Net Cash Proceeds from Asset Sales to be
applied equals or exceeds $2,000,000.
SECTION 4.17. Limitation on Transfer of Assets to Subsidiaries.
(a) The Company will not, and will not permit any of its
Subsidiaries to, transfer any assets or property to any Subsidiary of the
Company unless such Subsidiary (i) is a Guarantor or (ii) simultaneously
executes and delivers a supplemental indenture evidencing its senior guarantee
(or, in the case of Indebtedness under the Credit Agreement or other senior
Indebtedness, its pari passu guarantee) of the Company's obligations under the
Securities and this Indenture.
(b) The Guarantors will not transfer any assets or property to any
of its Subsidiaries other than to the Company.
SECTION 4.18. Limitation on Guarantees by Subsidiaries.
The Company will not permit any of its Subsidiaries to guarantee the
payment of any Indebtedness of the Company or any Guarantor, unless such
Subsidiary (i) is a Guarantor or (ii) simultaneously executes and delivers a
supplemental indenture evidencing its senior guarantee (or, in the case of
Indebtedness under the Credit Agreement or other senior Indebtedness, its pari
passu guarantee) of the Company's or such Guarantor's obligations under the
Securities or the Guarantees, as the case may be, and this Indenture.
SECTION 4.19. Restrictions on Preferred Stock of Subsidiaries.
The Company will not permit any of its Subsidiaries to issue any
Preferred Stock (other than to the Company or to a wholly owned Subsidiary of
the Company) or permit any person (other than the Company or a wholly owned
Subsidiary of the
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Company) to own any Preferred Stock of any Subsidiary of the Company.
SECTION 4.20. Conduct of Business.
The Company and its Subsidiaries will not engage in any businesses
which are not the same, similar or related to the businesses in which the
Company is engaged on the Issue Date, it being understood that nothing in this
Section 4.20 shall limit the ability of the Company or its Subsidiaries to
introduce or sell new product lines into its stores from time to time.
SECTION 4.21. Unrestricted Subsidiaries.
(a) Neither the Company, the Guarantors nor any Subsidiary of the
Company shall transfer to any Unrestricted Subsidiary any assets (other than
cash) owned by the Company, any Guarantor or any Subsidiary of the Company on
the Issue Date.
(b) Promptly after the adoption of any Board Resolution designating
an entity as an Unrestricted Subsidiary, a copy thereof shall be filed with the
Trustee, together with an Officers' Certificate stating that the provisions of
this Section have been complied with in connection with such designation.
(c) The Company shall not designate any newly-formed or
newly-acquired entity an Unrestricted Subsidiary if such entity owns any Capital
Stock of, or owns or holds any lien on, any property of, any Subsidiary of the
Company.
(d) The Company shall not designate any Unrestricted Subsidiary as a
Subsidiary.
(e) At the date of this Indenture there shall be no Unrestricted
Subsidiaries.
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ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc.
(a) The Company shall not, in a single transaction or through a
series of related transactions, (i) consolidate with or merge with or into any
other person, or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties and assets as an entirety or
substantially as an entirety to another person or group of affiliated persons or
(ii) adopt a Plan of Liquidation, unless, in either case:
(1) either the Company is the continuing person, or the person (if
other than the Company) formed by such consolidation or into which the
Company is merged or to which all or substantially all of the properties
and assets of the Company as an entirety or substantially as an entirety
are transferred (or, in the case of a Plan of Liquidation, any person to
which assets are transferred) (the Company or such other person being
hereinafter referred to as the "Surviving Person") 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
expressly assumes, by an indenture supplemental hereto, executed and
delivered to the Trustee on or prior to the consummation of such
transaction, in form satisfactory to the Trustee, all the obligations of
the Company under the Securities and this Indenture;
(2) immediately after giving effect to such transaction on a pro
forma basis (including any Indebtedness incurred or anticipated to be
incurred in connection with such transaction), the Consolidated Net Worth
of the Surviving Person (as adjusted to include any preferred stock (other
than Disqualified Capital Stock) to be outstanding after giving effect to
such transaction) is at least equal to the Consolidated Net Worth of the
Company immediately prior to such transaction;
(3) immediately after giving effect to such transaction on a pro
forma basis (including any Indebtedness incurred or anticipated to be
incurred in connection with
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such transaction), the Surviving Person shall be able to incur $1 of
additional Indebtedness under Section 4.12;
(4) immediately after giving effect to such transaction and the
assumption of the obligations as set forth in clause (1) above and the
incurrence or anticipated incurrence of any Indebtedness to be incurred in
connection therewith, no Default or Event of Default shall have occurred
and be continuing; and
(5) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer or adoption and such supplemental
indenture comply with this Article Five, that the Surviving Person agrees
to be bound hereby, and that all conditions precedent herein provided
relating to such transaction have been satisfied.
(b) For purposes of the foregoing, the sale, assignment, transfer,
lease, conveyance, sale or other disposition, in a single transaction or series
of transactions, of all or substantially all of the properties and assets of one
or more Subsidiaries of the Company, the Capital Stock of which constitutes all
or substantially all of the properties and assets of the Company shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any transfer of assets in
accordance with Section 5.01, the successor person formed by such consolidation
or into which the Company is merged or to which such transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
person had been named as the Company herein. When a successor corporation
assumes all of the obligations of the Company hereunder and under the Securities
and agrees to be bound hereby and thereby, the predecessor shall be released
from such obligations.
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ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any
Securities when the same becomes due and payable and the Default continues
for a period of 30 days;
(2) the Company defaults in the payment of the stated principal
amount of any Securities when the same becomes due and payable at
maturity, upon acceleration or redemption pursuant to an offer to purchase
required hereunder or otherwise;
(3) the Company or any Guarantor fails to comply in all material
respects with any of its other agreements contained in the Securities or
this Indenture and the Default continues for the period and after the
notice specified below;
(4) there shall be a default under any bond, debenture, or other
evidence of Indebtedness of the Company, any Subsidiary of the Company,
any Guarantor or DR Holdings or under any mortgage, indenture or other
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness of the Company, any Subsidiary of
the Company, any Guarantor or DR Holdings whether such Indebtedness now
exists or shall hereafter be created, if both (a) such default either (i)
results from the failure to pay any such Indebtedness at its stated final
maturity (that is, the date of the last principal installment of any
installment Indebtedness under the instrument or agreement pursuant to or
under which such Indebtedness was created or is evidenced) or (ii) relates
to an obligation other than the obligation to pay any principal of such
Indebtedness at its stated final maturity and results in the holder or
holders of such Indebtedness causing such Indebtedness to become due prior
to its stated maturity and (b) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at stated final maturity or the
maturity of
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which has been so accelerated, is $10,000,000 or more individually or in
the aggregate;
(5) one or more judgments, orders or decrees for the payment of
money which either individually or in the aggregate at any one time
exceeds $10,000,000 shall be rendered against the Company, any of its
Subsidiaries, any Guarantor or DR Holdings by a court of competent
jurisdiction and shall remain undischarged and unbonded for a period
(during which execution shall not be effectively stayed) of 60 consecutive
days after such judgment becomes final and nonappealable;
(6) the Company, any Guarantor or any Significant Subsidiary (A)
admits in writing its inability to pay its debts generally as they become
due, (B) commences a voluntary case or proceeding under any Bankruptcy Law
with respect to itself, (C) consents to the entry of a judgment, decree or
order for relief against it in an involuntary case or proceeding under any
Bankruptcy Law, (D) consents to the appointment of a Custodian of it or
for substantially all of its property, (E) consents to or acquiesces in
the institution of a bankruptcy or an insolvency proceeding against it,
(F) makes a general assignment for the benefit of its creditors, or (G)
takes any corporate action to authorize or effect any of the foregoing;
and
(7) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company, any Guarantor or any
Significant Subsidiary in an involuntary case or proceeding under any
Bankruptcy Law, which shall (A) approve as properly filed a petition
seeking reorganization, arrangement, adjustment or composition in respect
of the Company, any Guarantor or any Significant Subsidiary, (B) appoint a
Custodian of the Company, any Guarantor or any Significant Subsidiary or
for substantially all of its property or (C) order the winding-up or
liquidation of its affairs; and such judgment, decree or order shall
remain unstayed and in effect for a period of 60 consecutive days.
A Default under clause (3) above (other than in the case of any
Default under Section 4.15 or 5.01, which Defaults shall be Events of Default
with the notice specified in this paragraph but without the passage of time
specified in this paragraph) is not an Event of Default until the Trustee
notifies the Company, or the Holders of at least 25% in principal
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amount of the outstanding Securities notify the Company and the Trustee of the
Default, and the Company does not cure the Default within 30 days after receipt
of the notice. The notice must specify the Default, demand that it be remedied
and state that the notice is a "Notice of Default." Such notice shall be given
by the Trustee if so requested by the Holders of at least 25% in principal
amount of the Securities then outstanding. A Default under clause (5) above
shall be an Event of Default with the notice specified in this paragraph but
without the passage of time referred to in this paragraph.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
Section 6.01(6) or (7) with respect to the Company) occurs and is continuing,
the Trustee may, by notice to the Company, or the Holders of at least 25% in
principal amount of the Securities then outstanding may, by written notice to
the Company and the Trustee, and the Trustee shall, upon the request of such
Holders, declare the aggregate principal amount of the Securities outstanding,
together with accrued but unpaid interest thereon to the date of payment, to be
due and payable and, upon any such declaration, the same shall become and be due
and payable; provided, however, that the Trustee shall be under no obligation to
follow any request of any of the Holders unless such Holders shall have offered
to the Trustee, after request by the Trustee, reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred by it in
compliance with such request, order or direction. If an Event of Default
specified in Section 6.01(6) or (7) occurs with respect to the Company, all
unpaid principal and accrued interest on the Securities then outstanding shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Securityholder. Upon payment of such
principal amount and interest, all of the Company's and the Guarantors'
obligations under the Securities and this Indenture, other than obligations
under Section 7.07, shall terminate. The Holders of a majority in principal
amount of the Securities then outstanding by notice to the Trustee may rescind
an acceleration and its consequences if (i) all existing Events of Default,
other than the non-payment of the principal and interest on the Securities which
have become due solely by such declaration of acceleration, have been cured or
waived, (ii) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid, and
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(iii) the rescission would not conflict with any judgment or decree of a court
of competent jurisdiction. No such rescission shall affect any subsequent
default or impair any right consequent thereto. In the event that a declaration
of acceleration under Section 6.01(4) above has occurred and is continuing, such
declaration of acceleration shall be automatically annulled if the Indebtedness
that is the subject of such Event of Default has been discharged or paid or the
holders of such Indebtedness shall have rescinded their declaration of
acceleration in respect of such Indebtedness within 60 days thereafter and no
other Event of Default has occurred during such 60-day period which has not been
cured or waived.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Subject to Sections 6.07 and 9.02, the Holders of a majority in
principal amount, of the outstanding Securities by notice to the Trustee may
waive an existing Default or Event of Default and its consequences, except a
Default in the payment of principal of or interest on any Security as specified
in clauses (1) and (2) of Section 6.01.
SECTION 6.05. Control by Majority.
The Holders of a majority in principal amount of the outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it including, without limitation, any remedies provided for in
Section 6.03.
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Subject to Section 7.01, however, the Trustee may refuse to follow any direction
that conflicts with any law or this Indenture that the Trustee determines may be
unduly prejudicial to the rights of another Securityholder, or that may involve
the Trustee in personal liability; provided that the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(1) the Holder gives to the Trustee notice of a continuing Event of
Default;
(2) Holders of at least 25% in principal amount of the outstanding
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holders offer to the Trustee reasonable indemnity against
any loss, liability or expense to be incurred in compliance with such
request;
(4) the Trustee does not comply with the request within 45 days
after receipt of the request and the offer of satisfactory indemnity; and
(5) during such 45-day period the Holders of a majority in principal
amount of the outstanding Securities do not give the Trustee a direction
which, in the opinion of the Trustee, is inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights
of another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of such Holder.
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SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Securities for the whole amount of principal
and accrued interest remaining unpaid, together with interest on overdue
principal and, to the extent that payment of such interest is lawful, interest
on overdue installments of interest, in each case at the rate per annum borne by
the Securities and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses, taxes,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relating to the Company, any
Guarantor or any other obligor upon the Securities, any of their respective
creditors or any of their respective property and shall be entitled and
empowered to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same, and any Custodian in
any such judicial proceedings is hereby authorized by each Securityholder 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 Securityholders, to pay
to the Trustee any amount due to it for the reasonable compensation, expenses,
taxes, disbursements and advances of the Trustee, its agent and counsel, and any
other amounts due the Trustee under Section 7.07. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Securityholder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding.
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SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six, it
shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: if the Holders are forced to proceed against the Company
directly without the Trustee, to Holders for their collection costs; and
Third: to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively;
Fourth: to the Company, any Guarantor or any other obligor on the
Securities, as their interests may appear, or as a court of competent
jurisdiction may direct.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for, any payment to Securityholders pursuant to this Section
6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in
principal amount of the outstanding Securities.
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ARTICLE SEVEN
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein expressed.
SECTION 7.01. Duties of Trustee.
(a) If a Default or 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 its exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) The Trustee need perform only those duties as are specifically
set forth in this Indenture and no covenants or obligations shall be
implied in this Indenture that are adverse to the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
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(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Sections 6.02 or 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or 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.
(e) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree with the Company. Assets
held in trust by the Trustee need not be segregated from other assets except to
the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in acting or
refraining from acting upon any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 12.04 and 12.05. The Trustee
shall not be liable for any action it takes or omits to take in good faith
in reliance on such certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed
with due care.
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(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith which it believes to be authorized or within
its rights or powers.
(e) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled, upon reasonable
notice to the Company, to examine the books, records, and premises of the
Company, personally or by agent or attorney.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred by it in compliance with such request,
order or direction.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, the
Guarantors any Subsidiary of the Company, or their respective Affiliates with
the same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy
of this Indenture or the Securities, it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement in the Securities other than the Trustee's
certificate of authentication.
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SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if
it is known to the Trustee, the Trustee shall mail to each Securityholder, as
their names and addresses appear on the Securityholder list described in Section
2.05, notice of the uncured Default or Event of Default within 90 days after the
Trustee obtains actual knowledge that such Default or Event of Default has
occurred. The provisions of TIA ss. 3.15(b) are specifically excluded from this
Indenture.
SECTION 7.06. Reports by Trustee to Holders.
This Section 7.06 shall not be operative as a part of this Indenture
until this Indenture is qualified under the TIA, and, until such qualification,
this Indenture shall be construed as if this Section 7.06 were not contained
herein.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, the Trustee shall, to the extent that any of the
events described in TIA ss. 313(a) occurred within the previous twelve months,
but not otherwise, mail to each Securityholder a brief report dated as of such
May 15 that complies with TIA ss. 313(a). The Trustee also shall comply with TIA
ss.ss. 313(b) and 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed.
The Company shall notify the Trustee if the Securities become listed
on any stock exchange.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all tax obligations imposed on the
Trustee related to this Indenture and all reasonable out-of-pocket expenses
incurred or made by it. Such expenses shall include the reasonable fees and
expenses of the Trustee's agents and counsel.
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The Company shall indemnify the Trustee and its agents for, and hold
them harmless against, any loss, liability or expense incurred by them except
for such actions to the extent caused by any negligence or bad faith on their
part, arising out of or in connection with the administration of this trust
including the reasonable costs and expenses of defending themselves against any
claim or liability in connection with the exercise or performance of any of
their rights, powers or duties hereunder. The Trustee shall notify the Company
promptly of any claim asserted against the Trustee for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall cooperate in
the defense. The Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel; provided that the Company will not
be required to pay such fees and expenses if it assumes the Trustee's defense
and there is no conflict of interest between the Company and the Trustee in
connection with such defense as reasonably determined by the Trustee. The
Company need not pay for any settlement made without its written consent. The
Company need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence, bad
faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a lien prior to the Securities on all assets or money
held or collected by the Trustee, in its capacity as Trustee, except assets or
money held in trust to pay principal of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(6) or (7) occurs, such expenses and the
compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the outstanding Securities may remove the
Trustee by so notifying the Company and the Trustee and may appoint a successor
trustee. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
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(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Securities may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if
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such resulting, surviving or transferee corporation is otherwise eligible
hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA ss.ss. 3l0(a)(l) and 310(a)(5). The Trustee (or in the case
of a corporation included in a bank holding company system, the related bank
holding company) shall have a combined capital and surplus of at least
$100,000,000 as set forth in its most recent published annual report of
condition. In addition, if the Trustee is a corporation included in a bank
holding company system, the Trustee, independently of such bank holding company,
shall meet the capital requirements of TIA ss. 310(a)(2). The Trustee shall
comply with TIA ss. 310(b); provided, however, that there shall be excluded from
the operation of TIA ss. 310(b)(1) any indenture or indentures under which other
securities, or certificates of interest or participation in other securities, of
the Company are outstanding, if the requirements for such exclusion set forth in
TIA ss. 310(b)(l) are met.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. Satisfaction, Discharge of the Indenture and Defeasance of the
Securities.
The Company shall be deemed to have paid and discharged the entire
Indebtedness on the Securities and the provisions of this Indenture (subject to
Section 8.03), if:
(1) The Company irrevocably deposits in trust with the Trustee,
pursuant to an irrevocable trust and security agreement in form and
substance satisfactory to the Trustee, U.S. Legal Tender or direct
non-callable obligations
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of, or non-callable obligations guaranteed by, the United States of
America for the payment of which obligation or guarantee the full faith
and credit of the United States of America is pledged ("U.S. Government
Obligations") maturing as to principal and interest in such amounts and at
such times as are sufficient, without consideration of the reinvestment of
such interest and after payment of all Federal, state and local taxes or
other charges or assessments in respect thereof payable by the Trustee, in
the opinion of the Chief Financial Officer of the Company expressed in a
written certification thereof (in form and substance reasonably
satisfactory to the Trustee) delivered to the Trustee, to pay the
principal of and interest on the outstanding Securities on the dates
(including any Redemption Date) on which any such payments are due and
payable in accordance with the terms of the Indenture and of the
Securities;
(2) Such deposits shall not cause the Trustee to have a conflicting
interest as defined in and for purposes of the TIA;
(3) No Default or Event of Default (i) shall have occurred and be
continuing on the date of such deposit or (ii) shall occur on or before
the 91st day after the date of such deposit;
(4) Such deposit will not result in a Default under this Indenture
or a breach or violation of, or constitute a default under, any other
instrument or agreement (including, without limitation, the Credit
Agreement) to which the Company, any Guarantor or any Subsidiary of the
Company is a party or by which it or its property is bound;
(5) The Company shall deliver to the Trustee an Opinion of Counsel,
in form and substance reasonably satisfactory to the Trustee, to the
effect that Holders of the Securities will not recognize income, gain or
loss for Federal income tax purposes as a result of such deposit and the
defeasance contemplated hereby and will be subject to Federal income tax
in the same amounts and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred;
(6) The deposit shall not result in the Company, the Trustee or the
trust becoming or being deemed to be an
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"investment company" under the Investment Company Act of 1940;
(7) The Holders shall have a perfected security interest under
applicable law in the U.S. Legal Tender or U.S. Government Obligations
deposited pursuant to Section 8.01(1) above;
(8) The Company shall have delivered to the Trustee an Opinion of
Counsel, in form and substance reasonably satisfactory to the Trustee, to
the effect that, after the passage of 90 days following the deposit, the
trust funds will not be subject to any applicable bankruptcy, insolvency,
reorganization or similar law affecting creditors' rights generally; and
(9) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent specified herein relating to the defeasance contemplated by this
Section 8.01 have been complied with; provided, however, that no deposit
under clause (1) above shall be effective to terminate the obligations of
the Company or any Guarantor under the Securities or this Indenture prior
to 90 days following any such deposit.
In the event all or any portion of the Securities are to be redeemed
through such irrevocable trust, the Company must make arrangements satisfactory
to the Trustee, at the time of such deposit, for the giving of the notice of
such redemption or redemptions by the Trustee in the name and at the expense of
the Company. In connection with the issuance of debt securities the proceeds of
which will be used to redeem all the Securities then outstanding, neither
Sections 4.12, 4.13 nor Section 4.14 shall be violated by the issuance of such
debt securities to the extent the Company complies with all of the provisions of
this Section 8.01 other than Section 8.0l(3)(ii).
SECTION 8.02. Termination of Obligations upon Cancellation of the Securities.
In addition to the Company's rights under Section 8.01, the Company
may terminate all of its obligations under this Indenture (subject to Section
8.03) when:
(1) all Securities theretofore authenticated and delivered (other
than Securities which have been
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destroyed, lost or stolen and which have been replaced or paid as provided
in Section 2.07) have been delivered to the Trustee for cancellation;
(2) the Company has paid or caused to be paid all other sums payable
hereunder and under the Securities by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent specified herein relating to the satisfaction and discharge of
this Indenture have been complied with.
SECTION 8.03. Survival of Certain Obligations.
Notwithstanding the satisfaction and discharge of this Indenture and
of the Securities referred to in Section 8.01 or 8.02, the respective
obligations of the Company, the Guarantors and the Trustee under Sections 2.02,
2.03, 2.04, 2.05, 2.06, 2.07, 2.13, 4.01, 4.02, 6.07, 7.07, 7.08, 8.05, 8.06 and
8.07 shall survive until the Securities are no longer outstanding, and
thereafter the obligations of the Company and the Trustee under Sections 7.07,
8.05, 8.06 and 8.07 shall survive. Nothing contained in this Article Eight shall
abrogate any of the obligations or duties of the Trustee under this Indenture.
SECTION 8.04. Acknowledgment of Discharge by Trustee.
Subject to Section 8.07, after (i) the conditions of Section 8.01 or
8.02 have been satisfied, (ii) the Company has paid or caused to be paid all
other sums payable hereunder by the Company and (iii) the Company has delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that all conditions precedent referred to in clause (i) above relating to the
satisfaction and discharge of this Indenture have been complied with, the
Trustee upon written request shall acknowledge in writing the discharge of the
Company's obligations under this Indenture except for those surviving
obligations specified in Section 8.03.
SECTION 8.05. Application of Trust Assets.
The Trustee shall hold any U.S. Legal Tender or U.S. Government
Obligations deposited with it in the irrevocable trust established pursuant to
Section 8.01. The Trustee shall
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apply the deposited U.S. Legal Tender or the U.S. Government Obligations,
together with earnings thereon, through the Paying Agent (other than the
Company, any Guarantor or any Subsidiary of the Company or any Guarantor), in
accordance with this Indenture and the terms of the irrevocable trust agreement
established pursuant to Section 8.01, to the payment of principal of and
interest on the Securities. The U.S. Legal Tender or U.S. Government Obligations
so held in trust and deposited with the Trustee in compliance with Section 8.01
shall not be part of the trust estate under this Indenture, but shall constitute
a separate trust fund for the benefit of all Holders entitled thereto.
SECTION 8.06. Repayment to the Company.
Upon termination of the trust established pursuant to Section 8.01,
the Trustee and the Paying Agent shall promptly pay to the Company upon request
any excess U.S. Legal Tender or U.S. Government Obligations held by them.
The Trustee and the Paying Agent shall pay to the Company upon
request, and, if applicable, in accordance with the irrevocable trust
established pursuant to Section 8.01 or 8.02, any U.S. Legal Tender or U.S.
Government Obligations held by them for the payment of principal of or interest
on the Securities that remain unclaimed for one year after the date on which
such payment shall have become due. After payment to the Company, Holders
entitled to such payment must look to the Company for such payment as general
creditors unless an applicable abandoned property law designates another person.
SECTION 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with Section 8.01 or 8.02 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 the Guarantors' obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.01 or 8.02 until such time as the
Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S.
Government Obligations in accordance with Section 8.01 or 8.02.
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ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company and each Guarantor, when authorized by a Board
Resolution, and the Trustee, together, may amend or supplement this Indenture or
the Securities without notice to or consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency; provided that
such amendment or supplement does not adversely affect the rights of any
Holder;
(2) to comply with Article Five;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(4) to make any other change that does not materially adversely
affect the rights of any Securityholders hereunder; or
(5) to comply with any requirements of the SEC in connection with
the qualification of this Indenture under the TIA;
provided that the Company has delivered to the Trustee an Opinion of Counsel and
an Officers' Certificate, each stating that such amendment or supplement
complies with the provisions of this Section 9.01.
SECTION 9.02. With Consent of Holders.
Subject to Section 6.07, the Company and each Guarantor, when
authorized by a Board Resolution, and the Trustee, together, with the written
consent of the Holder or Holders of at least a majority in aggregate principal
amount of the outstanding Securities, may amend or supplement this Indenture or
the Securities, without notice to any other Securityholders. Subject to Section
6.07, the Holder or Holders of a majority in aggregate principal amount of the
outstanding Securities may waive compliance by the Company with any provision of
this Indenture or the Securities without notice to any other Securityholder.
Without the consent of each Securityholder
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affected, however, no amendment, supplement or waiver, including a waiver
pursuant to Section 6.04, may:
(1) change the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver of any provision of this
Indenture or the Securities;
(2) reduce the rate or extend the time for payment of interest on
any Security;
(3) reduce the principal amount of any Security;
(4) change the Maturity Date of any Security, or alter the
redemption provisions contained in Paragraphs 6 and 7 of the Securities in
a manner adverse to any Holder;
(5) make any changes in the provisions concerning waivers of
Defaults or Events of Default by Holders of the Securities or the rights
of Holders to recover the principal of, interest on, or redemption
payments or payments arising out of offers to purchase with respect to,
any Security;
(6) make any changes in Section 6.04, 6.07 or this third sentence of
this Section 9.02;
(7) make the principal of, or the interest on any Security payable
in money other than as provided for in the Indenture and the Securities as
in effect on the date hereof; or
(8) affect the ranking of the Securities in a manner adverse to the
Holders.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
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SECTION 9.03. Compliance with TIA.
From the date on which the Indenture is qualified under the TIA,
every amendment, waiver or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is not
made on any Security. However, any such Holder or subsequent Holder may revoke
the consent as to his Security or portion of his Security by notice to the
Trustee or the Company received before the date on which the Trustee receives an
Officers' Certificate certifying that the Holders of the requisite principal
amount of Securities have consented (and not theretofore revoked such consent)
to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (8) of Section 9.02, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided that any such waiver
shall not impair or affect the right of any Holder to receive payment of
principal of and interest on a Security, on or after the respective due dates
expressed in such Security, or to bring suit for the
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enforcement of any such payment on or after such respective dates without the
consent of such Holder.
SECTION 9.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture. Such Opinion of Counsel shall not be an expense of the Trustee.
ARTICLE TEN
MEETINGS OF SECURITYHOLDERS
SECTION 10.01. Purposes for Which Meetings May Be Called.
A meeting of Securityholders may be called at any time and from time
to time pursuant to the provisions of this Article Ten for any of the following
purposes:
(a) to give any notice to the Company or to the Trustee, or to give
any directions to the Trustee, or to waive or to consent to the waiving of
any Default or Event of Default hereunder and its consequences, or to take
any other action authorized to be taken by Securityholders pursuant to any
of the provisions of Article Six;
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(b) to remove the Trustee or appoint a successor Trustee pursuant to
the provisions of Article Seven;
(c) to consent to an amendment, supplement or waiver pursuant to the
provisions of Section 9.02; or
(d) to take any other action (i) authorized to be taken by or on
behalf of the Holders of any specified aggregate principal amount of the
Securities under any other provision of this Indenture, or authorized or
permitted by law or (ii) which the Trustee deems necessary or appropriate
in connection with the administration of this Indenture.
SECTION 10.02. Manner of Calling Meetings.
The Trustee may at any time call a meeting of Securityholders to
take any action specified in Section 10.01, to be held at such time and at such
place in The City of New York, New York or elsewhere as the Trustee shall
determine. Notice of every meeting of Securityholders, setting forth the time
and place of such meeting and in general terms the action proposed to be taken
at such meeting, shall be mailed by the Trustee, first-class postage prepaid,
to the Company and to the Holders at their last addresses as they shall appear
on the registration books of the Registrar not less than 10 nor more than 60
days prior to the date fixed for a meeting.
Any meeting of Securityholders shall be valid without notice if the
Holders of all Securities then outstanding are present in person or by proxy, or
if notice is waived before or after the meeting by the Holders of all Securities
outstanding, and if the Company, the Guarantors and the Trustee are either
present by duly authorized representatives or have, before or after the meeting,
waived notice.
SECTION 10.03. Call of Meetings by Company or Holders.
In case at any time the Company, pursuant to a Board Resolution, or
the Holders of not less than 10% in aggregate principal amount of the Securities
then outstanding shall have requested the Trustee to call a meeting of
Securityholders to take any action specified in Section 10.01, by written
request setting forth in reasonable detail the action proposed to be taken at
the meeting, and the Trustee shall not have mailed the notice of such meeting
within 20 days after receipt of such request, then the Company or the Holders of
Securities in the
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amount above specified may determine the time and place in The City of New York,
New York or elsewhere for such meeting and may call such meeting for the purpose
of taking such action, by mailing or causing to be mailed notice thereof as
provided in Section 10.02, or by causing notice thereof to be published at least
once in each of two successive calendar weeks (on any Business Day during such
week) in a newspaper or newspapers printed in the English language, customarily
published at least five days a week and of a general circulation in The City of
New York, State of New York, the first such publication to be not less than 10
nor more than 60 days prior to the date fixed for the meeting.
SECTION 10.04. Who May Attend and Vote at Meetings.
To be entitled to vote at any meeting of Securityholders, a person
shall (a) be a registered Holder of one or more Securities, or (b) be a person
appointed by an instrument in writing as proxy for the registered Holder or
Holders of Securities. The only persons who shall be entitled to be present or
to speak at any meeting of Securityholders shall be the persons entitled to vote
at such meeting and their counsel and any representatives of the Trustee and its
counsel and any representatives of the Company and its counsel.
SECTION 10.05. Regulations May Be Made by Trustee; Conduct of the Meeting;
Voting Rights; Adjournment.
Notwithstanding any other provision of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any action by
or any meeting of Securityholders, in regard to proof of the holding of
Securities and of the appointment of proxies, and in regard to the appointment
and duties of inspectors of votes, and submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think appropriate. Such
regulations may fix a record date and time for determining the Holders of record
of Securities entitled to vote at such meeting, in which case those and only
those persons who are Holders of Securities at the record date and time so
fixed, or their proxies, shall be entitled to vote at such meeting whether or
not they shall be such Holders at the time of the meeting.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting
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shall have been called by the Company or by Securityholders as provided in
Section 10.03, in which case the Company or the securityholders calling the
meeting, as the case may be, shall in like manner appoint a temporary chairman.
A permanent chairman and a permanent secretary of the meeting shall be elected
by vote of the Holders of a majority in principal amount of the Securities
represented at the meeting and entitled to vote.
At any meeting each Securityholder or proxy shall be entitled to one
vote for each $1,000 principal amount of Securities held or represented by him;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Securities challenged as not outstanding and ruled by the
chairman of the meeting to be not outstanding. The chairman may adjourn any such
meeting if he is unable to determine whether any Holder or proxy shall be
entitled to vote at such meeting. The chairman of the meeting shall have no
right to vote other than by virtue of Securities held by him or instruments in
writing as aforesaid duly designating him as the proxy to vote on behalf of
other Securityholders. Any meeting of Securityholders duly called pursuant to
the provisions of Section 10.02 or Section 10.03 may be adjourned from time to
time by vote of the Holders of a majority in aggregate principal amount of the
Securities represented at the meeting and entitled to vote, and the meeting may
be held as so adjourned without further notice.
SECTION 10.06. Voting at the Meeting and Record To Be Kept.
The vote upon any resolution submitted to any meeting of
Securityholders shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities or of their representatives by proxy and
the principal amount of the Securities voted by the ballot. The permanent
chairman of the meeting shall appoint two inspectors of votes, who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Securityholders shall be prepared by the
secretary of the meeting and there shall be attached to such record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more persons having knowledge of the facts, setting forth a
copy of the notice of the meeting and showing that such notice was mailed as
provided in Section 10.02 or published as provided in Section 10.03.
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The record shall be signed and verified by the affidavits of the permanent
chairman and the secretary of the meeting and one of the duplicates shall be
delivered to the Company and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
SECTION 10.07. Exercise of Rights of Trustee or Securityholders May Not Be
Hindered or Delayed by Call of Meeting.
Nothing contained in this Article Ten shall be deemed or construed
to authorize or permit, by reason of any call of a meeting of Securityholders or
any rights expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any right or rights conferred upon or
reserved to the Trustee or to the Securityholders under any of the provisions of
this Indenture or of the Securities.
ARTICLE ELEVEN
GUARANTEE OF SECURITIES
SECTION 11.01. Unconditional Guarantee.
Each Guarantor hereby unconditionally, jointly and severally,
guarantees (such guarantee to be referred to herein as the "Guarantee"), as a
primary obligor and not a surety, to each Holder of a Security authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
that: (i) the principal of and interest on the Securities (including without
limitation, interest that, but for the filing of a petition in bankruptcy with
respect to the Company or any Guarantor, would have accrued, whether or not a
claim is allowed against such Person for such interest in any such bankruptcy
proceeding) will be promptly paid in full when due, subject to any applicable
grace period, whether at maturity, by acceleration or otherwise (including
amounts that would become due but for the operation of the automatic stay under
Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)) and interest on the
overdue principal, if any, and interest on any interest, to the extent lawful,
of the Securities and all other obligations of the Company to the Holders or the
Trustee hereunder or
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thereunder will be promptly paid in full or performed, all in accordance with
the terms hereof; and (ii) in case of any extension of time of payment or
renewal of any Securities or of any such other obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, subject to any applicable grace period, whether at stated
maturity, by acceleration or otherwise, subject, however, in the case of clauses
(i) and (ii) above, to the limitations set forth in Section 11.04. Upon failure
of payment when due of any amount so guaranteed for whatever reason, each
Guarantor will be obligated to pay the same immediately. Each Guarantor hereby
agrees that its obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Securities, this Indenture or
the obligations of the Company or any other Guarantor hereunder or thereunder,
the absence of any action to enforce the same, any waiver or consent by any
Holder of the Securities with respect to any provisions hereof or thereof, the
recovery of any judgment against the Company or any other Guarantor, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company or any other Guarantor, protest, notice and
all demands whatsoever and covenants that this Guarantee will not be discharged
except by complete performance of the obligations contained in the Securities,
this Indenture and in this Guarantee. If any Securityholder or the Trustee is
required by any court or otherwise to return to the Company, any Guarantor, or
any custodian, trustee, liquidator or other similar official acting in relation
to the Company or any Guarantor, any amount paid by the Company or any Guarantor
to the Trustee or such Securityholder, this Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect. Each Guarantor further
agrees that, as between each Guarantor, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article Six for the purposes of this
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any acceleration of such obligations as provided in Article Six,
such obligations (whether or not due and payable) shall forthwith become due and
payable by each Guarantor for the purpose of this Guarantee.
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SECTION 11.02. Severability.
In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 11.03. Release of a Guarantor.
Upon the sale or disposition (by merger, sale of stock of such
Guarantor or the parent of such Guarantor or otherwise) of a Guarantor (or all
or substantially all its assets) to an entity which is not a Subsidiary of the
Company and which sale or disposition is otherwise in compliance with the terms
of this Indenture, such Guarantor shall be deemed released from all obligations
under this Article Eleven without any further action required on the part of the
Trustee or any Holder; provided that any such release shall occur if and only to
the extent that all obligations of such Guarantor under all of its guarantees of
the Indebtedness of the Company under the Credit Agreement shall be terminated
upon such sale or disposition. The Trustee shall deliver an appropriate
instrument evidencing such release upon receipt of a request by the Company
accompanied by an Officers' Certificate certifying as to the compliance with
this Section 11.03. Any Guarantor not so released remains liable for the full
amount of principal of and interest on the Securities as provided in this
Article Eleven.
SECTION 11.04. Guarantors May Consolidate, Etc., on Certain Terms.
(a) Nothing contained in this Indenture or in any of the Securities
shall prevent any consolidation or merger of a Guarantor with or into the
Company or another Guarantor or shall prevent any sale or conveyance of the
property of a Guarantor as an entirety or substantially as an entirety, to the
Company or another Guarantor. Upon any such consolidation, merger, sale or
conveyance, the Guarantee given by such Guarantor shall no longer have any force
or effect.
(b) Except as set forth in Article Four and Section 9.02, nothing
contained in this Indenture or in any of the Securities shall prevent any (i)
consolidation or merger of a Guarantor with or into a corporation or
corporations other than the Company or another Guarantor (whether or not
affiliated with the Guarantor), or successive consolidations or mergers in which
a Guarantor or its successor or successors shall be a
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party or parties, or (ii) sale or conveyance of the property of a Guarantor as
an entirety or substantially as an entirety, to a corporation other than the
Company or another Guarantor (whether or not affiliated with the Guarantor);
provided, however, that, subject to Sections 11.03 and 11.04(a), (x) immediately
after a transaction set forth in clause (ii) above, and giving effect thereto,
no Default or Event of Default shall have occurred as a result of such
transaction and be continuing, and (y) the Net Cash Proceeds of any such
transaction shall be applied in accordance with Section 4.16.
SECTION 11.05. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, among themselves, that in the event any
payment or distribution is made by any Guarantor (a "Funding Guarantor") under
the Guarantee, such Funding Guarantor shall be entitled to a contribution from
all other Guarantors in a pro rata amount based on the Adjusted Net Assets of
each Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Securities or any other Guarantor's obligations
with respect to the Guarantee. "Adjusted Net Assets" of such Guarantor at any
date shall mean the lesser of the amount by which (x) the fair value of the
property of such Guarantor exceeds the total amount of liabilities, including,
without limitation, contingent liabilities (after giving effect to all other
fixed and contingent liabilities), but excluding liabilities under the
Guarantee, of such Guarantor at such date and (y) the present fair salable value
of the assets of such Guarantor at such date exceeds the amount that will be
required to pay the probable liability of such Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities and after giving
effect to any collection from any Subsidiary of such Guarantor in respect of the
obligations of such Subsidiary under the Guarantee), excluding liabilities under
the Guarantee, as they become absolute and matured.
SECTION 11.06. Waiver of Subrogation.
Each Guarantor hereby irrevocably waives any claim or other rights
which it may now or hereafter acquire against the Company that arise from the
existence, payment, performance or enforcement of such Guarantor's obligations
under the Guarantee and this Indenture, including, without limitation, any right
of subrogation, reimbursement, exoneration, indemnification, and
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any right to participate in any claim or remedy of any Holder of Securities
against the Company, whether or not such claim, remedy or right arises in
equity, or under contract, statute or common law, including, without limitation,
the right to take or receive from the Company, directly or indirectly, in cash
or other property or by set-off or in any other manner, payment or security on
account of such claim or other rights. If any amount shall be paid to any
Guarantor in violation of the preceding sentence and the Securities shall not
have been paid in full, such amount shall have been deemed to have been paid to
such Guarantor for the benefit of, and held in trust for the benefit of, the
Holders of the Securities, and shall forthwith be paid to the Trustee for the
benefit of such Holders to be credited and applied upon the Securities, whether
matured or unmatured, in accordance with the terms of this Indenture. Each
Guarantor acknowledges that it will receive direct and indirect benefits from
the financing arrangements contemplated by this Indenture and that the waiver
set forth in this Section 11.06 is knowingly made in contemplation of such
benefits.
SECTION 11.07. Execution of Guarantee.
To evidence their guarantee to the Securityholders specified in
Section 11.01, each Guarantor hereby agrees that a notation of such Guarantee
substantially in the form of Exhibit A shall be endorsed on each Security
ordered to be authenticated and delivered by the Trustee. Each Guarantor hereby
agrees that its Guarantee set forth in Section 11.01 shall remain in full force
and effect notwithstanding any failure to endorse on each Security a notation of
such Guarantee. Each such Guarantee shall be signed on behalf of each Guarantor
by two Officers, or an Officer and an Assistant Secretary or one Officer shall
sign and one Officer or an Assistant Secretary (each of whom shall, in each
case, have been duly authorized by all requisite corporate actions) shall attest
to such Guarantee prior to the authentication of the Security on which it is
endorsed, and the delivery of such Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of such
Guarantee on behalf of such Guarantor. Such signatures upon the Guarantee may be
by manual or facsimile signature of such officers and may be imprinted or
otherwise reproduced on the Guarantee, and in case any such officer who shall
have signed the Guarantee shall cease to be such officer before the Security on
which such Guarantee is endorsed shall have been authenticated and delivered by
the Trustee or disposed of by the Company, such Security nevertheless may be
authenticated and delivered or disposed of as
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though the person who signed the Guarantee had not ceased to be such officer of
the Guarantor.
ARTICLE TWELVE
MISCELLANEOUS
SECTION 12.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by the
TIA, the required provision shall control.
SECTION 12.02. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
if to the Company or any Guarantor:
Duane Reade
c/o Bain Capital
Two Copley Place
Boston, MA 02116
Attention: Adam Kirsch
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Karl E. Lutz, P.C. and
Jeffrey C. Hammes, Esq.
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if to the Trustee:
The Connecticut National Bank
777 Main Street
Hartford, Connecticut 06103
Attention: Corporate Trust Administration
Each of the Company, the Guarantors and the Trustee by written
notice to each other such person may designate additional or different addresses
for notices to such person. Any notice or communication to the Company, the
Guarantors or the Trustee shall be deemed to have been given or made as of the
date so delivered if personally delivered; when answered back, if telexed; when
receipt is acknowledged, if faxed; and five (5) calendar days after mailing if
sent by registered or certified mail, postage prepaid (except that a notice of
change of address shall not be deemed to have been given until actually received
by the addressee).
Any notice or communication mailed to a Securityholder shall be
mailed to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 12.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Guarantors, the Trustee, the Registrar and any
other person shall have the protection of TIA ss. 312(c).
SECTION 12.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
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(1) an Officers' Certificate, in form and substance satisfactory to
the Trustee, stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.07, shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with.
SECTION 12.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules in accordance with the
Trustee's customary practices for action by or at a meeting of Securityholders.
The Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 12.07. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment
is a Saturday, a Sunday or a day on which banking institutions in New York, New
York or at such place of
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payment are not required to be open. If a payment date is a Legal Holiday at
such place, payment may be made at such place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
SECTION 12.08. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS. Each of the parties hereto agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Indenture.
SECTION 12.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of any of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 12.10. No Recourse Against Others.
A director, officer, employee, stockholder or incorporator, as such,
of the Company shall not have any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creations. Each Securityholder by
accepting a Security waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the Securities.
SECTION 12.11. Successors.
All agreements of the Company and each Guarantor in this Indenture
and the Securities shall bind their respective successors. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 12.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
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SECTION 12.13. Severability.
In case any one or more of the provisions in this Indenture or in
the Securities shall be held invalid, illegal or unenforceable, in any respect
for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the date first written above.
Dated: September 25, 1992
DUANE READE
By: Daboco Inc.
Its: General Partner
By: /s/ Adam Kirsch
-------------------------------
Name: Adam Kirsch
Title: Vice President
THE CONNECTICUT NATIONAL BANK
as Trustee
By: /s/ Michael M. Hopkins
-------------------------------
Name: Michael M. Hopkins
Title: Vice President
DABOCO INC.
as Guarantor
By: /s/ Adam Kirsch
-------------------------------
Name: Adam Kirsch
Title: Vice President
DUANE READE INC.
as Guarantor
By: /s/ Adam Kirsch
-------------------------------
Name: Adam Kirsch
Title: Vice President
<PAGE>
EXHIBIT A
[FORM OF NOTE]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF AT ANY TIME IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM REGISTRATION. THE HOLDER
OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS THREE YEARS AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY) ONLY (A) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (B) IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (C) TO
AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(l),
(2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT THAT IS ACQUIRING THE
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION (WITHIN THE MEANING OF
THE SECURITIES ACT), (D) TO THE COMPANY OR BT SECURITIES CORPORATION, THE
PLACEMENT AGENT, (E) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT OR (F) PURSUANT TO AN EXEMPTION FROM
REGISTRATION AS CONFIRMED IN DOCUMENTATION (WHICH AT THE COMPANY'S DISCRETION
SHALL INCLUDE AN OPINION OF COUNSEL (WHICH MAY BE IN-HOUSE COUNSEL)) IN FORM AND
SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY (PROVIDED, HOWEVER, THAT IN THE
CASE OF CLAUSES (B) AND (C), EITHER THE TRANSFEREE OR A U.S. REGISTERED
BROKER-DEALER ON ITS BEHALF HAS DELIVERED TO THE COMPANY C/O THE TRUSTEE A
TRANSFEREE CERTIFICATE IN THE FORM ATTACHED TO THIS SECURITY). WITH RESPECT TO
TRANSFERS PURSUANT TO CLAUSES (A), (B) AND (C) ABOVE, THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, REPRESENTS AND AGREES, FOR THE BENEFIT OF THE COMPANY,
THAT IT IS (i) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
OR (ii) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(l), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT THAT IS
HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION (WITHIN
THE MEANING OF THE SECURITIES ACT) OR (iii) A NON-U.S. PERSON THAT IS OUTSIDE
THE U.S. WITHIN THE MEANING OF (OR ACCOUNTS SATISFYING THE REQUIREMENTS OF
PARAGRAPH (o)(ii) OF RULE 902 UNDER) REGULATION S.
DUANE READE
A-l
<PAGE>
12% Senior Note
due September 15, 2002, Series A
No. $
DUANE READE, a New York general partnership (the "Company," which
term includes any successor entity), for value received promises to pay to
or registered assigns, the principal sum of Dollars,
on September 15, 2002.
Interest Payment Dates: March 15 and September 15
Record Dates: March 1 and September 1
Pursuant to the Indenture, the payment of principal of and interest
hereon is unconditionally guaranteed by Daboco Inc., a New York corporation, and
Duane Reade Inc., a Delaware corporation, the only entities owning partnership
interests in the Company (the "Guarantors"). The guarantees by the Guarantors
are each endorsed hereon.
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
Dated: September 25, 1992
DUANE READE
By: Daboco Inc.
Its: General Partner
By:
-------------------------------
Name:
Title:
This is one of the Securities described in the within-mentioned
Indenture.
THE CONNECTICUT NATIONAL BANK
as Trustee
By
-------------------------------
Authorized Signatory
A-3
<PAGE>
DUANE READE
12% Senior Note
due September 15, 2002, Series A
1. Interest.
DUANE READE, a New York general partnership (the "Company"),
promises to pay cash interest on the principal amount of this Security at the
rate per annum shown above. The Company will pay interest semi-annually in
arrears on March 15 and September 15 of each year (the "Interest Payment Date"),
commencing March 15, 1993. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
its check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address. Notwithstanding the foregoing, the Company shall pay or cause to be
paid all amounts payable with respect to Restricted Securities or non-DTC
eligible Securities by wire transfer of Federal funds to the account of the
Holders of such Securities. If this Security is a Global Security, all payments
in respect of this Security will be made to the Depository or its nominee in
immediately available funds in accordance with customary procedures established
from time to time by the Depository. If this Security is a Global Security and a
Restricted Security, only Qualified Institutional Buyers (as defined in Rule
144A under the Securities Act) may hold a beneficial interest herein.
A-4
<PAGE>
3. Paying Agent and Registrar.
Initially, The Connecticut National Bank (the "Trustee"), will act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders. The Company or any of
its Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or co-Registrar.
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture, dated as of
September 15, 1992 (the "Indenture"), among the Company, the Guarantors and the
Trustee. This Security is one of a duly authorized issue of Securities of the
Company designated as its 12% Senior Notes Due 2002, Series A (the "Series A
Securities"), limited (except as otherwise provided in the Indenture) in
aggregate principal amount to $90,000,000, which may be issued under the
Indenture. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and Holders of Securities
are referred to the Indenture and said Act for a statement of them. The
Securities are general unsecured obligations of the Company limited in aggregate
principal amount to $90,000,000. Payment on each Security is guaranteed on a
senior basis, jointly and severally, by the Guarantors pursuant to Article
Eleven of the Indenture.
5. Registration Rights.
Pursuant to the Registration Rights Agreement among the Company, the
Guarantors and the Holders of the Series A Securities, the Company will be
obligated to consummate an exchange offer pursuant to which the Holder of this
Security shall have the right to exchange this Security for 12% Senior Notes Due
2002, Series B, of the Company (the "Series B Securities"), which have been
registered under the Securities Act, in like principal amount and having
identical terms as the Series A Securities. The Holders of Series A Securities
shall be entitled to receive certain additional interest payments in the event
such exchange offer is not consummated and upon certain other conditions, all
pursuant to and in accordance with the terms of the Registration Rights
Agreement. The Series A
A-5
<PAGE>
Securities and the Series B Securities are together referred to herein as the
"Securities."
6. Optional Redemption.
The Securities may not be redeemed at the option of the Company
prior to September 15, 1997. Thereafter, the Company may redeem all or any of
the Securities at any time at redemption prices (expressed in percentages of the
principal amount), set forth below plus accrued interest, if any, to the
Redemption Date if redeemed during the 12-month period beginning on September 15
in the years indicated below:
Year Percentage
---- ----------
1997 ................................. 104.5%
1998 ................................. 103.0%
1999 ................................. 101.5%
2000 and thereafter .................. 100.0%
7. Mandatory Redemption.
The Company will make a mandatory sinking fund payment on September
15, 2001, sufficient to retire 50% of the aggregate principal amount of
Securities originally issued under the Indenture at a redemption price equal to
100% of the principal amount thereof, together with accrued interest to the
Redemption Date. The Company may, at its option, receive credit against such
sinking fund payment for 100% of the principal amount of any Securities
previously acquired by the Company in the open market and surrendered to the
Trustee (other than in connection with an exchange offer) for cancellation or
redeemed at the option of the Company and which were not previously used as a
credit against any other required payment pursuant to the Indenture. The Company
may subtract the same Security only once.
8. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder of Securities to be
redeemed at such Holder's registered address. Securities in denominations larger
than $1,000 may be redeemed in part.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent for redemption on such Redemption
Date, then, unless the Company defaults in the payment of such Redemption
A-6
<PAGE>
Price, the Securities called for redemption will cease to bear interest and
purchase discount will cease to accrue and the only right of the Holders of such
Securities will be to receive payment of the Redemption Price.
9. Change of Control Offer.
In the event of a Change of Control, upon the satisfaction of the
conditions set forth in the Indenture, the Company shall be required to offer to
purchase all of the then outstanding Securities pursuant to a Change of Control
Offer at a purchase price equal to 101% of the principal amount thereof plus
accrued interest, if any, to the date of purchase. Holders of Securities which
are the subject of such an offer to repurchase shall receive an offer to
repurchase and may elect to have such Securities repurchased in accordance with
the provisions of the Indenture pursuant to and in accordance with the terms of
the Indenture.
10. Limitation on Disposition of Assets.
Under certain circumstances the Company is required to apply the net
proceeds from Asset Sales to repurchase Securities at a price equal to 100% of
the aggregate principal amount thereof, plus accrued interest to the date of
purchase.
11. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption.
If this Series A Security is a Restricted Security in certificated
form, then as provided in the Indenture and subject to certain limitations
therein set forth, the Holder, provided it is a Qualified Institutional Buyer,
may exchange this Series A Security for a Book-Entry Security by instructing the
Trustee (by completing the Transferee Certificate attached to this Security) to
arrange for such Series A Security to be represented by a beneficial interest in
a Global Security in accordance with the customary procedures of the Depository.
In addition, the Company may at any time determine not to have Series A
Securities represented in certificated form, in which
A-7
<PAGE>
event the Holder of a Series A Security in certificated form may be required to
exchange this Series A Security for a Book-Entry Security.
If this Series A Security is a Global Security, it is exchangeable
for Series A Securities in certificated form only if (x) the Depository is at
any time unwilling or unable to continue as depository and a successor
depository is not appointed by the Company within 30 days or (y) there shall
have occurred and be continuing an Event of Default or (z) the Company may at
any time determine not to have Series A Securities represented by a Global
Security. In addition, in accordance with the provisions of the Indenture and
subject to certain limitations therein set forth, an owner of a beneficial
interest in a Global Security may request a Series A Security in certificated
form, in exchange in whole or in part, as the case may be, for such beneficial
owner's interest in the Global Security. In any such instance, an owner of a
beneficial interest in a Global Security will be entitled to physical delivery
in certificated form of Series A Securities in authorized denominations equal in
principal amount to such beneficial interest and to have such Series A
Securities registered in its name.
12. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
With respect to Global Securities, the Depository may grant proxies
and otherwise authorize Holders of Book-Entry Securities to give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action which a Holder of a Security is entitled to give or take under this
Indenture.
13. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed
for one year, the Trustee and the Paying Agents will pay the money back to the
Company at its request. After that, all liability of the Trustee and such Paying
Agents with respect to such money shall cease.
14. Discharge Prior to Redemption or Maturity.
If the Company at any time deposits with the Trustee U.S. Legal
Tender or U.S. Government Obligations sufficient to pay the principal of and
interest on the Securities to redemption or maturity and complies with the other
provisions of the
A-8
<PAGE>
Indenture relating thereto, the Company will be discharged from certain
provisions of the Indenture and the Securities (including the financial
covenants, but excluding its obligation to pay the principal of and interest on
the Securities).
15. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may
be amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture or the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities, comply with Article Five of the Indenture or comply with any
requirements of the SEC in connection with the qualification of the Indenture
under the TIA, or make any other change that does not adversely affect the
rights of any Holder of a Security.
16. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Subsidiaries to, among other things, incur additional
Indebtedness or Liens, make payments in respect of its Capital Stock and merge
or consolidate with any other person and sell, lease, transfer or otherwise
dispose of substantially all of certain of its properties or assets. The
limitations are subject to a number of important qualifications and exceptions.
The Company must annually report to the Trustee on compliance with such
limitations.
17. Successors.
When a successor assumes all the obligations of its predecessor
under the Securities and the Indenture, the predecessor will be released from
those obligations.
18. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable in the manner,
at the time and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as
A-9
<PAGE>
provided in the Indenture. The Trustee is not obligated to enforce the Indenture
or the Securities unless it has received indemnity satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Securities then outstanding to
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Securities notice of any continuing Default or Event of
Default (except a Default in payment of principal or interest) if it determines
that withholding notice is in their interest.
19. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
20. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as
such, of the Company shall have any liability for any obligation of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of, such obligations or their creation. Each Holder of a Security
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
21. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on this Security.
22. Governing Law.
The Laws of the State of New York shall govern this Security and the
Indenture.
23. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
A-10
<PAGE>
24. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities immediately prior to the qualification of the
Indenture under the TIA as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
25. Indenture.
Each Holder, by accepting a Security, agrees to be bound by all of
the terms and provisions of the Indenture, as the same may be amended from time
to time.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
DUANE READE, c/o Bain Capital, Two Copley Place, Boston, MA 02116 Attn: Adam
Kirsch.
26. Certain Information Obligations.
At any time when the Company is not subject to Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Company shall furnish the Trustee
and the Holders and, under certain circumstances, prospective purchasers with
the information that the Company would have had to provide to the SEC if the
Company had been subject to Section 13 or 15(d) of the Securities Exchange Act
of 1934. Also, at any time when the Company is not subject to Section 13 or
15(d) of the Securities Exchange Act of 1934, upon the request of a Holder of a
Series A Security, the Company will promptly furnish or cause to be furnished
such information as is specified pursuant to Rule 144A(d)(4) under the
Securities Act (or any successor provision thereto) to such Holder or to a
prospective purchaser of such Series A Security designated by such Holder, as
the case may be, in order to permit compliance by such Holder with Rule 144A
under the Securities Act.
[The Transferee Certificate (Exhibit D to the Indenture) will be
attached to the Series A Note.]
A-11
<PAGE>
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
GUARANTEE
Each of the Guarantors (as defined in the Indenture) referred to in
the Security upon which this notation is endorsed and each hereinafter referred
to as a "Guarantor," which term includes any successor person under the
Indenture) has unconditionally guaranteed on a senior basis (such guarantee by
each Guarantor being referred to herein as the "Guarantee") (i) the due and
punctual payment of the principal of and interest on the Securities, whether at
maturity, by acceleration or otherwise, the due and punctual payment of interest
on the overdue principal and interest, if any, on the Securities, to the extent
lawful, and the due and punctual performance of all other obligations of the
Company to the Holders or the Trustee all in accordance with the terms set forth
in Article Eleven of the Indenture and (ii) in case of any extension of time of
payment or renewal of any Securities or any of such other obligations, that the
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise.
The obligations of each Guarantor to the Holders of Securities and
to the Trustee pursuant to the Guarantee and the Indenture are expressly set
forth in Article Eleven of the Indenture, and reference is hereby made to such
Indenture for the precise terms of the Guarantee therein made.
The Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Securities upon which the Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
DABOCO INC.
By:
-------------------------------
Name:
Title:
DUANE READE INC.
By:
-------------------------------
Name:
Title:
A-12
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign this Security to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other
identifying number of assignee
______________________________________
and irrevocably appoint _________________________ agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
Dated: ____________________ Signed: ____________________________________________
________________________________________________________________________________
(Sign exactly as your name appears on
the front of this Security)
Signature Guarantee:
____________________________________________________________
A-13
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount:
$
Date: __________ Signature: ____________________________________________________
(Sign exactly as your name
appears on the front of
this Security)
Signature Guarantee: ___________________________________________________________
A-14
<PAGE>
EXHIBIT B
[FORM OF NOTE]
DUANE READE
12% Senior Note
due September 15, 2002, Series B
No. $
DUANE READE, a New York general partnership (the "Company," which
term includes any successor entity), for value received promises to pay to
or registered assigns, the principal sum of Dollars,
on September 15, 2002.
Interest Payment Dates: March l5 and September 15
Record Dates: March 1 and September 1
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
Pursuant to the Indenture, the payment of principal of and interest
hereon is unconditionally guaranteed by Daboco Inc., a New York corporation, and
Duane Reade Inc., a Delaware corporation, the only entities owning partnership
interests in the Company (the "Guarantors"). The guarantees by the Guarantors
are each endorsed hereon.
B-l
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
Dated: September 25, 1992
DUANE READE
By: Daboco Inc.
Its: General Partner
By:
-------------------------------
Name:
Title:
This is one of the Securities described in the within-mentioned
Indenture.
THE CONNECTICUT NATIONAL BANK
as Trustee
By
-------------------------------
Authorized Signatory
B-2
<PAGE>
DUANE READE
12% Senior Note
due September 15, 2002, Series B
1. Interest.
DUANE READE, a New York general partnership (the "Company"),
promises to pay cash interest on the principal amount of this Security at the
rate per annum shown above. The Company will pay interest semi-annually in
arrears on March 15 and September 15 of each year (the "Interest Payment Date"),
commencing March 15, 1993. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
its check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address. Notwithstanding the foregoing, the Company shall pay or cause to be
paid all amounts payable with respect to Restricted Securities or non-DTC
eligible Securities by wire transfer of Federal funds to the account of the
Holders of such Securities. If this Security is a Global Security, all payments
in respect of this Security will be made to the Depository or its nominee in
immediately available funds in accordance with customary procedures established
from time to time by the Depository.
3. Paying Agent and Registrar.
Initially, The Connecticut National Bank (the "Trustee"), will act
as Paying Agent and Registrars. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders. The Company or any of
its Subsidiaries
B-3
<PAGE>
may, subject to certain exceptions, act as Paying Agent, Registrar or
co-Registrar.
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture, dated as of
September 15, 1992 (the "Indenture"), among the Company, the Guarantors and the
Trustee. This Security is one of a duly authorized issue of Securities of the
Company designated as its 12% Senior Notes Due 2002, Series B (the "Series B
Securities"), limited (except as otherwise provided in the Indenture) in
aggregate principal amount to $90,000,000, which may be issued under the
Indenture. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and Holders of Securities
are referred to the Indenture and said Act for a statement of them. The
Securities are general unsecured obligations of the Company limited in aggregate
principal amount to $90,000,000. Payment on each Security is guaranteed on a
senior basis, jointly and severally, by the Guarantors pursuant to Article
Eleven of the Indenture.
5. Exchange Offer.
The Series B Securities were issued pursuant to an exchange offer
pursuant to which 12% Senior Notes Due 2002, Series A, of the Company (the
"Series A Securities"), in like principal amount and having substantially
identical terms as the Series B Securities, were exchanged for the Series B
Securities. The Series A Securities and the Series B Securities are together
referred to herein as the "Securities."
6. Optional Redemption.
The Securities may not be redeemed at the option of the Company
prior to September 15, 1997. Thereafter, the Company may redeem all or any of
the Securities at any time at redemption prices (expressed in percentages of the
principal amount), set forth below plus accrued interest, if any, to the
Redemption Date if redeemed during the 12-month period beginning on September 15
in the years indicated below:
B-4
<PAGE>
Year Percentage
---- ----------
1997 .................................. 104.5%
1998 .................................. 103.0%
1999 .................................. 101.5%
2000 and thereafter ................... 100.0%
7. Mandatory Redemption.
The Company will make a mandatory sinking fund payment on September
15, 2001, sufficient to retire 50% of the aggregate principal amount of
Securities originally issued under the Indenture at a redemption price equal to
100% of the principal amount thereof, together with accrued interest to the
Redemption Date. The Company may, at its option, receive credit against such
sinking fund payment for 100% of the principal amount of any Securities
previously acquired by the Company in the open market and surrendered to the
Trustee (other than in connection with an exchange offer) for cancellation or
redeemed at the option of the Company and which were not previously used as a
credit against any other required payment pursuant to the Indenture. The Company
may subtract the same Security only once.
8. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder of Securities to be
redeemed at such Holder's registered address. Securities in denominations larger
than $1,000 may be redeemed in part.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent for redemption on such Redemption
Date, then, unless the Company defaults in the payment of such Redemption Price,
the Securities called for redemption will cease to bear interest and purchase
discount will cease to accrue and the only right of the Holders of such
Securities will be to receive payment of the Redemption Price.
9. Change of Control Offer.
In the event of a Change of Control, upon the satisfaction of the
conditions set forth in the Indenture, the Company shall be required to offer to
purchase all of the then outstanding Securities pursuant to a Change of Control
Offer at a purchase price equal to 101% of the principal amount thereof plus
accrued interest, if any, to the date of purchase.
B-5
<PAGE>
Holders of Securities which are the subject of such an offer to repurchase shall
receive an offer to repurchase and may elect to have such Securities repurchased
in accordance with the provisions of the Indenture pursuant to and in accordance
with the terms of the Indenture.
10. Limitation on Disposition of Assets.
Under certain circumstances the Company is required to apply the net
proceeds from Asset Sales to repurchase Securities at a price equal to 100% of
the aggregate principal amount thereof, plus accrued interest to the date of
purchase.
11. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption. The Company
may at any time determine not to have Series B Securities represented in
certificated form, in which event the Holder of a Series B Security in
certificated form may be required to exchange this Series B Security for a
Book-Entry Security.
If this Series B Security is a Global Security, it is exchangeable
for Series B Securities in certificated form only if (x) the Depository is at
any time unwilling or unable to continue as depository and a successor
depository is not appointed by the Company within 30 days or (y) there shall
have occurred and be continuing an Event of Default or (z) the Company may at
any time determine not to have Series B Securities represented by a Global
Security. In any such instance, an owner of a beneficial interest in a Global
Security will be entitled to physical delivery in certificated form of Series B
Securities in authorized denominations equal in principal amount to such
beneficial interest and to have such Series B Securities registered in its name.
12. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
B-6
<PAGE>
With respect to Global Securities, the Depository may grant proxies
and otherwise authorize Holders of Book-Entry Securities to give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action which a Holder of a Security is entitled to give or take under this
Indenture.
13. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed
for one year, the Trustee and the Paying Agents will pay the money back to the
Company at its request. After that, all liability of the Trustee and such Paying
Agents with respect to such money shall cease.
14. Discharge Prior to Redemption or Maturity.
If the Company at any time deposits with the Trustee U.S. Legal
Tender or U.S. Government Obligations sufficient to pay the principal of and
interest on the Securities to redemption or maturity and complies with the other
provisions of the Indenture relating thereto, the Company will be discharged
from certain provisions of the Indenture and the Securities (including the
financial covenants, but excluding its obligation to pay the principal of and
interest on the Securities).
15. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may
be amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture or the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities, comply with Article Five of the Indenture or comply with any
requirements of the SEC in connection with the qualification of the Indenture
under the TIA, or make any other change that does not adversely affect the
rights of any Holder of a Security.
16. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Subsidiaries to, among other things, incur additional
Indebtedness or Liens, make payments
B-7
<PAGE>
in respect of its Capital Stock and merge or consolidate with any other person
and sell, lease, transfer or otherwise dispose of substantially all of certain
of its properties or assets. The limitations are subject to a number of
important qualifications and exceptions. The Company must annually report to the
Trustee on compliance with such limitations.
17. Successors.
When a successor assumes all the obligations of its predecessor
under the Securities and the Indenture, the predecessor will be released from
those obligations.
18. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable in the manner,
at the time and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of any continuing Default or Event of Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in their interest.
19. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
20. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as
such, of the Company shall have any liability for any obligation of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of, such obligations or their creation. Each Holder of a Security
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
B-8
<PAGE>
21. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on this Security.
22. Governing Law.
The Laws of the State of New York shall govern this Security and the
Indenture.
23. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
24. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities immediately prior to the qualification of the
Indenture under the TIA as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
25. Indenture.
Each Holder, by accepting a Security, agrees to be bound by all of
the terms and provisions of the Indenture, as the same may be amended from time
to time.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
DUANE READE, c/o Bain Capital, Two Copley Place, Boston, MA 02116 Attn: Adam
Kirsch.
B-9
<PAGE>
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
GUARANTEE
Each of the Guarantors (as defined in the Indenture) referred to in
the Security upon which this notation is endorsed and each hereinafter referred
to as a "Guarantor," which term includes any successor person under the
Indenture) has unconditionally guaranteed on a senior basis (such guarantee by
each Guarantor being referred to herein as the "Guarantee") (i) the due and
punctual payment of the principal of and interest on the Securities, whether at
maturity, by acceleration or otherwise, the due and punctual payment of interest
on the overdue principal and interest, if any, on the Securities, to the extent
lawful, and the due and punctual performance of all other obligations of the
Company to the Holders or the Trustee all in accordance with the terms set forth
in Article Eleven of the Indenture and (ii) in case of any extension of time of
payment or renewal of any Securities or any of such other obligations, that the
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise.
The obligations of each Guarantor to the Holders of Securities and
to the Trustee pursuant to the Guarantee and the Indenture are expressly set
forth in Article Eleven of the Indenture, and reference is hereby made to such
Indenture for the precise terms of the Guarantee therein made.
The Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Securities upon which the Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
DABOCO INC.
By:
-------------------------------
Name:
Title:
DUANE READE INC.
By:
-------------------------------
Name:
Title:
B-l0
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign this Security to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other
identifying number of assignee
______________________________________
and irrevocably appoint ________________________ agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.
Dated: _____________________ Signed: ___________________________________________
________________________________________________________________________________
(Sign exactly as your name appears on
the front of this Security)
Signature Guarantee: ___________________________________________________________
B-11
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount:
$
Date: __________________ Signature: ____________________________________________
(Sign exactly as your name
appears on the front of
this Security)
Signature Guarantee: ___________________________________________________________
B-12
<PAGE>
EXHIBIT C
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Security authenticated and delivered hereunder shall bear
a legend (which would be in addition to any other legends required in the case
of a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY
(OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A
NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE
DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
C-1
<PAGE>
EXHIBIT D
FORM OF TRANSFEREE CERTIFICATE
[Letterhead of Prospective Purchaser or
U.S. Registered Broker-Dealer]
Duane Reade Date: ________________
c/o Bain Capital
Two Copley Plaza
Boston, Massachusetts 02116
Attention:
Dear Sirs:
I. We hereby request that $ aggregate principal amount of 12%
Senior Notes Due 2002, Series A (the "Notes"), of Duane Reade, a general
partnership formed under the laws of the State of New York ("Duane Reade"), be
registered in the name set forth below and confirm that either:
[Check One]
[ ] (a) each person in whose name the Notes are to be registered
upon transfer (or, in the case of a transfer to a nominee, each beneficial owner
of such Note) has been advised that such Note has been sold or transferred to it
in reliance upon Regulation S under the Securities Act of 1933, as amended (the
"Securities Act"), and the address of the person in whose name the Notes are to
be registered upon transfer is an address outside the United States (as defined
in Regulation S) and such person is not a U.S. Person (as defined in Regulation
S).
[ ] (b) the new beneficial owner is an institutional "accredited
investor" (as defined in Rule 501(a)(l), (2), (3) or (7) of Regulation D under
the Securities Act) that is acquiring the notes for investment purposes and not
for distribution (within the meaning of the Securities Act); it has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Notes, and it and any
accounts for which it is acting are each able to bear the economic risk of its
investment; it is acquiring the Notes purchased by it for its own account or for
one or more accounts as to each of which it exercises sole investment
discretion.
<PAGE>
-2-
If this letter is being filled out by a prospective purchaser, the
undersigned purchaser confirms that the Notes will only be transferred in
accordance with the legend on the Notes, and further, that it understands that
in connection with any such transfer, Duane Reade and the Trustee may request,
and if so requested the undersigned purchaser will furnish, such certificates
and other information as may reasonably be required to confirm that any such
transfer complies with the restrictions set forth therein.
We also confirm that we will only transfer the Notes in accordance
with the legend on the Notes.
II. For Qualified Institutional Buyers:
[ ] The Notes are being transferred to a "Qualified Institutional
Buyer" (as defined in Rule 144A under the Securities Act), which person has been
advised that the Notes have been sold or transferred to it in reliance upon Rule
144A, and the transferee wishes the Trustee to arrange for the transferred Notes
to be represented by a beneficial interest in a global security and held in
book-entry form in accordance with the customary procedures of The Depository
Trust Company.
III. The Notes should be registered as follows (unless the box under
II above is checked):
Name:
Address:
Tax Identification Number:
Physical Location of Notes (including address):
Address:
Contact:
IV. If this letter is being completed by a U.S. registered
broker-dealer on behalf of the transferee, the undersigned broker-dealer
confirms that (a) it has delivered to the transferee a notice regarding the
restrictions on transfer of the Notes by such transferee as set forth in the
legend on the Notes and (b) to the best of its knowledge, the information
provided herein about the transferee is true and correct.
<PAGE>
-3-
You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
[Name of Prospective Purchaser
or U.S. Registered Broker-
Dealer]
By:
-------------------------------
Title:
<PAGE>
[EXECUTION COPY]
U.S. $95,475,000
CREDIT AGREEMENT,
dated as of September 30, 1997,
among
DUANE READE,
as the Borrower,
DUANE READE HOLDING CORP.,
DABOCO INC.
AND
DUANE READE INC.,
as the Parent Guarantors,
VARIOUS FINANCIAL INSTITUTIONS,
as the Lenders,
DLJ CAPITAL FUNDING, INC.,
as the Syndication Agent for the Lenders,
FLEET NATIONAL BANK,
as the Administrative Agent for the Lenders,
and
CREDIT LYONNAIS NEW YORK BRANCH,
as the Documentation Agent for the Lenders.
ARRANGED BY:
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms....................................................2
1.2. Use of Defined Terms............................................30
1.3. Cross-References................................................30
1.4. Accounting and Financial Determinations.........................30
ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES,
NOTES AND LETTERS OF CREDIT
2.1. Commitments.....................................................31
2.1.1. Term Loan Commitments...........................................31
2.1.2. Revolving Loan Commitment and Swing Line Loan Commitment........31
2.1.3. Letter of Credit Commitment.....................................32
2.1.4. Lenders Not Permitted or Required to Make the Loans.............32
2.1.5. Issuer Not Permitted or Required to Issue Letters of Credit.....32
2.2. Reduction of the Commitment Amounts.............................32
2.2.1. Optional........................................................32
2.2.2. Mandatory.......................................................33
2.3. Borrowing Procedures and Funding Maintenance....................33
2.3.1. Term Loans and Revolving Loans..................................33
2.3.2. Swing Line Loans................................................34
2.4. Continuation and Conversion Elections...........................35
2.5. Funding.........................................................36
2.6. Issuance Procedures.............................................36
2.6.1. Other Lenders' Participation....................................37
2.6.2. Disbursements; Conversion to Revolving Loans....................37
2.6.3. Reimbursement...................................................38
2.6.4. Deemed Disbursements............................................38
2.6.5. Nature of Reimbursement Obligations.............................39
2.6.6. Indemnity.......................................................39
2.6.7. Borrower's Guaranty of Reimbursement Obligations under Letters
of Credit Issued for the Account of its Subsidiaries..........39
2.7. Register; Notes.................................................43
<PAGE>
Section Page
- ------- ----
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
3.1. Repayments and Prepayments; Application.........................44
3.1.1. Repayments and Prepayments......................................44
3.1.2. Application.....................................................48
3.2. Interest Provisions.............................................49
3.2.1. Rates...........................................................49
3.2.2. Post-Maturity Rates.............................................49
3.2.3. Payment Dates...................................................49
3.3. Fees ...........................................................50
3.3.1. Commitment Fee..................................................50
3.3.2. Syndication Agent's, Administrative Agent's and
Arranger's Fees...............................................50
3.3.3. Letter of Credit Fee............................................50
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
4.1. LIBO Rate Lending Unlawful......................................51
4.2. Deposits Unavailable............................................51
4.3. Increased LIBO Rate Loan Costs, etc.............................51
4.4. Funding Losses..................................................52
4.5. Increased Capital Costs.........................................52
4.6. Taxes...........................................................52
4.7. Payments, Computations, etc.....................................54
4.8. Sharing of Payments.............................................54
4.9. Setoff..........................................................55
4.10. Replacement of Lenders..........................................55
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
5.1. Initial Credit Extension........................................56
5.1.1. Corporate and Partnership Documents, etc........................56
5.1.2. Consummation of Refinancing.....................................56
5.1.3. Closing Date Certificates.......................................56
5.1.4. Delivery of Notes...............................................57
5.1.5. Pledge Agreement................................................57
-ii-
<PAGE>
Section Page
- ------- ----
5.1.6. Security Agreements.............................................57
5.1.7. Mortgage........................................................58
5.1.8. Financial Information, etc......................................58
5.1.9. Solvency, etc...................................................58
5.1.10. Change of Control Offerings.....................................59
5.1.11. Payment of Outstanding Indebtedness, etc........................59
5.1.12. Litigation......................................................59
5.1.13. Material Adverse Change.........................................59
5.1.14. Opinions of Counsel.............................................60
5.1.15. Insurance.......................................................60
5.1.16. Perfection Certificate..........................................60
5.1.17. Approvals.......................................................60
5.1.18. Closing Fees, Expenses, etc.....................................60
5.1.19. Satisfactory Legal Form.........................................60
5.2. All Credit Extensions...........................................60
5.2.1. Compliance with Warranties, No Default, etc.....................60
5.2.2. Credit Extension Request........................................61
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Organization, etc...............................................61
6.2. Due Authorization, Non-Contravention, etc.......................62
6.3. Government Approval, Regulation, etc............................62
6.4. Validity, etc...................................................62
6.5. Financial Information...........................................62
6.6. No Material Adverse Change......................................63
6.7. Litigation, Labor Controversies, etc............................63
6.8. Subsidiaries....................................................63
6.9. Ownership of Properties.........................................63
6.10. Taxes...........................................................63
6.11. Pension and Welfare Plans.......................................64
6.12. Environmental Warranties........................................64
6.13. Regulations G, U and X..........................................65
6.14. Accuracy of Information.........................................65
6.15. Solvency........................................................66
6.16. Pharmaceutical Laws.............................................66
6.17. Seniority of the Obligations and Permitted Indebtedness
under the Indentures..........................................67
-iii-
<PAGE>
Section Page
- ------- ----
ARTICLE VII
COVENANTS
7.1. Affirmative Covenants...........................................67
7.1.1. Financial Information, Reports, Notices, etc....................67
7.1.2. Compliance with Laws, etc.......................................70
7.1.3. Maintenance of Properties.......................................70
7.1.4. Insurance.......................................................70
7.1.5. Books and Records...............................................71
7.1.6. Environmental Covenant..........................................71
7.1.7. Future Subsidiaries.............................................72
7.1.8. Future Leased Property and Future Acquisitions of Real
Property; Future Acquisition of Other Property................73
7.1.9. Use of Proceeds, etc............................................74
7.1.10. Hedging Obligations.............................................74
7.1.11. Maintenance of Corporate Separateness...........................74
7.1.12. Borrower Indebtedness...........................................74
7.2. Negative Covenants..............................................75
7.2.1. Business Activities.............................................75
7.2.2. Indebtedness....................................................75
7.2.3. Liens...........................................................77
7.2.4. Financial Covenants.............................................78
7.2.5. Investments.....................................................79
7.2.6. Restricted Payments, etc........................................81
7.2.7. Capital Expenditures, etc.......................................83
7.2.8. Consolidation, Merger, etc......................................83
7.2.9. Asset Dispositions, etc.........................................84
7.2.10. Modification of Certain Agreements..............................85
7.2.11. Transactions with Affiliates....................................85
7.2.12. Negative Pledges, Restrictive Agreements, etc...................85
7.2.13. Stock of Subsidiaries...........................................85
7.2.14. Sale and Leaseback..............................................86
ARTICLE VIII
EVENTS OF DEFAULT
8.1. Listing of Events of Default....................................86
8.1.1. Non-Payment of Obligations......................................86
8.1.2. Breach of Warranty..............................................86
-iv-
<PAGE>
Section Page
- ------- ----
8.1.3. Non-Performance of Certain Covenants and Obligations............86
8.1.4. Non-Performance of Other Covenants and Obligations..............86
8.1.5. Default on Other Indebtedness...................................87
8.1.6. Judgments.......................................................87
8.1.7. Pension Plans...................................................87
8.1.8. Change in Control...............................................87
8.1.9. Bankruptcy, Insolvency, etc.....................................87
8.1.10. Impairment of Security, etc.....................................88
8.2. Action if Bankruptcy, etc.......................................88
8.3. Action if Other Event of Default................................88
ARTICLE IX
GUARANTY
9.1. Guaranty........................................................89
9.2. Acceleration of Parent Guaranty.................................89
9.3. Guaranty Absolute, etc..........................................89
9.4. Reinstatement, etc..............................................91
9.5. Waiver, etc.....................................................91
9.6. Postponement of Subrogation, etc................................91
9.7. Successors, Transferees and Assigns; Transfers of Notes, etc....92
ARTICLE X
THE AGENTS
10.1. Actions.........................................................92
10.2. Funding Reliance, etc...........................................93
10.3. Exculpation.....................................................93
10.4. Successor.......................................................93
10.5. Credit Extensions by each Agent.................................94
10.6. Credit Decisions................................................94
10.7. Copies, etc.....................................................94
10.8. The Swing Line Lender, the Issuer, the Documentation
Agent, the Syndication Agent and the Administrative Agent.....95
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1. Waivers, Amendments, etc........................................95
11.2. Notices.........................................................96
-v-
<PAGE>
Section Page
- ------- ----
11.3. Payment of Costs and Expenses...................................97
11.4. Indemnification.................................................97
11.5. Survival........................................................99
11.6. Severability....................................................99
11.7. Headings........................................................99
11.8. Execution in Counterparts, Effectiveness, etc...................99
11.9. Governing Law; Entire Agreement.................................99
11.10. Successors and Assigns..........................................99
11.11. Sale and Transfer of Loans and Notes; Participations in
Loans and Notes...............................................99
11.11.1. Assignments....................................................100
11.11.2. Participations.................................................102
11.12. Other Transactions.............................................103
11.13. Independence of Covenants......................................103
11.14. Confidentiality................................................103
11.15. Forum Selection and Consent to Jurisdiction....................104
11.16. Waiver of Jury Trial...........................................105
SCHEDULE I - Disclosure Schedule
SCHEDULE II - Percentages and Administrative Information
EXHIBIT A-1 - Form of Revolving Note
EXHIBIT A-2 - Form of Term Note
EXHIBIT A-3 - Form of Registered Note
EXHIBIT A-4 - Form of Swing Line Note
EXHIBIT B-1 - Form of Borrowing Request
EXHIBIT B-2 - Form of Issuance Request
EXHIBIT C - Form of Continuation/Conversion Notice
EXHIBIT D-1 - Form of Holdings Closing Date Certificate
EXHIBIT D-2 - Form of Borrower Closing Date Certificate
EXHIBIT E - Form of Compliance Certificate
EXHIBIT F-1 - Form of Partnership Security Agreement
EXHIBIT F-2 - Form of Borrower Security Agreement
EXHIBIT F-3 - Form of Subsidiary Security Agreement
EXHIBIT G-1 - Form of Parent Pledge Agreement
EXHIBIT G-2 - Form of Borrower Pledge Agreement
EXHIBIT G-3 - Form of Subsidiary Pledge Agreement
EXHIBIT H - Form of Subsidiary Guaranty
EXHIBIT I - Form of Perfection Certificate
EXHIBIT J - Form of Lender Assignment Agreement
EXHIBIT K - Form of Opinion of New York Counsel to the Obligors
EXHIBIT L-1 - Form of Solvency Certificate of Holdings
EXHIBIT L-2 - Form of Solvency Certificate of the Borrower
-vi-
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of September 30, 1997, is made among
DUANE READE, a New York general partnership (the "Borrower"), DUANE READE
HOLDING CORP., a Delaware corporation ("Holdings"), DABOCO INC., a New York
corporation ("Daboco"), DUANE READE INC., a Delaware corporation ("DRI" and,
together with Holdings and Daboco, collectively, the "Parent Guarantors"), the
various financial institutions as are or may become parties hereto
(collectively, the "Lenders"), DLJ CAPITAL FUNDING, INC. ("DLJ"), as
syndication agent (in such capacity, the "Syndication Agent") for the Lenders,
FLEET NATIONAL BANK ("Fleet"), as administrative agent (in such capacity, the
"Administrative Agent") for the Lenders and CREDIT LYONNAIS NEW YORK BRANCH
("Credit Lyonnais"), as the documentation agent (in such capacity, the
"Documentation Agent") for the Lenders.
W I T N E S S E T H:
WHEREAS, the Borrower intends to refinance (the "Refinancing") its
existing senior credit facilities, evidenced by that certain Credit Agreement,
dated as of September 24, 1992 (as amended, supplemented, amended and restated
or otherwise modified prior to the Closing Date, the "Existing Credit
Agreement") among the Borrower, Daboco, DRI, the lenders party thereto, and the
Agent (as defined therein);
WHEREAS, approximately $91,000,000 will be required to consummate the
Refinancing, of which no more than $3,500,000 will be used to pay reasonable
fees and expenses associated with the Refinancing;
WHEREAS, in connection with the Refinancing and the ongoing working
capital and general corporate needs of the Borrower, the Borrower desires to
obtain the following financing facilities from the Lenders:
(a) a Term Loan Commitment pursuant to which Borrowings of
Term Loans will be made to the Borrower on the Closing Date in a
maximum, original principal amount of $65,475,000;
(b) a Revolving Loan Commitment (to include availability for
Revolving Loans, Swing Line Loans and Letters of Credit) pursuant to
which Borrowings of Revolving Loans, in a maximum aggregate
outstanding principal amount (together with the aggregate outstanding
amount of all Swing Line Loans and Letter of Credit Outstandings) not
to exceed $30,000,000 will be made to the Borrower from time to time
on and subsequent to the Closing Date but prior to the Revolving Loan
Commitment Termination Date;
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(c) a Letter of Credit Commitment pursuant to which the
Issuer will issue Letters of Credit for the account of the Borrower
from time to time on and subsequent to the Closing Date but prior to
the Revolving Loan Commitment Termination Date in a maximum aggregate
Stated Amount at any one time outstanding not to exceed $10,000,000
(provided, that the aggregate outstanding amount of all Revolving
Loans, Swing Line Loans and Letter of Credit Outstandings at any time
shall not exceed the then existing Revolving Loan Commitment Amount);
and
(d) a Swing Line Loan Commitment pursuant to which Borrowings
of Swing Line Loans in an aggregate outstanding principal amount not
to exceed $5,000,000 will be made to the Borrower on and from time to
time subsequent to the Closing Date but prior to the Revolving Loan
Commitment Termination Date (provided, that the aggregate outstanding
amount of all Swing Line Loans, Revolving Loans and Letter of Credit
Outstandings at any time shall not exceed the then existing Revolving
Loan Commitment Amount);
with the proceeds of the Credit Extensions to be used for the purposes set
forth in Section 7.1.9; and
WHEREAS, the Lenders and the Issuer are willing, on the terms and
subject to the conditions hereinafter set forth (including Article V), to
extend the Commitments and make the Loans described herein to the Borrower and
issue (or participate in) Letters of Credit for the account of the Borrower;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. Defined Terms. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Administrative Agent" is defined in the preamble and includes each
other Person as shall have subsequently been appointed as the successor
Administrative Agent pursuant to Section 10.4.
"Administrative Agent's Fee Letter" means the confidential fee letter,
dated as of September 16, 1997, between the Borrower and the Administrative
Agent.
"Affected Lender" is defined in Section 4.10.
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"Affiliate" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Plan). A Person shall be deemed to be "controlled by" any
other Person if such other Person possesses, directly or indirectly, power (a)
to vote 10% or more of the securities (on a fully diluted basis) having
ordinary voting power for the election of directors or managing general
partners, or (b) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Agent" means, as the context may require, the Administrative Agent
and/or the Syndication Agent.
"Agreement" means, on any date, this Credit Agreement as originally in
effect on the Closing Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"Alternate Base Rate" means, for any day and with respect to all Base
Rate Loans, the higher of: (a) 0.50% per annum above the Federal Funds Rate
most recently determined by the Administrative Agent; and (b) the rate of
interest in effect for such day as most recently publicly announced or
established by the Administrative Agent in Boston, Massachusetts, as its "prime
rate." (The "prime rate" is a rate set by the Administrative Agent based upon
various factors including the Administrative Agent's costs and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above or below such announced
rate.) Any change in the reference rate established or announced by the
Administrative Agent shall take effect at the opening of business on the day of
such establishment or announcement.
"Applicable Commitment Fee" means, (a) for each day from the Closing
Date through (but excluding) the date upon which the Compliance Certificate for
the second full Fiscal Quarter following the Closing Date is delivered or
required to be delivered by the Borrower to the Administrative Agent pursuant
to clause (d) of Section 7.1.1, a fee which shall accrue at a rate of 1/2 of 1%
per annum, and (b) for each day thereafter, a fee which shall accrue at the
applicable rate per annum set forth below under the column entitled "Applicable
Commitment Fee", determined by reference to the Leverage Ratio as in effect for
the Fiscal Quarter last ended as of such time of determination:
APPLICABLE
LEVERAGE RATIO COMMITMENT FEE
greater than or equal to 2.50 0.500%
less than 2.50 0.375%
With respect to any time of determining the Applicable Commitment Fee, the
Leverage Ratio used to compute the Applicable Commitment Fee shall be equal to
the Leverage Ratio set forth in the Compliance Certificate most recently
delivered by the Borrower to the Administrative Agent, as of such time of
determination pursuant to clause (d) of Section 7.1.1. Changes in the
Applicable Commitment Fee resulting from a change in the Leverage Ratio shall
become
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effective upon delivery by the Borrower to the Administrative Agent of a new
Compliance Certificate pursuant to clause (d) of Section 7.1.1. If the Borrower
fails to deliver a Compliance Certificate within the number of days required
pursuant to clause (d) of Section 7.1.1, the Applicable Commitment Fee from and
including the first day after the date on which such Compliance Certificate was
required to be delivered through (but excluding) the date the Borrower actually
delivers to the Administrative Agent an appropriately completed Compliance
Certificate shall conclusively equal the highest Applicable Commitment Fee set
forth above.
"Applicable Margin" means at all times during the applicable periods
set forth below,
(a) with respect to the unpaid principal amount of each Term
Loan maintained as a (i) Base Rate Loan, 2.00% per annum and (ii) LIBO
Rate Loan, 3.00% per annum;
(b) from the Closing Date through (but excluding) the date
upon which the Compliance Certificate for the second full Fiscal
Quarter following the Closing Date is delivered by the Borrower to the
Administrative Agent pursuant to clause (d) of Section 7.1.1, with
respect to the unpaid principal amount of (i) each Swing Line Loan
(each of which shall be borrowed and maintained only as a Base Rate
Loan), 1.50% per annum, and (ii) each Revolving Loan maintained as (A)
a Base Rate Loan, 1.50% per annum, and (B) a LIBO Rate Loan, 2.50% per
annum; and
(c) at all times after the date of such delivery of the
Compliance Certificate described in clause (b) above, with respect to
the unpaid principal amount of each Swing Line Loan (each of which
shall be borrowed and maintained only as a Base Rate Loan) and each
Revolving Loan, by reference to the Leverage Ratio and at the
applicable percentage per annum set forth below under the column
entitled "Applicable Margin for Base Rate Loans", in the case of Swing
Line Loans or Revolving Loans maintained as Base Rate Loans, or by
reference to the Leverage Ratio and at the applicable percentage per
annum set forth below under the column entitled "Applicable Margin for
LIBO Rate Loans" in the case of Revolving Loans maintained as LIBO
Rate Loans:
APPLICABLE MARGIN FOR REVOLVING LOANS AND SWING LINE LOANS
<TABLE>
<CAPTION>
APPLICABLE APPLICABLE
MARGIN FOR MARGIN FOR
LEVERAGE RATIO BASE RATE LOANS LIBO RATE LOANS
-------------- --------------- ---------------
<S> <C> <C>
greater than or equal to 3.00 1.50% 2.50%
less than 3.00 and greater than or equal to 2.50 1.00% 2.00%
less than 2.50 and greater than or equal to 2.00 0.50% 1.50%
less than 2.00 0.25% 1.25%
</TABLE>
The Leverage Ratio used to compute the Applicable Margin for Swing Line Loans
and Revolving Loans shall be equal to the Leverage Ratio set forth in the
Compliance Certificate most recently delivered by the Borrower to the
Administrative Agent pursuant to clause (d) of Section 7.1.1. Changes in the
Applicable Margin for such Loans resulting from a change in the
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Leverage Ratio shall become effective upon delivery by the Borrower to the
Administrative Agent of a new Compliance Certificate pursuant to clause (d) of
Section 7.1.1. If the Borrower fails to deliver a Compliance Certificate within
the number of days required pursuant to clause (d) of Section 7.1.1, the
Applicable Margin for Swing Line Loans and Revolving Loans from and including
the first day after the date on which such Compliance Certificate was required
to be delivered through (but excluding) the date the Borrower delivers to the
Administrative Agent an appropriately completed Compliance Certificate shall
conclusively equal the highest Applicable Margin for Swing Line Loans and
Revolving Loans of the same type set forth above.
"Arranger" means Donaldson, Lufkin & Jenrette Securities Corporation,
a Delaware corporation.
"Assigned Amount" is defined in Section 11.11.1.
"Assignee Lender" is defined in Section 11.11.1.
"Assignor Lender" is defined in Section 11.11.1.
"Authorized Officer" means, relative to any Obligor, those of its
officers whose signatures and incumbency shall have been certified to the
Administrative Agent and the Lenders pursuant to Section 5.1.1.
"Base Financial Statements" is defined in clause (a) of Section 5.1.8.
"Base Rate Loan" means a Loan bearing interest at a fluctuating rate
determined by reference to the Alternate Base Rate.
"Borrower" is defined in the preamble.
"Borrower Closing Date Certificate" means a certificate of an
Authorized Officer of the Borrower substantially in the form of Exhibit D-2
hereto, delivered pursuant to Section 5.1.3.
"Borrower Partnership Agreement" means the Second Amended and Restated
Agreement of Partnership of Duane Reade, dated as of September 25, 1992,
between Daboco and DRI, as in effect on the Closing Date and as amended or
otherwise modified from time to time in accordance with the terms hereof and
thereof.
"Borrower Pledge Agreement" means the Pledge Agreement executed and
delivered by an Authorized Officer of the Borrower pursuant to Section 7.1.7,
substantially in the form of Exhibit G-2 hereto, as amended, supplemented,
amended and restated or otherwise modified from time to time.
"Borrower Security Agreement" means the Security Agreement executed
and delivered by an Authorized Officer of the Borrower pursuant to Section
5.1.6, substantially in the form of
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Exhibit F-2 hereto, as amended, supplemented, amended and restated or otherwise
modified from time to time.
"Borrowing" means Loans of the same type and, in the case of LIBO Rate
Loans, having the same Interest Period made by the relevant Lenders on the same
Business Day and pursuant to the same Borrowing Request in accordance with
Section 2.1.
"Borrowing Request" means a loan request and certificate duly executed
by an Authorized Officer of the Borrower, substantially in the form of Exhibit
B-1 hereto.
"Business Day" means any day which is neither a Saturday or Sunday nor
a legal holiday on which banks are authorized or required to be closed in New
York City or Boston, Massachusetts and, with respect to Borrowings of, interest
rate determinations with respect to, Interest Periods with respect to, payments
of principal and interest in respect of, conversions of Base Rate Loans into,
and continuations of LIBO Rate Loans as, LIBO Rate Loans, on which dealings in
Dollars are carried on in the London interbank market.
"Capital Expenditures" means, with respect to any Person, for any
period, the sum (without duplication) of (a) the aggregate amount of all
expenditures of such Person and its Subsidiaries for fixed or capital assets
made during such period which, in accordance with GAAP, would be classified as
capital expenditures, and (b) the aggregate amount of all Capitalized Lease
Liabilities incurred during such period by such Person and its Subsidiaries.
"Capital Stock" means, with respect to any Person, (a) any and all
shares, interests, participations, rights or other equivalents of or interests
in (however designated) corporate or capital stock, including shares of
preferred or preference stock of such Person, (b) all partnership interests
(whether general or limited) in such Person, (c) all membership interests or
limited liability company interests in such Person, and (d) all other equity or
ownership interests in such Person of any other type.
"Capitalized Lease Liabilities" means (without duplication) all
monetary obligations of the Borrower or any of its Subsidiaries under any
leasing or similar arrangement which, in accordance with GAAP, would be
classified as capitalized leases, and, for purposes of this Agreement and each
other Loan Document, the amount of such obligations shall be the capitalized
amount thereof, determined in accordance with GAAP, and the stated maturity
thereof shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
"Cash Equivalent Investment" means, at any time:
(a) any evidence of Indebtedness, maturing not more than one
year after such time, issued directly, or guaranteed, by the United
States of America or any agency thereof;
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(b) commercial paper, maturing not more than nine months from
the date of issue, which is issued by (i) a corporation (other than an
Affiliate of any Obligor) organized under the laws of any state of the
United States or of the District of Columbia and rated at least A-l by
S&P or P-l by Moody's, or (ii) any Lender (or its holding company);
(c) any time deposit, certificate of deposit or banker's
acceptance, maturing not more than one year after such time,
maintained with or issued by either (i) a commercial banking
institution (including U.S. branches of foreign banking institutions)
that is a member of the Federal Reserve System and has a combined
capital and surplus and undivided profits of not less than
$500,000,000, or (ii) any Lender;
(d) short-term tax-exempt securities rated not lower than
MIG-1/1+ by either Moody's or S&P with provisions for liquidity or
maturity accommodations of 183 days or less;
(e) repurchase agreements which (i) are entered into with any
entity referred to in clause (b) or (c) above or any other financial
institution whose unsecured long-term debt (or the unsecured long-term
debt of whose holding company) is rated at least A- or better by S&P
or Baa1 or better by Moody's and maturing not more than one year after
such time, (ii) are secured by a fully perfected security interest in
securities of the type referred to in clauses (a) through (c) above
and (iii) have a market value at the time of such repurchase agreement
is entered into of not less than 100% of the repurchase obligation of
such counterparty entity with whom such repurchase agreement has been
entered into; or
(e) shares of investment companies that are registered under
the Investment Company Act of 1940, as amended and invest solely in
one or more of the types of securities described in clauses (a)
through (d) above.
"Casualty Event" means the damage, destruction or condemnation, as the
case may be, of any property of the Borrower, any Parent Guarantor or any of
their respective Subsidiaries.
"Casualty Proceeds" means, with respect to any Casualty Event, the
amount of any insurance proceeds or condemnation awards received by the
Borrower, any Parent Guarantor or any of their respective Subsidiaries in
connection therewith, but excluding any proceeds or awards required to be paid
to a creditor (other than the Lenders) which holds a first-priority Lien
permitted by Section 7.2.3 on the property which is the subject of such
Casualty Event.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
Liability Information System List.
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"Change in Control" means
(a) (i) the failure of Daboco or DRI to be a general partner
of the Borrower, or (ii) there shall be any general partner or limited
partner of the Borrower other than Daboco and DRI;
(b) the failure of Daboco at any time to own, free and clear
of all Liens (other than the Liens granted in favor of the
Administrative Agent for the benefit of the Secured Parties under the
Loan Documents) and encumbrances, all right, title and interest in
100% of the Capital Stock of DRI on a fully diluted basis;
(c) the failure of Holdings at any time to own, free and
clear of all Liens (other than the Liens granted in favor of the
Administrative Agent for the benefit of the Secured Parties under the
Loan Documents) and encumbrances, all right, title and interest in
100% of the Capital Stock of Daboco on a fully diluted basis;
(d) the failure of the DLJMB Entities and their controlled
Affiliates to (i) own, free and clear of all Liens and encumbrances, a
majority of the Capital Stock of Holdings on a fully diluted basis, or
(ii) have the right to elect a majority of the Board of Directors of
Holdings; or
(e) any "Change of Control" as such term is defined in the
Holdings Subordinated Note Indenture or the Senior Note Indenture.
"Closing Date" means the date of the initial Credit Extension.
"Closing Date Certificate" means, as the context may require, the
Holdings Closing Date Certificate and/or the Borrower Closing Date Certificate.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitment" means, as the context may require, (a) a Lender's Term
Loan Commitment, Revolving Loan Commitment and/or Letter of Credit Commitment
and/or (b) the Swing Line Lender's Swing Line Loan Commitment.
"Commitment Amount" means, as the context may require, the Term Loan
Commitment Amount, the Revolving Loan Commitment Amount, the Letter of Credit
Commitment Amount and/or the Swing Line Loan Commitment Amount.
"Commitment Letter" means the commitment letter, dated September 8,
1997, among the Borrower, the Arranger and the Syndication Agent, together with
all annexes thereto.
"Commitment Termination Date" means, as the context may require, the
Revolving Loan Commitment Termination Date and/or the Term Loan Commitment
Termination Date.
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"Commitment Termination Event" means (a) the occurrence of any Event
of Default described in clauses (a) through (d) of Section 8.1.9, or (b) the
occurrence and continuance of any other Event of Default and either (i) the
declaration of the Loans to be due and payable pursuant to Section 8.3, or (ii)
in the absence of such declaration, the giving of notice to the Borrower by the
Administrative Agent, acting at the direction of the Required Lenders, that the
Commitments have been terminated.
"Compliance Certificate" means a certificate duly completed and
executed by the chief financial or accounting Authorized Officer of the
Borrower, substantially in the form of Exhibit E hereto.
"Contingent Liability" means any agreement, undertaking or arrangement
by which any Person guarantees, endorses or otherwise becomes or is
contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss) the
indebtedness, obligation or any other liability of any other Person (other than
by endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other
Person. The amount of any Person's obligation under any Contingent Liability
shall (subject to any limitation set forth therein) be deemed to be the
outstanding principal amount of the debt, obligation or other liability
guaranteed thereby.
"Continuation/Conversion Notice" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the
Borrower, substantially in the form of Exhibit C hereto.
"Controlled Group" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414(b) or 414(c) of
the Code or Section 4001 of ERISA, or for purposes of Section 412 of the Code,
Section 414(m) or Section 414(o) of the Code.
"Credit Extension" means, as the context may require, (a) the making
of a Loan by a Lender and/or (b) the issuance of any Letter of Credit, or the
extension of any Stated Expiry Date of any previously issued Letter of Credit,
by the Issuer.
"Credit Extension Request" means, as the context may require, any
Borrowing Request and/or Issuance Request.
"Credit Lyonnais" is defined in the preamble.
"Daboco" is defined in the preamble.
"Debt" means (without duplication) the aggregate amount of all
Indebtedness of the Borrower and its Subsidiaries that is of the type referred
to in clauses (a), (b), (c) and (f) of the definition of "Indebtedness" and any
Contingent Liability in respect of such Indebtedness.
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"Default" means any Event of Default or any condition, occurrence or
event which, after notice or lapse of time or both, would, unless cured or
waived, constitute an Event of Default.
"Disbursement" is defined in Section 2.6.2.
"Disbursement Date" is defined in Section 2.6.2.
"Disbursement Due Date" is defined in Section 2.6.2.
"Disclosure Schedule" means the Disclosure Schedule attached hereto as
Schedule I, as it may be amended, supplemented or otherwise modified from time
to time by the Borrower with the written consent of the Required Lenders.
"DLJ" is defined in the preamble.
"DLJMB Entities" means DLJMB Funding II, Inc., DLJ Merchant Banking
Partners II, L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ Diversified
Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ First ESC L.L.C., DLJ
Offshore Partners II, C.V., DLJ EAB Partners, L.P., DLJ Millennium Partners,
L.P., DLJ Millennium-A Partners, L.P. and UK Investment Plan 1997 Partners.
"Documentation Agent" is defined in the preamble and includes each
other Person as shall have subsequently been appointed as the successor
Documentation Agent pursuant to Section 10.4.
"Dollar" and the symbol "$" mean lawful money of the United States.
"DRI" is defined in the preamble.
"EBITDA" means, for any applicable period, the sum (without
duplication) for the Borrower and its Subsidiaries on a consolidated basis of
(a) Net Income,
plus
(b) the amount deducted in determining Net Income
representing non-cash charges, including depreciation, amortization
and deferred rent,
plus
(c) the amount deducted in determining Net Income
representing income taxes (whether actually paid or deferred),
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plus
(d) the amount deducted in determining Net Income
representing Interest Expense,
plus
(e) the amount deducted in determining Net Income
representing extraordinary or non-recurring expenses,
minus
(f) an amount equal to the amount of all extraordinary or
non-recurring non-cash credits included in determining Net Income,
minus
(g) Restricted Payments of the type referred to in clause
(d)(i) of Section 7.2.6 made during such applicable period.
"Environmental Laws" means all applicable federal, state or local
statutes, laws, ordinances, codes, rules and regulations (including consent
decrees and administrative orders) relating to public health and safety and
protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" is defined in Section 8.1.
"Excess Cash Flow" means, for any applicable period, the excess (if
any), of
(a) EBITDA for such applicable period;
over
(b) the sum (without duplication) (for such applicable
period) of
(i) the cash portion of Interest Expense (net of
interest income) for such applicable period;
plus
(ii) scheduled payments and optional and mandatory
prepayments, to the extent actually made, of the principal
amount of the Term Loans or any other term Debt (including
the principal component of payments in respect of Capitalized
Lease Liabilities) and mandatory prepayments of the principal
amount of the
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Revolving Loans pursuant to clause (f) of Section 3.1.1 in
connection with a permanent reduction of the Revolving Loan
Commitment Amount, in each case for such applicable period;
plus
(iii) all federal, state and foreign income taxes
actually paid in cash by the Borrower and its Subsidiaries
for such applicable period;
plus
(iv) Capital Expenditures of the Borrower and its
Subsidiaries actually made during such applicable period
pursuant to clause (a) of Section 7.2.7 (excluding Capital
Expenditures of the Borrower and its Subsidiaries
constituting Capitalized Lease Liabilities and by way of the
incurrence of Indebtedness permitted pursuant to clause (f)
of Section 7.2.2 to a vendor of any assets permitted to be
acquired pursuant to Section 7.2.7 to finance the acquisition
of such assets);
plus
(v) Investments permitted and actually made, in
cash, pursuant to clauses (d) and (i) of Section 7.2.5 during
such applicable period;
plus
(vi) Restricted Payments of the types described in
clauses (c) and (d)(ii) of Section 7.2.6 made during such
applicable period;
plus
(vii) the amount of the net increase (or minus a
net decrease) of current assets, other than cash and Cash
Equivalent Investments, over current liabilities of the
Borrower and its Subsidiaries for such applicable period;
minus
(viii) the amount of tax refunds received by the
Parent Guarantors, the Borrower and their respective
Subsidiaries during such applicable period.
"Existing Credit Agreement" is defined in the first recital.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to (a) the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds
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brokers, as published for such day (or, if such day is not a Business Day, for
the next preceding Business Day) by the Federal Reserve Bank of New York, or
(b) if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three federal funds brokers of recognized standing
selected by it.
"Fee Letter" means the confidential fee letter, dated as of September
8, 1997, among the Borrower, the Arranger and the Syndication Agent.
"Fiscal Quarter" means any fiscal quarter of a Fiscal Year, which
fiscal quarters shall end on the last Saturday of each March, June, September
or December of such Fiscal Year.
"Fiscal Year" means any period of twelve consecutive months ending on
the last Saturday of December of any calendar year.
"Fixed Charge Coverage Ratio" means, at the end of any Fiscal Quarter,
the ratio computed for the period consisting of such Fiscal Quarter and each of
the three immediately prior Fiscal Quarters of
(a) EBITDA for all such Fiscal Quarters
to
(b) the sum (without duplication) of
(i) Capital Expenditures of the Borrower and its
Subsidiaries actually made during all such Fiscal Quarters
pursuant to clause (a) of Section 7.2.7 (excluding Capital
Expenditures of the Borrower and its Subsidiaries
constituting Capitalized Lease Liabilities and by way of the
incurrence of Indebtedness permitted pursuant to clause (f)
of Section 7.2.2 to a vendor of any assets permitted to be
acquired pursuant to Section 7.2.7 to finance the acquisition
of such assets);
plus
(ii) the cash portion of Interest Expense (net of
cash interest income) for all such Fiscal Quarters;
plus
(iii) all scheduled payments of principal of the
Term Loans and other term Debt (including the principal
component of payments in respect of any Capitalized Lease
Liabilities) during all such Fiscal Quarters;
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plus
(iv) all federal, state and foreign income taxes
actually paid in cash by the Borrower and its Subsidiaries
for such applicable period;
plus
(v) Restricted Payments of the types described in
clauses (c), (d)(ii) and (e) of Section 7.2.6 made during
such applicable period.
"Fleet" is defined in the preamble.
"Foreign Subsidiary" means any Subsidiary of the Borrower (a) which is
organized under the laws of any jurisdiction outside of the United States of
America, (b) which conducts the major portion of its business outside of the
United States of America and (c) all or substantially all of the property and
assets of which are located outside of the United States of America.
"F.R.S. Board" means the Board of Governors of the Federal Reserve
System or any successor thereto.
"GAAP" is defined in Section 1.4.
"Guarantees" means, as the context may require, the Parent Guaranty
and/or the Subsidiary Guaranty.
"Guarantors" means, collectively, the Parent Guarantors and the
Subsidiary Guarantors, if any.
"Hazardous Material" means
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource
Conservation and Recovery Act, as amended;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous, dangerous or
toxic chemical, material or substance within the meaning of any other
applicable federal, state or local law, regulation, ordinance or
requirement (including consent decrees and administrative orders)
relating to or imposing liability or standards of conduct concerning
any hazardous, toxic or dangerous waste, substance or material, all as
amended or hereafter amended.
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<PAGE>
"Hedging Obligations" means, with respect to any Person, all
liabilities of such Person under interest rate swap agreements, interest rate
cap agreements and interest rate collar agreements, and all other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
"herein", "hereof", "hereto", "hereunder" and similar terms contained
in this Agreement or any other Loan Document refer to this Agreement or such
other Loan Document, as the case may be, as a whole and not to any particular
Section, paragraph or provision of this Agreement or such other Loan Document.
"Holdings" is defined in the preamble.
"Holdings Closing Date Certificate" means a certificate of an
Authorized Officer of Holdings substantially in the form of Exhibit D-1 hereto,
delivered pursuant to Section 5.1.3.
"Holdings Subordinated Note Documents" shall mean and include each of
the documents and other agreements entered into by Holdings (including the
Holdings Subordinated Note Indenture) relating to the issuance by Holdings of
the Holdings Subordinated Notes, as in effect on the Closing Date and as the
same may be modified, supplemented or amended from time to time pursuant to the
terms hereof and thereof.
"Holdings Subordinated Note Indenture" shall mean the Indenture
entered into by and between Holdings and The Connecticut National Bank, as
trustee thereunder, as in effect on the Closing Date and as the same may be
amended or otherwise modified from time to time in accordance with the terms
hereof and thereof.
"Holdings Subordinated Notes" shall mean the Subordinated Debentures
due 2004 issued by Holdings under the Holdings Subordinated Note Indenture, as
in effect on the Closing Date and as the same may be amended or otherwise
modified from time to time in accordance with the terms hereof and thereof.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial
statement of any Obligor, any qualification or exception to such opinion or
certification (a) which is of a "going concern" or similar nature, (b) which
relates to the limited scope of examination of matters relevant to such
financial statement, or (c) which relates to the treatment or classification of
any item in such financial statement and which, as a condition to its removal,
would require an adjustment to such item the effect of which would be to cause
such Obligor to be in default of any of its obligations under Section 7.2.4.
"including" means including without limiting the generality of any
description preceding such term, and, for purposes of this Agreement and each
other Loan Document, the parties hereto agree that the rule of ejusdem generis
shall not be applicable to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
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<PAGE>
"Indebtedness" of any Person means (without duplication):
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
(b) all obligations, contingent or otherwise, relative to the
face amount of all letters of credit, whether or not drawn, and
banker's acceptances issued for the account of such Person;
(c) all obligations of such Person as lessee under leases
which have been or should be, in accordance with GAAP, recorded as
Capitalized Lease Liabilities;
(d) all other items which, in accordance with GAAP, would be
included as liabilities on the liability side of the balance sheet of
such Person as of the date at which Indebtedness is to be determined;
(e) net liabilities of such Person under all Hedging
Obligations;
(f) whether or not so included as liabilities in accordance
with GAAP, all obligations of such Person to pay the deferred purchase
price of property or services, and indebtedness (excluding prepaid
interest thereon) secured by a Lien on property owned or being
purchased by such Person (including indebtedness arising under
conditional sales or other title retention agreements), whether or not
such indebtedness shall have been assumed by such Person or is limited
in recourse; provided, however, that, to the extent such Indebtedness
is limited in recourse to the assets securing such Indebtedness, the
amount of such Indebtedness shall be limited to the fair market value
of such assets;
(g) Redeemable Capital Stock; and
(h) all Contingent Liabilities of such Person in respect of
any of the foregoing.
For all purposes of this Agreement, the Indebtedness of any Person shall
include the Indebtedness of any partnership or joint venture in which such
Person is a general partner or a joint venturer (to the extent such Person is
liable for such Indebtedness).
"Indemnified Liabilities" is defined in Section 11.4.
"Indemnified Parties" is defined in Section 11.4.
"Initial Public Offering" mean for any Person, any sale of the Capital
Stock of such Person to the public pursuant to an initial primary offering
registered under the Securities Act of 1933.
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"Interest Coverage Ratio" means, at the end of any Fiscal Quarter, the
ratio computed for the period consisting of such Fiscal Quarter and each of the
three immediately prior Fiscal Quarters of:
(a) EBITDA (for all such Fiscal Quarters)
to
(b) the cash portion of Interest Expense (for all such Fiscal
Quarters).
"Interest Expense" means, for any applicable period, the aggregate
consolidated interest expense of the Borrower and its Subsidiaries for such
applicable period, as determined in accordance with GAAP, including the portion
of any payments made in respect of Capitalized Lease Liabilities allocable to
interest expense.
"Interest Period" means, as to any LIBO Rate Loan, the period
commencing on the Borrowing date of such Loan or on the date on which the Loan
is converted into or continued as a LIBO Rate Loan, and ending on the date one,
two, three or six months thereafter as selected by the Borrower in its
Borrowing Request or its Conversion/Continuation Notice; provided, however
that:
(a) if any Interest Period would otherwise end on a day that
is not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the immediately preceding Business
Day;
(b) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at
the end of such Interest Period;
(c) no Interest Period for any Loan shall extend beyond the
Stated Maturity Date for such Loan;
(d) no Interest Period applicable to a Term Loan or any
portion thereof shall extend beyond any date upon which is due any
scheduled principal payment in respect of the Term Loans unless the
aggregate principal amount of Term Loans represented by Base Rate
Loans, or by LIBO Rate Loans having Interest Periods that will expire
on or before such date, equals or exceeds the amount of such principal
payment; and
(e) there shall be no more than five Interest Periods in
effect at any one time.
"Investment" means, relative to any Person, (a) any loan or advance
made by such Person to any other Person (excluding commission, travel and
similar advances to officers, directors
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and employees (or individuals acting in similar capacities) made in the
ordinary course of business), and (b) any ownership or similar interest held by
such Person in any other Person. The amount of any Investment shall be the
original principal or capital amount thereof less all returns of principal or
equity thereon (and without adjustment by reason of the financial condition of
such other Person) and shall, if made by the transfer or exchange of property
other than cash, be deemed to have been made in an original principal or
capital amount equal to the fair market value of such property at the time of
such transfer or exchange.
"Issuance Request" means a Letter of Credit request and certificate
duly executed by an Authorized Officer of the Borrower, substantially in the
form of Exhibit B-2 hereto.
"Issuer" means Fleet, in its capacity as issuer of Letters of Credit
and any Lender as may be designated by the Borrower (and consented to by the
Agents and such Lender, such consent by the Agents not to be unreasonably
withheld), in its capacity as issuer of Letters of Credit.
"Lender Assignment Agreement" means a Lender Assignment Agreement,
substantially in the form of Exhibit J hereto.
"Lenders" is defined in the preamble.
"Letter of Credit" is defined in Section 2.1.3.
"Letter of Credit Commitment" means, with respect to the Issuer, the
Issuer's obligation to issue Letters of Credit pursuant to Section 2.1.3 and,
with respect to each of the other Lenders that has a Revolving Loan Commitment,
the obligation of each such Lender to participate in such Letters of Credit
pursuant to Section 2.6.1.
"Letter of Credit Commitment Amount" means, on any date, $10,000,000,
as such amount may be reduced from time to time pursuant to Section 2.2.
"Letter of Credit Outstandings" means, on any date, an amount equal to
the sum of
(a) the then aggregate amount which is undrawn and available
under all issued and outstanding Letters of Credit,
plus
(b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations in respect of such Letters of Credit.
"Leverage Ratio" means, at the end of any Fiscal Quarter, the ratio of
(a) total Debt of the Borrower and its Subsidiaries on a
consolidated basis outstanding at such time;
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<PAGE>
to
(b) EBITDA for the period of four consecutive Fiscal Quarters
ended on such date.
"LIBO Rate" means, relative to any Interest Period for LIBO Rate
Loans, the interest rate per annum for deposits in Dollars, if any, for a
period equal to the relevant Interest Period which appears on Telerate Page
3750 at approximately 11:00 a.m., London time, prior to the commencement of
such Interest Period. If such a rate does not appear on Telerate Page 3750, the
LIBO Rate shall be the rate of interest per annum determined by the
Administrative Agent to be the arithmetic mean (rounded upward to the next
1/16th of 1%) of the rates of interest per annum at which dollar deposits in
the approximate amount of the Loan to be made or continued as, or converted
into, a LIBO Rate Loan by the Administrative Agent and having a maturity
comparable to such Interest Period would be offered to the Administrative Agent
in the London interbank market at its request at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period.
"LIBO Rate Loan" means a Loan bearing interest, at all times during an
Interest Period applicable to such Loan, at a fixed rate of interest determined
by reference to the LIBO Rate (Reserve Adjusted).
"LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be made,
continued or maintained as, or converted into, a LIBO Rate Loan for any
Interest Period, the rate of interest per annum (rounded upwards to the next
1/16th of 1%) determined by the Administrative Agent as follows:
LIBO Rate LIBO Rate
(Reserve = -----------------------------------------
Adjusted) 1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate
Loans will be adjusted automatically as to all LIBO Rate Loans then outstanding
as of the effective date of any change in the LIBOR Reserve Percentage.
"LIBOR Office" means, relative to any Lender, the office of such
Lender designated as such on Schedule II hereto or designated in the Lender
Assignment Agreement pursuant to which such Lender became a Lender hereunder or
such other office of a Lender as shall be so designated from time to time by
notice from such Lender to the Borrower and the Administrative Agent, which
shall be making or maintaining LIBO Rate Loans of such Lender hereunder.
"LIBOR Reserve Percentage" means, relative to any Interest Period for
LIBO Rate Loans, the percentage (expressed as a decimal, rounded upward to the
next 1/16th of 1%) in effect on such day (whether or not applicable to any
Lender) under regulations issued from time to time
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by the F.R.S. Board for determining the maximum reserve requirement (including
any emergency, supplemental or other marginal reserve requirement) with respect
to Eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the F.R.S. Board).
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property, or any filing or recording of any
instrument or document in respect of the foregoing, to secure payment of a debt
or performance of an obligation or any other priority or preferential treatment
of any kind or nature whatsoever that has the practical effect of creating a
security interest in property.
"Loan" means, as the context may require, a Revolving Loan, a Term
Loan and/or a Swing Line Loan, of any type.
"Loan Document" means this Agreement, the Notes, the Letters of
Credit, each Rate Protection Agreement, each Borrowing Request, each Issuance
Request, the Fee Letter, each Pledge Agreement, the Subsidiary Guaranty, each
Mortgage (upon execution and delivery thereof), each Security Agreement and
each other agreement, document or instrument delivered in connection with this
Agreement or any other Loan Document, whether or not specifically mentioned
herein or therein.
"Material Adverse Effect" means (a) a material adverse effect on the
business, assets, debt service capacity, tax position, environmental liability,
financial condition, operations, properties or prospects of the Borrower and
its Subsidiaries, taken as a whole, or Holdings and its Subsidiaries, taken as
a whole, (b) a material impairment of the ability of the Borrower or any other
Obligor to perform its respective material obligations under the Loan Documents
to which it is or will be a party, or (c) an impairment of the validity or
enforceability of, or a material impairment of the rights, remedies or benefits
available to the Issuer, the Agents, the Documentation Agent, the Arranger or
the Lenders under this Agreement or any other Loan Document.
"Material Documents" means the Senior Note Documents, the Holdings
Subordinated Note Documents, the Recapitalization Agreement, the Rapid Remit
Program Documents and the Borrower Partnership Agreement, each as amended or
otherwise modified from time to time in accordance with the terms thereof and
hereof.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means, collectively, each Mortgage or Deed of Trust
executed and delivered pursuant to the terms of this Agreement, including
Section 5.1.7 or 7.1.8(b), in form and substance reasonably satisfactory to the
Agents.
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"Net Debt Proceeds" means, with respect to the incurrence, sale or
issuance by the Borrower, any Parent Guarantor or any of its Subsidiaries of
any Debt (other than Debt permitted by Section 7.2.2 as in effect on the date
hereof), the excess of:
(a) the gross cash proceeds received by the Borrower, any
Parent Guarantor or any of their respective Subsidiaries from such
incurrence, sale or issuance,
over
(b) all reasonable and customary underwriting commissions and
legal, investment banking, brokerage and accounting and other
professional fees, sales commissions and disbursements and all other
reasonable fees, expenses and charges, in each case actually incurred
in connection with such incurrence, sale or issuance.
"Net Disposition Proceeds" means, with respect to any sale, transfer
or other disposition of any assets of the Borrower, any Parent Guarantor or any
of their respective Subsidiaries (other than sales permitted pursuant to clause
(a), (b) or (c) of Section 7.2.9), the excess of
(a) the gross cash proceeds received by the Borrower, any
Parent Guarantor or any of their respective Subsidiaries from any such
sale, transfer or other disposition and any cash payments received in
respect of promissory notes or other non-cash consideration delivered
to the Borrower, such Parent Guarantor or such Subsidiary in respect
thereof,
less
(b) the sum (without duplication) of (i) all reasonable and
customary fees and expenses with respect to legal, investment banking,
brokerage, accounting and other professional fees, sales commissions
and disbursements and all other reasonable fees, expenses and charges,
in each case actually incurred in connection with such sale, transfer
or other disposition, (ii) all taxes and other governmental costs and
expenses actually paid or estimated by the Borrower (in good faith) to
be payable in cash in connection with such sale, transfer or other
disposition, and (iii) payments made by the Borrower, any Parent
Guarantor or any of their respective Subsidiaries to retire
Indebtedness (other than the Credit Extensions) of the Borrower, such
Parent Guarantor or such Subsidiary where payment of such Indebtedness
is required in connection with such sale, transfer or other
disposition;
provided, however, that if, after the payment of all taxes with respect to such
sale, transfer or other disposition, the amount of estimated taxes, if any,
pursuant to clause (b)(ii) above exceeded the tax amount actually paid in cash
in respect of such sale, transfer or other disposition, the aggregate amount of
such excess shall, at such time, constitute Net Disposition Proceeds.
"Net Equity Proceeds" means with respect to the sale or issuance by
the Borrower, any Parent Guarantor or any of their respective Subsidiaries to
any Person of any of its Capital Stock
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or any warrants or options with respect to its Capital Stock or the exercise of
any such warrants or options after the Closing Date (other than pursuant to (i)
capital contributions (from other than an Initial Public Offering) which are
concurrently contributed to the Borrower or any of its Subsidiaries, (ii) any
subscription agreement, incentive plan or similar arrangement with any officer,
employee or director of the Borrower, such Parent Guarantor or such Subsidiary
or (iii) the sale or issuance by Holdings of Capital Stock (other than
Redeemable Capital Stock), which shall by its terms provide for dividends (if
any) payable only in additional shares of such Capital Stock until no earlier
than the first anniversary of the Stated Maturity Date for the Term Loans, to
any of the DLJMB Entities or any of their Affiliates for gross cash proceeds in
an aggregate amount not to exceed $10,000,000 subsequent to the Closing Date),
the excess of:
(a) the gross cash proceeds received by the Borrower, such
Parent Guarantor or such Subsidiary from such sale, exercise or
issuance,
over
(b) all reasonable and customary underwriting commissions and
legal, investment banking, brokerage, accounting and other
professional fees, sales commissions and disbursements and all other
reasonable fees, expenses and charges, in each case actually incurred
in connection with such sale, exercise or issuance.
"Net Income" means, for any period, the net income of the Borrower and
its Subsidiaries for such period on a consolidated basis, excluding
extraordinary and non-recurring gains and extraordinary losses incurred in
connection with the refinancing of the Holdings Subordinated Notes or the
Senior Notes.
"Net Worth" means the consolidated net worth of the Borrower and its
Subsidiaries.
"Note" means, as the context may require, a Revolving Note, a Term
Note, a Swing Line Note and/or a Registered Note.
"Obligations" means all obligations (monetary or otherwise) of the
Borrower and each other Obligor arising under or in connection with this
Agreement, any Rate Protection Agreement, the Notes, each Letter of Credit and
each other Loan Document.
"Obligor" means the Borrower or any other Person (other than any
Agent, the Documentation Agent, the Arranger, the Issuer or any Lender)
obligated under any Loan Document.
"Organic Document" means, relative to any Obligor, its partnership
agreement, its certificate of incorporation, its by-laws and all shareholder or
equity holder agreements, voting trusts and similar arrangements to which such
Obligor is a party or which is applicable to any of its Capital Stock, its
partnership agreement and all other arrangements relating to the control or
management of such entity.
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"Paid Visit" is defined in Section 7.1.5.
"Parent Guarantors" is defined in the preamble.
"Parent Guaranty" means the Obligations of the Parent Guarantors under
Article IX.
"Parent Pledge Agreement" means the Pledge Agreement executed and
delivered by an Authorized Officer of each of Holdings and Daboco pursuant to
Section 5.1.5, substantially in the form of Exhibit G-1 hereto, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"Participant" is defined in Section 11.11.2.
"Partnership Security Agreement" means the Security Agreement executed
and delivered by an Authorized Officer of each of Daboco and DRI pursuant to
Section 5.1.6, substantially in the form of Exhibit F-1 hereto, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor entity.
"Pension Plan" means a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the
Borrower or any corporation, trade or business that is, along with the
Borrower, a member of a Controlled Group, has or within the prior six years has
had any liability, including any liability by reason of having been a
substantial employer within the meaning of section 4063 of ERISA at any time
during the preceding five years, or by reason of being deemed to be a
contributing sponsor under section 4069 of ERISA.
"Percentage" means, relative to any Lender, the applicable percentage
relating to Term Loans or Revolving Loans, as the case may be, as set forth
opposite its name on Schedule II hereto under the applicable column heading or
set forth in Lender Assignment Agreement(s) under the applicable column
heading, as such percentage may be adjusted from time to time pursuant to
Lender Assignment Agreement(s) executed by such Lender and its Assignee
Lender(s) and delivered pursuant to Section 11.11. A Lender shall not have any
Commitment to make Revolving Loans or Term Loans (as the case may be) if its
percentage under the respective column heading is zero. As used herein,
"Percentage" as it relates to a Lender's Percentage of Letter of Credit
Outstandings or Swing Line Loans shall be equal to such Lender's Percentage of
Revolving Loans.
"Perfection Certificate" means the Perfection Certificate executed and
delivered by an Authorized Officer of each Obligor that is a party to a
Security Agreement pursuant to Section 5.1.16 or 7.1.7, substantially in the
form of Exhibit I hereto, as amended, supplemented, amended and restated or
otherwise modified from time to time.
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"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency, limited liability company
or any other entity, whether acting in an individual, fiduciary or other
capacity.
"Pharmaceutical Laws" means Federal, state and local laws, rules or
regulations, codes, orders, decrees, judgments or injunctions issued,
promulgated, approved or entered, relating to dispensing, storing or
distributing prescription medicines or products, including laws, rules or
regulations relating to the qualifications of Persons employed to do the same.
"Pharmacy Fund" means Pharmacy Fund Receivables, Inc., a New York
corporation, and any successor thereto.
"Plan" means any Pension Plan or Welfare Plan.
"Pledge Agreement" means, as the context may require, the Parent
Pledge Agreement, the Borrower Pledge Agreement and/or the Subsidiary Pledge
Agreement.
"Prescription Receivables" is defined in clause (b) of Section 7.2.9.
"Pro Forma Balance Sheets" is defined in clause (b) of Section 5.1.8.
"Proforma Interest Coverage Ratio" means, at the end of any Fiscal
Quarter, the ratio computed for the period consisting of such Fiscal Quarter
and each of the three immediately prior Fiscal Quarters of:
(a) EBITDA (for all such Fiscal Quarters)
to
(b) the sum of
(i) cash portion of Interest Expense (for all such
Fiscal Quarters);
plus
(ii) restricted payments to be made by the Borrower
in cash pursuant to clause (c) of Section 7.2.6 at the time
of such calculation.
"Quarterly Payment Date" means the fifteenth day of each March, June,
September and December, or, if any such day is not a Business Day, the next
succeeding Business Day.
"Rapid Remit Program" shall mean the program pursuant to which
Prescription Receivables are sold by the Borrower to Pharmacy Fund for cash
pursuant to the Rapid Remit Program Documents.
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"Rapid Remit Program Documents" shall mean (a) the Purchase Agreement,
dated as of March 10, 1997, between the Borrower and Pharmacy Fund and each
other document or agreement entered into in connection therewith, in each case
as in effect on the Closing Date and as the same may be amended or otherwise
modified from time to time thereafter in accordance with the terms hereof and
thereof, and (b) each of the other documents and agreements entered into in
connection therewith after the Closing Date in form and substance satisfactory
to the Agents, and as each such other document and agreement may be amended or
otherwise modified from time to time thereafter in accordance with the terms
hereof and thereof.
"Rate Protection Agreement" means, collectively, any interest rate
swap, cap, collar or similar agreement entered into by the Borrower in respect
of the Loans pursuant to the terms of this Agreement under which the
counterparty to such agreement is (or at the time such Rate Protection
Agreement was entered into, was) a Lender or an Affiliate of a Lender.
"Real Property" means, with respect to any Person, all of the right,
title and interest of such Person in and to lands, improvements and fixtures,
including all of the rights, title and interest of such Person as Lessee or
licensee in, to and under leases or licenses of land, improvements and
fixtures.
"Recapitalization Agreement" shall mean the Recapitalization
Agreement, dated as of June 18, 1997, among the DLJMB Entities and the
stockholders parties thereto and Holdings and each other document or agreement
entered into in connection therewith, in each case as in effect on the Closing
Date and as the same may be amended or otherwise modified from time to time
thereafter in accordance with the terms hereof and thereof.
"Redeemable Capital Stock" means, with respect to any Person, any
class of Capital Stock of such Person or any of its Subsidiaries which, either
by its terms, by the terms of any security into which it is convertible or
exchangeable or otherwise, (a) is or upon the happening of an event or passage
of time would be required to be redeemed on or prior to the first anniversary
of the Stated Maturity Date for the Term Loans, (b) is redeemable at the option
of the holder thereof at any time prior to such anniversary or (c) is
convertible into or exchangeable for debt securities of such Person or any of
its Subsidiaries at any time prior to such anniversary.
"Refinancing" is defined in the first recital.
"Refunded Swing Line Loans" is defined in clause (b) of Section 2.3.2.
"Register" is defined in clause (b) of Section 2.7.
"Registered Note" means a promissory note of the Borrower payable to
the order of any Lender, in the form of Exhibit A-3 hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to time in
accordance with the terms hereof and thereof), evidencing the aggregate
Indebtedness of the Borrower to such Lender resulting from outstanding Term
Loans, and also means all other promissory notes accepted from time to time in
substitution therefor or renewal thereof.
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"Reimbursement Obligation" is defined in Section 2.6.3.
"Reinstatement Date" is defined in Section 4.1.
"Related Fund" means, with respect to any Lender that is a fund that
invests in loans, any other fund that invests in loans and is managed by the
same investment advisor or investment manager as such Lender.
"Release" means a "release", as such term is defined in CERCLA.
"Replacement Notice" is defined in Section 4.10.
"Replacement Lender" is defined in Section 4.10.
"Required Lenders" means, at any time, (a) prior to the making of the
initial Credit Extension hereunder, Lenders having at least 51% of the sum of
the Revolving Loan Commitments and Term Loan Commitments and (b) on and after
the date of the initial Credit Extension, Lenders holding at least 51% of (i)
the Total Exposure Amount or (ii) if the Revolving Loan Commitments shall have
been terminated or expired for purposes of acceleration pursuant to Section
8.3, the then outstanding Loans and Letter of Credit Outstandings.
"Resource Conservation and Recovery Act" means the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect
from time to time.
"Restricted Payments" is defined in Section 7.2.6.
"Revolving Loan" is defined in Section 2.1.2.
"Revolving Loan Commitment" is defined in Section 2.1.2.
"Revolving Loan Commitment Amount" means, on any date, $30,000,000, as
such amount may be reduced from time to time pursuant to Section 2.2.
"Revolving Loan Commitment Termination Date" means the earliest of (a)
November 30, 1997 if the Term Loans have not been made on or prior to such
date, (b) June 15, 2001, (c) the date on which the Revolving Loan Commitment
Amount is terminated in full or reduced to zero pursuant to Section 2.2, and
(d) the date on which any Commitment Termination Event occurs.
"Revolving Note" means a promissory note of the Borrower payable to
any Lender, substantially in the form of Exhibit A-1 hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to time in
accordance with the terms hereof and thereof), evidencing the aggregate
Indebtedness of the Borrower to such Lender resulting from
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outstanding Revolving Loans, and also means all other promissory notes accepted
from time to time in substitution therefor or renewal thereof.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc.
"Secured Parties" means the Lenders, the Issuer, the Agents, the
Documentation Agent, each counterparty to a Rate Protection Agreement that is
(or at the time such Rate Protection Agreement was entered into, was) a Lender
or an Affiliate thereof and in each case, each of their respective successors,
transferees and assigns.
"Security Agreement" means, as the context may require, the
Partnership Security Agreement, the Borrower Security Agreement and/or the
Subsidiary Security Agreement.
"Senior Note Documents" shall mean and include each of the documents
and other agreements entered into (including the Senior Note Indenture and any
additional guaranty or guaranties relating thereto) relating to the issuance by
the Borrower of the Senior Notes, as in effect on the Closing Date (to the
extent thereof) and as the same may be entered into, modified, supplemented or
amended from time to time pursuant to the terms hereof and thereof.
"Senior Note Indenture" shall mean the Indenture entered into by and
between the Borrower, Daboco and DRI and The Connecticut National Bank, as
trustee thereunder, as in effect on the Closing Date and as the same may be
amended or otherwise modified from time to time in accordance with the terms
hereof and thereof.
"Senior Notes" shall mean the Borrower's 12% Senior Notes due
September 15, 2002, Series B, as in effect on the Closing Date and as the same
may be amended or otherwise modified from time to time in accordance with the
terms hereof and thereof.
"Solvency Certificate" means, as the context may require, a Solvency
Certificate to be executed and delivered by the chief financial or accounting
Authorized Officer of Holdings, substantially in the form of Exhibit L-1 hereto
and/or a Solvency Certificate to be executed and delivered by the chief
financial or accounting Authorized Officer of the Borrower, substantially in
the form of Exhibit L-2 hereto.
"Solvent" means, with respect to any Person and its Subsidiaries on a
particular date, that on such date (a) the fair value of the property of such
Person and its Subsidiaries on a consolidated basis is greater than the total
amount of liabilities, including contingent liabilities, of such Person and its
Subsidiaries on a consolidated basis, (b) the present fair salable value of the
assets of such Person and its Subsidiaries on a consolidated basis is not less
than the amount that will be required to pay the probable liability of such
Person and its Subsidiaries on a consolidated basis on its debts as they become
absolute and matured, (c) such Person does not intend to, and does not believe
that it or its Subsidiaries will, incur debts or liabilities beyond the ability
of such Person and its Subsidiaries to pay as such debts and liabilities
mature, and (d) such Person and its Subsidiaries on a consolidated basis is not
engaged in business or a transaction, and such Person and its Subsidiaries on a
consolidated basis is not about to engage in business or a
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transaction, for which the property of such Person and its Subsidiaries on a
consolidated basis would constitute an unreasonably small capital. The amount
of Contingent Liabilities at any time shall be computed as the amount that, in
light of all the facts and circumstances existing at such time, can reasonably
be expected to become an actual or matured liability.
"Stated Amount" of each Letter of Credit means the total amount
available to be drawn under such Letter of Credit upon the issuance thereof.
"Stated Expiry Date" is defined in Section 2.6.
"Stated Maturity Date" means (a) in the case of any Revolving Loan,
June 15, 2001, and (b) in the case of any Term Loan, June 15, 2002.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other business entity of which more than 50% of the outstanding
Capital Stock (or other ownership interest) having ordinary voting power to
elect a majority of the board of directors, managers or other voting members of
the governing body of such entity (irrespective of whether at the time Capital
Stock (or other ownership interests) of any other class or classes of such
entity shall or might have voting power upon the occurrence of any contingency)
is at the time directly or indirectly owned by such Person, by such Person and
one or more other Subsidiaries of such Person, or by one or more other
Subsidiaries of such Person.
"Subsidiary Guarantor" means any Subsidiary of the Borrower that,
pursuant to Section 7.1.7, executes and delivers a Subsidiary Guaranty or a
supplement to a Subsidiary Guaranty.
"Subsidiary Guaranty" means the Guaranty executed and delivered by an
Authorized Officer of a Subsidiary Guarantor pursuant to Section 7.1.7,
substantially in the form of Exhibit H hereto, as amended, supplemented,
amended and restated or otherwise modified from time to time.
"Subsidiary Pledge Agreement" means the Pledge Agreement executed and
delivered by an Authorized Officer of each Subsidiary of the Borrower that is
not a Foreign Subsidiary pursuant to Section 7.1.7, substantially in the form
of Exhibit G-3 hereto, as amended, supplemented, amended and restated or
otherwise modified from time to time.
"Subsidiary Security Agreement" means the Security Agreement executed
and delivered by an Authorized Officer of each Subsidiary of the Borrower that
is not a Foreign Subsidiary pursuant to Section 7.1.7, substantially in the
form of Exhibit F-3 hereto, as amended, supplemented, amended and restated or
otherwise modified from time to time.
"Swing Line Lender" means Fleet, in its capacity as Swing Line Lender
hereunder.
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"Swing Line Loan" is defined in clause (b) of Section 2.1.2.
"Swing Line Loan Commitment" is defined in clause (b) of Section 2.1.2.
"Swing Line Loan Commitment Amount" means, on any date, $5,000,000, as
such amount may be reduced from time to time pursuant to Section 2.2.
"Swing Line Note" means a promissory note of the Borrower payable to
the Swing Line Lender, in the form of Exhibit A-4 hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to time),
evidencing the aggregate Indebtedness of the Borrower to the Swing Line Lender
resulting from outstanding Swing Line Loans, and also means all other
promissory notes accepted from time to time in substitution therefor or renewal
thereof.
"Syndication Agent" is defined in the preamble and includes each other
Person as shall have subsequently been appointed as the successor Syndication
Agent pursuant to Section 10.4.
"Taxes" is defined in Section 4.6.
"Telerate Page 3750" means the display designated as "Page 3750" on
the Telerate Service (or such other page as may replace Page 3750 on the
service or such other service as may be nominated by the British Bankers'
Association as the information vendor for the purpose of displaying British
Bankers' Association interest settlement rates for Dollar deposits).
Term Loan" is defined in Section 2.1.1.
"Term Loan Commitment" is defined in Section 2.1.1.
"Term Loan Commitment Amount" means $65,475,000.
"Term Loan Commitment Termination Date" means the earliest of (a)
November 30, 1997, if the Term Loans have not been made on or prior to such
date, (b) the Closing Date (immediately after the making of the Term Loans on
such date), and (c) the date on which any Commitment Termination Event occurs.
"Term Note" means a promissory note of the Borrower payable to the
order of any Lender, in the form of Exhibit A-2 hereto (as such promissory note
may be amended, endorsed or otherwise modified from time to time in accordance
with the terms hereof and thereof), evidencing the aggregate Indebtedness of
the Borrower to such Lender resulting from outstanding Term Loans, and also
means all other promissory notes accepted from time to time in substitution
therefor or renewal thereof.
"Total Exposure Amount" means, on any date of determination, the then
outstanding principal amount of all Term Loans and the Revolving Loan
Commitment Amount then in effect.
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"Tranche" means, as the context may require, the Loans constituting
Term Loans, Revolving Loans and/or Swing Line Loans.
"type" means, relative to any Loan, the portion thereof, if any, being
maintained as a Base Rate Loan or a LIBO Rate Loan.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of New York.
"United States" or "U.S." means the United States of America, its
fifty states and the District of Columbia.
"Waiver" means an agreement in favor of the Agents for the benefit of
the Lenders in form and substance reasonably satisfactory to the Agents.
"Welfare Plan" means a "welfare plan", as such term is defined in
section 3(1) of ERISA, and to which the Borrower has any liability.
"Wholly-owned Subsidiary" shall mean, with respect to any Person, any
Subsidiary of such Person all of the Capital Stock (and all rights and options
to purchase such Capital Stock) of which, other than directors' qualifying
shares, are owned, beneficially and of record, by such Person and/or one or
more wholly-owned Subsidiaries of such Person.
SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Disclosure Schedule and in
each other Loan Document, notice and other communication delivered from time to
time in connection with this Agreement or any other Loan Document.
SECTION 1.3. Cross-References. Unless otherwise specified, references
in this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in
any Article, Section or definition to any clause are references to such clause
of such Article, Section or definition.
SECTION 1.4. Accounting and Financial Determinations. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder (including under Section 7.2.4) shall be made, and all financial
statements required to be delivered hereunder or thereunder shall be prepared
in accordance with, those generally accepted accounting principles ("GAAP"), as
in effect on December 28, 1996 and, unless otherwise expressly provided herein,
shall be computed or determined on a consolidated basis and without
duplication.
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ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES,
NOTES AND LETTERS OF CREDIT
SECTION 2.1. Commitments. On the terms and subject to the conditions
of this Agreement (including Sections 2.1.4 and 2.1.5 and Article V),
(a) each Lender severally agrees to make Loans (other than
Swing Line Loans) pursuant to the Commitments and the Swing Line
Lender agrees to make Swing Line Loans pursuant to the Swing Line Loan
Commitment, in each case as described in this Section 2.1; and
(b) the Issuer agrees that it will issue Letters of Credit
pursuant to Section 2.1.3, and each other Lender that has a Revolving
Loan Commitment severally agrees that it will purchase participation
interests in such Letters of Credit pursuant to Section 2.6.1.
SECTION 2.1.1. Term Loan Commitments. Subject to compliance by the
Borrower with the terms hereof (including Sections 2.1.4, 5.1 and 5.2), on (but
solely on) the Closing Date (which shall be a Business Day), each Lender that
has a Percentage in excess of zero of the Term Loan Commitment Amount will make
loans (relative to such Lender, its "Term Loans") to the Borrower equal to such
Lender's Percentage of the aggregate amount of the Borrowing or Borrowings of
Term Loans requested by the Borrower to be made on the Closing Date (the
commitment of each such Lender described in this Section 2.1.1 is herein
referred to as its "Term Loan Commitment"). No amounts paid or prepaid with
respect to any Term Loans may be reborrowed.
SECTION 2.1.2. Revolving Loan Commitment and Swing Line Loan
Commitment. Subject to compliance by the Borrower with the terms hereof
(including Sections 2.1.4, 5.1 and 5.2), from time to time on any Business Day
occurring on or after the Closing Date but prior to the Revolving Loan
Commitment Termination Date,
(a) each Lender that has a Percentage in excess of zero of
the Revolving Loan Commitment Amount will make loans (relative to such
Lender, its "Revolving Loans") to the Borrower equal to such Lender's
Percentage of the aggregate amount of the Borrowing or Borrowings of
Revolving Loans requested by the Borrower to be made on such day. The
Commitment of each Lender described in this clause (a) is herein
referred to as its "Revolving Loan Commitment". On the terms and
subject to the conditions hereof, the Borrower may from time to time
borrow, prepay and reborrow Revolving Loans.
(b) the Swing Line Lender will make loans (each a "Swing Line
Loan") to the Borrower equal to the principal amount of the Swing Line
Loan requested by the Borrower to be made on such day. The Commitment
of the Swing Line Lender described in this clause (b) is herein
referred to as its "Swing Line Loan Commitment".
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On the terms and subject to the conditions hereof, the
Borrower may from time to time borrow, prepay and reborrow Swing Line
Loans.
SECTION 2.1.3. Letter of Credit Commitment. Subject to compliance by
the Borrower with the terms hereof (including Sections 2.1.5, 5.1 and 5.2),
from time to time on any Business Day occurring concurrently with (or after)
the Closing Date but prior to the Revolving Loan Commitment Termination Date,
the Issuer will (a) issue one or more standby or commercial letters of credit
(each referred to as a "Letter of Credit") for the account of the Borrower in
the Stated Amount requested by the Borrower on such day, or (b) extend the
Stated Expiry Date of an existing standby or commercial Letter of Credit
previously issued hereunder.
SECTION 2.1.4. Lenders Not Permitted or Required to Make the Loans. No
Lender shall be permitted or required to, and the Borrower shall not request
any Lender to, make
(a) any Term Loan if, after giving effect thereto, the
aggregate original principal amount of all the Term Loans (i) of all
Lenders would exceed the Term Loan Commitment Amount, or (ii) of such
Lender would exceed such Lender's Percentage of the Term Loan
Commitment Amount; or
(b) any Revolving Loan if, after giving effect thereto, the
aggregate outstanding principal amount of all the Revolving Loans (i)
of all Lenders, together with all Letter of Credit Outstandings and
the aggregate outstanding principal amount of all Swing Line Loans,
would exceed the Revolving Loan Commitment Amount, or (ii) of such
Lender (other than the Swing Line Lender), together with its
Percentage of all Letter of Credit Outstandings, would exceed such
Lender's Percentage of the Revolving Loan Commitment Amount; or
(c) any Swing Line Loan if, after giving effect thereto, the
aggregate outstanding principal amount of all Swing Line Loans (i)
would exceed the Swing Line Loan Commitment Amount, or (ii) together
with all Letter of Credit Outstandings and the aggregate outstanding
principal amount of all Revolving Loans, would exceed the Revolving
Loan Commitment Amount.
SECTION 2.1.5. Issuer Not Permitted or Required to Issue Letters of
Credit. No Issuer shall be permitted or required to issue any Letter of Credit
if, after giving effect thereto, (a) the aggregate amount of all Letter of
Credit Outstandings would exceed the Letter of Credit
Commitment Amount or (b) the sum of the aggregate amount of all Letter of
Credit Outstandings plus the aggregate principal amount of all Revolving Loans
and all Swing Line Loans then outstanding would exceed the Revolving Loan
Commitment Amount.
SECTION 2.2. Reduction of the Commitment Amounts. The Commitment
Amounts are subject to reductions from time to time pursuant to this Section
2.2.
SECTION 2.2.1. Optional. The Borrower may, from time to time on any
Business Day occurring after the time of the initial Credit Extension
hereunder, voluntarily reduce the
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Revolving Loan Commitment Amount; provided, however, that all such reductions
shall require at least three Business Days' prior notice to the Administrative
Agent and be permanent, and any partial reduction of any Commitment Amount
shall be in an aggregate amount of $5,000,000 or any larger integral multiple
of $1,000,000. Any such reduction of the Revolving Loan Commitment Amount which
reduces the Revolving Loan Commitment Amount below the Letter of Credit
Commitment Amount or the Swing Line Loan Commitment Amount shall result in an
automatic and corresponding reduction of the Letter of Credit Commitment Amount
or the Swing Line Loan Commitment Amount, as the case may be, to an aggregate
amount not in excess of the Revolving Loan Commitment Amount, as so reduced,
without any further action on the part of the Issuer or the Swing Line Lender.
SECTION 2.2.2. Mandatory. The Revolving Loan Commitment Amount shall,
without any further action, automatically and permanently be reduced
(a) on the Revolving Loan Commitment Termination Date so that
the Revolving Loan Commitment Amount equals $0; and
(b) following the prepayment in full of the Term Loans, on
the date the Term Loans would otherwise have been required to be
prepaid pursuant to clause (b), (c), (d), (e) or (f) of Section 3.1.1,
in an amount equal to the amount by which the Term Loans would
otherwise have been required to be prepaid if any Term Loans had been
outstanding. Any such reduction of the Revolving Loan Commitment
Amount which reduces the Revolving Loan Commitment Amount below the
Letter of Credit Commitment Amount or the Swing Line Loan Commitment
Amount shall result in an automatic and corresponding permanent
reduction of the Letter of Credit Commitment Amount or the Swing Line
Loan Commitment Amount, as the case may be, to an aggregate amount not
in excess of the Revolving Loan Commitment Amount, as so reduced,
without any further action on the part of the Issuer or the Swing Line
Lender.
SECTION 2.3. Borrowing Procedures and Funding Maintenance. Loans
(other than Swing Line Loans) shall be made by the Lenders in accordance with
Section 2.3.1, and Swing Line Loans shall be made by the Swing Line Lender in
accordance with Section 2.3.2.
SECTION 2.3.1. Term Loans and Revolving Loans. By delivering a
Borrowing Request to the Administrative Agent on or before 12:00 noon, New York
City time, on a Business Day, the Borrower may from time to time irrevocably
request, on not less than one Business Day's notice (in the case of Base Rate
Loans) or three Business Days' notice (in the case of LIBO Rate Loans) nor more
than five Business Days' notice (in the case of any Loans), that a Borrowing be
made, in the case of LIBO Rate Loans, in an aggregate amount of $1,000,000 or
any larger integral multiple of $500,000, and in the case of Base Rate Loans,
in an aggregate amount of $500,000 or any larger integral multiple of $100,000,
or, in either case, in the unused amount of the applicable Commitment. No
Borrowing Request shall be required, and the minimum aggregate amounts
specified under this Section 2.3.1 shall not apply, in the case of Revolving
Loans made under clause (b) of Section 2.3.2 to refund Refunded Swing Line
Loans or deemed made under Section 2.6.2 in respect of unreimbursed
Disbursements. On the terms and subject
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to the conditions of this Agreement, each Borrowing shall be comprised of the
type of Loans, and shall be made on the Business Day, specified in such
Borrowing Request. On or before 11:00 a.m., New York City time, on such
Business Day each Lender shall deposit with the Administrative Agent same day
funds in an amount equal to such Lender's Percentage of the requested
Borrowing. Such deposit will be made to an account which the Administrative
Agent shall specify from time to time by notice to the Lenders. To the extent
funds are received from the Lenders, the Administrative Agent shall make such
funds available to the Borrower by wire transfer to the accounts the Borrower
shall have specified in its Borrowing Request. No Lender's obligation to make
any Loan shall be affected by any other Lender's failure to make any Loan.
SECTION 2.3.2. Swing Line Loans. (a) By telephonic notice, promptly
followed (within one Business Day) by the delivery of a confirming Borrowing
Request, to the Swing Line Lender and the Administrative Agent on or before
12:00 noon, New York City time, on the Business Day the proposed Swing Line
Loan is to be made, the Borrower may from time to time irrevocably request that
a Swing Line Loan be made by the Swing Line Lender in a minimum principal
amount of $100,000 or any larger integral multiple of $50,000. All Swing Line
Loans shall be made as Base Rate Loans and shall not be entitled to be
converted into LIBO Rate Loans. The proceeds of each Swing Line Loan shall be
made available by the Swing Line Lender, by 5:00 p.m., New York City time, on
the Business Day telephonic notice is received by it as provided in this clause
(a), to the Borrower by wire transfer to the account the Borrower shall have
specified in its notice therefor.
(b) If (i) any Swing Line Loan (A) shall be outstanding for more than
four Business Days or (B) is or will be outstanding on a date when the Borrower
requests that a Revolving Loan be made or (ii) any Default (other than a
Default of the nature set forth in Section 8.1.9) shall occur and be
continuing, each Lender with a Revolving Loan Commitment (other than the Swing
Line Lender) irrevocably agrees that it will, at the request of the Swing Line
Lender and upon notice from the Administrative Agent, make a Revolving Loan
(which shall initially be funded as a Base Rate Loan) in an amount equal to
such Lender's Percentage of the aggregate principal amount of all such Swing
Line Loans then outstanding (such outstanding Swing Line Loans hereinafter
referred to as the "Refunded Swing Line Loans"); provided, that the Swing Line
Lender shall not request, and no Lender with a Revolving Loan Commitment shall
make, any Refunded Swing Line Loan if, after giving effect to the making of
such Refunded Swing Line Loan, the sum of all Swing Line Loans and Revolving
Loans made by such Lender, plus such Lender's Percentage of the aggregate
amount of all Letter of Credit Outstandings, would exceed such Lender's
Percentage of the then existing Revolving Loan Commitment Amount. On or before
11:00 a.m. (New York City time) on the first Business Day following receipt by
each Lender of a request to make Revolving Loans as provided in the preceding
sentence, each such Lender with a Revolving Loan Commitment shall deposit in an
account specified by the Swing Line Lender the amount so requested in same day
funds and such funds shall be applied by the Swing Line Lender to repay the
Refunded Swing Line Loans. At the time the aforementioned Lenders make the
above referenced Revolving Loans, the Swing Line Lender shall be deemed to have
made, in consideration of the making of the Refunded Swing Line Loans, a
Revolving Loan in an amount equal to the Swing Line Lender's Percentage of the
aggregate principal amount of
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the Refunded Swing Line Loans. Upon the making (or deemed making, in the case
of the Swing Line Lender) of any Revolving Loans pursuant to this clause (b),
the amount so funded shall become outstanding under such Lender's Revolving
Note and shall no longer be owed under the Swing Line Note. All interest
payable with respect to any Revolving Loans made (or deemed made, in the case
of the Swing Line Lender) pursuant to this clause (b) shall be appropriately
adjusted to reflect the period of time during which the Swing Line Lender had
outstanding Swing Line Loans in respect of which such Revolving Loans were
made.
(c) If, at any time prior to the making of Revolving Loans to replace
any outstanding Swing Line Loans pursuant to clause (b) above, any Default of
the nature of the nature set forth in Section 8.1.9 shall have occurred, each
Lender with a Revolving Loan Commitment (other than the Swing Line Lender)
irrevocably agrees that it will, at the request of the Swing Line Lender and
upon notice from the Administrative Agent, purchase an undivided participation
interest in all such Swing Line Loans in an amount equal to its Percentage of
the aggregate outstanding amount of such Swing Line Loans and transfer
immediately to an account identified by the Swing Line Lender, in immediately
available funds, the amount of its participation. The Swing Line Lender will
deliver to each such Lender, promptly following receipt of such funds, a
participation certificate, dated the date of receipt of such funds and in the
amount of such Lender's participation if requested to do so by such Lender.
(d) The Borrower expressly agrees that, in respect of each Lender's
funded participation interest in any Swing Line Loan, such Lender shall be
deemed to be in privity of contract with the Borrower and have the same rights
and remedies against the Borrower under the Loan Documents as if such funded
participation interest in such Swing Line Loan were a Revolving Loan.
(e) Each Lender's obligation (in the case of Lenders with a Revolving
Loan Commitment) to make Revolving Loans or purchase participation interests in
Swing Line Loans, as contemplated by clause (b) or (c) above, shall be absolute
and unconditional and without recourse to the Swing Line Lender and shall not
be affected by any circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Revolving Lender may have against
the Swing Line Lender, the Borrower or any other Person for any reason
whatsoever; (ii) the occurrence or continuance of a Default, an Event of
Default or a Material Adverse Effect; (iii) the acceleration or maturity of any
Loans or the termination of any Commitment after the making of any Swing Line
Loan; (iv) any breach of this Agreement or any other Loan Document by the
Borrower, any other Obligor or any Lender; or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
SECTION 2.4. Continuation and Conversion Elections. By delivering a
Continuation/Conversion Notice to the Administrative Agent on or before 12:00
noon, New York City time, on a Business Day, the Borrower may from time to time
irrevocably elect, on not less than one Business Day's notice (in the case of a
conversion of LIBO Rate Loans to Base Rate Loans) or three Business Days'
notice (in the case of a continuation of LIBO Rate Loans or a conversion of
Base Rate Loans into LIBO Rate Loans) nor more than five Business Days' notice
(in the case of any Loans) that all, or any portion (a) in a minimum amount of
$1,000,000
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or any larger integral multiple of $500,000, be, in the case of Base Rate
Loans, converted into LIBO Rate Loans or, in the case of LIBO Rate Loans,
continued as LIBO Rate Loans or (b) in a minimum amount of $500,000 or any
larger integral multiple of $100,000, be, in the case of LIBO Rate Loans,
converted into Base Rate Loans (in the absence of delivery of a
Continuation/Conversion Notice with respect to any LIBO Rate Loan at least
three Business Days before the last day of the then current Interest Period
with respect thereto, such LIBO Rate Loan shall, on such last day,
automatically convert to a Base Rate Loan); provided, however, that (x) each
such conversion or continuation shall be pro rated among the applicable
outstanding Loans of the relevant Lenders, and (y) no portion of the
outstanding principal amount of any Loans may be continued as, or be converted
into, LIBO Rate Loans when any Default or Event of Default has occurred and is
continuing.
SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its
obligation to make, continue or convert LIBO Rate Loans hereunder by causing
one of its foreign branches or Affiliates (or an international banking facility
created by such Lender) to make or maintain such LIBO Rate Loan, so long as
such action does not result in increased costs to the Borrower; provided,
however, that such LIBO Rate Loan shall nonetheless be deemed to have been made
and to be held by such Lender, and the obligation of the Borrower to repay such
LIBO Rate Loan shall nevertheless be to such Lender for the account of such
foreign branch, Affiliate or international banking facility; provided further,
however, that, except for purposes of determining whether any such increased
costs are payable by the Borrower, such Lender shall cause such foreign branch,
Affiliate or international banking facility to comply with the applicable
provisions of clause (b) of Section 4.6 with respect to such LIBO Rate Loan. In
addition, the Borrower hereby consents and agrees that, for purposes of any
determination to be made for purposes of Section 4.1, 4.2, 4.3 or 4.4, it shall
be conclusively assumed that each Lender elected to fund all LIBO Rate Loans by
purchasing Dollar deposits in its LIBOR Office's interbank Eurodollar market.
SECTION 2.6. Issuance Procedures. By delivering to the Administrative
Agent an Issuance Request on or before 12:00 noon, New York City time, on a
Business Day, the Borrower may, from time to time irrevocably request, on not
less than three nor more than ten Business Days' notice (or such shorter or
longer notice as may be acceptable to the Issuer), in the case of an initial
issuance of a Letter of Credit, and not less than three nor more than ten
Business Days' notice (unless a shorter or longer notice period is acceptable
to the Issuer) prior to the then existing Stated Expiry Date of a Letter of
Credit, in the case of a request for the extension of the Stated Expiry Date of
a Letter of Credit, that the Issuer issue, or extend the Stated Expiry Date of,
as the case may be, an irrevocable Letter of Credit on behalf of the Borrower
(whether the account party on such Letter of Credit is the Borrower or a
Subsidiary of the Borrower) in such form as may be requested by the Borrower
and approved by the Issuer, for the purposes described in Section 7.1.9;
provided, however, that no extension of the Stated Expiry Date of an
outstanding Letter of Credit may provide for a Stated Expiry Date subsequent to
the earlier of (i) the Revolving Loan Commitment Termination Date and (ii) one
year from the date of such extension. Notwithstanding anything to the contrary
contained herein or in any separate application for any Letter of Credit, the
Borrower hereby acknowledges and agrees that it shall be obligated to reimburse
the Issuer upon each Disbursement paid under a Letter of
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Credit, and it shall be deemed to be the obligor for purposes of each such
Letter of Credit issued hereunder (whether the account party on such Letter of
Credit is the Borrower or a Subsidiary of the Borrower). Upon receipt of an
Issuance Request, the Administrative Agent shall promptly notify the Issuer and
each Lender thereof. Each Letter of Credit shall by its terms be stated to
expire on a date (its "Stated Expiry Date") no later than the earlier to occur
of (i) the Revolving Loan Commitment Termination Date or (ii) one year from the
date of its issuance. The Issuer will make available to the beneficiary thereof
the original of each Letter of Credit which it issues hereunder.
SECTION 2.6.1. Other Lenders' Participation. Upon the issuance of each
Letter of Credit issued by the Issuer pursuant hereto, and without further
action, each Lender (other than the Issuer) that has a Revolving Loan
Commitment shall be deemed to have irrevocably purchased from the Issuer, to
the extent of its Percentage in respect of Revolving Loans, and the Issuer
shall be deemed to have irrevocably granted and sold to such Lender a
participation interest in such Letter of Credit (including the Contingent
Liability and any Reimbursement Obligation and all rights with respect
thereto), and such Lender shall, to the extent of its Percentage in respect of
Revolving Loans, be responsible for reimbursing promptly (and in any event
within one Business Day) the Issuer for Reimbursement Obligations which have
not been reimbursed by the Borrower in accordance with Section 2.6.3. In
addition, such Lender shall, to the extent of its Percentage in respect of
Revolving Loans, be entitled to receive a ratable portion of the Letter of
Credit fees payable pursuant to Section 3.3.3 with respect to each Letter of
Credit and of interest payable pursuant to Section 3.2 with respect to any
Reimbursement Obligation. To the extent that any Lender has reimbursed the
Issuer for a Disbursement as required by this Section, such Lender shall be
entitled to receive its ratable portion of any amounts subsequently received
(from the Borrower or otherwise) in respect of such Disbursement.
SECTION 2.6.2. Disbursements; Conversion to Revolving Loans. The
Issuer will notify the Borrower and the Administrative Agent promptly of the
presentment for payment of any drawing under any Letter of Credit issued by the
Issuer, together with notice of the date (the "Disbursement Date") such payment
shall be made (each such payment, a "Disbursement"). Subject to the terms and
provisions of such Letter of Credit and this Agreement, the Issuer shall make
such payment to the beneficiary (or its designee) of such Letter of Credit.
Prior to 12:00 noon, New York City time, on the first Business Day following
the Disbursement Date (the "Disbursement Due Date"), the Borrower will
reimburse the Administrative Agent, for the account of the Issuer, for all
amounts which the Issuer has disbursed under such Letter of Credit,
together with interest thereon at the rate per annum otherwise applicable to
Revolving Loans (made as Base Rate Loans) from and including the Disbursement
Date to but excluding the Disbursement Due Date and, thereafter (unless such
Disbursement is converted into a Revolving Loan made as a Base Rate Loan on the
Disbursement Due Date), at a rate per annum equal to the rate per annum then in
effect with respect to overdue Revolving Loans (made as Base Rate Loans)
pursuant to Section 3.2.2 for the period from the Disbursement Due Date through
the date of such reimbursement; provided, however, that, if no Default shall
have then occurred and be continuing, unless the Borrower has notified the
Administrative Agent no later than one Business Day prior to the Disbursement
Due Date that it will reimburse the Issuer for the applicable Disbursement,
then the amount of the Disbursement shall be deemed to be a Borrowing of
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Revolving Loans constituting Base Rate Loans and following the giving of notice
thereof by the Administrative Agent to the Lenders, each Lender with a
Revolving Loan Commitment (other than the Issuer) will deliver to the Issuer on
the Disbursement Due Date immediately available funds in an amount equal to
such Lender's Percentage of such Borrowing. Each conversion of Disbursement
amounts into Revolving Loans shall constitute a representation and warranty by
the Borrower that on the date of the making of such Revolving Loans all of the
statements set forth in Section 5.2.1 are true and correct.
SECTION 2.6.3. Reimbursement. The obligation (a "Reimbursement
Obligation") of the Borrower under Section 2.6.2 to reimburse the Issuer with
respect to each Disbursement (including interest thereon) not converted into a
Revolving Loan made as a Base Rate Loan pursuant to Section 2.6.2, and, upon
the failure of the Borrower to reimburse the Issuer and the giving of notice
thereof by the Administrative Agent to the Lenders, each Lender's (to the
extent it has a Revolving Loan Commitment) obligation under Section 2.6.1 to
reimburse the Issuer or fund its Percentage of any Disbursement converted into
a Revolving Loan made as a Base Rate Loan, shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrower or such Lender, as the case may be, may
have or have had against the Issuer or any such Lender, including any defense
based upon the failure of any Disbursement to conform to the terms of the
applicable Letter of Credit (if, in the Issuer's good faith opinion, such
Disbursement is determined to be appropriate) or any non-application or
misapplication by the beneficiary of the proceeds of such Letter of Credit;
provided, however, that after paying in full its Reimbursement Obligation
hereunder, nothing herein shall adversely affect the right of the Borrower or
such Lender, as the case may be, to commence any proceeding against the Issuer
for any wrongful Disbursement made by the Issuer under a Letter of Credit as a
result of acts or omissions constituting gross negligence or willful misconduct
on the part of the Issuer.
SECTION 2.6.4. Deemed Disbursements. Upon the occurrence and during
the continuation of any Event of Default of the type described in clauses (a)
through (d) of Section 8.1.9 or, with notice from the Administrative Agent
acting at the direction of the Required Lenders, upon the occurrence and during
the continuation of any other Event of Default,
(a) an amount equal to that portion of all Letter of Credit
Outstandings attributable to the then aggregate amount which is
undrawn and available under all Letters of Credit issued and
outstanding shall, without demand upon or notice to the Borrower or
any other Person, be deemed to have been paid or disbursed by the
Issuer under such Letters of Credit (notwithstanding that such amount
may not in fact have been so paid or disbursed); and
(b) upon notification by the Administrative Agent to the
Borrower of its obligations under this Section, the Borrower shall be
immediately obligated to reimburse the Issuer for the amount deemed to
have been so paid or disbursed by the Issuer.
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Any amounts so payable by the Borrower pursuant to this Section shall be
deposited in cash with the Administrative Agent and held as collateral security
for the Obligations in connection with the Letters of Credit issued by the
Issuer. At such time as the Events of Default giving rise to the deemed
disbursements hereunder shall have been cured or waived, the Administrative
Agent shall return to the Borrower all amounts then on deposit with the
Administrative Agent pursuant to this Section, together with accrued interest
at the Federal Funds Rate, which have not been applied to the satisfaction of
such Obligations.
SECTION 2.6.5. Nature of Reimbursement Obligations. The Borrower and,
to the extent set forth in Section 2.6.1, each Lender with a Revolving Loan
Commitment, shall assume all risks of the acts, omissions or misuse of any
Letter of Credit by the beneficiary thereof. The Issuer (except to the extent
of its own gross negligence or willful misconduct) shall not be responsible for
(i) the form, validity, sufficiency, accuracy, genuineness or legal effect of
any Letter of Credit or any document submitted by any party in connection with
the application for and issuance of a Letter of Credit, even if it should in
fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged, (ii) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or the proceeds thereof in whole or in part, which may prove to be
invalid or ineffective for any reason, (iii) failure of the beneficiary to
comply fully with conditions required in order to demand payment under a Letter
of Credit, (iv) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, or (v)
any loss or delay in the transmission or otherwise of any document or draft
required in order to make a Disbursement under a Letter of Credit. None of the
foregoing shall affect, impair or prevent the vesting of any of the rights or
powers granted to the Issuer or any Lender with a Revolving Loan Commitment
hereunder. In furtherance and extension and not in limitation or derogation of
any of the foregoing, any action taken or omitted to be taken by the Issuer in
good faith (and not constituting gross negligence or willful misconduct) shall
be binding upon the Borrower, each Obligor and each such Lender, and shall not
put the Issuer under any resulting liability to the Borrower, any Obligor or
any such Lender, as the case may be.
SECTION 2.6.6. Indemnity. In addition to amounts payable as elsewhere
provided herein, the Borrower hereby agrees to protect, indemnify, pay and save
the Issuer harmless from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including reasonable attorneys'
fees and allocated costs of internal counsel) which the Issuer may incur or be
subject to as a consequence, direct or indirect, of (a) the issuance of the
Letters of Credit, other than as a result of the gross negligence or wilful
misconduct of the Issuer as determined by a court of competent jurisdiction, or
(b) the failure of the Issuer to honor a drawing under any Letter of Credit as
a result of any act or omission, whether rightful or wrongful, of any present
or future de jure or de facto government or governmental authority.
SECTION 2.6.7. Borrower's Guaranty of Reimbursement Obligations under
Letters of Credit Issued for the Account of its Subsidiaries. The Borrower
agrees as follows in respect of the reimbursement obligations under Letters of
Credit issued for the account of its Subsidiaries:
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(a) The Borrower hereby absolutely, unconditionally and irrevocably
(i) guarantees the full and punctual payment when due,
whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise, of all such reimbursement
obligations now or hereafter existing, of each of its Subsidiaries
(the "Account Parties") that is an account party to a Letter of Credit
which arise out of, or are incurred in connection with, such Letters
of Credit, whether for principal, interest, fees, expenses or
otherwise (including all such amounts which would become due but for
the operation of the automatic stay under Section 362(a) of the United
States Bankruptcy Code, 11 U.S.C. ss.362(a), and the operation of
Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11
U.S.C. ss.502(b) and ss.506(b)), and
(ii) indemnifies and holds harmless each Secured Party and
each holder of a Note for any and all costs and expenses (including
reasonable attorney's fees and expenses) incurred by such Secured
Party or such holder, as the case may be, in enforcing any rights
under the guaranty set forth in this Section 2.6.7.
The guaranty set forth in this Section 2.6.7 constitutes a guaranty of payment
when due and not of collection, and the Borrower specifically agrees that it
shall not be necessary or required that any Secured Party or any holder of any
Note exercise any right, assert any claim or demand or enforce any remedy
whatsoever against any Account Party or any other Obligor (or any other Person)
before or as a condition to the obligations of the Borrower under the guaranty
set forth in this Section 2.6.7 (such obligations hereinafter referred to as
the "Guaranteed Obligations").
(b) The Borrower agrees that upon the occurrence of an Event of
Default of the nature set forth in clauses (a) through (d) of Section 8.1.9, at
a time when any of the Guaranteed Obligations of any Account Party may not then
be due and payable, then the Borrower agrees that it will pay to the
Administrative Agent for the account of the Secured Parties forthwith the full
amount which would be payable under the guaranty set forth in this Section
2.6.7 by the Borrower if all such Guaranteed Obligations were then due and
payable.
(c) The guaranty set forth in this Section 2.6.7 shall in all respects
be a continuing, absolute, unconditional and irrevocable guaranty of payment,
and shall remain in full force and effect until all Guaranteed Obligations of
the Account Parties have been paid in full in cash, all Obligations of the
Borrower and each other Obligor hereunder have been paid in full in cash, all
Letters of Credit have been terminated or expired, all Rate Protection
Agreements have been terminated or expired and all Commitments shall have
terminated. The Borrower guarantees that the Guaranteed Obligations of the
Account Parties will be paid strictly in accordance with the terms of this
Agreement and each other Loan Document under which they arise, regardless of
any law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of any Secured Party or any holder of
any Note with respect thereto. The liability of the Borrower under the guaranty
set forth in this Section 2.6.7 shall be absolute, unconditional and
irrevocable irrespective of:
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(i) any lack of validity, legality or enforceability of this
Agreement, any Note or any other Loan Document;
(ii) the failure of any Secured Party or any holder of any
Note
(A) to assert any claim or demand or to enforce any
right or remedy against any Account Party, any other Obligor
or any other Person (including any other guarantor (including
the Borrower)) under the provisions of this Agreement, any
Note, any other Loan Document or otherwise, or
(B) to exercise any right or remedy against any
other guarantor (including the Borrower) of, or collateral
securing, any Guaranteed Obligations of any Account Party;
(iii) any change in the time, manner or place of payment of,
or in any other term of, all or any of the Guaranteed Obligations of
any Account Party, or any other extension, compromise or renewal of
any Guaranteed Obligation of any Account Party;
(iv) any reduction, limitation, impairment or termination of
any Guaranteed Obligations of any Account Party for any reason,
including any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to (and the Borrower hereby
waives any right to or claim of) any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity,
illegality, nongenuineness, irregularity, compromise, unenforceability
of, or any other event or occurrence affecting, any Guaranteed
Obligations of any Account Party or otherwise;
(v) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of
this Agreement, any Note or any other Loan Document;
(vi) any addition, exchange, release, surrender or
non-perfection of any collateral, or any amendment to or waiver or
release or addition of, or consent to departure from, any other
guaranty, held by any Secured Party or any holder of any Note securing
any of the Guaranteed Obligations of any Account Party; or
(vii) any other circumstance which might otherwise constitute
a defense available to, or a legal or equitable discharge of, any
Account Party any surety or any guarantor.
(d) The Borrower agrees that the guaranty set forth in this Section
2.6.7 shall continue to be effective or be reinstated, as the case may be, if
at any time any payment (in whole or in part) of any of the Guaranteed
Obligations is rescinded or must otherwise be restored by any Secured Party or
any holder of any Note, upon the insolvency, bankruptcy or reorganization of
any Account Party or otherwise, all as though such payment had not been made.
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(e) The Borrower hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the Guaranteed
Obligations of any Account Party or any other Obligor and the guaranty set
forth in this Section 2.6.7 and any requirement that the Administrative Agent,
any other Secured Party or any holder of any Note protect, secure, perfect or
insure any security interest or Lien, or any property subject thereto, or
exhaust any right or take any action against any Account Party, any other
Obligor or any other Person (including any other guarantor) or entity or any
collateral securing the Guaranteed Obligations of any Account Party.
(f) The Borrower agrees that it will not exercise any rights which it
may acquire by way of rights of subrogation under the guaranty set forth in
this Section 2.6.7, by any payment made under the guaranty set forth in this
Section 2.6.7 or otherwise, until the prior payment in full in cash of all
Guaranteed Obligations of each Account Party, the prior payment in full in cash
of all Obligations of the Borrower, the termination or expiration of all
Letters of Credit, the termination or expiration of all Rate Protection
Agreements and the termination of all Commitments. Any amount paid to the
Borrower on account of any such subrogation rights prior to the payment in full
in cash of all Guaranteed Obligations of each Account Party shall be held in
trust for the benefit of the Secured Parties and each holder of a Note and
shall immediately be paid to the Administrative Agent for the benefit of the
Secured Parties and each holder of a Note and credited and applied against the
Guaranteed Obligations of each Account Party, whether matured or unmatured, in
accordance with the terms of this Agreement; provided, however, that if
(i) the Borrower has made payment to the Secured Parties and
each holder of a Note of all or any part of the Guaranteed Obligations
of any Account Party, and
(ii) all Guaranteed Obligations of each Account Party have
been paid in full in cash, all Obligations of the Borrower have been
paid in full in cash, all Letters of Credit have been terminated or
expired and all Commitments have been permanently terminated,
each Secured Party and each holder of a Note agrees that, at the Borrower's
request, the Administrative Agent, on behalf of the Secured Parties and the
holders of the Notes, will execute and deliver to the Borrower appropriate
documents (without recourse and without representation or warranty) necessary
to evidence the transfer by subrogation to the Borrower of an interest in the
Guaranteed Obligations of each Account Party resulting from such payment by the
Borrower. In furtherance of the foregoing, for so long as any Obligations
(including Guaranteed Obligations) or Commitments remain outstanding, the
Borrower shall refrain from taking any action or commencing any proceeding
against any Account Party(or its successors or assigns, whether in connection
with a bankruptcy proceeding or otherwise) to recover any amounts in the
respect of payments made under the guaranty set forth in this Section 2.6.7 to
any Secured Party or any holder of a Note.
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(g) The guaranty set forth in this Section 2.6.7 shall:
(h) be binding upon the Borrower, and its successors,
transferees and assigns; and
(i) inure to the benefit of and be enforceable by the
Administrative Agent and each other Secured Party.
Without limiting the generality of the foregoing clause (b), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Credit Extension
held by it to any other Person or entity, and such other Person or entity shall
thereupon become vested with all rights and benefits in respect thereof granted
to such Lender under any Loan Document (including the guaranty set forth in
this Section 2.6.7) or otherwise, subject, however, to any contrary provisions
in such assignment or transfer, and to the provisions of Section 11.11 and
Article X.
SECTION 2.7. Register; Notes.
(a) Each Lender may maintain in accordance with its usual
practice an account or accounts evidencing the Indebtedness of the
Borrower to such Lender resulting from each Loan made by such Lender,
including the amounts of principal and interest payable and paid to
such Lender from time to time hereunder. In the case of a Lender that
does not request, pursuant to clause (b)(ii) below, execution and
delivery of a Note evidencing the Loans made by such Lender to the
Borrower, such account or accounts shall, to the extent not
inconsistent with the notations made by the Administrative Agent in
the Register, be conclusive and binding on the Borrower absent
manifest error; provided, however, that the failure of any Lender to
maintain such account or accounts shall not limit or otherwise affect
any Obligations of the Borrower or any other Obligor.
(b)(i) The Borrower hereby designates the Administrative
Agent to serve as the Borrower's agent, solely for the purpose of this
clause (b), to maintain a register (the "Register") on which the
Administrative Agent will record each Lender's Commitment, the Loans
made by each Lender and each repayment in respect of the principal
amount of the Loans of each Lender and annexed to which the
Administrative Agent shall retain a copy of each Lender Assignment
Agreement delivered to the Administrative Agent pursuant to Section
11.11.1. Failure to make any recordation, or any error in such
recordation, shall not affect the Borrower's obligation in respect of
such Loans. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Administrative Agent
and the Lenders shall treat each Person in whose name a Loan (and as
provided in clause (ii) the Note evidencing such Loan, if any) is
registered as the owner thereof for all purposes of this Agreement,
notwithstanding notice or any provision herein to the contrary. A
Lender's Commitment and the Loans made pursuant thereto may be
assigned or otherwise transferred in whole or in part only by
registration of such assignment or transfer in the Register. Any
assignment or transfer of a Lender's Commitment or the Loans made
pursuant thereto shall be registered in the Register only upon
delivery to the Administrative Agent of a Lender Assignment
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Agreement duly executed by the assignor thereof and the compliance by
the parties thereto with the other requirements of Section 11.11.1. No
assignment or transfer of a Lender's Commitment or the Loans made
pursuant thereto shall be effective unless such assignment or transfer
shall have been recorded in the Register by the Administrative Agent
as provided in this Section.
(ii) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and
deliver to such Lender, as applicable, a Revolving Note, a Term Note
(or Registered Note) and/or a Swing Line Note evidencing the Loans
made by such Lender. The Borrower hereby irrevocably authorizes each
Lender to make (or cause to be made) appropriate notations on the grid
attached to such Lender's Notes (or on any continuation of such grid),
which notations, if made, shall evidence, inter alia, the date of, the
outstanding principal amount of, and the interest rate and Interest
Period applicable to the Loans evidenced thereby. Such notations
shall, to the extent not inconsistent with the notations made by the
Administrative Agent in the Register, be conclusive and binding on the
Borrower absent manifest error; provided, however, that the failure of
any Lender to make any such notations shall not limit or otherwise
affect any Obligations of the Borrower or any other Obligor. The Loans
evidenced by any Registered Note and interest thereon shall at all
times (including after assignment pursuant to Section 11.11.1) be
payable to the order of the payee named therein and its registered
assigns. A Registered Note and the obligation evidenced thereby may be
assigned or otherwise transferred in whole or in part only by
registration of such assignment or transfer of such Registered Note
and the obligation evidenced thereby in the Register (and each
Registered Note shall expressly so provide). Any assignment or
transfer of all or part of an obligation evidenced by a Registered
Note shall be registered in the Register only upon surrender for
registration of assignment or transfer of the Registered Note
evidencing such obligation, accompanied by a Lender Assignment
Agreement duly executed by the assignor thereof and the compliance by
the parties thereto with the other requirements of Section 11.11.1,
and thereupon, if requested by the assignee, one or more new Notes
shall be issued to the designated assignee and the old Registered Note
shall be returned by the Administrative Agent to the Borrower marked
"exchanged". No assignment of a Registered Note and the obligation
evidenced thereby shall be effective unless it shall have been
recorded in the Register by the Administrative Agent as provided in
this Section.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. Repayments and Prepayments; Application.
SECTION 3.1.1. Repayments and Prepayments. The Borrower shall repay in
full the unpaid principal amount of each Loan upon the Stated Maturity Date
therefor. Prior thereto, the Borrower
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(a) may, from time to time on any Business Day, make a
voluntary prepayment, in whole or in part, of the outstanding
principal amount of any
(i) Loans (other than Swing Line Loans); provided,
however, that
(A) any such prepayment of the Term Loans shall be
made pro rata among the Term Loans of the same type
and, if applicable, having the same Interest Period of
all Lenders that have made such Term Loans, and any
such prepayment of Revolving Loans shall be made pro
rata among the Revolving Loans of the same type and, if
applicable, having the same Interest Period of all
Lenders that have made such Revolving Loans;
(B) the Borrower shall comply with Section 4.4 in
the event that any LIBO Rate Loan is prepaid on any day
other than the last day of the Interest Period for such
Loan;
(C) all such voluntary prepayments shall require
at least one Business Day's notice in the case of Base
Rate Loans, three Business Days' notice in the case of
LIBO Rate Loans, but no more than five Business Days'
notice in the case of any Loans, in each case in
writing to the Administrative Agent; and
(D) all such voluntary partial prepayments shall
be, in the case of LIBO Rate Loans, in an aggregate
amount of $1,000,000 or any larger integral multiple of
$500,000, and, in the case of Base Rate Loans, in an
aggregate amount of $500,000 or any larger integral
multiple of $100,000, or, in either case, in the
aggregate principal amount of all Loans of the
applicable Tranche and type then outstanding; or
(ii) Swing Line Loans; provided, however, that
(A) all such voluntary prepayments shall require
prior telephonic notice to the Swing Line Lender on or
before 12:00 noon, New York City time, on the day of
such prepayment (such notice to be confirmed in writing
by the Borrower within 24 hours thereafter); and
(B) all such voluntary partial prepayments shall
be in an aggregate amount of $100,000 and an integral
multiple of $50,000 or in the aggregate principal
amount of all Swing Line Loans then outstanding;
(b) shall, no later than five Business Days following the
delivery by the Borrower of its annual audited financial reports
required pursuant to clause (c) of Section 7.1.1 (beginning with the
financial reports delivered in respect of the 1998 Fiscal Year),
deliver to the Administrative Agent a calculation of the Excess Cash
Flow for the Fiscal Year last ended and, no later than five Business
Days following the delivery of such
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calculation, make a mandatory prepayment of the Term Loans in
an amount equal to 75% of the Excess Cash Flow (if any) for such
Fiscal Year, to be applied as set forth in Section 3.1.2;
(c) shall, not later than one Business Day following the
receipt of any Net Debt Proceeds by the Borrower, any Parent Guarantor
or any of their respective Subsidiaries, deliver to the Administrative
Agent a calculation of the amount of such Net Debt Proceeds and make a
mandatory prepayment of the Term Loans in an amount equal to 100% of
such Net Debt Proceeds to be applied as set forth in Section 3.1.2;
(d) shall, concurrently with the receipt of any Net Equity
Proceeds by the Borrower, any Parent Guarantor or any of their
respective Subsidiaries, deliver to the Administrative Agent a
calculation of the amount of such Net Equity Proceeds, and no later
than five Business Days following the delivery of such calculation,
make a mandatory prepayment of the Term Loans in an amount equal to
50% of such Net Equity Proceeds to be applied as set forth in Section
3.1.2;
(e) shall, following the receipt by the Borrower, any Parent
Guarantor or any of their respective Subsidiaries of any Casualty
Proceeds in excess of $500,000 (individually or in the aggregate (when
taken together with Net Disposition Proceeds) over the course of a
Fiscal Year), deliver to the Administrative Agent a calculation of the
amount of such Casualty Proceeds and make a mandatory prepayment of
the Term Loans in an amount equal to 100% of such Casualty Proceeds
within 60 days of the receipt thereof to be applied as set forth in
Section 3.1.2; provided, however, that no mandatory prepayment on
account of Casualty Proceeds shall be required under this clause if
the Borrower informs the Agents in writing no later than 60 days
following the occurrence of the Casualty Event resulting in such
Casualty Proceeds of its, such Parent Guarantor's or such Subsidiary's
good faith intention to apply such Casualty Proceeds to the rebuilding
or replacement of the damaged, destroyed or condemned assets or
property and the Borrower, such Parent Guarantor or such Subsidiary in
fact uses such Casualty Proceeds to rebuild or replace such assets or
property within 365 days following the receipt of such Casualty
Proceeds, with the amount of such Casualty Proceeds unused after such
365-day period being applied to the Term Loans pursuant to Section
3.1.2; provided, further, however, that (i) at any time when any
Default or Event of Default shall have occurred and be continuing, all
Casualty Proceeds (together with Net Disposition Proceeds not applied
as provided in clause (f) below) shall be deposited in an account
maintained with the Administrative Agent to pay for such rebuilding or
replacement whenever no Default or Event of Default is then continuing
or except as otherwise agreed to by the Agents for disbursement at the
request of the Borrower, such Parent Guarantor or such Subsidiary, as
the case may be, or (ii) if all such Casualty Proceeds (together with
Net Disposition Proceeds not applied as provided in clause (f) below)
aggregating in excess of $1,000,000 have not yet been applied as
described in the notice required above (or in accordance with clause
(f) below), all such Casualty Proceeds and Net Disposition Proceeds
shall be deposited in an account maintained with the Administrative
Agent for
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disbursement at the request of the Borrower, such Parent Guarantor or
such Subsidiary, as the case may be, to be used for the purpose(s) set
forth in such written notice(s);
(f) shall, following the receipt by the Borrower, any Parent
Guarantor or any of their respective Subsidiaries of any Net
Disposition Proceeds in excess of $500,000 (individually or in the
aggregate (when taken together with Casualty Proceeds) over the course
of a Fiscal Year), deliver to the Administrative Agent a calculation
of the amount of such Net Disposition Proceeds and make a mandatory
prepayment of the Term Loans in an amount equal to 100% of such Net
Disposition Proceeds within one Business Day of the receipt thereof to
be applied as set forth in Section 3.1.2; provided, however, that no
mandatory prepayment on account of Net Disposition Proceeds shall be
required under this clause if the Borrower informs the Agents in
writing no later than one Business Day following the receipt of such
Net Disposition Proceeds of its, such Parent Guarantor's or such
Subsidiary's good faith intention to apply such Net Disposition
Proceeds to the replacement of the sold, conveyed or transferred
assets or property and the Borrower, such Parent Guarantor or such
Subsidiary in fact uses such Net Disposition Proceeds to replace such
assets or property within 365 days following the receipt of such Net
Disposition Proceeds, with the amount of such Net Disposition Proceeds
unused after such 365-day period being applied to the Term Loans
pursuant to Section 3.1.2; provided, further, however, that (i) at any
time when any Default or Event of Default shall have occurred and be
continuing, all Net Disposition Proceeds (together with Casualty
Proceeds not applied as provided in clause (e) above) shall be
deposited in an account maintained with the Administrative Agent to
pay for such replacement whenever no Default or Event of Default is
then continuing or except as otherwise agreed to by the Agents for
disbursement at the request of the Borrower, such Parent Guarantor or
such Subsidiary, as the case may be, or (ii) if all such Net
Disposition Proceeds (together with Casualty Proceeds not applied as
provided in clause (e) above) aggregating in excess of $1,000,000 have
not yet been applied as described in the notice required above (or in
accordance with clause (e) above), all such Net Disposition Proceeds
and Casualty Proceeds shall be deposited in an account maintained with
the Administrative Agent for disbursement at the request of the
Borrower, such Parent Guarantor or such Subsidiary, as the case may
be, to be used for the purpose(s) set forth in such written notice(s);
(g) shall, on each date when any reduction in the Revolving
Loan Commitment Amount shall become effective, make a mandatory
prepayment of Revolving Loans and Swing Line Loans and (if necessary)
deposit with the Administrative Agent cash collateral for Letter of
Credit Outstandings in an aggregate amount equal to the excess, if
any, of the sum of (i) the aggregate outstanding principal amount of
all Revolving Loans and Swing Line Loans and (ii) the aggregate amount
of all Letter of Credit Outstandings over the Revolving Loan
Commitment Amount as so reduced;
(h) shall on the Stated Maturity Date for Term Loans and each
Quarterly Payment Date occurring on any date or during any period set
forth below, make a scheduled repayment of the outstanding principal
amount, if any, of Term Loans in an
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amount equal to the amount set forth below opposite such date or
period (in each case as such amounts may have otherwise been reduced
pursuant to this Agreement):
SCHEDULED
PERIOD PRINCIPAL REPAYMENT
December 15, 1997 through
March 15, 2001 $165,000
June 15, 2001 $31,000,000
September 15, 2001 through
March 15, 2002 $165,000
June 15, 2002 $31,670,000; and
(i) shall, immediately upon the occurrence of the Stated
Maturity Date of any Loans or Obligations, whether by way of
acceleration pursuant to Section 8.2 or 8.3 or otherwise, repay all
outstanding Loans and other Obligations, unless, pursuant to Section
8.3, only a portion of all Loans and other Obligations are so
accelerated (in which case the portion so accelerated shall be so
prepaid).
Each prepayment of any Loans made pursuant to this Section shall be
without premium or penalty, except as may be required by Section 4.4. No
prepayment of principal of any Revolving Loans or Swing Line Loans pursuant to
clause (a) of this Section 3.1.1 shall cause a reduction in the Revolving Loan
Commitment Amount or the Swing Line Loan Commitment Amount, as the case may be.
SECTION 3.1.2. Application. (a) Subject to clause (b) below, each
prepayment or repayment of principal of the Loans of any Tranche shall be
applied, to the extent of such prepayment or repayment, first, to the principal
amount thereof being maintained as Base Rate Loans, and second, to the
principal amount thereof being maintained as LIBO Rate Loans.
(b) Each prepayment of Term Loans made pursuant to clauses (a), (b),
(c), (d), (e) and (f) of Section 3.1.1 shall be applied, on a pro rata basis,
to the outstanding principal amount of all remaining Term Loans and the
remaining scheduled quarterly amortization payments in respect thereof, until
all such Term Loans have been paid in full; provided, however, that in the case
of any such prepayment of Term Loans made pursuant to clause (b), (c), (d), (e)
and (f) of Section 3.1.1, any Lender that has Term Loans may elect not to have
such Loans prepaid by delivering a notice to the Administrative Agent at least
one Business Day prior to the date that such prepayment is to be made in which
notice such Lender shall decline to have such Loans prepaid with the amounts
set forth above, in which case the amounts that would have been applied to a
prepayment of such Lender's Term Loans shall instead be applied to a prepayment
of the principal amount (if any) of all outstanding Swing Line Loans until all
outstanding Swing Line Loans have been prepaid in full and then applied to a
prepayment of the principal amount (if any) of all outstanding Revolving Loans
until all outstanding Revolving Loans have been prepaid in full, with the
balance (if any) being returned by the Administrative Agent to the
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Borrower. No prepayment of principal of any Revolving Loans or Swing Line Loans
pursuant to the proviso of the immediately preceding sentence shall cause a
reduction in the Revolving Loan Commitment Amount or the Swing Line Loan
Commitment Amount, as the case may be.
SECTION 3.2. Interest Provisions. Interest on the outstanding
principal amount of the Loans shall accrue and be payable in accordance with
this Section 3.2.
SECTION 3.2.1. Rates. Each Base Rate Loan shall accrue interest on the
unpaid principal amount thereof for each day from and including the day upon
which such Loan was made or converted to a Base Rate Loan to but excluding the
date such Loan is repaid or converted to a LIBO Rate Loan at a rate per annum
equal to the sum of the Alternate Base Rate for such day plus the Applicable
Margin for such Loan on such day. Each LIBO Rate Loan shall accrue interest on
the unpaid principal amount thereof for each day from and including the first
day of the Interest Period applicable thereto to but excluding the date such
Loan is repaid or converted to a Base Rate Loan at a rate per annum equal to
the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the
Applicable Margin for such Loan on such day.
SECTION 3.2.2. Post-Maturity Rates. After the date any principal
amount of any Loan shall have become due and payable (whether on the applicable
Stated Maturity Date, upon acceleration or otherwise), or any other monetary
Obligation (other than overdue Reimbursement Obligations which shall bear
interest as provided in Section 2.6.2) of the Borrower shall have become due
and payable, the Borrower shall pay, but only to the extent permitted by law,
interest (after as well as before judgment) on such amounts at a rate per annum
equal to (a) in the case of any overdue principal of Loans, overdue interest
thereon, overdue commitment fees or other overdue amounts in respect of Loans
or other obligations (or the related Commitments) under a particular Tranche,
the rate that would otherwise be applicable to Base Rate Loans under such
Tranche pursuant to Section 3.2.1 plus 2% and (b) in the case of other overdue
monetary Obligations, the rate that would otherwise be applicable to Revolving
Loans made as Base Rate Loans plus 2%.
SECTION 3.2.3. Payment Dates. Interest accrued on each Loan shall be
payable, without duplication:
(a) on the Stated Maturity Date therefor;
(b) on the date of any payment or prepayment, in whole or in
part, of principal outstanding on such Loan, to the extent of the
unpaid interest accrued through such date on the principal so paid or
prepaid;
(c) with respect to Base Rate Loans, on each Quarterly
Payment Date occurring after the Closing Date hereunder;
(d) with respect to LIBO Rate Loans, on the last day of the
applicable Interest Period (and, if such Interest Period shall exceed
three months, at intervals of three months after the first day of such
Interest Period);
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(e) with respect to the principal amount of any Base Rate
Loans converted into LIBO Rate Loans on a day when interest would not
otherwise have been payable pursuant to clause (c), on the date of
such conversion; and
(f) on that portion of any Loans the Stated Maturity Date of
which is accelerated pursuant to Section 8.2 or 8.3, immediately upon
such acceleration.
Interest accrued on Loans, Reimbursement Obligations or other monetary
Obligations arising under this Agreement or any other Loan Document after the
date such amount is due and payable (whether on the Stated Maturity Date, upon
acceleration or otherwise) shall be payable upon demand.
SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth in
this Section 3.3. All such fees shall be non-refundable.
SECTION 3.3.1. Commitment Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender that has a Revolving Loan
Commitment, for each day during the period (including any portion thereof when
any of the Lenders' Revolving Loan Commitments are suspended by reason of the
Borrower's inability to satisfy any condition of Article V) commencing on the
Closing Date and continuing to but excluding the Revolving Loan Commitment
Termination Date, a commitment fee on such Lender's Percentage of the unused
portion of the Revolving Loan Commitment Amount, whether or not then available,
for such day at a rate per annum equal to the Applicable Commitment Fee for
such day. Such commitment fees shall be payable by the Borrower in arrears on
each Quarterly Payment Date, commencing with the first such day following the
Closing Date, and on the Revolving Loan Commitment Termination Date. The making
of Swing Line Loans by the Swing Line Lender shall not constitute usage under
the Revolving Loan Commitment for the purpose of calculating the commitment
fees to be paid by the Borrower to the Lenders (other than the Swing Line
Lender) pursuant to this Section 3.3.1.
SECTION 3.3.2. Syndication Agent's, Administrative Agent's and
Arranger's Fees. The Borrower agrees to pay to each of the Syndication Agent,
the Administrative Agent and the Arranger for each such Person's own account,
the fees set forth in the Fee Letter and the Administrative Agent's Fee Letter
in accordance with their respective terms.
SECTION 3.3.3. Letter of Credit Fee. The Borrower agrees to pay to
(a) the Administrative Agent, for the pro rata account of the
Issuer and each other Lender that has a Revolving Loan Commitment, a
Letter of Credit fee for each day on which there shall be any Letters
of Credit outstanding in an amount equal to the product of (i) a rate
per annum equal to the then Applicable Margin for Revolving Loans
maintained as LIBO Rate Loans multiplied by (ii) the Stated Amount of
each such Letter of Credit; and
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(b) the Issuer (i) a Letter of Credit fronting fee for each
day on which there shall be any Letters of Credit outstanding in an
amount equal to 0.25% per annum on the Stated Amount of each such
Letter of Credit, and (ii) from time to time promptly after demand,
the normal issuance, presentation, amendment and other processing
fees, and other standard administrative costs and charges of the
Issuer relating to Letters of Credit as from time to time in effect.
Fees payable pursuant to this Section shall be payable quarterly in arrears on
each Quarterly Payment Date and on the Revolving Loan Commitment Termination
Date.
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
SECTION 4.1. LIBO Rate Lending Unlawful. If any Lender shall determine
(which determination shall, upon notice thereof to the Borrower and the
Lenders, be conclusive and binding on the Borrower) that the introduction of or
any change in or in the interpretation of any law makes it unlawful, or any
central bank or other governmental authority asserts that it is unlawful, for
such Lender to make, continue or maintain any Loan as, or to convert any Loan
into, a LIBO Rate Loan, the obligations of such Lender to make, continue,
maintain or convert any Loans as or to LIBO Rate Loans shall, upon such
determination, forthwith be suspended until such Lender shall notify the
Administrative Agent that the circumstances causing such suspension no longer
exist (with the date of such notice being the "Reinstatement Date"), and (a)
all LIBO Rate Loans previously made by such Lender shall automatically convert
into Base Rate Loans at the end of the then current Interest Periods with
respect thereto or sooner, if required by such law or assertion and (b) all
Loans thereafter made by such Lender and outstanding prior to the Reinstatement
Date shall be made as Base Rate Loans, with interest thereon being payable on
the same date that interest is payable with respect to the corresponding
Borrowing of LIBO Rate Loans made by Lenders not so affected.
SECTION 4.2. Deposits Unavailable. If the Administrative Agent shall
have determined that (a) Dollar deposits in the relevant amount and for the
relevant Interest Period are not available to the Administrative Agent in its
relevant market, or (b) by reason of circumstances affecting the Administrative
Agent's relevant market, adequate means do not exist for ascertaining the
interest rate applicable hereunder to LIBO Rate Loans, then, upon notice from
the Administrative Agent to the Borrower and the Lenders, the obligations of
all Lenders under Sections 2.3 and 2.4 to make or continue any Loans as, or to
convert any Loans into, LIBO Rate Loans shall forthwith be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
SECTION 4.3. Increased LIBO Rate Loan Costs, etc. The Borrower agrees
to reimburse each Lender for any increase in the cost to such Lender of, or any
reduction in the amount of any sum receivable by such Lender in respect of,
making, continuing or maintaining (or of its obligation to make, continue or
maintain) any Loans as, or of converting (or of its obligation to
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convert) any Loans into, LIBO Rate Loans. Such Lender shall promptly notify the
Administrative Agent and the Borrower in writing of the occurrence of any such
event, such notice to state, in reasonable detail, the reasons therefor and the
additional amount required fully to compensate such Lender for such increased
cost or reduced amount. Such additional amounts shall be payable by the
Borrower directly to such Lender within five days of its receipt of such
notice, and such notice shall, in the absence of manifest error, be conclusive
and binding on the Borrower.
SECTION 4.4. Funding Losses. In the event any Lender shall incur any
loss or expense (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to make, continue or maintain any portion of the principal amount of any Loan
as, or to convert any portion of the principal amount of any Loan into, a LIBO
Rate Loan) as a result of (i) any conversion or repayment or prepayment of the
principal amount of any LIBO Rate Loans on a date other than the scheduled last
day of the Interest Period applicable thereto, whether pursuant to Section 3.1
or otherwise, (ii) any Loans not being made as LIBO Rate Loans in accordance
with the Borrowing Request therefor, or (iii) any Loans not being continued as,
or converted into, LIBO Rate Loans in accordance with the Continuation/
Conversion Notice therefor, then, upon the written notice of such Lender to the
Borrower (with a copy to the Administrative Agent), the Borrower shall, within
five days of its receipt thereof, pay directly to such Lender such amount as
will (in the reasonable determination of such Lender) reimburse such Lender for
such loss or expense. Such written notice (which shall include calculations in
reasonable detail) shall, in the absence of manifest error, be conclusive and
binding on the Borrower.
SECTION 4.5. Increased Capital Costs. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority affects or would affect the amount of capital
required or expected to be maintained by any Lender, the Issuer or any Person
controlling such Lender or the Issuer, and such Lender or the Issuer determines
(in its sole and reasonable discretion) that the rate of return on its or such
controlling Person's capital as a consequence of its Commitments, participation
in, or the issuance or extension of, any Letter of Credit or any Loan made by
such Lender or the Issuer is reduced to a level below that which such Lender,
the Issuer or such controlling Person could have achieved but for the
occurrence of any such circumstance, then, in any such case upon notice from
time to time by such Lender or the Issuer to the Borrower, the Borrower shall
immediately pay directly to such Lender or the Issuer additional amounts
sufficient to compensate such Lender, the Issuer or such controlling Person for
such reduction in rate of return. A statement of such Lender or the Issuer as
to any such additional amount or amounts (including calculations thereof in
reasonable detail) shall, in the absence of manifest error, be conclusive and
binding on the Borrower. In determining such amount, such Lender or the Issuer
may use any method of averaging and attribution that it (in its sole and
absolute discretion) shall deem applicable.
SECTION 4.6. Taxes. (a) All payments by the Borrower of principal of,
and interest on, the Loans and all other amounts payable hereunder (including
Reimbursement Obligations, fees
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and expenses) shall be made free and clear of and without deduction for any
present or future income, excise, stamp or franchise taxes and other taxes,
fees, duties, withholdings or other charges of any nature whatsoever imposed by
any taxing authority, but excluding franchise taxes and taxes imposed on or
measured by any Agent's, the Documentation Agent's, the Issuer's or any
Lender's net income or receipts (such non-excluded items being called "Taxes").
In the event that any withholding or deduction from any payment to be made by
the Borrower hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then the Borrower will (i) pay directly to
the relevant taxing authority the full amount required to be so withheld or
deducted, (ii) promptly forward to the Administrative Agent an official receipt
or other documentation satisfactory to the Administrative Agent evidencing such
payment to such authority, and (iii) pay to the Administrative Agent for the
account of such Agent, the Documentation Agent, the Issuer or such Lender such
additional amount or amounts as is necessary to ensure that the net amount
actually received by such Agent, the Documentation Agent, the Issuer or such
Lender will equal the full amount such Agent, the Documentation Agent, the
Issuer or such Lender would have received had no such withholding or deduction
been required.
Moreover, if any Taxes are directly asserted against any Agent, the
Documentation Agent, the Issuer or any Lender with respect to any payment
received by such Agent, the Documentation Agent, the Issuer or such Lender
hereunder, such Agent, the Documentation Agent, the Issuer or such Lender may
pay such Taxes and the Borrower will promptly pay to such Person such
additional amounts (including any penalties, interest or expenses) as is
necessary in order that the net amount received by such Person after the
payment of such taxes (including any Taxes on such additional amount) shall
equal the amount such Person would have received had such Taxes not been
asserted.
If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Administrative Agent, for the account
of the respective Lenders, the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lenders for any incremental Taxes,
interest or penalties that may become payable by any Lender as a result of any
such failure. For purposes of this Section 4.6, a distribution hereunder by the
Administrative Agent or any Lender to or for the account of any Lender shall be
deemed a payment by the Borrower.
(b) Upon the request of the Borrower or the Administrative Agent, each
Lender that is organized under the laws of a jurisdiction other than the United
States shall, on or prior to the due date of any payments under this Agreement
to such Lender, provide two or more (as the Borrower or the Administrative
Agent may reasonably request) United States Internal Revenue Service Forms 4224
or Forms 1001 or, solely if such Lender is claiming exemption from United
States withholding tax under Section 871(h) or 881(c) of the Code with respect
to payments of "portfolio interest", United States Internal Revenue Service
Forms W-8 and a certificate signed by a duly authorized officer of such Lender
representing that such Lender is not a "bank" within the meaning of Section
881(c)(3)(A) of the Code, or such other forms or documents (or successor forms
or documents), appropriately completed, as may be applicable to establish the
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extent, if any, to which a payment to such Lender are exempt from withholding
or deduction of Taxes.
SECTION 4.7. Payments, Computations, etc. Unless otherwise expressly
provided, all payments by or on behalf of the Borrower pursuant to this
Agreement, the Notes or any other Loan Document shall be made by the Borrower
to the Administrative Agent for the pro rata account of the Lenders, the
Documentation Agent, Agents or Arranger, as applicable, entitled to receive
such payment. All such payments required to be made to the Administrative Agent
shall be made, without setoff, deduction or counterclaim, not later than 11:00
a.m., New York City time, on the date due, in same day or immediately available
funds, to such account as the Administrative Agent shall specify from time to
time by notice to the Borrower. Funds received after that time shall be deemed
to have been received by the Administrative Agent on the next succeeding
Business Day. The Administrative Agent shall promptly remit in same day funds
to each Lender, the Documentation Agent, each Agent or the Arranger, as the
case may be, its share, if any, of such payments received by the Administrative
Agent for the account of such Lender, the Documentation Agent, such Agent or
the Arranger, as the case may be. All interest and fees shall be computed on
the basis of the actual number of days (including the first day but excluding
the last day) occurring during the period for which such interest or fee is
payable over a year comprised of 360 days (or, in the case of interest on a
Base Rate Loan that is not calculated at the Federal Funds Rate, 365 days or,
if appropriate, 366 days). Whenever any payment to be made shall otherwise be
due on a day which is not a Business Day, such payment shall (except as
otherwise required by clause (a) of the definition of the term "Interest
Period") be made on the next succeeding Business Day and such extension of time
shall be included in computing interest and fees, if any, in connection with
such payment.
SECTION 4.8. Sharing of Payments. If any Lender shall obtain any
payment or other recovery (whether voluntary, involuntary, by application of
setoff or otherwise) on account of any Loan or Reimbursement Obligations (other
than pursuant to the terms of Sections 4.3, 4.4 and 4.5) in excess of its pro
rata share of payments then or therewith obtained by all Lenders entitled
thereto, such Lender shall purchase from the other Lenders such participations
in the Credit Extensions made by them as shall be necessary to cause such
purchasing Lender to share the excess payment or other recovery ratably with
each of them; provided, however, that if all or any portion of the excess
payment or other recovery is thereafter recovered from such purchasing Lender,
the purchase shall be rescinded and each Lender which has sold a participation
to the purchasing Lender shall repay to the purchasing Lender the purchase
price to the ratable extent of such recovery together with an amount equal to
such selling Lender's ratable share (according to the proportion of (i) the
amount of such selling Lender's required repayment to the purchasing Lender in
respect of such recovery, to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section may, to the fullest extent permitted by law, exercise
all its rights of payment (including pursuant to Section 4.9) with respect to
such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation. If under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured
claim in lieu of a setoff to which this Section applies, such Lender
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shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders entitled
under this Section to share in the benefits of any recovery on such secured
claim.
SECTION 4.9. Setoff. Each Lender shall, upon the occurrence of any
Event of Default described in clauses (a) through (d) of Section 8.1.9 or, with
the consent of the Required Lenders, upon the occurrence of any other Event of
Default, to the fullest extent permitted by law, have the right to appropriate
and apply to the payment of the Obligations then owing to it (whether or not
then due), and (as security for such Obligations) the Borrower hereby grants to
each Lender a continuing security interest in, any and all balances, credits,
deposits, accounts or moneys of the Borrower then or thereafter maintained with
or otherwise held by such Lender; provided, however, that any such
appropriation and application shall be subject to the provisions of Section
4.8. Each Lender agrees promptly to notify the Borrower and the Administrative
Agent after any such setoff and application made by such Lender; provided,
however, that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of each Lender under this Section are
in addition to other rights and remedies (including other rights of setoff
under applicable law or otherwise) which such Lender may have.
SECTION 4.10. Replacement of Lenders. Each Lender hereby severally
agrees as set forth in this Section. If any Lender (an "Affected Lender") makes
demand upon the Borrower for (or if the Borrower is otherwise required to pay)
amounts pursuant to Section 4.3, 4.5 or 4.6 and the payment of such additional
amounts are, and are likely to continue to be, more onerous in the reasonable
judgment of the Borrower than with respect to the other Lenders, the Borrower
may, within 30 days of receipt by the Borrower of such demand or notice (or the
occurrence of such other event causing the Borrower to be required to pay such
compensation), as the case may be, give notice (a "Replacement Notice") in
writing to the Agents and such Affected Lender of its intention to replace such
Affected Lender with a financial institution (a "Replacement Lender")
designated in such Replacement Notice. If the Agents shall, in the exercise of
their reasonable discretion and within 30 days of their receipt of such
Replacement Notice, notify the Borrower and such Affected Lender in writing
that the designated financial institution is satisfactory to the Agents (such
consent not being required where the Replacement Lender is already a Lender),
then such Affected Lender shall, subject to the payment of any amounts due
pursuant to Section 4.4, assign, in accordance with Section 11.11.1, all of its
Commitments, Loans, Notes and other rights and obligations under this Agreement
and all other Loan Documents (including Reimbursement Obligations, if
applicable) to such designated financial institution; provided, however, that
(i) such assignment shall be without recourse, representation or warranty and
shall be on terms and conditions reasonably satisfactory to such Affected
Lender and such designated financial institution, (ii) the purchase price paid
by such designated financial institution shall be in the amount of such
Affected Lender's Loans and its Percentage of outstanding Reimbursement
Obligations, together with all accrued and unpaid interest and fees in respect
thereof, plus all other amounts (including the amounts demanded and
unreimbursed under Sections 4.3, 4.5 and 4.6), owing to such Affected Lender
hereunder and (iii) the Borrower shall pay to the Affected Lender and the
Agents all reasonable out-of-pocket expenses incurred by the Affected Lender
and the Agents in connection with such assignment and assumption (including the
processing fees described in Section 11.11.1). Upon the effective date of an
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assignment described above, the Replacement Lender shall become a "Lender" for
all purposes under this Agreement and the other Loan Documents.
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
SECTION 5.1. Initial Credit Extension. The obligations of the Lenders
and, if applicable, the Issuer to fund the initial Credit Extension shall be
subject to the prior or concurrent satisfaction of each of the conditions
precedent set forth in this Section 5.1.
SECTION 5.1.1. Corporate and Partnership Documents, etc. The Agents
shall have received, with a copy for each Lender,
(a) from each Obligor that is a corporation a certificate,
dated the Closing Date, of its Secretary or Assistant Secretary as to
(i) resolutions of its Board of Directors then in full force and
effect authorizing the execution, delivery and performance of each
Loan Document to be executed by it, (ii) the incumbency and signatures
of those of its officers authorized to act with respect to each Loan
Document executed by it and (iii) the full force and validity of its
Organic Documents and true and complete copies thereof, upon which
certificate each Agent, the Documentation Agent, the Issuer and each
Lender may conclusively rely until it shall have received a further
certificate of the Secretary or Assistant Secretary of such Obligor
canceling or amending such prior certificate; and
(b) from each Obligor that is a partnership, a certificate,
dated the Closing Date, of each of its general partners as to (i) all
partnership action then in full force and effect authorizing the
execution, delivery and performance of each Loan Document to be
executed by it, (ii) the incumbency and signatures of those officers
of its general partners authorized to act with respect to each Loan
Document executed by it and (iii) the full force and validity of its
Organic Documents and true and complete copies thereof, upon which
certificate each Agent, the Documentation Agent, the Issuer and each
Lender may conclusively rely until it shall have received a further
certificate canceling or amending such prior certificate.
SECTION 5.1.2. Consummation of Refinancing. The Refinancing shall have
been consummated in accordance with the terms hereof on the Closing Date for an
aggregate amount not to exceed $91,000,000, including the payment of reasonable
fees and expenses associated with the Refinancing in an amount not to exceed
$3,500,000.
SECTION 5.1.3. Closing Date Certificates. The Agents shall have
received, with counterparts for each Lender, the Closing Date Certificates,
substantially in the forms of Exhibits D-1 and D-2 hereto, dated the Closing
Date and duly executed and delivered by the chief executive, financial or
accounting (or equivalent) Authorized Officer of the Borrower, in which
certificate the Borrower shall agree and acknowledge that the statements made
therein
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shall be deemed to be true and correct representations and warranties of the
Borrower made as of such date under this Agreement, and, at the time such
certificate is delivered, such statements shall in fact be true and correct.
SECTION 5.1.4. Delivery of Notes. The Agents shall have received, for
the account of each Lender that shall have requested a Note not less than two
Business Days prior to the Closing Date, a Note of each applicable Tranche duly
executed and delivered by an Authorized Officer of the Borrower.
SECTION 5.1.5. Pledge Agreement. The Agents shall have received
executed counterparts of the Parent Pledge Agreement, dated as of the Closing
Date, duly executed and delivered by an Authorized Officer of each of Holdings
and Daboco together with the certificates evidencing all of the issued and
outstanding shares of Capital Stock (or similar equity interests) of each
direct Subsidiary of Holdings and each direct Subsidiary of Daboco (in which a
security interest is not concurrently granted under the Partnership Security
Agreement) which shall be pledged pursuant to the Parent Pledge Agreement,
which certificates shall in each case be accompanied by undated stock powers
duly executed in blank. If any securities pledged pursuant to a Pledge
Agreement are uncertificated securities or are held through a financial
intermediary, the Administrative Agent shall have received confirmation and
evidence satisfactory to it that appropriate book entries have been made in the
relevant books or records of a financial intermediary or the issuer of such
securities, as the case may be, or other appropriate steps have been taken
under applicable law resulting in the perfection of the security interest
granted in favor of the Administrative Agent in such securities pursuant to the
terms of the applicable Pledge Agreement.
SECTION 5.1.6. Security Agreements. The Agents shall have received
executed counterparts of the Partnership Security Agreement and the Borrower
Security Agreement, each dated as of the Closing Date and duly executed and
delivered by an Authorized Officer of each of Daboco and DRI and the Borrower,
together with
(a) executed Uniform Commercial Code financing statements
(Form UCC-1) naming Daboco, DRI or the Borrower as the debtor and the
Administrative Agent as the secured party, or other similar
instruments or documents, to be filed under the Uniform Commercial
Code of all jurisdictions as may be necessary or, in the opinion of
the Administrative Agent, desirable to perfect the security interest
of the Administrative Agent pursuant to the Security Agreements; and
(b) certified copies of Uniform Commercial Code Requests for
Information or Copies (Form UCC-11), or a similar search report
certified by a party acceptable to the Agents, dated a date reasonably
near to the Closing Date, listing all effective financing statements
which name Daboco, DRI or the Borrower (under its present name and any
previous names) as the debtor and which are filed in the jurisdictions
in which filings were made pursuant to clause (a) above, together with
copies of such financing statements.
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SECTION 5.1.7. Mortgage. The Agents shall have received counterparts
of each Mortgage relating to each property listed on Item 6.9 ("Real Property")
of the Disclosure Schedule and designated as being the property to which a
Mortgage relates, each dated the date hereof, duly executed by the Borrower or
the applicable Parent Guarantor, together with
(a) evidence of the completion of all recordings and filings
of such Mortgage as may be necessary or, in the reasonable opinion of
the Agents, desirable effectively to create a valid, perfected first
priority Lien against the properties purported to be covered thereby;
(b) mortgagee's title insurance policies in favor of the
Administrative Agent for the benefit of the Secured Parties in amounts
and in form and substance and issued by insurers, reasonably
satisfactory to the Agents, with respect to the property purported to
be covered by such Mortgage, insuring that title to such property is
marketable and that the interests created by the Mortgage constitute
valid first Liens thereon free and clear of all defects and
encumbrances other than as approved by the Agents, and such policies
shall also include a revolving credit endorsement and such other
endorsements as the Agents shall request and shall be accompanied by
evidence of the payment in full of all premiums thereon; and
(c) such other approvals or documents as the Agents may
reasonably request.
SECTION 5.1.8. Financial Information, etc. The Agents shall have
received, with counterparts for each Lender,
(a) the (i) audited consolidated financial statements of
Holdings and its Subsidiaries and Daboco and its Subsidiaries for the
Fiscal Years ended on December 31, 1994, December 30, 1995 and
December 28, 1996, (ii) unaudited consolidated financial statements of
Holdings and its Subsidiaries and Daboco and its Subsidiaries for the
Fiscal Quarters ended on March 29, 1997 and June 28, 1997 and (iii)
unaudited consolidated financial statements of Holdings and its
Subsidiaries and Daboco and its Subsidiaries for the fiscal months
ended on July 26, 1997 and August 23, 1997 (collectively, the "Base
Financial Statements"); and
(b) pro forma consolidated balance sheets of Holdings and its
Subsidiaries and Daboco and its Subsidiaries, as at August 23, 1997
(the "Pro Forma Balance Sheets"), certified by the chief financial or
accounting Authorized Officers of Holdings and Daboco, respectively,
giving effect to the consummation of the Refinancing and reflecting
the proposed legal and capital structures of Holdings and its
Subsidiaries and the Borrower and its Subsidiaries, in each case, as
at the Closing Date, which legal and capital structure shall be
satisfactory in all respects to the Agents.
SECTION 5.1.9. Solvency, etc. The Agents shall have received, with
copies for each Lender
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(a) a written opinion of Valuation Research Corporation,
addressed to the Agents, the Documentation Agent and the Lenders and
dated the Closing Date, as to the solvency of Holdings and its
Subsidiaries and the Borrower and its Subsidiaries, in each case taken
as a whole, and after giving effect to the incurrence of the
Indebtedness contemplated by this Agreement, which opinion shall be
satisfactory in all respects to the Agents, and
(b) Solvency Certificates, executed and delivered by the
chief financial or accounting Authorized Officer of each of Holdings
and the Borrower and dated the Closing Date, substantially in the form
of Exhibit L-1 and L-2 hereto.
SECTION 5.1.10. Change of Control Offerings. The Agents shall have
received evidence satisfactory to each of them that, as of the Closing Date
(a) (i) Holdings has offered to purchase its Holdings
Subordinated Notes pursuant to a Change of Control Offer (as defined
in the Holdings Subordinated Note Indenture), (ii) such Change of
Control Offer has expired, and (iii) Holdings has repurchased any
Holdings Subordinated Notes tendered pursuant to such Change of
Control Offer; and
(b) (i) the Borrower has offered to purchase its Senior Notes
pursuant to a Change of Control Offer (as defined in the Senior Note
Indenture), (ii) such Change of Control Offer has expired, and (iii)
the Borrower has repurchased any Senior Notes tendered pursuant to
such Change of Control Offer.
SECTION 5.1.11. Payment of Outstanding Indebtedness, etc. All
Indebtedness identified in Item 7.2.2(b) ("Indebtedness to be Paid") of the
Disclosure Schedule, together with all interest, prepayment premiums and other
amounts due and payable with respect thereto, shall have been paid in full
(including, to the extent necessary, from proceeds of the initial Credit
Extension); and all Liens securing payment of any such Indebtedness have been
released or, in each Agent's discretion, assigned, and the Administrative Agent
shall have received all Uniform Commercial Code Form UCC-3 termination
statements or other instruments or documents as may be suitable or appropriate
in connection therewith in the determination of the Agents.
SECTION 5.1.12. Litigation. There shall exist no pending or threatened
material litigation, proceedings or investigations which (x) contests the
consummation of the Refinancing or the legality or validity of the Credit
Agreement, any other Loan Document or any Material Document or (y) could
reasonably be expected to have a Material Adverse Effect.
SECTION 5.1.13. Material Adverse Change. Except as set forth in Item
6.6 ("Material Adverse Change") of the Disclosure Schedule, there shall have
occurred no material adverse change in the business, assets, debt service
capacity, tax position, environmental liability, financial condition,
operations, properties or prospects of the Borrower and its Subsidiaries, taken
as a whole, or Holdings and its Subsidiaries, taken as a whole, in each case
since December 28, 1996.
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SECTION 5.1.14. Opinions of Counsel. The Agents shall have received
opinions, dated the Closing Date and addressed to the Agents, the Documentation
Agent and all Lenders from Latham & Watkins, special New York counsel to each
of the Obligors, in substantially the form of Exhibit K hereto.
SECTION 5.1.15. Insurance. The Agents shall have received satisfactory
evidence of the existence of insurance in compliance with Section 7.1.4
(including all endorsements included therein), and the Administrative Agent
shall be named additional insured or loss payee, on behalf of the Lenders,
pursuant to documentation reasonably satisfactory to the Agents.
SECTION 5.1.16. Perfection Certificate. The Agents shall have received
Perfection Certificates, dated as of the Closing Date, duly executed and
delivered by an Authorized Officer of each of Daboco, DRI, the Borrower and
each other Obligor that is a party to a Security Agreement.
SECTION 5.1.17. Approvals. All necessary governmental, shareholders'
and third-party approvals in connection with the Refinancing and the execution,
delivery and performance of this Agreement and the other Loan Documents shall
have been duly obtained and all applicable waiting periods shall have expired
without, in all such cases, any action being taken or threatened by any
competent authority that would restrain, prevent or otherwise imposes adverse
conditions on the financing contemplated hereby or the continued operations of
any Parent Guarantor, the Borrower or any of their respective Subsidiaries.
SECTION 5.1.18. Closing Fees, Expenses, etc. Each Agent and the
Arranger shall have received, each for its own respective account, all fees,
costs and expenses due and payable to such Agent or the Arranger, as the case
may be, pursuant to Sections 3.3 and 11.3, to the extent then invoiced.
SECTION 5.1.19. Satisfactory Legal Form. All documents executed or
submitted pursuant hereto by or on behalf of the Borrower or any of its
Subsidiaries or any other Obligors shall be reasonably satisfactory in form and
substance to the Agents and their counsel; the Agents and their counsel shall
have received all information, approvals, opinions, documents or instruments as
the Agents or their counsel may reasonably request.
SECTION 5.2. All Credit Extensions. The obligation of each Lender and,
if applicable, the Issuer, to make any Credit Extension (including its initial
Credit Extension) shall be subject to the satisfaction of each of the
conditions precedent set forth in this Section 5.2.
SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both
before and after giving effect to any Credit Extension the following statements
shall be true and correct:
(a) the representations and warranties set forth in Article
VI (excluding, however, those contained in Section 6.7) and each other
Loan Document shall, in each case, be true and correct with the same
effect as if then made (unless stated to relate solely to an
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earlier date, in which case such representations and warranties shall
be true and correct as of such earlier date);
(b) except as disclosed by the Borrower or any Parent
Guarantor to the Agents, the Documentation Agent and the Lenders
pursuant to Section 6.7
(i) no labor controversy, litigation, arbitration
or governmental investigation or proceeding (including any
relating to any Pharmaceutical Law) shall be pending or, to
the knowledge of the Borrower or any Parent Guarantor,
threatened against the Borrower, any Parent Guarantor or any
of their respective Subsidiaries which could reasonably be
expected to have a Material Adverse Effect or which purports
to affect the legality, validity or enforceability of this
Agreement, the Notes or any other Loan Document; and
(ii) no development shall have occurred in any
labor controversy, litigation, arbitration or governmental
investigation or proceeding (including any relating to any
Pharmaceutical Law) disclosed pursuant to Section 6.7 which
could reasonably be expected to have a Material Adverse
Effect; and
(c) no Default shall have then occurred and be continuing,
and neither the Borrower, any Parent Guarantor nor any of their
respective Subsidiaries are in material violation of any law or
governmental regulation or court order or decree (including any
Pharmaceutical Law).
SECTION 5.2.2. Credit Extension Request. The Agents shall have
received a Borrowing Request if Loans are being requested, or an Issuance
Request if a Letter of Credit is being requested or extended. Each of the
delivery of a Borrowing Request or Issuance Request and the acceptance by the
Borrower of proceeds of any Credit Extension shall constitute a representation
and warranty by the Borrower that on the date of such Credit Extension (both
immediately before and after giving effect thereto and the application of the
proceeds thereof) the statements made in Section 5.2.1 are true and correct.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders, the Documentation Agent, the Issuer
and the Agents to enter into this Agreement and to make Credit Extensions
hereunder, each of the Borrower and each Parent Guarantor represents and
warrants unto the Agents, the Documentation Agent, the Issuer and each Lender
as set forth in this Article VI.
SECTION 6.1. Organization, etc. Each of the Borrower, each Parent
Guarantor and each of their respective Subsidiaries (a) is a corporation or
partnership validly organized and existing and in good standing to the extent
required under the laws of the jurisdiction of its incorporation
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or formation, is duly qualified to do business and is in good standing as a
foreign corporation or partnership to the extent required under the laws of
each jurisdiction where the nature of its business requires such qualification,
and (b) has full power and authority and holds all requisite governmental
licenses, permits and other approvals to (i) enter into and perform its
Obligations in connection with the Refinancing and under this Agreement, the
Notes and each other Loan Document to which it is a party and (ii) own and hold
under lease its property and to conduct its business substantially as currently
conducted by it.
SECTION 6.2. Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by each of the Borrower, each Parent Guarantor and
each of their respective Subsidiaries of this Agreement, the Notes and each
other Loan Document executed or to be executed by it, and the Borrower's and,
where applicable, each such other Obligor's participation in the consummation
of the Refinancing, are within the Borrower's and each such Obligor's corporate
or partnership powers, have been duly authorized by all necessary corporate or
partnership action, and do not (i) contravene the Borrower's or any such
Obligor's Organic Documents, (ii) contravene any contractual restriction, law
or governmental regulation or court decree or order binding on or affecting the
Borrower or any such Obligor, or (iii) result in, or require the creation or
imposition of, any Lien on any of the Borrower's or any other Obligor's
properties, except pursuant to the terms of a Loan Document.
SECTION 6.3. Government Approval, Regulation, etc. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person, is required for the due
execution, delivery or performance by any of the Borrower, any Parent Guarantor
or any of their respective Subsidiaries of this Agreement, the Notes or any
other Loan Document to which it is a party, or for the Borrower's and each such
other Obligor's participation in the consummation of the Refinancing, except as
have been duly obtained or made and are in full force and effect. None of the
Borrower, any Parent Guarantor or any of their respective Subsidiaries is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
SECTION 6.4. Validity, etc. This Agreement constitutes, and the Notes
and each other Loan Document executed, or to be executed, by any of the
Borrower, any Parent Guarantor or any of their respective Subsidiaries, as the
case may be, constitutes, or will on the due execution and delivery thereof
constitute, the legal, valid and binding obligations of the Borrower and such
other Obligor enforceable in accordance with their respective terms.
SECTION 6.5. Financial Information. The Borrower has delivered to the
Agents, the Documentation Agent and each Lender copies of each of (a) the Base
Financial Statements, and (b) the Pro Forma Balance Sheets. Each of the
financial statements described above has been prepared in accordance with GAAP
consistently applied (in the case of clause (a)) and, in the case of clause
(b), on a basis substantially consistent with the basis used to prepare the
financial statements referred to in clause (a), and (in the case of clause (a))
present fairly the consolidated
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financial condition of the corporations and partnerships covered thereby as at
the date thereof and the results of their operations for the periods then ended
and (in the case of clause (b)) include appropriate pro forma adjustments to
give pro forma effect to the Refinancing.
SECTION 6.6. No Material Adverse Change. Except as set forth in Item
6.6 ("Material Adverse Change") of the Disclosure Schedule, since December 28,
1996, there has been no material adverse change in the business, assets, debt
service capacity, tax position, environmental liability, financial condition,
operations, properties or prospects of the Borrower and its Subsidiaries, taken
as a whole, or Holdings and its Subsidiaries, taken as a whole.
SECTION 6.7. Litigation, Labor Controversies, etc. There is no pending
or, to the knowledge of the Borrower or any Parent Guarantor, threatened
litigation, action, proceeding, labor controversy, arbitration or governmental
investigation or proceeding (including any relating to any Pharmaceutical Law)
affecting the Borrower, any Parent Guarantor or any of their respective
Subsidiaries, or any of their respective properties, businesses, assets or
revenues, which might have a Material Adverse Effect or which purports to
affect the legality, validity or enforceability of this Agreement, the Notes or
any other Loan Document, except as disclosed in Item 6.7 ("Litigation") of the
Disclosure Schedule.
SECTION 6.8. Subsidiaries. Holdings has no direct Subsidiaries other
than Daboco. Daboco has no direct Subsidiaries other than DRI and the Borrower
(of which it is a general partner and directly holds a 99% general partnership
interest). DRI has no direct Subsidiaries other than the Borrower (of which it
is a general partner and holds a 1% general partnership interest). The Borrower
has no Subsidiaries, except those Subsidiaries which are permitted to have been
acquired in accordance with Section 7.2.5 or 7.2.8.
SECTION 6.9. Ownership of Properties. Each of the Borrower, each
Parent Guarantor and each of their respective Subsidiaries owns (except where
the failure to own such property would not reasonably be expected to have a
Material Adverse Effect) good and marketable title to all of its properties and
assets, real and personal, tangible and intangible, of any nature whatsoever
(including patents, trademarks, trade names, service marks and copyrights),
free and clear of all Liens, charges or claims (including infringement claims
with respect to patents, trademarks, copyrights and the like), except as
permitted pursuant to Section 7.2.3. All Real Property owned or leased by any
of the Borrower, each Parent Guarantor and each of their respective
Subsidiaries and the nature of the interest therein is described in Item 6.9
("Real Property") of the Disclosure Schedule.
SECTION 6.10. Taxes. Each of the Borrower, each Parent Guarantor and
each of their respective Subsidiaries has filed all tax returns and reports
required by law to have been filed by it and has paid all taxes and
governmental charges thereby shown to be owing, except any such taxes or
charges which are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books.
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SECTION 6.11. Pension and Welfare Plans. During the
twelve-consecutive-month period prior to the date of the execution and delivery
of this Agreement and prior to the Closing Date, no steps have been taken to
terminate any Pension Plan (other than pursuant to a "standard termination" in
accordance with section 4041(B) of ERISA), and no contribution failure has
occurred with respect to any Pension Plan sufficient to give rise to a Lien
under section 302(f) of ERISA. No condition exists or event or transaction has
occurred with respect to any Pension Plan which could reasonably be expected to
result in the incurrence by the Borrower or any member of the Controlled Group
of any material liability, fine or penalty. Except as disclosed in Item 6.11
("Employee Benefit Plans") of the Disclosure Schedule, neither the Borrower nor
any member of the Controlled Group has any contingent liability with respect to
any post-retirement benefit under a Welfare Plan, other than liability for
continuation coverage described in Part 6 of Title I of ERISA.
SECTION 6.12. Environmental Warranties. Except as set forth in Item
6.12 ("Environmental Matters") of the Disclosure Schedule:
(a) all facilities and property (including underlying
groundwater) owned or leased by the Borrower, any Parent Guarantor or
any of their respective Subsidiaries have been, and continue to be,
owned or leased by the Borrower, such Parent Guarantor or such
Subsidiary in material compliance with all Environmental Laws;
(b) there have been no past, and there are no pending or, to
the best of each of the Borrower's and each Parent Guarantor's
knowledge after due inquiry, threatened
(i) claims, complaints, notices or requests for
information received by the Borrower, any Parent Guarantor or
any of their respective Subsidiaries with respect to any
alleged violation of any Environmental Law, or
(ii) complaints, notices or inquiries to the
Borrower, any Parent Guarantor or any of their respective
Subsidiaries regarding potential liability under any
Environmental Law;
(c) there have been no Releases of Hazardous Materials at, on
or under any property now or previously owned or leased by the
Borrower, any Parent Guarantor or any of their respective Subsidiaries
that, singly or in the aggregate, have, or could reasonably be
expected to have, a Material Adverse Effect;
(d) the Borrower, each Parent Guarantor and each of their
respective Subsidiaries have been issued and are in material
compliance with all permits, certificates, approvals, licenses and
other authorizations relating to environmental matters and necessary
or desirable for their businesses;
(e) no property now or previously owned or leased by the
Borrower, any Parent Guarantor or any of their respective Subsidiaries
is listed or, to the best of each of the Borrower's and each Parent
Guarantor's knowledge after due inquiry, proposed for
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listing (with respect to owned property only) on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any similar
state list of sites requiring investigation or clean-up;
(f) there are no underground storage tanks, active or
abandoned, including petroleum storage tanks, on or under any property
now or previously owned or leased by the Borrower, any Parent
Guarantor or any of their respective Subsidiaries that, singly or in
the aggregate, have, or could reasonably be expected to have, a
Material Adverse Effect;
(g) neither the Borrower, any Parent Guarantor nor any of
their respective Subsidiaries has directly transported or directly
arranged for the transportation of any Hazardous Material to any
location which is listed or proposed for listing on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any similar
state list or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to claims
against the Borrower, such Parent Guarantor or such Subsidiary thereof
for any remedial work, damage to natural resources or personal injury,
including claims under CERCLA that, singly or in the aggregate, have,
or could reasonably be expected to have, a Material Adverse Effect;
(h) there are no polychlorinated biphenyls or friable
asbestos present at any property now or previously owned or leased by
the Borrower, any Parent Guarantor or any of their respective
Subsidiaries that, singly or in the aggregate, have, or could
reasonably be expected to have, a Material Adverse Effect; and
(i) no conditions exist at, on or under any property now or
previously owned or leased by the Borrower, any Parent Guarantor or
any of their respective Subsidiaries which, with the passage of time,
or the giving of notice or both, would give rise to liability under
any Environmental Law that could reasonably be expected to have a
Material Adverse Effect.
SECTION 6.13. Regulations G, U and X. Neither the Borrower, any Parent
Guarantor nor any of their respective Subsidiaries is engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock, and
no proceeds of any Credit Extension will be used to acquire any "margin stock".
Terms for which meanings are provided in F.R.S. Board Regulation G, U or X or
any regulations substituted therefor, as from time to time in effect, are used
in this Section with such meanings.
SECTION 6.14. Accuracy of Information. All material factual
information concerning the financial condition, operations or prospects of the
Borrower, each Parent Guarantor and their respective Subsidiaries heretofore or
contemporaneously furnished by or on behalf of the Borrower in writing to the
Agents, the Documentation Agent, the Arranger, the Issuer or any Lender for
purposes of or in connection with this Agreement or any transaction
contemplated hereby or with respect to the Refinancing is, and all other such
factual information hereafter furnished by or on behalf of the Borrower, any
Parent Guarantor or any of their respective
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Subsidiaries to the Agents, the Documentation Agent, the Arranger, the Issuer
or any Lender will be, taken as a whole, true and accurate in all material
respects on the date as of which such information is dated or certified and
such information is not, or shall not be, taken as a whole, as the case may be,
incomplete by omitting to state any material fact necessary to make such
information not misleading at such time in light of the circumstances under
which such statements were made. Any term or provision of this Section to the
contrary notwithstanding, insofar as any of the factual information described
above includes assumptions, estimates, projections or opinions, no
representation or warranty is made herein with respect thereto; provided,
however, that to the extent any such assumptions, estimates, projections or
opinions are based on factual matters, the Borrower and each Parent Guarantor
have reviewed such factual matters and nothing has come to the attention of any
such Person in the context of such review which would lead it to believe that
such factual matters were not or are not true and correct in all material
respects or that such factual matters omit to state any material fact necessary
to make such assumptions, estimates, projections or opinions not misleading in
any material respect.
SECTION 6.15. Solvency. The Refinancing (including, among other
things, the incurrence of the initial Credit Extension hereunder and the
execution and delivery by the Guarantors of the Guarantees) will not involve or
result in any fraudulent transfer or fraudulent conveyance under the provisions
of Section 548 of the Bankruptcy Code (11 U.S.C. ss.101 et seq., as from time
to time hereafter amended, and any successor or similar statute) or any
applicable state law respecting fraudulent transfers or fraudulent conveyances.
On the Closing Date, after giving effect to the Refinancing, Holdings and its
Subsidiaries and the Borrower and its Subsidiaries, in each case taken as a
whole, are Solvent.
SECTION 6.16. Pharmaceutical Laws. (a) The Borrower, each Parent
Guarantor and each of their respective Subsidiaries has obtained all permits,
licenses and other authorizations which are required with respect to the
ownership and operations of its business under any Pharmaceutical Law, except
where the failure to obtain such permits, licenses or other authorizations
would not reasonably be expected to have a Material Adverse Effect.
(b) The Borrower, each Parent Guarantor and each of their respective
Subsidiaries is in compliance with all terms and conditions of all such
permits, licenses, orders and authorizations, and is also in compliance with
all Pharmaceutical Laws, including all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in the Pharmaceutical Laws, except where the failure to
comply with such terms, conditions or laws would not reasonably be expected to
have a Material Adverse Effect.
(c) Other than as set forth in Item 6.16(c) ("Pharmaceutical
Liabilities") of the Disclosure Schedule, none of the Borrower, any Parent
Guarantor nor any of their respective Subsidiaries has any liabilities, any
claims against it and presently any outstanding notices imposed or based upon
any provision of any Pharmaceutical Law, except for such liabilities, claims,
citations or notices which individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect.
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SECTION 6.17. Seniority of the Obligations and Permitted Indebtedness
under the Indentures. (a) Each Holdings Subordinated Note Document (including
the Holdings Subordinated Notes) constitutes the legal, valid and binding
obligation of Holdings enforceable against Holdings in accordance with its
terms. The subordination provisions of such Holdings Subordinated Note Document
will be enforceable against the holders of the Holdings Subordinated Notes by
the holder of any "Senior Indebtedness" (as defined in the Holdings
Subordinated Indenture). All Obligations, including those to pay principal of
and interest (including post-petition interest) on the Loans and Reimbursement
Obligations, and fees and expenses in connection therewith, constitute "Senior
Indebtedness" (as defined in the Holdings Subordinated Indenture) and all such
Obligations are entitled to the benefits of the subordination created by such
Holdings Subordinated Note Document. Holdings acknowledges that the Agents, the
Documentation Agent, the Issuer and each Lender is entering into this
Agreement, and is extending its Commitments, in reliance upon the subordination
provisions of such Holdings Subordinated Note Documents and this Section.
(b) The Obligations hereunder and the other Loan Documents constitute
"Permitted Indebtedness" as defined in each of the Senior Note Indenture and
the Holdings Subordinated Note Indenture.
ARTICLE VII
COVENANTS
SECTION 7.1. Affirmative Covenants. Each of the Borrower and each
Parent Guarantor agrees with the Agents, the Documentation Agent, the Issuer
and each Lender that, until all Commitments have terminated, all Letters of
Credit have terminated or expired and all Obligations have been paid and
performed in full, each of the Borrower and each Parent Guarantor will perform,
or cause to be performed by their respective Subsidiaries, the obligations set
forth in this Section 7.1.
SECTION 7.1.1. Financial Information, Reports, Notices, etc. Each of
the Borrower and each Parent Guarantor will furnish, or will cause to be
furnished, to each Lender, the Documentation Agent, the Issuer and each Agent
copies of the following financial statements, reports, notices and information:
(a) as soon as available and in any event within 30 days
after the end of each fiscal month other than the last such month of
any Fiscal Quarter of the Borrower, a consolidated balance sheet of
Holdings and its Subsidiaries and a consolidated balance sheet of
Daboco and its Subsidiaries as at the end of such month, together, in
each case, with the related consolidated statements of income and cash
flows for such month and for the period commencing at the end of the
previous Fiscal Year and ending with the last day of such month,
certified by the chief financial or accounting Authorized Officer of
each of Holdings and Daboco;
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(b) as soon as available and in any event within 60 days
after the end of each of the first three Fiscal Quarters of each
Fiscal Year of the Borrower (or, if the Borrower is required to file
such information on a Form 10-Q with the Securities and Exchange
Commission, promptly following such filing), a consolidated balance
sheet of Holdings and its Subsidiaries and a consolidated balance
sheet of Daboco and its Subsidiaries as of the end of such Fiscal
Quarter, together, in each case, with the related consolidated
statements of income and cash flows for such Fiscal Quarter and for
the period commencing at the end of the previous Fiscal Year and
ending with the end of such Fiscal Quarter, certified by the chief
financial or accounting Authorized Officers of each of Holdings and
Daboco;
(c) as soon as available and in any event within 90 days
after the end of each Fiscal Year of the Borrower (or, if the Borrower
is required to file such information on a Form 10-K with the
Securities and Exchange Commission, promptly following such filing),
(i) a copy of the annual audit report for such Fiscal Year for
Holdings and its Subsidiaries, including therein a consolidated
balance sheet for Holdings and its Subsidiaries as of the end of such
Fiscal Year, together with the related consolidated statements of
income and cash flows for such Fiscal Year, and (ii) a copy of the
annual audit report for such Fiscal Year for Daboco and its
Subsidiaries, including therein a consolidated balance sheet for
Daboco and its Subsidiaries as of the end of such Fiscal Year,
together with the related consolidated statements of income and cash
flows for such Fiscal Year, in each case certified (without any
Impermissible Qualification) by Price Waterhouse LLP or another
nationally recognized firm of independent public accountants
acceptable to the Agents, together with a certificate from such
accountants as to whether, in making the examination necessary for the
signing of such annual report by such accountants, they have not
become aware of any Default that has occurred and is continuing or, if
in the opinion of such accounting firm such a Default has occurred and
is continuing, a statement as to the nature thereof;
(d) together with the delivery of the financial information
required pursuant to clauses (b) and (c), a Compliance Certificate, in
substantially the form of Exhibit E, executed by the chief financial
or accounting Authorized Officer of the Borrower, showing (in
reasonable detail and with appropriate calculations and computations
in all respects satisfactory to the Agents) compliance with, among
other things, the financial covenants set forth in Section 7.2.4;
(e) (i) as soon as available and in any event no later than
60 days after the first day of each Fiscal Year of the Borrower, an
annual budget, setting forth on a monthly basis and in reasonable
detail for such Fiscal Year of each of Holdings and its Subsidiaries
and Daboco and its Subsidiaries, in each case containing consolidated
and consolidating projected statements of earnings and cash flow and
(ii) together with the delivery of financial statements pursuant to
clause (a), (b) or (c) above, a comparison of the current year to date
financial results (other than in respect of the balance sheets
included therein) against the budgets required to be submitted
pursuant to this clause (e);
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(f) as soon as possible and in any event within five Business
Days after obtaining knowledge of the occurrence of any Default, a
statement of the president, chief executive officer, treasurer,
assistant treasurer, controller or chief financial or accounting
Authorized Officer of the Borrower or Holdings setting forth details
of such Default and the action which the Borrower or Holdings, as the
case may be, has taken or proposes to take with respect thereto;
(g) as soon as possible and in any event within five Business
Days after (x) the occurrence of any material adverse development with
respect to any litigation, action, proceeding, labor controversy,
arbitration or governmental investigation or proceeding described in
Section 6.7 or (y) the commencement of any labor controversy,
litigation, action, proceeding of the type described in Section 6.7,
notice thereof and of the action which the Borrower or Holdings has
taken or proposes to take with respect thereto;
(h) promptly after the sending or filing thereof, copies of
all reports and registration statements (other than exhibits thereto
and any registration statement on Form S-8 or its equivalent) which
the Borrower, any Parent Guarantor or any of their respective
Subsidiaries files with the Securities and Exchange Commission or any
national securities exchange;
(i) as soon as practicable after the chief executive or chief
financial or accounting Authorized Officer of the Borrower or the
chief executive or chief financial or accounting officer of a member
of the Borrower's Controlled Group becomes aware of (i) formal steps
in writing to terminate any Pension Plan or (ii) the occurrence of any
event with respect to a Pension Plan which, in the case of (i) or
(ii), could reasonably be expected to result in a contribution to such
Pension Plan by (or a liability to) the Borrower or a member of the
Borrower's Controlled Group in excess of $1,000,000, (iii) the failure
to make a required contribution to any Pension Plan if such failure is
sufficient to give rise to a Lien under section 302(f) of ERISA, (iv)
the taking of any action with respect to a Pension Plan which could
reasonably be expected to result in the requirement that the Borrower,
any Parent Guarantor or any of their respective Subsidiaries furnish a
bond to the PBGC or such Pension Plan or (v) any material increase in
the contingent liability of the Borrower, any Parent Guarantor or any
of their respective Subsidiaries with respect to any post-retirement
Welfare Plan benefit, notice thereof and copies of all documentation
relating thereto;
(j) as soon as possible and in any event within five Business
Days after the delivery thereof, copies of all notices, agreements or
documents delivered pursuant to the Senior Note Documents, the
Holdings Subordinated Note Documents, and each other agreement for
borrowed money to which any Parent Guarantor, the Borrower or any
their respective Subsidiaries is a party and with a commitment or
outstandings exceeding $3,000,000, except for such notices, agreements
or documents delivered pursuant to the terms hereof; and
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(k) such other information respecting the condition or
operations, financial or otherwise, of the Borrower, any Parent
Guarantor or any of their respective Subsidiaries as any Lender
through any Agent may from time to time reasonably request.
SECTION 7.1.2. Compliance with Laws, etc. Each of the Borrower and
each Parent Guarantor will, and will cause each of their respective
Subsidiaries to, comply in all material respects with all applicable laws,
rules, regulations, orders, decrees, judgments and injunctions, such compliance
to include (a) the maintenance and preservation of its corporate or partnership
existence and qualification as a foreign corporation or partnership, (b) the
payment, before the same become delinquent, of all material taxes, assessments
and governmental charges imposed upon it or upon its property except to the
extent being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books and (c) compliance with all Pharmaceutical Laws.
SECTION 7.1.3. Maintenance of Properties. Each of the Borrower and
each Parent Guarantor will, and will cause each of their respective
Subsidiaries to, maintain, preserve, protect and keep its material properties
in good repair, working order and condition (ordinary wear and tear excepted),
and make necessary and proper repairs, renewals and replacements so that its
business carried on in connection therewith may be properly conducted at all
times unless the Borrower determines in good faith that the continued
maintenance of any of such properties is no longer economically desirable.
SECTION 7.1.4. Insurance. Each of the Borrower and each Parent
Guarantor will, and will cause each of their respective Subsidiaries to,
maintain or cause to be maintained with insurance companies rated A- or better
by A.M. Best Company insurance with respect to its properties and business
against such casualties and contingencies and of such types and in such amounts
as is customary in the case of similar businesses in similar geographic
locations and with such provisions and endorsements as the Agents may
reasonably request (provided that in no event will any deductible or
self-insured retention in respect of liability claims or in respect of casualty
damage exceed, in each such case, $500,000 per occurrence) and will, upon
request of the Agents, furnish to the Agents, the Documentation Agent and each
Lender a certificate of an Authorized Officer of the Borrower setting forth the
nature and extent of all insurance maintained by each of the Borrower, each
Parent Guarantor and each of their respective Subsidiaries in accordance with
this Section. Without limiting the foregoing, each of the Borrower and each
Parent Guarantor will, and will cause each of their respective Subsidiaries to,
ensure that:
(a) Each policy for property insurance shall show the
Administrative Agent as loss payee.
(b) Each policy for liability insurance shall show the
Administrative Agent as an additional insured.
(c) With respect to each life insurance policy, the Borrower,
such Parent Guarantor or such Subsidiary, as the case may be, shall
execute and deliver to the
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Administrative Agent a collateral assignment, notice of which has been
acknowledged in writing by the insurer.
(d) Each insurance policy shall provide that at least 30
days' prior written notice of cancellation or of lapse shall be given
to the Administrative Agent by the insurer.
(e) The Borrower, such Parent Guarantor or such Subsidiary,
as the case may be, shall, if so requested by the Administrative
Agent, deliver to the Administrative Agent a copy of each insurance
policy.
SECTION 7.1.5. Books and Records. Each of the Borrower and each Parent
Guarantor will, and will cause each of their respective Subsidiaries to, (a)
keep books and records which accurately reflect in all material respects all of
its business affairs and transactions and (b) permit the Agents, the
Documentation Agent, the Issuer and each Lender or any of their respective
representatives, at reasonable times and intervals, and upon reasonable notice,
(i) to visit all of its offices, (ii) to discuss its financial matters with its
officers and, after notice to the Borrower and provision of an opportunity for
the Borrower to participate in such discussion, its independent public
accountant (and each of the Borrower and each Parent Guarantor hereby
authorizes, and will cause each of their respective Subsidiaries to authorize,
such independent public accountant to discuss the Borrower's, such Parent
Guarantor's or such Subsidiary's financial matters with the Issuer and each
Lender or its representatives whether or not any representative of the
Borrower, such Parent Guarantor or such Subsidiary is present, so long as the
Borrower, such Parent Guarantor or such Subsidiary has been afforded a
reasonable opportunity to be present) and (iii) to examine, and photocopy
extracts from, any of its books or other corporate or partnership records. The
cost and expense of one such visit (the "Paid Visit") by each Agent in each
Fiscal Year shall be borne by the Borrower; provided, however, that the cost
and expenses of any visit made by such Agent after a Default or an Event of
Default has occurred and is then continuing shall be for the account of the
Borrower and shall not count as the Paid Visit made by such Agent.
SECTION 7.1.6. Environmental Covenant. Each of the Borrower and each
Parent Guarantor will, and will cause each of their respective Subsidiaries to,
(a) use and operate all of its facilities and properties in
material compliance with all Environmental Laws, keep all necessary
permits, approvals, certificates, licenses and other authorizations
relating to environmental matters in effect and remain in material
compliance therewith, and handle all Hazardous Materials in material
compliance with all applicable Environmental Laws;
(b) (i) ensure that the 10,000 gallon steel underground
storage tank located at the Borrower's facility at 49-29 30th Place,
Long Island City, New York, is tested in accordance with accepted
industry procedures within six months from the Closing Date by an
environmental consulting firm reasonably acceptable to the Agents and
(ii) take corrective measures in accordance with accepted industry
procedures to ensure the
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Borrower's compliance with all applicable federal and state rules and
regulations if leakage is found;
(c) immediately notify the Agents and provide copies upon
receipt of all written claims, complaints, notices or inquiries
relating to the condition of its facilities and properties or
compliance with Environmental Laws; and
(d) provide such information and certifications which the
Agents may reasonably request from time to time to evidence compliance
with this Section 7.1.6.
SECTION 7.1.7. Future Subsidiaries. Each of the Borrower and each
Parent Guarantor hereby covenants and agrees that, upon any Person becoming,
after the Closing Date, a Subsidiary of the Borrower, or (in the case of clause
(b) below only) upon the Borrower or any Subsidiary acquiring additional
Capital Stock of any existing Subsidiary, the Borrower shall notify the Agents
of such acquisition, and
(a) the Borrower shall promptly cause such Subsidiary to
execute and deliver to the Administrative Agent, with counterparts for
each Lender, a Subsidiary Guaranty (or a supplement thereto in the
form of the exhibit thereto), the Subsidiary Security Agreement (or a
supplement thereto in the form of the exhibit thereto) (and, if such
Subsidiary owns any real property, a Mortgage) and a Perfection
Certificate, together with Uniform Commercial Code financing
statements (form UCC-1) executed and delivered by the Subsidiary
naming the Subsidiary as the debtor and the Administrative Agent as
the secured party, or other similar instruments or documents, in
appropriate form for filing under the Uniform Commercial Code and any
other applicable recording statutes, in the case of real property, of
all jurisdictions as may be necessary or, in the opinion of the
Administrative Agent, desirable to perfect the security interest of
the Administrative Agent pursuant to the Subsidiary Security Agreement
or a Mortgage, as the case may be; and
(b) the Borrower shall promptly deliver the Borrower Pledge
Agreement to the Agents, duly executed and delivered by an Authorized
Officer of the Borrower (unless so executed and delivered previously),
and shall promptly deliver, or cause to be delivered, the Subsidiary
Pledge Agreement to the Agents, duly executed and delivered by an
Authorized Officer of the relevant Subsidiary (unless so executed and
delivered previously), and shall promptly deliver, or cause to be
delivered, to the Administrative Agent under a Pledge Agreement (or a
supplement thereto) certificates (if any) representing all of the
issued and outstanding shares of Capital Stock of such Subsidiary
owned by the Borrower or any Subsidiary of the Borrower, as the case
may be, along with undated stock powers for such certificates,
executed in blank, or, if any securities subject thereto are
uncertificated securities or are held through a financial
intermediary, confirmation and evidence satisfactory to the Agents
that appropriate book entries have been made in the relevant books or
records of a financial intermediary or the issuer of such securities,
as the case may be, or other appropriate steps shall have been taken
under
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applicable law resulting in the perfection of the security interest
granted in favor of the Administrative Agent pursuant to the terms of
a Pledge Agreement;
together, in each case, with such opinions, in form and substance and from
counsel satisfactory to the Agents, as the Agents may reasonably request;
provided, however, that notwithstanding the foregoing, no Foreign Subsidiary
shall be required to execute and deliver (x) a Mortgage or the Subsidiary
Security Agreement (or a supplement thereto) or (y) the Subsidiary Guaranty (or
a supplement thereto) in the event that such execution and delivery thereof
would result in a material increase in tax or similar liabilities for the
Borrower and its Subsidiaries, on a consolidated basis, nor will the Borrower
or any Subsidiary of the Borrower be required to deliver in pledge pursuant to
a Pledge Agreement in excess of 65% of the total combined voting power of all
classes of Capital Stock of a Foreign Subsidiary entitled to vote in the event
that such pledge would result in a material increase in tax or similar
liabilities for the Borrower and its Subsidiaries, on a consolidated basis.
SECTION 7.1.8. Future Leased Property and Future Acquisitions of Real
Property; Future Acquisition of Other Property. (a) Prior to entering into any
new lease of real property or renewing any existing lease of real property
following the Closing Date, each of the Borrower and each Parent Guarantor
shall, and shall cause each of their respective Subsidiaries that is not a
Foreign Subsidiary to, use its (and their) commercially reasonable best efforts
(which shall not require the expenditure of cash or the making of any material
concessions under the relevant lease) to deliver to the Administrative Agent a
Waiver executed by the lessor of any real property that is to be leased by the
Borrower, such Parent Guarantor or such Subsidiary for a term in excess of one
year in any state which by statute grants such lessor a "landlord's" (or
similar) Lien which is superior to the Administrative Agent's.
(b) In the event that the Borrower, any Parent Guarantor or any of
their respective Subsidiaries that is not Foreign Subsidiary shall acquire any
real property having a value as determined in good faith by the Agents in
excess of $1,000,000 in the aggregate, the Borrower, such Parent Guarantor or
such Subsidiary shall, promptly after such acquisition, execute a Mortgage and
provide the Agents with (i) evidence of the completion (or satisfactory
arrangements for the completion) of all recordings and filings of such Mortgage
as may be necessary or, in the reasonable opinion of the Agents, desirable
effectively to create a valid, perfected first priority Lien, subject to Liens
permitted by Section 7.2.3, against the properties purported to be covered
thereby, (ii) mortgagee's title insurance policies in favor of the
Administrative Agent for the benefit of the Secured Parties in amounts and in
form and substance and issued by insurers, reasonably satisfactory to the
Agents, with respect to the property purported to be covered by such Mortgage,
insuring that title to such property is marketable and that the interests
created by the Mortgage constitute valid first Liens thereon free and clear of
all defects and encumbrances other than as approved by the Agents, and such
policies shall also include a revolving credit endorsement and such other
endorsements as the Agents shall request and shall be accompanied by evidence
of the payment in full of all premiums thereon, and (iii) such other approvals,
opinions, or documents as the Agents may reasonably request.
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(c) In accordance with the terms and provisions of the Security
Documents, provide the Agents with evidence of all recordings and filings as
may be necessary or, in the reasonable opinion of the Agents, desirable to
create a valid, perfected first priority Lien, subject to the Liens permitted
by Section 7.2.3, against all property acquired after the Closing Date
(excluding leases of real property) and not otherwise subject to Section 5.1.7.
SECTION 7.1.9. Use of Proceeds, etc. The Borrower shall, and each
Parent Guarantor shall cause the Borrower to,
(a) apply the proceeds of the Loans
(i) to refinance existing Indebtedness of the
Borrower under the Existing Credit Agreement and to pay
reasonable fees and expenses associated with the Refinancing;
and
(ii) in the case of Revolving Loans and Swing Line
Loans, for the general corporate purposes of the Borrower and
its Subsidiaries, including working capital needs; and
(b) use Letters of Credit only for purposes of supporting
working capital and general corporate purposes of the Borrower and its
Subsidiaries.
SECTION 7.1.10. Hedging Obligations. Within nine months following the
Closing Date, the Agents shall have received evidence satisfactory to them that
the Borrower has entered into Rate Protection Agreements designed to protect
the Borrower against fluctuations in interest rates with respect to the Term
Loans with terms reasonably satisfactory to the Agents.
SECTION 7.1.11. Maintenance of Corporate Separateness. Each Parent
Guarantor will satisfy customary corporate formalities, including the
maintenance of corporate records. Each Parent Guarantor shall not make any
payment to a creditor of any other Obligor in respect of any liability of such
Obligor (other than pursuant to a Contingent Liability permitted hereunder),
and no bank account of such Parent Guarantor shall be commingled with any bank
account of any other Obligor. Any financial statements distributed to any
creditors of any Parent Guarantor shall, to the extent permitted by GAAP,
clearly establish the corporate separateness of such Parent Guarantor from each
other Obligor. Finally, each Parent Guarantor shall not take any action, or
conduct its affairs in a manner, which is likely to result in the corporate
existence of such Parent Guarantor on the one hand and of any other Obligor on
the other hand being ignored, or in the assets and liabilities of such other
Obligor being substantively consolidated with those of such Parent Guarantor in
a bankruptcy, reorganization or other insolvency proceeding.
SECTION 7.1.12. Borrower Indebtedness. Any Indebtedness of the
Borrower now or hereafter held by any Parent Guarantor or any of their
respective Subsidiaries (other than the Borrower) is hereby subordinated to the
Indebtedness of the Borrower to the Agents, the Issuer and the Lenders; and
such indebtedness of the Borrower to such Parent Guarantor or such Subsidiary,
if the Agents, after an Event of Default has occurred, so requests, shall be
collected,
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enforced and received by such Parent Guarantor or such Subsidiary as trustee
for the Agents, the Issuer and the Lenders and be paid over to the
Administrative Agent on behalf of the Agents, the Issuer and the Lenders on
account of the indebtedness of the Borrower to the Agents, the Issuer and the
Lenders, but without affecting or impairing in any manner the obligations of
such Parent Guarantor or such Subsidiary hereunder or under each other Loan
Document to which it is a party. Prior to the transfer by any Parent Guarantor
or any their respective Subsidiaries (other than the Borrower) of any note or
negotiable instrument evidencing any indebtedness of the Borrower to such
Parent Guarantor or such Subsidiary, such Parent Guarantor or such Subsidiary
shall mark such note or negotiable instrument with a legend that the same is
subject to this subordination.
SECTION 7.2. Negative Covenants. Each of the Borrower and each Parent
Guarantor agrees with the Agents, the Documentation Agent, the Issuer and each
Lender that, until all Commitments have terminated, all Letters of Credit have
terminated or expired and all Obligations have been paid and performed in full,
each of the Borrower and each Parent Guarantor will perform the obligations set
forth in this Section 7.2.
SECTION 7.2.1. Business Activities. (a) The Borrower will not, and
will not permit any of its Subsidiaries to, engage in any business activity,
except business activities of the type in which the Borrower and its
Subsidiaries are engaged on the date hereof and such activities as may be
incidental, similar or related thereto.
(b) No Parent Guarantor will engage in any business activity other
than (i) its continuing ownership of (A) in the case of Holdings, all the
shares of Capital Stock of Daboco, (B) in the case of Daboco, its 99% general
partnership interest in the Borrower and all the shares of Capital Stock of DRI
and (C) in the case of DRI, its 1% general partnership interest in the
Borrower, and (ii) its compliance with the obligations applicable to it under
the Loan Documents and the Senior Note Documents and the Holdings Subordinated
Note Documents. Without limiting the generality of the immediately preceding
sentence, no Parent Guarantor will take any action including the filing of any
income tax return, that would result in the Borrower ceasing to be treated as a
partnership within meaning of Section 761(a) of the Code for Federal income tax
purposes.
SECTION 7.2.2. Indebtedness. Each of the Borrower and each Parent
Guarantor will not, and will not permit any of their respective Subsidiaries
to, create, incur, assume or suffer to exist or otherwise become or be liable
in respect of any Indebtedness, other than, without duplication, the following:
(a) Indebtedness in respect of the Credit Extensions and
other Obligations;
(b) until the Closing Date, Indebtedness identified in Item
7.2.2(b) ("Indebtedness to be Paid") of the Disclosure Schedule;
(c) Indebtedness identified in Item 7.2.2(c) ("Ongoing
Indebtedness") of the Disclosure Schedule;
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(d) Indebtedness evidenced by the Senior Notes;
(e) Indebtedness evidenced by the Holdings Subordinated
Notes;
(f) Indebtedness in an aggregate principal amount not to
exceed $10,000,000 at any time outstanding which is, or has been,
incurred by the Borrower or any of its Subsidiaries (i) to a vendor of
any assets permitted to be acquired pursuant to Section 7.2.7 to
finance its acquisition of such assets or (ii) in respect of
Capitalized Lease Liabilities to the extent permitted by Section
7.2.7;
(g) Indebtedness of the Borrower owing to any Subsidiary
Guarantor;
(h) Indebtedness of Subsidiary Guarantors that are
Wholly-owned Subsidiaries of the Borrower owing to the Borrower or any
other Subsidiary Guarantor;
(i) Indebtedness of Subsidiaries of the Borrower owing to the
Borrower or a Subsidiary Guarantor to the extent permitted by clause
(e) of Section 7.2.5;
(j) Hedging Obligations of the Borrower in respect of the
Loans;
(k) unsecured Indebtedness of the Borrower or any of its
Subsidiaries incurred in the ordinary course of business (including
open accounts extended by suppliers on normal trade terms in
connection with purchases of goods and services, but excluding
Indebtedness incurred through the borrowing of money or Contingent
Liabilities);
(l) Indebtedness of the Borrower incurred under the Rapid
Remit Program in an aggregate amount at any time outstanding not to
exceed $5,000,000;
(m) Indebtedness which refinances Indebtedness permitted by
clause (c), (d) and (e) above; provided, however, that after giving
effect to such refinancing, (i) the principal amount of outstanding
Indebtedness is not increased (other than in the case of a refinancing
of Indebtedness permitted by clause (d) or (e) above by the amount of
reasonable fees and expenses incurred in connection with such
refinancing), (ii) neither the tenor nor the average life thereof is
reduced, (iii) the respective obligor or obligors shall be the same on
the refinancing Indebtedness as on the Indebtedness being refinanced,
(iv) the security, if any, for the refinancing Indebtedness shall be
the same as that for the Indebtedness being refinanced (except to the
extent that less security is granted to holders of such refinancing
Indebtedness), (v) the holders of such refinancing Indebtedness are
not afforded covenants, defaults, rights or remedies more burdensome
to the obligor or obligors than those contained in the Indebtedness
being refinanced and (vi) the refinancing Indebtedness is subordinated
to the same degree, if any, as the Indebtedness being refinanced; and
(n) other unsecured Indebtedness of the Borrower and its
Subsidiaries in an aggregate amount at any time outstanding not to
exceed $5,000,000;
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provided, however, that (i) no Indebtedness otherwise permitted by clause (f)
or (n) may be incurred if, after giving effect to the incurrence thereof, any
Default shall have occurred and be continuing and (ii) no Indebtedness
otherwise permitted hereunder by any of clauses (a) through (n) may be incurred
if, after giving effect to the application thereof, there shall be a "Default"
or "Event of Default" under and as defined in either of the Senior Note
Indenture or the Holdings Subordinated Note Indenture, in each case as in
effect on the Closing Date.
SECTION 7.2.3. Liens. Each of the Borrower and each Parent Guarantor
will not, and will not permit any of their respective Subsidiaries to, create,
incur, assume or suffer to exist any Lien upon any of its property, revenues or
assets, whether now owned or hereafter acquired, except:
(a) Liens securing payment of the Obligations or any Hedging
Obligations owed to any Lender or any Affiliate of any Lender, granted
pursuant to any Loan Document;
(b) until the Closing Date, Liens securing payment of
Indebtedness of the type permitted and described in clause (b) of
Section 7.2.2;
(c) Liens granted prior to the Closing Date to secure payment
of Indebtedness of the type permitted and described in clause (c) of
Section 7.2.2;
(d) Liens granted to secure payment of Indebtedness of the
type permitted and described in clause (f) of Section 7.2.2 and
covering only those assets acquired with the proceeds of such
Indebtedness;
(e) Liens for taxes, assessments or other governmental
charges or levies not at the time delinquent or thereafter payable
without penalty or being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance
with GAAP shall have been set aside on its books;
(f) Liens of carriers, warehousemen, mechanics, materialmen
and landlords incurred in the ordinary course of business for sums not
overdue or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(g) Liens incurred in the ordinary course of business in
connection with workmen's compensation, unemployment insurance or
other forms of governmental insurance or benefits, or to secure
performance of tenders, statutory obligations, leases and contracts
(other than for borrowed money) entered into in the ordinary course of
business or to secure obligations on surety or appeal bonds;
(h) judgment Liens in existence less than 15 days after the
entry thereof or with respect to which execution has been stayed or
the payment of which is covered in full (subject to a customary
deductible) by insurance maintained with insurance companies of the
nature described in Section 7.1.4;
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(i) Liens granted by the Borrower in favor of Pharmacy Fund
(A) securing the recourse obligations owing to Pharmacy Fund pursuant
to the Rapid Remit Program for rejected or adjusted Prescription
Receivables, (B) consisting of the right of set-off granted to
Pharmacy Fund in connection with rejected or adjusted receivables,
other payments owing to Pharmacy Fund and administrative fees and
expenses pursuant to the Rapid Remit Program and (C) consisting of
precautionary liens on receivables, chattel paper, general intangibles
and the proceeds thereof directly related to the Rapid Remit Program;
and
(j) Liens with respect to minor imperfections of title and
easements, rights-of-way, restrictions, reservations, permits,
servitudes and other similar encumbrances on real property and
fixtures which do not materially detract from the value or materially
impair the use by the Borrower or any of its Subsidiaries in the
ordinary course of their business of the property subject thereto.
SECTION 7.2.4. Financial Covenants. (a) Net Worth. Each of the
Borrower and each Parent Guarantor will not permit Net Worth at any time from
and after the Closing Date to be less than an amount equal to 50% of the
cumulative Net Income (in excess of zero) for the period from the Closing Date
to the end of the Fiscal Quarter most recently ended on or prior to such date
of determination.
(b) Leverage Ratio. Each of the Borrower and each Parent Guarantor
will not permit the Leverage Ratio as of the end of any Fiscal Quarter ending
after the Closing Date and occurring during any period set forth below to be
greater than the ratio set forth opposite such period:
Period Leverage Ratio
------ --------------
fourth Fiscal Quarter of the 1997
Fiscal Year through the third
Fiscal Quarter of the 1998
Fiscal Year 4.75:1
fourth Fiscal Quarter of the 1998
Fiscal Year through the third
Fiscal Quarter of the 1999
Fiscal Year 4.00:1
fourth Fiscal Quarter of the 1999
Fiscal Year through the third
Fiscal Quarter of the 2000
Fiscal Year 3.50:1
fourth Fiscal Quarter of the 2000
Fiscal Year and each Fiscal
Quarter thereafter 3.00:1
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(c) Interest Coverage Ratio. Each of the Borrower and each Parent
Guarantor will not permit the Interest Coverage Ratio as of the end of any
Fiscal Quarter ending after the Closing Date and occurring during any period
set forth below to be less than the ratio set forth opposite such period:
Period Interest Coverage Ratio
------ -----------------------
fourth Fiscal Quarter of the 1997
Fiscal Year through the third
Fscal Quarter of the 1998
Fiscal Year 2.00:1
fourth Fiscal Quarter of the 1998
Fiscal Year through the third
Fiscal Quarter of the 1999
Fiscal Year 2.25:1
fourth Fiscal Quarter of the 1999
Fiscal Year through the third
Fiscal Quarter of the 2000
Fiscal Year 2.75:1
fourth Fiscal Quarter of the 2000
Fiscal Year through the third
Fiscal Quarter of the 2001
Fiscal Year 3.00:1
fourth Fiscal Quarter of the 2001
Fiscal Year and each Fiscal
Quarter thereafter 3.50:1
(d) Fixed Charge Coverage Ratio. Each of the Borrower and each Parent
Guarantor will not permit the Fixed Charge Coverage Ratio as of the end of any
Fiscal Quarter ending after the Closing Date to be less than 1.10:1.
SECTION 7.2.5. Investments. Each of the Borrower and each Parent
Guarantor will not, and will not permit any of their respective Subsidiaries
to, make, incur, assume or suffer to exist any Investment in any other Person,
except:
(a) Investments existing on the Closing Date and identified
in Item 7.2.5(a) ("Ongoing Investments") of the Disclosure Schedule;
(b) Cash Equivalent Investments;
(c) without duplication, Investments permitted as
Indebtedness pursuant to Section 7.2.2;
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(d) without duplication, Investments permitted as Capital
Expenditures of the Borrower and its Subsidiaries pursuant to Section
7.2.7;
(e) Investments by any Parent Guarantor, the Borrower or any
Subsidiary Guarantor in the Borrower or Subsidiary Guarantors that are
Wholly-owned Subsidiaries of the Borrower;
(f) Investments to the extent the consideration received
pursuant to clause (c)(i) of Section 7.2.9 is not all cash;
(g) Investments in the form of loans to officers, directors
and employees of the Borrower and its Subsidiaries for the sole
purpose of purchasing Capital Stock of Holdings (or purchases of such
loans made by others) in an aggregate amount at any time outstanding
not to exceed $2,000,000;
(h) other Investments made by the Borrower or any of its
Subsidiaries, by way of contributions to capital, the making of loans
or advances or the incurrence of Contingent Liabilities, in an
aggregate amount not to exceed $5,000,000 at any time outstanding,
which Investments shall result in the Borrower or the relevant
Subsidiary acquiring (subject to Section 7.2.1) a majority controlling
interest in the Person in which such Investment was made or increasing
any such controlling interest maintained by it in such Person; or
(i) other Investments made by the Borrower or any of its
Subsidiaries in an aggregate amount not to exceed $1,000,000 at any
time outstanding;
provided, however, that
(j) any Investment which when made complies with the
requirements of the definition of the term "Cash Equivalent
Investment" may continue to be held notwithstanding that such
Investment if made thereafter would not comply with such requirements;
(k) no Investment otherwise permitted by clause (c) (except
to the extent permitted under Section 7.2.2), (f), (g), (h) or (i)
shall be permitted to be made if, immediately before or after giving
effect thereto, any Default shall have occurred and be continuing; and
(l) no Investment otherwise permitted by clauses (a) through
(i) may be made if, after giving effect to the application thereof,
there shall be a "Default" or "Event of Default" under and as defined
in either of the Senior Note Indenture or the Holdings Subordinated
Note Indenture, in each case as in effect on the Closing Date.
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SECTION 7.2.6. Restricted Payments, etc. On and at all times after the
date hereof:
(a) each of the Borrower and each Parent Guarantor will not,
and will not permit any of their respective Subsidiaries to, declare,
pay or make any dividend, distribution or exchange (in cash, property
or obligations) on or in respect of any shares of any class of Capital
Stock (now or hereafter outstanding) of the Borrower or any Parent
Guarantor or on any warrants, options or other rights with respect to
any shares of any class of Capital Stock (now or hereafter
outstanding) of the Borrower or any Parent Guarantor (other than (i)
dividends or distributions payable in its common stock or warrants to
purchase its common stock and (ii) splits or reclassifications of its
stock into additional or other shares of its common stock) or apply,
or permit any of its Subsidiaries to apply, any of its funds, property
or assets to the purchase, redemption, exchange, sinking fund or other
retirement of, or agree or permit any of its Subsidiaries to purchase,
redeem or exchange, any shares of any class of Capital Stock (now or
hereafter outstanding) of the Borrower or any Parent Guarantor,
warrants, options or other rights with respect to any shares of any
class of Capital Stock (now or hereafter outstanding) of the Borrower
or any Parent Guarantor;
(b) each of the Borrower and each Parent Guarantor will not
permit any of its Subsidiaries to (i) make any payment or prepayment
of principal of, or make any payment of interest on, any subordinated
note (including any Senior Note) on any day other than the stated,
scheduled date for such payment or prepayment set forth in the
documents and instruments memorializing such subordinated note, or
which would violate the subordination provisions of such subordinated
note, or (ii) redeem, purchase or defease any subordinated note (the
foregoing prohibited acts referred to in clauses (a) and (b) above are
herein collectively referred to as "Restricted Payments");
provided, however, that
(c) notwithstanding the provisions of clause (a) above,
beginning on March 15, 2000, the Borrower shall be permitted to make
Restricted Payments to Daboco (which shall in turn utilize all of any
such Restricted Payment to make Restricted Payments to Holdings) and
to DRI (which shall in turn utilize all of any such Restricted Payment
to make Restricted Payments to Daboco, which shall in turn utilize all
of any such Restricted Payment to make Restricted Payments to
Holdings) to the extent necessary to enable Holdings to pay interest
on the Holdings Subordinated Notes, so long as (i) no Default or Event
of Default exists or would result therefrom, (ii) the Restricted
Payments referred to below are permitted to be paid at such time under
the Senior Note Indenture, (iii) Holdings has given the trustee under
and in accordance with the Holdings Subordinated Note Indenture notice
that it intends to pay in cash a semi-annual interest payment on the
Holdings Subordinated Notes and (iv) at the time of Holdings giving
such notice, the Pro Forma Interest Coverage Ratio for the four Fiscal
Quarters then most recently ended preceding the date on which such
Restricted Payment is to be made equaled or exceeded 2.0:1.0;
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(d) notwithstanding the provisions of clause (a) above, the
Borrower shall be permitted to make Restricted Payments to Daboco
(which may in turn utilize all or part of any such Restricted Payment
to make Restricted Payments to Holdings) and to DRI (which may in turn
utilize all or part of any such Restricted Payment to make Restricted
Payments to Daboco, which may in turn utilize all or part of any such
Restricted Payment to make Restricted Payments to Holdings), in each
case to the extent necessary to enable Holdings, Daboco and DRI
(i) to pay their overhead expenses to the extent
permitted under the Senior Note Indenture as in effect on the
Closing Date; provided, that the aggregate amount of
Restricted Payments paid by the Borrower pursuant to this
clause (d)(i) in any Fiscal Year shall not exceed $2,000,000;
and
(ii) to pay their respective taxes based on income
and franchise taxes and other similar licensure expenses;
provided, however, that the amount of Restricted Payments
paid pursuant to this clause (d)(ii) to enable Holdings to
pay such taxes and expenses at any time shall not exceed the
lesser of (x) the amount of such taxes and expenses owing by
Holdings at such time for the respective period and (y) the
amount of such taxes and expenses that would be owing by
Daboco and its Subsidiaries on a consolidated basis for such
period if determined without regard to Holdings' ownership of
Daboco; and
(e) so long as (i) no Default or Event of Default shall have
occurred and be continuing on the date such Restricted Payment is
declared or to be made, nor would a Default or an Event of Default
result from the making of such Restricted Payment, (ii) after giving
effect to the making of such Restricted Payment, the Borrower shall be
in pro forma compliance with the covenants set forth in Section 7.2.4
for the most recent fully ended Fiscal Quarter preceding the date of
the making of such Restricted Payment for which the relevant financial
information has been delivered pursuant to clause (b) or (c) of
Section 7.1.1, and (iii) an Authorized Officer of the Borrower shall
have delivered a certificate to the Administrative Agent in form and
substance satisfactory to the Administrative Agent (including a
calculation of the Borrower's compliance with the covenants set forth
in Section 7.2.4 in reasonable detail) certifying as to the accuracy
of subclauses (i) and (ii) above, the Borrower shall be permitted to
make Restricted Payments to Daboco (which shall in turn utilize all of
any such Restricted Payment to make Restricted Payments to Holdings)
and to DRI (which shall in turn utilize all of any such Restricted
Payment to make Restricted Payments to Daboco, which shall in turn
utilize all of any such Restricted Payment to make Restricted Payments
to Holdings), in each case to the extent necessary to enable Holdings
to repurchase, redeem or otherwise acquire or retire for value any
Capital Stock of Holdings, or any warrant, option or other right to
acquire Capital Stock of Holdings, held by any member of management of
Holdings or any of its Subsidiaries pursuant to any management equity
subscription agreement or stock option agreement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Capital Stock, warrants, options and other rights shall not
exceed an amount equal to the sum of (1) $1,000,000 in any Fiscal Year
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(with unused amounts in any Fiscal Year being carried forward to
succeeding Fiscal Years subject to a maximum (without giving effect to
the following subclause (2)) of $3,000,000 in any Fiscal Year) plus
(2) the aggregate cash proceeds received by Holdings during such
Fiscal Year from any reissuance of Capital Stock of Holdings, and
warrants, options and other rights to acquire Capital Stock of
Holdings, by Holdings to members of management of Holdings or any of
its Subsidiaries.
SECTION 7.2.7. Capital Expenditures, etc. Each of the Borrower and
each Parent Guarantor will not, and will not permit any of their respective
Subsidiaries to, make or commit to make Capital Expenditures (a) during the
period from the Closing Date through December 31, 1997, except Capital
Expenditures of the Borrower and its Subsidiaries which do not aggregate in
excess of $7,000,000, and (b) in any Fiscal Year, except Capital Expenditures
of the Borrower and its Subsidiaries which do not aggregate in excess of
$12,000,000 in such Fiscal Year; provided, however, that, to the extent the
amount of Capital Expenditures permitted to be made in any Fiscal Year pursuant
to this Section exceeds the aggregate amount of Capital Expenditures actually
made by the Borrower and its Subsidiaries during such Fiscal Year, up to 50% of
such excess amount may be carried forward to (but only to) the next succeeding
Fiscal Year (any such amount to be certified by the Borrower to the Agents in
the Compliance Certificate delivered for the last Fiscal Quarter of such Fiscal
Year), and any such amount carried forward to a succeeding Fiscal Year shall be
deemed to be used prior to the Borrower and its Subsidiaries using the amount
of Capital Expenditures permitted by this Section in such succeeding Fiscal
Year, without giving effect to such carry-forward; provided, further, however,
that the Borrower and its Subsidiaries may make or commit to make Capital
Expenditures subsequent to the Closing Date for the purpose of expanding or
replacing their warehouse facilities in an aggregate amount not to exceed
$2,000,000, which amount shall not be included in calculating Capital
Expenditures permitted to be made or committed to be made pursuant to clause
(a) or (b) above.
SECTION 7.2.8. Consolidation, Merger, etc. Each of the Borrower and
each Parent Guarantor will not, and will not permit any of their respective
Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or
with, any other corporation, or purchase or otherwise acquire all or
substantially all of the assets of any Person (or of any division thereof)
except
(a) any Subsidiary of the Borrower may liquidate or dissolve
voluntarily into, and may merge with and into, the Borrower (so long
as the Borrower is the surviving entity of such combination or merger)
or any other Subsidiary, and the assets or stock of any such
Subsidiary may be purchased or otherwise acquired by the Borrower or
any other Subsidiary; provided, that notwithstanding the above, a
Subsidiary may only liquidate or dissolve into, or merge with and
into, another Subsidiary of the Borrower if, after giving effect to
such combination or merger, the Borrower continues to own (directly or
indirectly), and the Administrative Agent continues to have pledged to
it pursuant to a Pledge Agreement, a percentage of the issued and
outstanding shares of Capital Stock (on a fully diluted basis) of the
Subsidiary surviving such combination or merger that is equal to or in
excess of the percentage of the issued and outstanding shares of
Capital Stock (on a fully diluted basis) of the Subsidiary that does
not survive such combination or merger
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that was (immediately prior to the combination or merger) owned by the
Borrower or pledged to the Administrative Agent; and
(b) so long as no Default has occurred and is continuing or
would occur after giving effect thereto, the Borrower or any of its
Subsidiaries may purchase all or substantially all of the assets of
any Person (or any division thereof) not then a Subsidiary, or acquire
such Person by merger, if permitted (without duplication) pursuant to
Section 7.2.7 or clause (i) of Section 7.2.5.
SECTION 7.2.9. Asset Dispositions, etc. Each of the Borrower and each
Parent Guarantor will not, and will not permit any of their respective
Subsidiaries to, sell, transfer, lease, contribute or otherwise convey, or
grant options, warrants or other rights with respect to, all or any part of its
assets, whether now owned or hereafter acquired (including accounts receivable
and Capital Stock of Subsidiaries) to any Person, unless:
(a) such sale, transfer, lease, contribution or conveyance of
such assets is (i) in the ordinary course of its business (and does
not constitute a sale, transfer, lease, contribution or other
conveyance of all or a substantial part of the Borrower's and its
Subsidiaries' assets, taken as a whole) or is of obsolete or worn out
property, (ii) permitted by Section 7.2.8, or (iii) between the
Borrower and one of its Subsidiary Guarantors or between Subsidiary
Guarantors of the Borrower;
(b) such sale, transfer, lease, contribution or conveyance
consists of the sale by the Borrower of third party prescription
receivables resulting from the sale of pharmaceutical products to
customers covered by third party insurance or payment programs (the
"Prescription Receivables") to Pharmacy Fund, in each case pursuant
to, and in accordance with the terms of the Rapid Remit Program
Documents;
(c) such sale, transfer, lease, contribution or conveyance
constitutes (i) an Investment permitted under Section 7.2.5 or (ii) a
Lien permitted under Section 7.2.3; or
(d) (i) such sale, transfer, lease, contribution or
conveyance of such assets is for fair market value and the
consideration consists of no less than 80% in cash (other than assets
sold, transferred, leased, contributed or conveyed in an individual
amount not to exceed $50,000 and in an aggregate amount not to exceed
$500,000 since the Closing Date), (ii) the Net Disposition Proceeds
received from such assets, together with the Net Disposition Proceeds
of all other assets sold, transferred, leased, contributed or conveyed
pursuant to this clause (d) since the Closing Date, does not exceed
(individually or in the aggregate) $10,000,000 over the term of this
Agreement and (iii) an amount equal to the Net Disposition Proceeds
generated from such sale, transfer, lease, contribution or conveyance
is applied to prepay the Loans pursuant to the terms of Sections 3.1.1
and 3.1.2.
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SECTION 7.2.10. Modification of Certain Agreements. Without the prior
written consent of the Required Lenders, each of the Borrower and each Parent
Guarantor will not, and will not permit any of their respective Subsidiaries
to, consent to any amendment, supplement, amendment and restatement, waiver or
other modification of any of the terms or provisions contained in, or
applicable to, any Material Document or any schedules, exhibits or agreements
related thereto, in each case which does not comply with the requirements set
forth in the proviso to clause (m) of Section 7.2.2 or would adversely affect
the rights or remedies of the Lenders, or the Borrower's, such Parent
Guarantor's or such Subsidiary's ability to perform hereunder or under any Loan
Document.
SECTION 7.2.11. Transactions with Affiliates. Each of the Borrower and
each Parent Guarantor will not, and will not permit any of their respective
Subsidiaries to, enter into, or cause, suffer or permit to exist any
arrangement or contract with any of its other Affiliates unless such
arrangement or contract is fair and equitable to the Borrower, such Parent
Guarantor or such Subsidiary and is an arrangement or contract of the kind
which would be entered into by a prudent Person in the position of the
Borrower, such Parent Guarantor or such Subsidiary with a Person which is not
one of its Affiliates; provided, however that the Borrower, the Parent
Guarantors and their respective Subsidiaries shall be permitted to enter into
and perform their obligations under the Material Documents to which each is a
party as of the Closing Date and arrangements with DLJ and its Affiliates for
underwriting, investment banking and advisory services on usual and customary
terms.
SECTION 7.2.12. Negative Pledges, Restrictive Agreements, etc. Each of
the Borrower and each Parent Guarantor will not, and will not permit any of
their respective Subsidiaries to, enter into any agreement prohibiting
(a) the (i) creation or assumption of any Lien upon its
properties, revenues or assets, whether now owned or hereafter
acquired (other than, in the case of any assets acquired with the
proceeds of any Indebtedness, or subject to Capitalized Lease
Liabilities, permitted under clause (f) of Section 7.2.2, customary
limitations and prohibitions contained in such Indebtedness or
Capitalized Lease), or (ii) ability of the Borrower, any Parent
Guarantor or any other Obligor to amend or otherwise modify this
Agreement or any other Loan Document; or
(b) any Subsidiary from making any payments, directly or
indirectly, to the Borrower by way of dividends, advances, repayments
of loans or advances, reimbursements of management and other
intercompany charges, expenses and accruals or other returns on
investments, or any other agreement or arrangement which restricts the
ability of any such Subsidiary to make any payment, directly or
indirectly, to the Borrower.
SECTION 7.2.13. Stock of Subsidiaries. The Borrower will not permit
any Subsidiary to issue any Capital Stock (whether for value or otherwise) to
any Person other than the Borrower or another Wholly-owned Subsidiary of the
Borrower.
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SECTION 7.2.14. Sale and Leaseback. The Borrower will not, and will
not permit any of its Subsidiaries to, enter into any agreement or arrangement
with any other Person providing for the leasing by the Borrower or any of its
Subsidiaries of real or personal property which has been or is to be sold or
transferred by the Borrower or any of its Subsidiaries to such other Person or
to any other Person to whom funds have been or are to be advanced by such
Person on the security of such property or rental obligations of the Borrower
or any of its Subsidiaries.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Listing of Events of Default. Each of the following
events or occurrences described in this Section 8.1 shall constitute an "Event
of Default".
SECTION 8.1.1. Non-Payment of Obligations. (a) The Borrower shall
default in the payment or prepayment of any principal of any Loan when due or
any Reimbursement Obligations or any deposit of cash for collateral purposes
pursuant to Section 2.6.2 or Section 2.6.4, as the case may be, or (b) any
Obligor (including the Borrower) shall default (and such default shall continue
unremedied for a period of three Business Days) in the payment when due of any
interest or commitment fee with respect to the Loans or Commitments or of any
other monetary Obligation.
SECTION 8.1.2. Breach of Warranty. Any representation or warranty of
the Borrower or any other Obligor made or deemed to be made by it hereunder or
under any other Loan Document or any other writing or certificate furnished by
or on behalf of the Borrower or any other Obligor to the Agents, the
Documentation Agent, the Issuer, the Arranger or any Lender for the purposes of
or in connection with this Agreement or any such other Loan Document (including
any certificates delivered pursuant to Article V) is or shall be incorrect when
made in any material respect.
SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations.
The Borrower or any Parent Guarantor shall default in the due performance and
observance of any of its obligations under Section 7.1.4, 7.1.6(b), 7.1.9,
7.1.10 or 7.2 (other than clause (a) of Section 7.2.1), or any other Obligor
shall default in the performance of any of its obligations in respect of such
Sections as such Sections are incorporated by reference or otherwise in any
Loan Document to which such Obligor is a party.
SECTION 8.1.4. Non-Performance of Other Covenants and Obligations. Any
Obligor shall default in the due performance and observance of any other
agreement contained herein or in any other Loan Document executed by it, and
such default shall continue unremedied for a period of 30 days from the earlier
of the date an Authorized Officer of such Obligor has actual knowledge thereof
and the receipt by such Obligor of written notice thereof from the
Administrative Agent.
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SECTION 8.1.5. Default on Other Indebtedness. A default shall occur
(i) in the payment when due (subject to any applicable grace period), whether
by acceleration or otherwise, of any Indebtedness, other than Indebtedness
described in Section 8.1.1, of the Borrower or any of its Subsidiaries or any
other Obligor having a principal amount, individually or in the aggregate, in
excess of $3,000,000, or (ii) a default shall occur in the performance or
observance of any obligation or condition with respect to such Indebtedness if
the effect of such default is to accelerate the maturity of any such
Indebtedness or such default shall continue unremedied for any applicable
period of time sufficient to permit the holder or holders of such Indebtedness,
or any trustee or agent for such holders, to cause such Indebtedness to become
due and payable prior to its expressed maturity.
SECTION 8.1.6. Judgments. Any judgment or order for the payment of
money in excess of $3,000,000 (not covered by insurance from an insurance
company rated A- or better by A.M. Best Company that is not denying its
liability with respect thereto) shall be rendered against the Borrower or any
of its Subsidiaries or any other Obligor and remain unpaid and either (a)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order, or (b) there shall be any period of 30 consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect.
SECTION 8.1.7. Pension Plans. Any of the following events shall occur
with respect to any Pension Plan (a) the institution of any steps by the
Borrower, any member of its Controlled Group or any other Person to terminate a
Pension Plan if, as a result of such termination, the Borrower or any such
member could be required to make a contribution to such Pension Plan, or could
reasonably expect to incur a liability or obligation to such Pension Plan, in
excess of $1,000,000, or (b) a contribution failure occurs with respect to any
Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA.
SECTION 8.1.8. Change in Control. Any Change in Control shall occur.
SECTION 8.1.9. Bankruptcy, Insolvency, etc. The Borrower or any of its
Subsidiaries or any other Obligor shall
(a) become insolvent or generally fail to pay, or admit in
writing its inability or unwillingness to pay, debts as they become
due;
(b) apply for, consent to, or acquiesce in, the appointment
of a trustee, receiver, sequestrator or other custodian for the
Borrower or any of its Subsidiaries or any other Obligor or any
property of any thereof, or make a general assignment for the benefit
of creditors;
(c) in the absence of such application, consent, acquiescence
or assignment, permit or suffer to exist the appointment of a trustee,
receiver, sequestrator or other custodian for the Borrower or any of
its Subsidiaries or any other Obligor or for a substantial part of the
property of any thereof, and such trustee, receiver, sequestrator or
other custodian shall not be discharged within 60 days, provided that
the Borrower, each
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Subsidiary and each other Obligor hereby expressly authorizes the
Agents, the Documentation Agent, the Arranger, the Issuer and each
Lender to appear in any court conducting any relevant proceeding
during such 60-day period to preserve, protect and defend their rights
under the Loan Documents;
(d) permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, in respect of the Borrower or
any of its Subsidiaries or any other Obligor, and, if any such case or
proceeding is not commenced by the Borrower or such Subsidiary or such
other Obligor, such case or proceeding shall be consented to or
acquiesced in by the Borrower or such Subsidiary or such other Obligor
or shall result in the entry of an order for relief or shall remain
for 60 days undismissed, provided that the Borrower, each Subsidiary
and each other Obligor hereby expressly authorizes the Agents, the
Documentation Agent, the Arranger, the Issuer and each Lender to
appear in any court conducting any such case or proceeding during such
60-day period to preserve, protect and defend their rights under the
Loan Documents; or
(e) take any action (partnership, corporate or otherwise)
authorizing, or in furtherance of, any of the foregoing.
SECTION 8.1.10. Impairment of Security, etc. Any Loan Document, or any
Lien granted thereunder, shall (except in accordance with its terms), in whole
or in part, terminate, cease to be in full force and effect or cease to be the
legally valid, binding and enforceable obligation of any Obligor party thereto;
the Borrower or any other Obligor shall, directly or indirectly, contest in any
manner the effectiveness, validity, binding nature or enforceability thereof;
or any Lien securing any Obligation shall, in whole or in part, cease to be a
perfected first priority Lien, subject only to those exceptions expressly
permitted by the Loan Documents.
SECTION 8.2. Action if Bankruptcy, etc. If any Event of Default
described in clauses (a) through (d) of Section 8.1.9 shall occur, the
Commitments (if not theretofore terminated) shall automatically terminate and
the outstanding principal amount of all outstanding Loans and all other
Obligations (including Reimbursement Obligations) shall automatically be and
become immediately due and payable, without notice or demand and the Borrower
shall automatically and immediately be obligated to deposit with the
Administrative Agent cash collateral in an amount equal to the undrawn amount
of all Letters of Credit outstanding.
SECTION 8.3. Action if Other Event of Default. If any Event of Default
(other than an Event of Default described in clauses (a), through (d) of
Section 8.1.9) shall occur for any reason, whether voluntary or involuntary,
and be continuing, the Administrative Agent, upon the direction of the Required
Lenders, shall by notice to the Borrower declare all or any portion of the
outstanding principal amount of the Loans and other Obligations (including
Reimbursement Obligations) to be due and payable, require the Borrower to
provide cash collateral to be deposited with the Administrative Agent in an
amount equal to the undrawn amount of all Letters of Credit outstanding and/or
declare the Commitments (if not theretofore terminated) to
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be terminated, whereupon the full unpaid amount of such Loans and other
Obligations which shall be so declared due and payable shall be and become
immediately due and payable, without further notice, demand or presentment,
and/or, as the case may be, the Commitments shall terminate and the Borrower
shall deposit with the Administrative Agent cash collateral in an amount equal
to the undrawn amount of all Letters of Credit outstanding.
ARTICLE IX
GUARANTY
SECTION 9.1. Guaranty. Each Parent Guarantor hereby jointly and
severally, absolutely, unconditionally and irrevocably
(a) guarantees the full and punctual payment when due,
whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise, of all Obligations of the Borrower
now or hereafter existing, whether for principal, interest, fees,
expenses or otherwise (including all such amounts which would become
due but for the operation of the automatic stay under Section 362(a)
of the United States Bankruptcy Code, 11 U.S.C. ss.362(a), and the
operation of Sections 502(b) and 506(b) of the United States
Bankruptcy Code, 11 U.S.C. ss.502(b) and ss.506(b)), and
(b) indemnifies and holds harmless each Secured Party and
each holder of a Note for any and all costs and expenses (including
reasonable attorney's fees and expenses) incurred by such Secured
Party or such holder, as the case may be, in enforcing any rights
under the guaranty set forth in this Article IX.
The guaranty set forth in this Article IX constitutes a guaranty of payment
when due and not of collection, and each Parent Guarantor specifically agrees
that it shall not be necessary or required that any Secured Party or any holder
of any Note exercise any right, assert any claim or demand or enforce any
remedy whatsoever against the Borrower or any other Obligor (or any other
Person) before or as a condition to the obligations of each Parent Guarantor
under the guaranty set forth in this Article IX.
SECTION 9.2. Acceleration of Parent Guaranty. Each Parent Guarantor
agrees that upon the occurrence of an Event of Default of the nature set forth
in clauses (a) through (d) of Section 8.1.9, at a time when any of the
Obligations of the Borrower and each other Obligor may not then be due and
payable, then each Parent Guarantor agrees that it will pay to the
Administrative Agent for the account of the Secured Parties forthwith the full
amount which would be payable under the guaranty set forth in this Article IX
by each Parent Guarantor if all such Obligations were then due and payable.
SECTION 9.3. Guaranty Absolute, etc. The guaranty set forth in this
Article IX shall in all respects be a continuing, absolute, unconditional and
irrevocable guaranty of payment, and shall remain in full force and effect
until all Obligations of the Borrower and each other Obligor
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have been paid in full in cash, all obligations of each Parent Guarantor under
the guaranty set forth in this Article IX shall have been paid in full in cash,
all Letters of Credit have been terminated or expired, all Rate Protection
Agreements have been terminated or expired and all Commitments shall have
terminated. Each Parent Guarantor guarantees that the Obligations of the
Borrower will be paid strictly in accordance with the terms of this Agreement
and each other Loan Document under which they arise, regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction affecting
any of such terms or the rights of any Secured Party or any holder of any Note
with respect thereto. The liability of each Parent Guarantor under the guaranty
set forth in this Article IX shall be absolute, unconditional and irrevocable
irrespective of:
(a) any lack of validity, legality or enforceability of this
Agreement, any Note or any other Loan Document;
(b) the failure of any Secured Party or any holder of any
Note
(i) to assert any claim or demand or to enforce any
right or remedy against the Borrower, any other Obligor or
any other Person (including any other guarantor (including
any Parent Guarantor)) under the provisions of this
Agreement, any Note, any other Loan Document or otherwise, or
(ii) to exercise any right or remedy against any
other guarantor (including any Parent Guarantor) of, or
collateral securing, any Obligations of the Borrower;
(c) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations of the Borrower,
or any other extension, compromise or renewal of any Obligation of the
Borrower;
(d) any reduction, limitation, impairment or termination of
any Obligations of the Borrower for any reason, including any claim of
waiver, release, surrender, alteration or compromise, and shall not be
subject to (and the each Parent Guarantor hereby waives any right to
or claim of) any defense or setoff, counterclaim, recoupment or
termination whatsoever by reason of the invalidity, illegality,
nongenuineness, irregularity, compromise, unenforceability of, or any
other event or occurrence affecting, any Obligations of the Borrower
or otherwise;
(e) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of
this Agreement, any Note or any other Loan Document;
(f) any addition, exchange, release, surrender or
non-perfection of any collateral, or any amendment to or waiver or
release or addition of, or consent to departure from, any other
guaranty, held by any Secured Party or any holder of any Note securing
any of the Obligations of the Borrower; or
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(g) any other circumstance which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the
Borrower, any surety or any guarantor.
SECTION 9.4. Reinstatement, etc. Each Parent Guarantor agrees that the
guaranty set forth in this Article IX shall continue to be effective or be
reinstated, as the case may be, if at any time any payment (in whole or in
part) of any of the Obligations is rescinded or must otherwise be restored by
any Secured Party or any holder of any Note, upon the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, all as though such payment had not
been made.
SECTION 9.5. Waiver, etc. Each Parent Guarantor hereby waives
promptness, diligence, notice of acceptance and any other notice with respect
to any of the Obligations of the Borrower and the guaranty set forth in this
Article IX and any requirement that the Administrative Agent, any other Secured
Party or any holder of any Note protect, secure, perfect or insure any security
interest or Lien, or any property subject thereto, or exhaust any right or take
any action against the Borrower, any other Obligor or any other Person
(including any other guarantor) or entity or any collateral securing the
Obligations of the Borrower.
SECTION 9.6. Postponement of Subrogation, etc. Each Parent Guarantor
agrees that it will not exercise any rights which it may acquire by way of
rights of subrogation under the guaranty set forth in this Article IX, by any
payment made under the guaranty set forth in this Article IX or otherwise,
until the prior payment in full in cash of all Obligations of the Borrower and
each other Obligor, the termination or expiration of all Letters of Credit, the
termination or expiration of all Rate Protection Agreements and the termination
of all Commitments. Any amount paid to any Parent Guarantor on account of any
such subrogation rights prior to the payment in full in cash of all Obligations
of the Borrower and each other Obligor shall be held in trust for the benefit
of the Secured Parties and each holder of a Note and shall immediately be paid
to the Administrative Agent for the benefit of the Secured Parties and each
holder of a Note and credited and applied against the Obligations of the
Borrower and each other Obligor, whether matured or unmatured, in accordance
with the terms of this Agreement; provided, however, that if
(a) each Guarantor has made payment to the Secured Parties
and each holder of a Note of all or any part of the Obligations of the
Borrower, and
(b) all Obligations of the Borrower and each other Obligor
have been paid in full in cash, all Letters of Credit have been
terminated or expired, all Rate Protection Agreements have been
terminated or expired and all Commitments have been permanently
terminated,
each Secured Party and each holder of a Note agrees that, at any Parent
Guarantor's request, the Administrative Agent, on behalf of the Secured Parties
and the holders of the Notes, will execute and deliver to the applicable Parent
Guarantor appropriate documents (without recourse and without representation or
warranty) necessary to evidence the transfer by subrogation to such Parent
Guarantor of an interest in the Obligations of the Borrower resulting from such
payment by such Parent Guarantor. In furtherance of the foregoing, for so long
as any Obligations or
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Commitments remain outstanding, each Parent Guarantor shall refrain from taking
any action or commencing any proceeding against the Borrower (or its successors
or assigns, whether in connection with a bankruptcy proceeding or otherwise) to
recover any amounts in the respect of payments made under the guaranty set
forth in this Article IX to any Secured Party or any holder of a Note.
SECTION 9.7. Successors, Transferees and Assigns; Transfers of Notes,
etc. The guaranty set forth in this Article IX shall:
(a) be binding upon each Parent Guarantor and its successors,
transferees and assigns; and
(b) inure to the benefit of and be enforceable by the
Administrative Agent and each other Secured Party.
Without limiting the generality of the foregoing clause (b), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Credit Extension
held by it to any other Person or entity, and such other Person or entity shall
thereupon become vested with all rights and benefits in respect thereof granted
to such Lender under any Loan Document (including the guaranty set forth in
this Article IX) or otherwise, subject, however, to any contrary provisions in
such assignment or transfer, and to the provisions of Section 11.11 and Article
X.
ARTICLE X
THE AGENTS
SECTION 10.1. Actions. Each Lender hereby appoints DLJ as its
Syndication Agent and Fleet as its Administrative Agent under and for purposes
of this Agreement, the Notes and each other Loan Document. Each Lender
authorizes the Agents to act on behalf of such Lender under this Agreement, the
Notes and each other Loan Document and, in the absence of other written
instructions from the Required Lenders received from time to time by the Agents
(with respect to which each of the Agents agrees that it will comply, except as
otherwise provided in this Section or as otherwise advised by counsel), to
exercise such powers hereunder and thereunder as are specifically delegated to
or required of the Agents by the terms hereof and thereof, together with such
powers as may be reasonably incidental thereto. Each Lender hereby indemnifies
(which indemnity shall survive any termination of this Agreement) the Agents,
ratably in accordance with their respective Term Loans outstanding and
Commitments (or, if no Term Loans or Commitments are at the time outstanding
and in effect, then ratably in accordance with the principal amount of Term
Loans held by such Lender, and their respective Commitments as in effect in
each case on the date of the termination of this Agreement), from and against
any and all liabilities, obligations, losses, damages, claims, costs or
expenses of any kind or nature whatsoever which may at any time be imposed on,
incurred by, or asserted against, any of the Agents in any way relating to or
arising out of this Agreement, the Notes and any other Loan Document, including
reasonable attorneys' fees, and as to which any Agent is
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not reimbursed by the Borrower or any other Obligor (and without limiting the
obligation of the Borrower or any other Obligor to do so); provided, however,
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, claims, costs or expenses which are
determined by a court of competent jurisdiction in a final proceeding to have
resulted solely from such Agent's gross negligence or willful misconduct. The
Agents shall not be required to take any action hereunder, under the Notes or
under any other Loan Document, or to prosecute or defend any suit in respect of
this Agreement, the Notes or any other Loan Document, unless it is indemnified
hereunder to its satisfaction. If any indemnity in favor of any of the Agents
shall be or become, in such Agent's determination, inadequate, such Agent may
call for additional indemnification from the Lenders and cease to do the acts
indemnified against hereunder until such additional indemnity is given.
SECTION 10.2. Funding Reliance, etc. Unless the Administrative Agent
shall have been notified by telephone, confirmed in writing, by any Lender by
5:00 p.m., New York City time, on the day prior to a Borrowing that such Lender
will not make available the amount which would constitute its Percentage of
such Borrowing on the date specified therefor, the Administrative Agent may
assume that such Lender has made such amount available to the Administrative
Agent and, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If and to the extent that such Lender shall not have made
such amount available to the Administrative Agent, such Lender severally agrees
and the Borrower agrees to repay the Administrative Agent forthwith on demand
such corresponding amount together with interest thereon, for each day from the
date the Administrative Agent made such amount available to the Borrower to the
date such amount is repaid to the Administrative Agent, at the interest rate
applicable at the time to Loans comprising such Borrowing.
SECTION 10.3. Exculpation. None of the Agents, the Swing Line Lender,
the Issuer or the Arranger nor any of their respective directors, officers,
employees or agents shall be liable to any Lender for any action taken or
omitted to be taken by it under this Agreement or any other Loan Document, or
in connection herewith or therewith, except for its own willful misconduct or
gross negligence, nor responsible for any recitals or warranties herein or
therein, nor for the effectiveness, enforceability, validity or due execution
of this Agreement or any other Loan Document, nor for the creation, perfection
or priority of any Liens purported to be created by any of the Loan Documents,
or the validity, genuineness, enforceability, existence, value or sufficiency
of any collateral security, nor to make any inquiry respecting the performance
by the Borrower of its obligations hereunder or under any other Loan Document.
Any such inquiry which may be made by any Agent, the Swing Line Lender or the
Issuer shall not obligate it to make any further inquiry or to take any action.
The Agents, the Swing Line Lender and the Issuer shall be entitled to rely upon
advice of counsel concerning legal matters and upon any notice, consent,
certificate, statement or writing which the Agents, the Swing Line Lender or
the Issuer, as applicable, believe to be genuine and to have been presented by
a proper Person.
SECTION 10.4. Successor. The Syndication Agent may resign as such upon
one Business Day's notice to the Borrower and the Administrative Agent. The
Administrative Agent may resign as such at any time upon at least 30 days'
prior notice to the Borrower and all Lenders. If the Administrative Agent at
any time shall resign, the Required Lenders may, with
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the prior consent of the Borrower (which consent shall not be unreasonably
withheld), appoint another Lender as a successor Administrative Agent which
shall thereupon become the Administrative Agent hereunder. If no successor
Administrative Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within 30 days after the retiring
Administrative Agent's giving notice of resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be one of the Lenders or a commercial banking
institution organized under the laws of the United States or a United States
branch or agency of a commercial banking institution, and having a combined
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall be entitled to receive from
the retiring Administrative Agent such documents of transfer and assignment as
such successor Administrative Agent may reasonably request, and shall thereupon
succeed to and become vested with all rights, powers, privileges and duties of
the retiring Administrative Agent, and the retiring Administrative Agent shall
be discharged from its duties and obligations under this Agreement. After any
retiring Administrative Agent's resignation hereunder as the Administrative
Agent, the provisions of (i) this Article X shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was the Administrative
Agent under this Agreement, and (ii) Section 11.3 and Section 11.4 shall
continue to inure to its benefit.
SECTION 10.5. Credit Extensions by each Agent. Each Agent, the Swing
Line Lender and the Issuer shall have the same rights and powers with respect
to (x) (i) in the case of the Agents and the Swing Line Lender, the Credit
Extensions made by it or any of its Affiliates and (ii) in the case of the
Issuer, the Loans made by it or any of its Affiliates, and (y) the Notes held
by such Agent, the Swing Line Lender, the Issuer or any of their respective
Affiliates as any other Lender and may exercise the same as if it were not an
Agent or the Issuer. Each Agent, the Swing Line Lender, the Issuer and each and
their respective Affiliates may accept deposits from, lend money to, and
generally engage in any kind of business with the Borrower or any Subsidiary or
Affiliate of the Borrower as if such Agent, the Swing Line Lender or Issuer
were not an Agent, the Swing Line Lender or the Issuer hereunder.
SECTION 10.6. Credit Decisions. Each Lender acknowledges that it has,
independently of each Agent, the Documentation Agent, the Arranger, the Swing
Line Lender, the Issuer and each other Lender, and based on such Lender's
review of the financial information of the Borrower, this Agreement, the other
Loan Documents (the terms and provisions of which being satisfactory to such
Lender) and such other documents, information and investigations as such Lender
has deemed appropriate, made its own credit decision to extend its Commitments.
Each Lender also acknowledges that it will, independently of each Agent, the
Documentation Agent, the Arranger, the Swing Line Lender, the Issuer and each
other Lender, and based on such other documents, information and investigations
as it shall deem appropriate at any time, continue to make its own credit
decisions as to exercising or not exercising from time to time any rights and
privileges available to it under this Agreement or any other Loan Document.
SECTION 10.7. Copies, etc. The Administrative Agent shall give prompt
notice to each Lender and the Issuer of each notice or request required or
permitted to be given to the
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Administrative Agent by the Borrower pursuant to the terms of this Agreement
(unless concurrently delivered to the Lenders and the Issuer by the Borrower).
The Administrative Agent will distribute to each Lender and the Issuer each
document or instrument received for such Lender's or the Issuers's account and
copies of all other communications received by the Administrative Agent from
the Borrower for distribution to the Lenders and/or the Issuer by the
Administrative Agent in accordance with the terms of this Agreement.
SECTION 10.8. The Swing Line Lender, the Issuer, the Documentation
Agent, the Syndication Agent and the Administrative Agent. Notwithstanding
anything else to the contrary contained in this Agreement or any other Loan
Document, the Swing Line Lender, the Issuer, the Documentation Agent and the
Agents, in their respective capacities as such, each in such capacity, shall
have no duties or responsibilities under this Agreement or any other Loan
Document nor any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or otherwise exist against the Swing Line
Lender, the Issuer, the Documentation Agent or any Agent, as applicable, in
such capacity except as are explicitly set forth herein or in the other Loan
Documents.
ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.1. Waivers, Amendments, etc. The provisions of this
Agreement and of each other Loan Document may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Borrower and each Obligor party thereto and by the Required
Lenders; provided, however, that no such amendment, modification or waiver
which would:
(a) modify any requirement hereunder that any particular
action be taken by all the Lenders or by the Required Lenders shall be
effective unless consented to by each Lender;
(b) modify this Section 11.1, or clause (a) of Section 11.10,
change the definition of "Required Lenders", increase any Commitment
Amount or the Percentage of any Lender, reduce, or extend the due date
for, any fees described in Section 3.3 (other than any fee referred to
in Section 3.3.2), release any Guarantor from its obligations under
any Guaranty, or release all or substantially all of the collateral
security (except in each case as otherwise specifically provided in
this Agreement, any such Guaranty, a Security Agreement or a Pledge
Agreement) or extend any Commitment Termination Date shall be made
without the consent of each Lender adversely affected thereby;
(c) extend the due date for, or reduce the amount of, (i) any
scheduled repayment or prepayment of principal of or interest on any
Loan (or reduce the principal amount of or rate of interest on any
Loan) or (ii) any repayment of any Reimbursement Obligation
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(or reduce the amount of or rate of interest on any Reimbursement
Obligation) shall be made without the consent of the holder of the
Note evidencing such Loan or, in the case of a Reimbursement
Obligation, the Issuer owed, and those Lenders participating in, such
Reimbursement Obligation;
(d) affect adversely the interests, rights or obligations of
any Agent, the Swing Line Lender, the Issuer or the Arranger (in its
capacity as Agent, the Swing Line Lender, the Issuer or the Arranger),
unless consented to by such Agent, the Swing Line Lender, the Issuer
or the Arranger, as the case may be; or
(e) have the effect (either immediately or at some later
time) of enabling the Borrower to satisfy a condition precedent to the
making of a Revolving Loan, the Swing Line Loan or the issuance of a
Letter of Credit without the consent of Lenders holding at least 51%
of the Revolving Loan Commitments; or
(f) amend, modify or waive the provisions of clause (a)(i) of
Section 3.1.1 or clause (b) of Section 3.1.2 or effect any amendment,
modification or waiver that by its terms adversely affects the Lenders
participating in any Tranche differently from those of Lenders
participating in other Tranches, without the consent of the holders of
the Notes evidencing at least 51% of the aggregate amount of Loans
outstanding under each Tranche affected by such modification, or, in
the case of a modification affecting the Revolving Loan Commitment
Amount, the Lenders holding at least 51% of the Revolving Loan
Commitments.
No failure or delay on the part of any Agent, the Issuer, any Lender or the
holder of any Note in exercising any power or right under this Agreement or any
other Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No notice to or
demand on the Borrower in any case shall entitle it to any notice or demand in
similar or other circumstances. No waiver or approval by any Agent, the Issuer,
any Lender or the holder of any Note under this Agreement or any other Loan
Document shall, except as may be otherwise stated in such waiver or approval,
be applicable to subsequent transactions. No waiver or approval hereunder shall
require any similar or dissimilar waiver or approval thereafter to be granted
hereunder.
SECTION 11.2. Notices. All notices and other communications provided
to any party hereto under this Agreement or any other Loan Document shall be in
writing or by facsimile and addressed, delivered or transmitted to such party
at its address or facsimile number set forth on its signature page hereto or on
Schedule II hereto or, in the case of a Lender that becomes a party hereto
after the date hereof, as set forth in the Lender Assignment Agreement pursuant
to which such Lender becomes a Lender hereunder or at such other address or
facsimile number as may be designated by such party in a notice to the other
parties. Any notice, if mailed and properly addressed with postage prepaid or
if properly addressed and sent by pre-paid courier service, shall be deemed
given when received; any notice, if transmitted by facsimile, shall be deemed
given when transmitted (and electronic confirmation of receipt thereof has been
received).
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SECTION 11.3. Payment of Costs and Expenses. The Borrower agrees to
pay on demand all reasonable expenses of each of the Agents and the Arranger
(including the reasonable fees and out-of-pocket expenses of counsel to the
Agents and the Arranger and of local or foreign counsel, if any, who may be
retained by counsel to the Agents) in connection with
(a) the syndication by the Syndication Agent and the Arranger
of the Loans, the negotiation, preparation, execution and delivery of
this Agreement and of each other Loan Document, including schedules
and exhibits, and any amendments, waivers, consents, supplements or
other modifications to this Agreement or any other Loan Document as
may from time to time hereafter be required, whether or not the
transactions contemplated hereby are consummated;
(b) the filing, recording, refiling or rerecording of each
Pledge Agreement and each Security Agreement and/or any Uniform
Commercial Code financing statements relating thereto and all
amendments, supplements and modifications to any thereof and any and
all other documents or instruments of further assurance required to be
filed or recorded or refiled or rerecorded by the terms hereof or of
such Pledge Agreement, Security Agreement or Uniform Commercial Code
financial statements; and
(c) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.
The Borrower further agrees to pay, and to save the Agents, the Documentation
Agent, the Arranger, the Issuer and the Lenders harmless from all liability
for, any stamp or other similar taxes which may be payable in connection with
the execution or delivery of this Agreement, the Credit Extensions made
hereunder or the issuance of the Notes or Letters of Credit or any other Loan
Documents. The Borrower also agrees to reimburse each Agent, the Documentation
Agent, the Arranger, the Issuer and each Lender upon demand for all reasonable
out-of-pocket expenses (including reasonable attorneys' fees and legal
expenses) incurred by such Agent, the Documentation Agent, the Arranger, the
Issuer or such Lender in connection with (x) the negotiation of any
restructuring or "work-out", whether or not consummated, of any Obligations and
(y) the enforcement of any Obligations.
SECTION 11.4. Indemnification. In consideration of the execution and
delivery of this Agreement by each Lender and the extension of the Commitments,
the Borrower hereby, to the fullest extent permitted under applicable law,
indemnifies, exonerates and holds each Agent, the Documentation Agent, the
Arranger, the Issuer, and each Lender and each of their respective Affiliates,
and each of their respective partners, officers, directors, trustees, employees
and agents, and each other Person controlling any of the foregoing within the
meaning of either Section 15 of the Securities Act of 1933, as amended, or
Section 20 of the Securities Exchange Act of 1934, as amended (collectively,
the "Indemnified Parties"), free and harmless from and against any and all
actions, causes of action, suits, losses, costs, liabilities and damages, and
expenses actually incurred in connection therewith (irrespective of whether any
such Indemnified Party is a party to the action for which indemnification
hereunder is sought),
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including reasonable attorneys' fees and disbursements (collectively, the
"Indemnified Liabilities"), incurred by the Indemnified Parties or any of them
as a result of, or arising out of, or relating to
(a) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Credit
Extension;
(b) the entering into and performance of this Agreement and
any other Loan Document by any of the Indemnified Parties (including
any action brought by or on behalf of the Borrower as the result of
any determination by any Lender to make any Credit Extension
hereunder);
(c) any investigation, litigation or proceeding related to
any acquisition or proposed acquisition by the Borrower or any of its
Subsidiaries of all or any portion of the stock or assets of any
Person, whether or not such Agent, the Documentation Agent, the
Issuer, the Arranger or such Lender is party thereto;
(d) any investigation, litigation or proceeding related to
any environmental cleanup, audit, compliance or other matter relating
to the Borrower's or any of its Subsidiaries' compliance with or
liability under Environmental Law or the Release by the Borrower or
any of its Subsidiaries of any Hazardous Material; or
(e) the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission or release from, any real
property owned or operated by the Borrower or any Subsidiary thereof
of any Hazardous Material present on or under such property in a
manner giving rise to liability at or prior to the time the Borrower
or such Subsidiary owned or operated such property (including any
losses, liabilities, damages, injuries, costs, expenses or claims
asserted or arising under any Environmental Law), regardless of
whether caused by, or within the control of, the Borrower or such
Subsidiary,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's
gross negligence or willful misconduct. The Borrower and its permitted
successors and assigns hereby waive, release and agree not to make any claim,
or bring any cost recovery action against, any Agent, the Documentation Agent,
the Issuer, the Arranger or any Lender under CERCLA or any state equivalent, or
any similar law now existing or hereafter enacted, except to the extent arising
out of the gross negligence or willful misconduct of any Indemnified Party. It
is expressly understood and agreed that to the extent that any of such Persons
is strictly liable under any Environmental Laws, the Borrower's obligation to
such Person under this indemnity shall likewise be without regard to fault on
the part of the Borrower, to the extent permitted under applicable law, with
respect to the violation or condition which results in liability of such
Person. If and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
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SECTION 11.5. Survival. The obligations of the Borrower under Sections
2.6.7(a)(ii), 4.3, 4.4, 4.5, 4.6, 11.3 and 11.4, the obligations of each Parent
Guarantor under Section 9.1(b) and the obligations of the Lenders under
Sections 4.8 and 10.1, shall in each case survive any assignment or
participation pursuant to Section 11.11, any termination of this Agreement, the
payment in full of all Obligations and the termination of all Commitments. The
representations and warranties made by the Borrower and each other Obligor in
this Agreement and in each other Loan Document shall survive the execution and
delivery of this Agreement and each such other Loan Document.
SECTION 11.6. Severability. Any provision of this Agreement or any
other Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such provision and such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Loan Document or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 11.7. Headings. The various headings of this Agreement and of
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
SECTION 11.8. Execution in Counterparts, Effectiveness, etc. This
Agreement may be executed by the parties hereto in several counterparts, each
of which shall be deemed to be an original and all of which shall constitute
together but one and the same agreement.
SECTION 11.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE
NOTES AND, EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED THEREIN, EACH
OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement, the
Notes and the other Loan Documents constitute the entire understanding among
the parties hereto with respect to the subject matter hereof and supersede any
prior agreements, written or oral, with respect thereto.
SECTION 11.10. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that (a) the Borrower may not assign
or transfer its rights or obligations hereunder without the prior written
consent of each of the Agents and all Lenders, and (b) the rights of sale,
assignment and transfer of the Lenders are subject to Section 11.11.
SECTION 11.11. Sale and Transfer of Loans and Notes; Participations in
Loans and Notes. Each Lender may assign, or sell participations in, its Loans
and Commitments to one or more other Persons, on a non pro rata basis (except
as provided below), in accordance with this Section 11.11.
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SECTION 11.11.1. Assignments. Any Lender (the "Assignor Lender"),
(a) with the written consents of the Borrower, the Agents and
(in the case of any assignment of participations in Letters of Credit
or Revolving Loan Commitments) the Issuer (which consents shall not be
unreasonably delayed or withheld and which consents of the Agents and
the Issuer shall not be required in the case of assignments made by or
to DLJ or any of its Affiliates and which consent of the Borrower
shall not be required if a Default or an Event of Default shall have
occurred and be continuing), may at any time assign and delegate to
one or more commercial banks or other financial institutions or funds
which are regularly engaged in making, purchasing or investing in
loans or securities, and
(b) with notice to the Borrower, the Agents, and (in the case
of any assignment of participations in Letters of Credit or Revolving
Loan Commitments) the Issuer, but without the consent of the Borrower,
the Agents or the Issuer, may assign and delegate to any of its
Affiliates or Related Funds or to any other Lender
(each Person described in either of the foregoing clauses as being the Person
to whom such assignment and delegation is to be made, being hereinafter
referred to as an "Assignee Lender"), all or any fraction of such Lender's
total Loans, participations in Letters of Credit and Letter of Credit
Outstandings with respect thereto and Commitments (which assignment and
delegation shall be, as among Revolving Loan Commitments, Revolving Loans and
participations in Letters of Credit, of a constant, and not a varying,
percentage) (the "Assigned Amount") in a minimum aggregate amount of (i)
$1,000,000 in the case of an assignment to an existing Lender or an Affiliate
or Related Fund thereof and $5,000,000 in the case of an assignment to an
Assignee Lender that is not an existing Lender or an Affiliate or Related Fund
thereof or (ii) the then remaining amount of such Lender's Loans and
Commitments; provided, however, that any such Assignee Lender will comply, if
applicable, with the provisions contained in Section 4.6 and the Borrower, each
other Obligor, the Agents and the Issuer shall be entitled to continue to deal
solely and directly with such Assignor Lender in connection with the interests
so assigned and delegated to an Assignee Lender until
(c) written notice of such assignment and delegation,
together with payment instructions, addresses and related information
with respect to such Assignee Lender, shall have been given to the
Borrower and the Agents by such Assignor Lender and such Assignee
Lender;
(d) such Assignee Lender shall have executed and delivered to
the Borrower and the Agents a Lender Assignment Agreement, accepted by
the Agents;
(e) the processing fees described below shall have been
paid; and
(f) the Administrative Agent shall have registered such
assignment and delegation in the Register pursuant to clause (b) of
Section 2.7.
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From and after the date that the Agents accept such Lender Assignment Agreement
and such assignment and delegation is registered in the Register pursuant to
clause (b) of Section 2.7, (i) the Assignee Lender thereunder shall be deemed
automatically to have become a party hereto and to the extent that rights and
obligations hereunder have been assigned and delegated to such Assignee Lender
in connection with such Lender Assignment Agreement, shall have the rights and
obligations of a Lender hereunder and under the other Loan Documents, and (ii)
the Assignor Lender, to the extent that rights and obligations hereunder have
been assigned and delegated by it in connection with such Lender Assignment
Agreement, shall be released from its obligations hereunder and under the other
Loan Documents. Subject to the provisions of Section 2.7, within ten Business
Days after its receipt of notice that the Agent has received an executed Lender
Assignment Agreement, the Borrower shall execute and deliver to the
Administrative Agent (for delivery to the relevant Assignee Lender) new Notes
evidencing such Assignee Lender's assigned Loans and Commitments and, if the
Assignor Lender has retained Loans and Commitments hereunder, replacement Notes
in the principal amount of the Loans and Commitments retained by the Assignor
Lender hereunder (such Notes to be in exchange for, but not in payment of,
those Notes then held by such Assignor Lender). Each such Note requested shall
be dated the date of the predecessor Notes, if any. The Assignor Lender shall
mark such predecessor Notes "exchanged" and deliver them to the Borrower.
Unless otherwise specified in the Lender Assignment Agreement, interest and
fees in respect of the Assigned Amount that (A) have accrued prior to the date
of such assignment shall be for the account of the Assignor Lender and (B)
accrue on and subsequent to the date of such assignment shall be for the
account of the Assignee Lender. Accrued interest and fees shall be paid at the
same time or times provided in this Agreement. Such Assignor Lender or such
Assignee Lender (unless the Assignor Lender or the Assignee Lender is DLJ or
any of its Affiliates) must also pay a processing fee to the Administrative
Agent upon delivery of any Lender Assignment Agreement in the amount of $3,500,
unless such assignment and delegation is by a Lender to its Affiliate or if
such assignment and delegation consists of a pledge by a Lender to a Federal
Reserve Bank (or in the case of a Lender that is an investment fund, to the
trustee under the indenture to which such fund is a party), as provided below
or is otherwise consented to by the Administrative Agent. Any attempted
assignment and delegation not made in accordance with this Section 11.11.1
shall be null and void. Nothing contained in this Section 11.11.1 shall prevent
or prohibit any Lender from pledging its rights (but not its obligations to
make Loans or participate in Letters of Credit or Letter of Credit
Outstandings) under this Agreement and/or its Loans and/or its Notes hereunder
(i) to a Federal Reserve Bank in support of borrowings made by such Lender from
such Federal Reserve Bank, or (ii) in the case of a Lender that is an
investment fund, to the trustee under the indenture to which such fund is a
party in support of its obligations to such trustee, in either case without
notice to or consent of the Borrower or the Agents; provided, however, that (A)
such Lender shall remain a "Lender" under this Agreement and shall continue to
be bound by the terms and conditions set forth in this Agreement and the other
Loan Documents, and (B) any assignment by such trustee shall be subject to the
provisions of clause (a) of this Section 11.11.1. In the event that S&P,
Moody's or Thompson's BankWatch (or InsuranceWatch Ratings Service, in the case
of Lenders that are insurance companies (or Best's Insurance Reports, if such
insurance company is not rated by Insurance Watch Ratings Service)) shall,
after the date that any Lender with a Commitment to make Revolving Loans or
participate in Letters of Credit becomes a Lender, downgrade the long-term
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certificate of deposit rating or long-term senior unsecured debt rating of such
Lender, and the resulting rating shall be below BBB-, Baa3 or C (or BB, in the
case of Lender that is an insurance company (or B, in the case of an insurance
company not rated by InsuranceWatch Ratings Service)) respectively, then the
Issuer or the Borrower (with the consent of the Agents and the Issuer) shall
have the right, but not the obligation, upon notice to such Lender and the
Agents, to replace such Lender with an Assignee Lender in accordance with and
subject to the restrictions contained in this Section, and such Lender hereby
agrees to transfer and assign without recourse (in accordance with and subject
to the restrictions contained in this Section) all its interests, rights and
obligations in respect of its Revolving Loan Commitment under this Agreement to
such Assignee Lender; provided, however, that (i) no such assignment shall
conflict with any law, rule and regulation or order of any governmental
authority and (ii) such Assignee Lender shall pay to such Lender in immediately
available funds on the date of such assignment the principal of and interest
and fees (if any) accrued to the date of payment on the Loans made, and Letters
of Credit participated in, by such Lender hereunder and (iii) the Borrower
shall have paid such Lender all other amounts accrued for such Lender's account
or owed to it hereunder or under any other Loan Document.
SECTION 11.11.2. Participations. Any Lender may at any time sell to
one or more commercial banks or other financial institution (each such
commercial bank and other financial institution being herein called a
"Participant") participating interests in any of the Loans, Commitments,
participations in Letters of Credit and Letters of Credit Outstandings or other
interests of such Lender hereunder; provided, however, that
(a) no participation contemplated in this Section shall
relieve such Lender from its Commitments or its other obligations
hereunder or under any other Loan Document;
(b) such Lender shall remain solely responsible for the
performance of its Commitments and such other obligations;
(c) the Borrower and each other Obligor, the Agents and the
Issuer shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement and each of the other Loan Documents;
(d) no Participant, unless such Participant is an Affiliate
or Related Fund of such Lender, or is itself a Lender, shall be
entitled to require such Lender to take or refrain from taking any
action hereunder or under any other Loan Document, except that such
Lender may agree with any Participant that such Lender will not,
without such Participant's consent, agree to (i) any reduction in the
interest rate or amount of fees that such Participant is otherwise
entitled to, (ii) a decrease in the principal amount, or an extension
of the final Stated Maturity Date, of any Loan in which such
Participant has purchased a participating interest or (iii) a release
of all or substantially all of the collateral security under the Loan
Documents or any Guarantor under any Guaranty, in each case except as
otherwise specifically provided in a Loan Document; and
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(e) the Borrower shall not be required to pay any amount
under Sections 4.3, 4.4, 4.5, 4.6, 11.3 and 11.4 that is greater than
the amount which it would have been required to pay had no
participating interest been sold.
The Borrower acknowledges and agrees, subject to clause (e) above, that, to the
fullest extent permitted under applicable law, each Participant, for purposes
of Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 11.3 and 11.4, shall be considered a
Lender.
SECTION 11.12. Other Transactions. Nothing contained herein shall
preclude any Agent, the Documentation Agent, the Issuer, the Arranger or any
other Lender from engaging in any transaction, in addition to those
contemplated by this Agreement or any other Loan Document, with the Borrower or
any of its Affiliates in which the Borrower or such Affiliate is not restricted
hereby from engaging with any other Person.
SECTION 11.13. Independence of Covenants. All covenants contained in
this Agreement and each other Loan Document shall be given independent effect
such that, in the event a particular action or condition is not permitted by
any of such covenants, the fact that it would be permitted by an exception to,
or be otherwise within the limitations of, another covenant shall not, unless
expressly so provided in such first covenant, avoid the occurrence of a Default
or an Event of Default if such action is taken or such condition exists.
SECTION 11.14. Confidentiality. The Agents, the Documentation Agent,
the Issuer, the Arranger and the Lenders shall hold all non-public information
obtained pursuant to or in connection with this Agreement or obtained by them
based on a review of the books and records of Holdings or any of its
Subsidiaries in accordance with their customary procedures for handling
confidential information of this nature, but may make disclosure to any of
their examiners, regulators (including the National Association of Insurance
Commissioners), Affiliates, outside auditors, counsel and other professional
advisors in connection with this Agreement or as reasonably required by any
potential bona fide transferee, participant or assignee, or in connection with
the exercise of remedies under a Loan Document, or as requested by any
governmental agency or representative thereof or pursuant to legal process;
provided, however, that
(a) unless specifically prohibited by applicable law or court
order, each Agent, the Documentation Agent, the Issuer, the Arranger
and each Lender shall promptly notify the Borrower of any request by
any governmental agency or representative thereof (other than any such
request in connection with an examination of the financial condition
of such Agent, the Documentation Agent, the Issuer, Arranger and
Lender by such governmental agency) for disclosure of any such
non-public information and, where practicable, prior to disclosure of
such information;
(b) prior to any such disclosure pursuant to this Section
11.14, each Agent, the Documentation Agent, the Issuer, the Arranger
and each Lender shall require any such bona fide transferee,
participant and assignee receiving a disclosure of non-public
information to agree, for the benefit of Holdings and its
Subsidiaries, in writing
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(i) to be bound by this Section 11.14; and
(ii) to require such Person to require any other
Person to whom such Person discloses such non-public
information to be similarly bound by this Section 11.14;
(c) disclosure may, with the consent of the Agents and the
Borrower, be made by any Lender to any direct or indirect contractual
counterparties of such Lender in swap agreements or such contractual
counterparties' professional advisors; provided that such contractual
counterparty or professional advisor agrees in writing to keep such
information confidential to the same extent required of the Lenders
hereunder; and
(d) except as may be required by an order of a court of
competent jurisdiction and to the extent set forth therein, no Lender
shall be obligated or required to return any materials furnished by
the Borrower or any Subsidiary.
SECTION 11.15. Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE
DOCUMENTATION AGENT, THE ARRANGER, THE LENDERS, THE ISSUER, THE BORROWER OR ANY
PARENT GUARANTOR RELATING THERETO SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY
(TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) IN THE COURTS OF THE STATE OF
NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK, IN EACH CASE LOCATED IN NEW YORK COUNTY OF THE STATE OF NEW YORK;
PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT THE AGENTS' OPTION, IN THE COURTS OF ANY
JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER
AND EACH PARENT GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, AND OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE LOCATED IN
NEW YORK COUNTY OF THE STATE OF NEW YORK, FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER AND
EACH PARENT GUARANTOR IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF NEW YORK. THE BORROWER AND EACH PARENT GUARANTOR HEREBY EXPRESSLY AND
IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
ANY OF THEM MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION BROUGHT IN ANY SUCH
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COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER OR ANY PARENT
GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, THE BORROWER AND EACH PARENT GUARANTOR HEREBY
IRREVOCABLY WAIVE (TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) SUCH IMMUNITY
IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
SECTION 11.16. Waiver of Jury Trial. THE AGENTS, THE DOCUMENTATION
AGENT, THE ARRANGER, THE ISSUER, THE LENDERS, THE BORROWER AND THE PARENT
GUARANTORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS
THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF THE AGENTS, THE DOCUMENTATION AGENT, THE ARRANGER,
THE LENDERS, THE BORROWER OR THE PARENT GUARANTORS RELATING THERETO. THE
BORROWER AND THE PARENT GUARANTORS ACKNOWLEDGE AND AGREE THAT EACH SUCH PERSON
HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH
OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH SUCH PERSON IS A PARTY)
AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS, THE
DOCUMENTATION AGENT, THE ARRANGER, THE ISSUER AND THE LENDERS ENTERING INTO
THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
day and year first above written.
BORROWER:
DUANE READE
By Daboco Inc., a general partner
By /s/ William Tennant
-----------------------------------
Title: Chief Financial Officer
By Duane Reade Inc., a general partner
By /s/ William Tennant
-----------------------------------
Title: Chief Financial Officer
PARENT GUARANTORS:
DUANE READE HOLDING CORP.
By /s/ William Tennant
--------------------------------------
Title: Chief Financial Officer
DABOCO INC.
By /s/ William Tennant
--------------------------------------
Title: Chief Financial Officer
DUANE READE INC.
By /s/ William Tennant
--------------------------------------
Title: Chief Financial Officer
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AGENTS:
DLJ CAPITAL FUNDING, INC., as the
Syndication Agent
By /s/ Harold J. Philipps
--------------------------------------
Title: Harold J. Philipps
Managing Director
FLEET NATIONAL BANK, as the
Administrative Agent
By /s/ Authorized Signatory
--------------------------------------
Title: Managing Director
CREDIT LYONNAIS NEW YORK
BRANCH, as the Documentation Agent
By /s/ Authorized Signatory
--------------------------------------
Title:
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LENDERS:
DLJ CAPITAL FUNDING, INC.
By /s/ Harold J. Philipps
--------------------------------------
Title: Harold J. Philipps
Managing Director
FLEET NATIONAL BANK
By
--------------------------------------
Title: Managing Director
CREDIT LYONNAIS NEW YORK
BRANCH
By
--------------------------------------
Title:
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SCHEDULE I
ITEM 6.6 - MATERIAL ADVERSE CHANGE
1. Reduction in net operating loss carry forward occurring as a result of the
recapitalization of Duane Reade Holding Corp. on June 18, 1997, pursuant to that
certain Recapitalization Agreement, dated from May 30, 1997, between and among
the parties set forth therein.
<PAGE>
ITEM 6.7 - LITIGATION
1. Claim of Rita Lanier. Rita Lanier, a former Assistant Manager, filed a
complaint on or about October 17, 1996, against Duane Reade in the Southern
District of New York case number 96 CV 7870. Ms. Lanier alleges that Duane
Reade discriminated against her on the basis of race, national origin, and
disability. She has claimed unspecified compensatory damages and punitive
damages. The case is currently being defended by the Company's insurer.
2. Claim of Valentine Reiter. Valentine Reiter, an AIDS patient, claims
that a Duane Reade pharmacy filled her prescription incorrectly by giving
her a dosage lower than the prescribed amount. Duane Reade has received a
letter, dated April 1, 1997, from her lawyer making no specific claim for
damages but, to date, knows of no formal claim which has been filed.
2
<PAGE>
ITEM 6.8 - EXISTING SUBSIDIARIES
NONE
3
<PAGE>
ITEM 6.9 - PROPERTIES
Duane Reade currently leases the following properties:
New York
1 Whitehall Street
New York, New York
World Trade Center
New York, New York
4 Park Avenue
New York, New York
20 East 46th Street
New York, New York
39 Broadway
New York, New York
225 Broadway
New York, New York
49 East 52nd Street
New York, New York
50 Pine Street
New York, New York
67 Broad Street
New York, New York
90 John Street
New York, New York
95 Wall Street
New York, New York
144 East 44th Street
New York, New York
215-221 West 34th Street
New York, New York
4
<PAGE>
51 West 51st Street
New York, New York
224 West 57th Street
New York, New York
40 West 57th Street
New York, New York
300 Park Avenue South
New York, New York
304-308 Madison Avenue
New York, New York
305 Broadway
New York, New York
555 Madison Avenue
New York, New York
625 Madison Avenue
New York, New York
350 Fifth Avenue
New York, New York
360 Park Avenue South
New York, New York
370 Lexington Avenue
New York, New York
415 Fifth Avenue
New York, New York
485 Fifth Avenue
New York, New York
509 Fifth Avenue
New York, New York
525 Seventh Avenue
New York, New York
5
<PAGE>
1146-1150 Avenue of the Americas
New York, New York
1 Port Authority
New York, New York
1412 Broadway
New York, New York
1633 Broadway
New York, New York
506 Eighth Avenue
New York, New York
80 Maiden Lane
New York, New York
157 East 42nd Street
New York, New York
866 Third Avenue
New York, New York
71 West 23rd Street
New York, New York
598 Broadway
New York, New York
200 East 74th Street
New York, New York
378 Avenue of the Americas
New York, New York
2307 Broadway
New York, New York
2465 Broadway
New York, New York
279 West 125th Street
New York, New York
6
<PAGE>
115-117 West 42nd Street
New York, New York
122 East 42nd Street
New York, New York
333 Seventh Avenue
New York, New York
979 Third Avenue
New York, New York
22-26 East 14th Street
New York, New York
22 West 48th Street
New York, New York
460-266 Fulton Street
New York, New York
108-110 West 34th Street
New York, New York
Pennsylvania Station
New York, New York
1191 Second Avenue
New York, New York
150 East 18th Street
New York, New York
306 East Fordham Road
Bronx, New York
963 Southern Boulevard
Bronx, New York
386 Fulton Street
Brooklyn, New York
7
<PAGE>
749 Broadway
Brooklyn, New York
44 Court Street
Brooklyn, New York
39-15 Main Street
Flushing, New York
8901 Broadway
Queens, New York
251 East 86th Street
New York, New York
200 West 79th Street
New York, New York
58-60 Grand Avenue (warehouse facility)
Maspeth, New York
1185 Avenue of the Americas
New York, New York
1467 First Avenue
New York, New York
1430 Broadway
New York, New York
155 East 34th Street
New York, New York
19 Park Place
New York, New York
440 Ninth Avenue (corporate headquarters)
New York, New York
New Jersey
707 Broad Street
Newark, New Jersey
Duane Read currently subleases the following properties:
8
<PAGE>
New York
Sublease Agreement between Fitness Assessment and Prescription Inc. (D/B/A
Equinox Fitness Club), as Sub-Lessee, and Duane Reade, as Sub-Lessor, for the
portion of Ground Floor and Basement space at 2465 Broadway, New York, New York
for the term February 1, 1995 to May 25, 2014.
Sublease Agreement between Jackpot Realty, Inc., as Sub-Lessee, and Duane
Reade, as Sub-Lessor, for the portion of Basement space at 464 Fulton Street,
Brooklyn, New York, for the term January 1, 1996 to November 30, 2000.
Duane Reade currently owns the following properties:
New York
*Duane Reade Warehouse
49-29 30th Place
Long Island City, New York 11101
*A mortgage relating to this property is to be delivered pursuant to
Section 5.1.7 of the Credit Agreement.
9
<PAGE>
ITEM 6.11 - EMPLOYEE BENEFIT PLANS
WELFARE PLANS
1. Duane Reade Medical Plan.
2. Duane Reade Flexible Compensation Plan.
3. Duane Reade Life Insurance Plan.
SEVERANCE ARRANGEMENT
1. Under his Employment Agreement, Tony Cuti is eligible for certain
severance payments, SERP benefits and other employee benefits.
2. The following employees are entitled to certain severance payments:
William Tennant, Joe Lacko, Gary Charbonneau, Frank DeMarco, Hyman
Needleman and Karen Durham.
3. Under his Termination Agreement, dated as of June 18, 1997, Bruce Weitz
agreed to terminate any rights he possessed under a certain Executive
Stock Agreement, dated as of January 31, 1997, between Bruce Weitz and
Holdings.
4. Under his Option Repurchase and Cancellation Agreement, dated as of
June 18, 1997, Barry Weston sold Holdings the portion of his options that
vested upon the consummation of a sale of Holdings.
10
<PAGE>
ITEM 6.12 - ENVIRONMENTAL MATTERS
None
11
<PAGE>
ITEM 6.16(c) - PHARMACEUTICAL LIABILITIES
None.
12
<PAGE>
ITEM 7.2.2(b) - INDEBTEDNESS TO BE PAID
1. $81,769,393.90 under that certain Credit Agreement, dated as of
September 24, 1992, among Daboco Inc., Duane Reade Inc., Duane Reade,
the various lending institutions named therein and Bankers Trust Company,
as Agent, as amended from time to time.
13
<PAGE>
ITEM 7.2.2(c) - ONGOING INDEBTEDNESS
1. $123,380,000 in aggregate principal amount at maturity of 15% Senior
Subordinated Zero Coupon Notes due 2004 of Holdings.
2. $90,000,000 in aggregate principal amount of 12% Senior Notes due 2002 of
the Borrower.
3. $125,000 Letter of Credit issued by Bankers Trust, L/C No S-07406 to Lefrak
SBN to secure lease payments.
4. $107,500 Letter of Credit issued by Bankers Trust, L/C No. S-11868 to SIBA
R.E. to secure lease payments.
5. $50,000 Letter of Credit issued by Bankers Trust, L/C No. S-09149 to
International Fidelity Insurance.
6. $37,500 Letter of Credit issued by Chase Manhattan Bank, L/C No. T-240153
to C.S.C. Fulton Associates to secure lease payments.
7. $64,146 Letter of Credit issued by Chase Manhattan Bank, L/C No. L-275717
to 1290 Associates LLC to secure lease payments.
8. $28,503 Letter of Credit issued by Chase Manhattan Bank to Nineteen New York
Properties Limited Partnership to secure lease payments.
9. Intercompany indebtedness, in an amount not to exceed $200,000.00, between
the Borrower, as borrower, and Holdings, as lender.
14
<PAGE>
ITEM 7.2.5(a) - ONGOING INVESTMENTS
1. Promissory Note for $250,000 dated June 28, 1993 from Gary Charbonneau in
favor of Holdings ($121,243 current outstanding principal balance).
2. Promissory Note for $25,000 dated June 28, 1993 from Karen Durham in favor
of Holdings ($5,000 current outstanding principal balance).
3. Promissory Note for $25,000 dated June 28, 1993 from Mike Cirilli in favor
of Holdings ($5,000 current outstanding principal balance).
4. Promissory Note for $25,000 dated June 28, 1993 from Hyman Needleman in
favor of Holdings ($5,000 current outstanding principal balance).
5. Promissory Note for $25,000 dated June 28, 1997 from Frank DeMarco in favor
of Holdings ($5,000 current outstanding principal balance).
6. Promissory Note for $75,000 dated April 10, 1995 from Jerry Rag in favor of
Holdings ($45,000 current outstanding principal balance).
7. $10,000 advance to Denise Sebold.
8. $10,000 advance to Karen Durham.
9. $10,000 advance to Mike Cirilli.
10. Intercompany indebtedness, in an amount not to exceed $200,000.00, between
the Borrower, as borrower, and Holdings, as lender.
15
<PAGE>
SCHEDULE II to
Credit Agreement
PERCENTAGES
-----------
REVOLVING Term
LOAN COMMITMENT Loan Commitment
--------------- ---------------
DLJ Capital Funding, Inc. 33.3333333333% 100%
Fleet National Bank 33.3333333333%
Credit Lyonnais New York Branch 33.3333333333%
<PAGE>
ADMINISTRATIVE INFORMATION
Notice Information
BORROWER:
Duane Reade
440 Ninth Avenue
New York, New York 10001
Telecopier: 212-273-5795
Attention: Bill Tennant
PARENT GUARANTORS:
Duane Reade Holdings Corp.
440 Ninth Avenue
New York, New York 10001
Telecopier: 212-273-5795
Attention: Bill Tennant
Daboco Inc.
440 Ninth Avenue
New York, New York 10001
Telecopier: 212-273-5795
Attention: Bill Tennant
Duane Reade Inc.
440 Ninth Avenue
New York, New York 10001
Telecopier: 212-273-5795
Attention: Bill Tennant
-2-
<PAGE>
AGENTS:
DLJ Capital Funding, Inc.
277 Park Avenue
New York, New York 10172
Telecopier: 212-892-7272
Attention: Tania Holman
Fleet National Bank
1 Federal Street
Boston, Massachusetts 02211
Telecopier: 617-346-4806
Attention: Eric Vander Mel
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Telecopier: 212-459-3176
Attention: John J. D'Angelo
-3-
<PAGE>
LENDERS:
<TABLE>
<CAPTION>
Name of Lender Domestic Office LIBOR Office
- -------------- --------------- ------------
<S> <C> <C>
DLJ Capital Funding, Inc. 525 Washington Blvd. 525 Washington Blvd.
Jersey City, NJ 07310 Jersey City, NJ 07310
Telecopier: 201-610-1965 Telecopier: 201-610-1965
Attention: Ed Vowinkel Attention: Ed Vowinkel
Fleet National Bank 1 Federal Street 1 Federal Street
Boston, MA 02211 Boston, MA 02211
Telecopier: 617-346-4806 Telecopier: 617-346-4806
Attention: Eric Vander Mel Attention: Eric Vander Mel
Credit Lyonnais New York 1301 Avenue of the Americas 1301 Avenue of the Americas
Branch New York, NY 10019 New York, NY 10019
Telecopier: 212-261-3776 Telecopier: 212-261-3776
Attention: Allison L. Adams Attention: Allison L. Adams
</TABLE>
-4-
<PAGE>
[EXECUTION COPY]
PARTNERSHIP SECURITY AGREEMENT
This PARTNERSHIP SECURITY AGREEMENT (as amended, supplemented, amended
and restated or otherwise modified from time to time, this "Security
Agreement"), dated as of September 30, 1997, is made by each of the parties
identified on the signature pages hereto as a "Grantor" (each, individually, a
"Grantor", and collectively, the "Grantors") in favor of FLEET NATIONAL BANK,
as administrative agent (together with its successor(s) thereto, in such
capacity, the "Administrative Agent") for each of the Secured Parties.
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated the date hereof (as
amended, supplemented, amended and restated or otherwise modified from time to
time, the "Credit Agreement"), among Duane Reade, a New York general
partnership (the "Borrower" or the "Partnership"), each of the Grantors and the
other Parent Guarantors named therein, the various financial institutions as
are, or may from time to time become, parties thereto (each, individually, a
"Lender", and collectively, the "Lenders"), DLJ Capital Funding, Inc., as
Syndication Agent, Credit Lyonnais New York Branch, as Documentation Agent, and
the Administrative Agent, the Lenders and the Issuer have extended Commitments
to make Credit Extensions to the Borrower;
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
each Grantor is required to execute and deliver this Security Agreement;
WHEREAS, each Grantor has duly authorized the execution, delivery and
performance of this Security Agreement; and
WHEREAS, it is in the best interests of each Grantor to execute this
Security Agreement inasmuch as such Grantor will derive substantial direct and
indirect benefits from the Credit Extensions made from time to time to the
Borrower by the Lenders and the Issuer pursuant to the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the
Lenders and the Issuer to make Credit Extensions (including the initial Credit
Extension) to the Borrower pursuant to the Credit Agreement, and to induce the
Secured Parties to enter into Rate Protection Agreement(s), each Grantor
agrees, for the benefit of each Secured Party, as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not
underscored) when used in this Security Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"Administrative Agent" is defined in the preamble.
"Borrower" is defined in the first recital.
"Collateral" is defined in Section 2.1.
"Credit Agreement" is defined in the first recital.
"Grantor" and "Grantors" are defined in the preamble.
"Lender" and "Lenders" are defined in the first recital.
"Partnership" is defined in the first recital.
"Partnership Agreement" means the Borrower Partnership Agreement as
defined in the Credit Agreement.
"Secured Obligations" is defined in Section 2.2.
"Security Agreement" is defined in the preamble.
"U.C.C." means the Uniform Commercial Code, as in effect from time to
time in the State of New York.
SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined
herein or the context otherwise requires, terms used in this Security
Agreement, including its preamble and recitals, have the meanings provided in
the Credit Agreement.
SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or in
the Credit Agreement or the context otherwise requires, terms for which
meanings are provided in the U.C.C. are used in this Security Agreement,
including its preamble and recitals, with such meanings.
-2-
<PAGE>
ARTICLE II
SECURITY INTEREST
SECTION 2.1. Grant of Security. Each Grantor hereby assigns and
pledges to the Administrative Agent for its benefit and the ratable benefit of
each of the Secured Parties, and hereby grants to the Administrative Agent for
its benefit and the ratable benefit of each of the Secured Parties, a security
interest in all of the following, whether now or hereafter existing or acquired
by such Grantor (the "Collateral"):
(a) all right, title and interest of such Grantor, whether
now existing or hereafter arising or acquired, in, to and under the
Partnership Agreement, including such Grantor's rights, now existing
or hereafter arising or acquired, to receive from time to time its
share of profits, income, surplus, compensation, return of capital,
distributions and other reimbursements and payments from the
Partnership (including specific properties of the Partnership upon
dissolution and otherwise and all rights and interests as general
partner to operate the Partnership);
(b) all general or limited partnership interests now owned or
hereafter acquired by such Grantor in the Partnership as a result of
exchange offers, direct investments or contributions or otherwise;
(c) such Grantor's accounts, general intangibles and other
rights to payment or reimbursement, now existing or hereafter arising
or acquired, from the Partnership, existing or arising from loans,
advances or other extensions of credit by such Grantor from time to
time to or for the account of the Partnership, or from services
rendered by such Grantor from time to time to or for the account of
the Partnership; and
(d) all products, offspring, rents, issues, profits, returns,
income and proceeds of and from any and all of the foregoing
Collateral (including proceeds which constitute property of the types
described in clauses (a), (b) and (c), and, to the extent not
otherwise included, all payments under insurance (whether or not the
Administrative Agent is the loss payee thereof), or any indemnity,
warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Collateral).
SECTION 2.2. Security for Obligations. This Security Agreement secures
the payment of all Obligations of the Borrower now or hereafter existing under
the Credit Agreement, the Notes and each other Loan Document to which the
Borrower is or may become a party, whether for principal, interest, costs,
fees, expenses or otherwise, and all obligations of each Grantor and each other
Obligor now or hereafter existing under this Security Agreement and each other
Loan Document to which such Grantor or such other Obligor is or may become a
party (all such obligations of the Borrower and such Grantor and such other
Obligor being the "Secured Obligations").
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<PAGE>
SECTION 2.3. Continuing Security Interest; Transfer of Notes. This
Security Agreement shall create a continuing security interest in the
Collateral and shall
(a) remain in full force and effect until payment in full in
cash of all Secured Obligations, the termination of all Letters of
Credit, the termination or expiration of all Rate Protection
Agreements and the termination of all Commitments,
(b) be binding upon each Grantor, its successors, transferees
and assigns, and
(c) inure, together with the rights and remedies of the
Administrative Agent hereunder, to the benefit of the Administrative
Agent and each other Secured Party.
Without limiting the generality of the foregoing clause (c), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Credit Extension
held by it to any other Person or entity, and such other Person or entity shall
thereupon become vested with all the rights and benefits in respect thereof
granted to such Lender under any Loan Document (including this Security
Agreement) or otherwise, subject, however, to any contrary provisions in such
assignment or transfer, and to the provisions of Section 11.11 and Article X of
the Credit Agreement. Upon the payment in full in cash of all Secured
Obligations, the termination or expiration of all Letters of Credit, the
termination of all Rate Protection Agreements and the termination of all
Commitments, the security interest granted herein shall terminate and all
rights to the Collateral shall revert to such Grantor. Upon any such
termination, the Administrative Agent will, at such Grantor's sole expense,
execute and deliver to such Grantor such documents as such Grantor shall
reasonably request to evidence such termination.
SECTION 2.4. Grantors Remain Liable. Anything herein to the contrary
notwithstanding
(a) each Grantor shall remain liable under the Partnership
Agreement and the contracts and agreements included in the Collateral
to the extent set forth therein, and shall perform all of its duties
and obligations under the Partnership Agreement and such contracts and
agreements to the same extent as if this Security Agreement had not
been executed,
(b) the exercise by the Administrative Agent of any of its
rights hereunder shall not release any Grantor from any of its duties
or obligations under the Partnership Agreement and any such contracts
or agreements included in the Collateral, and
(c) neither the Administrative Agent nor any other Secured
Party shall have any obligation or liability under the Partnership
Agreement and any such contracts or agreements included in the
Collateral by reason of this Security Agreement, nor shall the
Administrative Agent or any other Secured Party be obligated to
perform any of the obligations or duties of any Grantor thereunder or
to take any action to collect or enforce any claim for payment
assigned hereunder.
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<PAGE>
SECTION 2.5. Security Interest Absolute. All rights of the
Administrative Agent and the security interests granted to the Administrative
Agent hereunder, and all obligations of each Grantor hereunder, shall be
absolute and unconditional, irrespective of
(a) any lack of validity or enforceability of the Credit
Agreement, any Note or any other Loan Document;
(b) the failure of any Secured Party or any holder of any
Note
(i) to assert any claim or demand or to enforce any
right or remedy against the Borrower, any other Obligor or
any other Person under the provisions of the Credit
Agreement, any Note, any other Loan Document or otherwise, or
(ii) to exercise any right or remedy against any
other guarantor of, or collateral securing, any Secured
Obligations;
(c) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Secured Obligations or any
other extension, compromise or renewal of any Secured Obligations;
(d) any reduction, limitation, impairment or termination of
any Secured Obligations for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject
to (and each Grantor hereby waives any right to or claim of) any
defense or setoff, counterclaim, recoupment or termination whatsoever
by reason of the invalidity, illegality, nongenuineness, irregularity,
compromise, unenforceability of, or any other event or occurrence
affecting, any Secured Obligations or otherwise;
(e) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of
the Credit Agreement, any Note or any other Loan Document;
(f) any addition, exchange, release, surrender or
non-perfection of any collateral (including the Collateral), or any
amendment to or waiver or release of or addition to or consent to
departure from any guaranty, for any of the Secured Obligations; or
(g) any other circumstances which might otherwise constitute
a defense available to, or a legal or equitable discharge of, the
Borrower, any other Obligor, any surety or any guarantor.
SECTION 2.6. Postponement of Subrogation, etc. Each Grantor hereby
agrees that it will not exercise any rights which it may acquire by reason of
any payment made hereunder, whether by way of subrogation, reimbursement or
otherwise, until the prior payment in full in cash of all Secured Obligations,
the termination or expiration of all Letters of Credit, the termination of all
Rate Protection Agreements and the termination of all Commitments. Any
-5-
<PAGE>
amount paid to any Grantor on account of any payment made hereunder prior to
the payment in full in cash of all Secured Obligations shall be held in trust
for the benefit of the Secured Parties and each holder of a Note and shall
immediately be paid to the Administrative Agent for the benefit of the Secured
Parties and each holder of a Note and credited and applied against the Secured
Obligations, whether matured or unmatured, in accordance with the terms of the
Credit Agreement; provided, however, that if
(a) such Grantor has made payment to the Administrative Agent
for the benefit of the Secured Parties and each holder of a Note of
all or any part of the Secured Obligations, and
(b) all Secured Obligations have been paid in full in cash,
all Letters of Credit have been terminated or expired, all Rate
Protection Agreements have been terminated and all Commitments have
been permanently terminated,
each Secured Party and each holder of a Note agrees that, at the requesting
Grantor's request, the Administrative Agent, on behalf of the Secured Parties
and the holders of the Notes, will execute and deliver to such Grantor
appropriate documents (without recourse and without representation or warranty)
necessary to evidence the transfer by subrogation to such Grantor of an
interest in the Secured Obligations resulting from such payment by such
Grantor. In furtherance of the foregoing, for so long as any Secured
Obligations, Commitments or Letters of Credit remain outstanding or any Rate
Protection Agreement remains in full force and effect, each Grantor shall
refrain from taking any action or commencing any proceeding against the
Borrower or any other Obligor (or its successors or assigns, whether in
connection with a bankruptcy proceeding or otherwise) to recover any amounts in
respect of payments made under this Security Agreement to any Secured Party or
any holder of a Note.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties. Each Grantor represents
and warrants to each Secured Party insofar as the representations and
warranties contained herein are applicable to such Grantor and its properties,
as set forth in this Article III.
SECTION 3.2. Ownership, No Liens, etc. Such Grantor owns its
Collateral free and clear of any Lien, security interest, charge or encumbrance
except for the security interest created by this Security Agreement and except
as permitted by the Credit Agreement. No effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is on
file in any recording office, except such as may have been filed in favor of
the Administrative Agent relating to this Security Agreement or as to which a
duly executed termination statement relating to such financing statement or
other similar instrument has been delivered to the Administrative Agent on the
Closing Date.
-6-
<PAGE>
SECTION 3.3. Validity, etc. This Security Agreement creates a valid
security interest in the Collateral securing the payment of the Secured
Obligations, and upon the filing of the Uniform Commercial Code financing
statements delivered by each Grantor to the Administrative Agent with respect
to such Collateral, such security interest will be a first priority perfected
security interest. The Partnership Agreement (and all amendments thereto)
constitutes the valid, binding and enforceable obligations of each Grantor a
party thereto, sets forth the entire agreement of the parties thereto with
respect to the subject matter thereof, has not been further amended or modified
and remains in full force and effect.
SECTION 3.4. Partnership Interests, Profits. The character (general
and/or limited partner) of each Grantor's interest in the Partnership and each
Grantor's percentage interest in the Partnership's profits (with profit
interests as a general and as a limited partner separately stated) are as set
forth in Schedule I hereto, as amended, supplemented or otherwise modified from
time to time with the prior written consent of the Administrative Agent.
SECTION 3.5. Certificate. No interest of such Grantor in the
Partnership is represented by a certificate of interest or similar instrument,
except such certificates or instruments, if any, as have been delivered to the
Administrative Agent and are held in its possession (and such Grantor covenants
and agrees that any such certificates or instruments hereafter received by such
Grantor with respect to any of the Collateral will be promptly delivered to the
Administrative Agent, together with all necessary instruments or transfer or
assignment, duly executed in blank).
SECTION 3.6. Interest in Partnership Agreements. Such Grantor had and
has the power and legal capacity to execute and carry out the provisions of the
Partnership Agreement. Such Grantor has substantially performed all of its
obligations to date under the Partnership Agreement and has not received notice
of the failure of any other party thereto to perform substantially its
obligations thereunder.
SECTION 3.7. Location, Records, etc. The chief executive office of
such Grantor and the office where such Grantor keeps its records concerning the
Collateral are located at the addresses specified in Schedule II hereto. During
the four months preceding the date hereof, such Grantor has not been known by
any legal name different from the one set forth on the signature page hereto,
nor has such Grantor been the subject of any merger or other corporate
reorganization.
SECTION 3.8. Authorization, Approval, etc. Except as have been
obtained or made and are in full force and effect (or otherwise provided for to
the satisfaction of the Agents), no authorization, approval or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required either
(a) for the grant by such Grantor of the security interest
granted hereby or for the execution, delivery and performance of this
Security Agreement by such Grantor, or
(b) for the perfection of or the exercise by the
Administrative Agent of its rights and remedies hereunder.
-7-
<PAGE>
SECTION 3.9. Compliance with Laws. Such Grantor is in compliance with
the requirements of all applicable laws (including the provisions of the Fair
Labor Standards Act), rules, regulations and orders of every governmental
authority, the non-compliance with which could reasonably be expected to have a
Material Adverse Effect or which could reasonably be expected to materially
adversely affect the value of the Collateral or the worth of the Collateral as
collateral security.
ARTICLE IV
COVENANTS
SECTION 4.1. Certain Covenants. Each Grantor covenants and agrees
that, so long as any portion of the Secured Obligations shall remain unpaid,
any Rate Protection Agreements shall remain in full force and effect, any
Letters of Credit shall be outstanding or any Lender shall have any outstanding
Commitment, such Grantor will, unless the Required Lenders shall otherwise
consent in writing, perform, comply with and be bound by the obligations set
forth in this Article IV.
SECTION 4.2. Covenants from Other Agreements. Such Grantor will take
all actions necessary to cause the Partnership to perform, comply with and be
bound by all of the agreements, covenants and obligations contained in Article
VII of the Credit Agreement and in any other Loan Document applicable to the
Partnership and its properties. Each such agreement, covenant and obligation
contained in such Article or in any other Loan Document and all other terms of
the Credit Agreement and the Loan Documents to which reference is made therein,
together with all related definitions and ancillary provisions, is hereby
incorporated into this Security Agreement by reference as though specifically
set forth in this Section, and each such agreement, covenant and obligation
shall, for purposes hereof, survive the termination of the Credit Agreement and
the Loan Documents (other than this Security Agreement).
SECTION 4.3. Maintenance of Records. Such Grantor will keep, at its
address indicated on Schedule II hereto, all of its records concerning the
Collateral, which records will be of such character as will enable the
Administrative Agent or its designees to determine at any time the status
thereof, or, upon 30 days' prior written notice to the Administrative Agent, at
such other locations in a jurisdiction where all actions necessary to (a)
perfect, preserve and protect any security interest granted or purported to be
granted hereby and (b) enable the Administrative Agent to exercise and enforce
its rights and remedies hereunder, shall have been taken. Such Grantor shall
not change its name except upon 30 days' prior written notice to the
Administrative Agent and shall hold and preserve such records concerning the
Collateral and permit representatives of the Administrative Agent at any time
during normal business hours to inspect and make abstracts from such records.
SECTION 4.4. Amendment of Partnership Agreement. Such Grantor will not
amend, supplement or otherwise modify, or permit, consent or suffer to occur
any amendment, supplement or modification of any terms or provisions contained
in, or applicable to, the
-8-
<PAGE>
Partnership Agreement, if the effect thereof is to impair, or is in any manner
adverse to, the rights or interests of any Secured Party under the Credit
Agreement or any other Loan Document, without the prior written consent of the
Administrative Agent and the Required Lenders.
SECTION 4.5. Withdraw from Partnership. No Grantor will, without the
express written consent of the Administrative Agent and the Lenders, actively
cause itself to withdraw as a general partner or limited partner, as the case
may be, of the Partnership.
SECTION 4.6. Transfers and Other Liens. Such Grantor shall not
(a) sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral; or
(b) create or suffer to exist any Lien or other charge or
encumbrance upon or with respect to any of the Collateral to secure
Indebtedness of any Person or entity, except for the security interest
created by this Security Agreement and except as permitted by the
Credit Agreement.
SECTION 4.7. Further Assurances, etc. Such Grantor agrees that, from
time to time at its own expense, such Grantor will promptly execute and deliver
all further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Administrative Agent may request, in order
to perfect, preserve and protect any security interest granted or purported to
be granted hereby or to enable the Administrative Agent to exercise and enforce
its rights and remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, such Grantor will
(a) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or
notices (including any assignment of claim form under or pursuant to
the federal assignment of claims statute, 31 U.S.C. ss. 3726, any
successor or amended version thereof or any regulation promulgated
under or pursuant to any version thereof), as may be necessary or
desirable, or as the Administrative Agent may request, in order to
perfect and preserve the security interests and other rights granted
or purported to be granted to the Administrative Agent hereby; and
(b) furnish to the Administrative Agent, from time to time at
the Administrative Agent's request, statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral as the Administrative Agent may
reasonably request, all in reasonable detail.
With respect to the foregoing and the grant of the security interest hereunder,
such Grantor hereby authorizes the Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all
or any part of the Collateral without the signature of such Grantor where
permitted by law. A carbon, photographic or other reproduction
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of this Security Agreement or any financing statement covering the Collateral
or any part thereof shall be sufficient as a financing statement where
permitted by law.
ARTICLE V
THE ADMINISTRATIVE AGENT
SECTION 5.1. Administrative Agent Appointed Attorney-in-Fact. Each
Grantor hereby irrevocably appoints the Administrative Agent such Grantor's
attorney-in-fact, with full authority in the place and stead of such Grantor
and in the name of such Grantor or otherwise, from time to time in the
Administrative Agent's discretion, following the occurrence and continuation of
a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or
an Event of Default, to take any action and to execute any instrument which the
Administrative Agent may deem necessary or advisable to accomplish the purposes
of this Security Agreement, including:
(a) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause
(a) above;
(c) to file any claims or take any action or institute any
proceedings which the Administrative Agent may deem necessary or
desirable for the collection of any of the Collateral or otherwise to
enforce the rights of the Administrative Agent with respect to any of
the Collateral; and
(d) to perform the affirmative obligations of such Grantor
hereunder (including all obligations of such Grantor pursuant to
Section 4.7).
Such Grantor hereby acknowledges, consents and agrees that the power of
attorney granted pursuant to this Section is irrevocable and coupled with an
interest.
SECTION 5.2. Administrative Agent May Perform. If any Grantor fails to
perform any agreement contained herein, the Administrative Agent may itself
perform, or cause performance of, such agreement, and the expenses of the
Administrative Agent incurred in connection therewith shall be payable by such
Grantor pursuant to Section 6.2.
SECTION 5.3. Administrative Agent Has No Duty. In addition to, and not
in limitation of, Section 2.4, the powers conferred on the Administrative Agent
hereunder are solely to protect its interest (on behalf of the Secured Parties)
in the Collateral and shall not impose any duty on it to exercise any such
powers. Except for reasonable care of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Administrative
Agent shall have
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no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral.
SECTION 5.4. Reasonable Care. The Administrative Agent is required to
exercise reasonable care in the custody and preservation of any of the
Collateral in its possession; provided, however, the Administrative Agent shall
be deemed to have exercised reasonable care in the custody and preservation of
any of the Collateral, if it takes such action for that purpose as any Grantor
reasonably requests in writing at times other than upon the occurrence and
during the continuance of any Event of Default, but failure of the
Administrative Agent to comply with any such request at any time shall not in
itself be deemed a failure to exercise reasonable care.
ARTICLE VI
REMEDIES
SECTION 6.1. Certain Remedies. If any Event of Default shall have
occurred and be continuing:
(a) The Administrative Agent may exercise in respect of the
Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party on default under the U.C.C. (whether or not the U.C.C.
applies to the affected Collateral) and also may
(i) require each Grantor to, and such Grantor hereby
agrees that it will, at its expense and upon request of the
Administrative Agent forthwith, assemble all or part of the
Collateral as directed by the Administrative Agent and make
it available to the Administrative Agent at a place to be
designated by the Administrative Agent which is reasonably
convenient to all parties, and
(ii) without notice except as specified below, sell
the Collateral or any part thereof at public or private sale,
at any of the Administrative Agent's offices or elsewhere,
for cash, on credit or for future delivery, and upon such
other terms as the Administrative Agent may deem commercially
reasonable. Each Grantor agrees that, to the extent notice of
sale shall be required by law, at least ten days' prior
notice to such Grantor of the time and place of any public
sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Administrative
Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The
Administrative Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made
at the time and place to which it was so adjourned.
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<PAGE>
(b) All cash proceeds received by the Administrative Agent in
respect of any sale of, collection from, or other realization upon,
all or any part of the Collateral shall be applied by the
Administrative Agent against, all or any part of the Obligations as
follows:
(i) first, to the payment of any amounts payable to
the Administrative Agent pursuant to Section 11.3 of the
Credit Agreement and Section 6.2;
(ii) second, to the equal and ratable payment of
Obligations, in accordance with each Secured Party's
Obligations owing to it under or pursuant to the Credit
Agreement or any other Loan Document, or under or pursuant to
any Hedging Obligation included in the Obligations as to each
Secured Party, applied
(A) first to fees and expense
reimbursements then due to such Secured Party,
(B) then to interest due to such Secured
Party,
(C) then to pay or prepay principal of the
Loans owing to, or to reduce the "credit exposure"
of, such Secured Party under such Hedging
Obligation, as the case may be, and
(D) then to pay the remaining outstanding
Obligations and cash collateralize all Letter of
Credit Outstandings;
(iii) third, without duplication of any amounts paid
pursuant to clause (b)(ii) above, to the Indemnified Parties
to the extent of any amounts owing pursuant to Section 11.4
of the Credit Agreement; and
(iv) fourth, to be held as additional collateral
security until the payment in full in cash of all of the
Obligations, the termination or expiration of all Letters of
Credit, the termination of all Rate Protection Agreements and
the termination of all Commitments, after which such
remaining cash proceeds shall be paid over to the applicable
Grantor or to whomsoever may be lawfully entitled to receive
such surplus.
For purposes of this Security Agreement, the "credit exposure" at any
time of any Secured Party with respect to a Hedging Obligation to
which such Secured Party is a party shall be determined at such time
in accordance with the customary methods of calculating credit
exposure under similar arrangements by the counterparty to such
arrangements, taking into account potential interest rate movements
and the respective termination provisions and notional principal
amount and term of such Hedging Obligation.
SECTION 6.2. Indemnity and Expenses.
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(a) Each Grantor jointly and severally agrees to indemnify
the Administrative Agent from and against any and all claims, losses
and liabilities arising out of or resulting from this Security
Agreement (including enforcement of this Security Agreement), except
claims, losses or liabilities resulting from the Administrative
Agent's gross negligence or wilful misconduct.
(b) Each Grantor will upon demand pay to the Administrative
Agent the amount of any and all reasonable expenses, including the
reasonable fees and disbursements of its counsel and of any experts
and agents, which the Administrative Agent may incur in connection
with
(i) the administration of this Security Agreement,
(ii) the custody, preservation, use or operation of,
or the sale of, collection from, or other realization upon,
any of the Collateral,
(iii) the exercise or enforcement of any of the
rights of the Administrative Agent or the Secured Parties
hereunder, and
(iv) the failure by any Grantor to perform or
observe any of the provisions hereof.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. Loan Document. This Security Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof.
SECTION 7.2. Amendments; etc. No amendment to or waiver of any
provision of this Security Agreement nor consent to any departure by any
Grantor herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Administrative Agent (on behalf of the Lenders or the
Required Lenders, as the case may be) and by the Guarantor in the case of an
amendment, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 7.3. Addresses for Notices. All notices and other
communications provided for hereunder to any party hereto shall be in writing
(including telegraphic communication) and mailed or telecopied or delivered to
such party, addressed to such party at its address specified in the Credit
Agreement. All such notices and other communications, when mailed and properly
addressed with postage prepaid or if properly addressed and sent by pre-paid
courier service, shall be deemed given when received; any such notice or
communication, if transmitted by telecopier, shall be deemed given when
transmitted and electronically confirmed.
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<PAGE>
SECTION 7.4. Section Captions. Section captions used in this Security
Agreement are for convenience of reference only, and shall not affect the
construction of this Security Agreement.
SECTION 7.5. Severability. Wherever possible each provision of this
Security Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Security Agreement
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Security Agreement.
SECTION 7.6. Counterparts. This Security Agreement may be executed by
the parties hereto in several counterparts, each of which shall be deemed to be
an original and all of which shall constitute together but one and the same
agreement.
SECTION 7.7. Governing Law, Entire Agreement, etc. THIS SECURITY
AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY
OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF NEW YORK. THIS SECURITY AGREEMENT AND THE OTHER LOAN
DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDE ANY PRIOR
AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
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<PAGE>
IN WITNESS WHEREOF, each Grantor has caused this Security Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
GRANTORS:
DABOCO INC., a New York corporation
By /s/ William Tennant
----------------------------------
Name:
Title:
DUANE READE INC., a Delaware
corporation
By /s/ William Tennant
----------------------------------
Name:
Title:
FLEET NATIONAL BANK,
as Administrative Agent
By /s/ Authorized Signatory
----------------------------------
Name:
Title:
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<PAGE>
SCHEDULE I to
Partnership Security
Agreement
TYPE OF PERCENTAGE OF
PARTNERSHIP INTEREST
NAME OF GRANTOR INTEREST PLEDGED PLEDGED
- --------------- ---------------- -------
Daboco Inc. General 99%
Duane Reade Inc. General 1%
<PAGE>
SCHEDULE II to
Partnership Security
Agreement
Chief Executive Office
----------------------
DABOCO INC. 440 NINTH AVENUE
NEW YORK, NEW YORK 10001
DUANE READE INC. 440 NINTH AVENUE
NEW YORK, NEW YORK 10001
<PAGE>
[EXECUTION COPY]
BORROWER SECURITY AGREEMENT
This BORROWER SECURITY AGREEMENT (as amended, supplemented, amended
and restated or otherwise modified from time to time, this "Security
Agreement"), dated as of September 30, 1997, is made by DUANE READE, a New York
general partnership (the "Grantor"), in favor of FLEET NATIONAL BANK, as
administrative agent (together with its successor(s) thereto, in such capacity
the "Administrative Agent") for each of the Secured Parties.
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated as of September 30,
1997 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "Credit Agreement"), among the Grantor, each of the Parent
Guarantors named therein, the various financial institutions as are, or may
from time to time become, parties thereto (each individually a "Lender" and
collectively the "Lenders"), DLJ Capital Funding, Inc., as Syndication Agent,
the Administrative Agent and Credit Lyonnais New York Branch, as Documentation
Agent, the Lenders and the Issuer have extended Commitments to make Credit
Extensions to the Grantor;
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
the Grantor is required to execute and deliver this Security Agreement; and
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Security Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the
Lenders and the Issuer to make Credit Extensions (including the initial Credit
Extension) to the Grantor pursuant to the Credit Agreement and to induce the
Secured Parties to enter into Rate Protection Agreement(s), the Grantor agrees,
for the benefit of each Secured Party, as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not
underscored) when used in this Security Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"Administrative Agent" is defined in the preamble.
"Collateral" is defined in Section 2.1.
"Collateral Account" is defined in Section 4.3(b).
"Computer Hardware and Software Collateral" means:
(a) all computer and other electronic data processing
hardware, integrated computer systems, central processing units,
memory units, display terminals, printers, features, computer
elements, card readers, tape drives, hard and soft disk drives,
cables, electrical supply hardware, generators, power equalizers,
accessories and all peripheral devices and other related computer
hardware;
(b) all software programs (including both source code, object
code and all related applications and data files), whether now owned,
licensed or leased or hereafter acquired by the Grantor, designed for
use on the computers and electronic data processing hardware described
in clause (a) above;
(c) all firmware associated therewith;
(d) all documentation (including flow charts, logic diagrams,
manuals, guides and specifications) with respect to such hardware,
software and firmware described in the preceding clauses (a) through
(c); and
(e) all rights with respect to all of the foregoing,
including any and all copyrights, licenses, options, warranties,
service contracts, program services, test rights, maintenance rights,
support rights, improvement rights, renewal rights and
indemnifications and any substitutions, replacements, additions or
model conversions of any of the foregoing.
"Copyright Collateral" means all copyrights (including all copyrights
for semiconductor chip product mask works) of the Grantor, whether statutory or
common law, registered or unregistered, now or hereafter in force throughout
the world including all of the Grantor's right, title and interest in and to
all copyrights registered in the United States Copyright Office or anywhere
else in the world and also including the copyrights referred to in Item A of
Schedule IV attached hereto, and all applications for registration thereof,
whether pending or in
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preparation, all copyright licenses, including each copyright license referred
to in Item B of Schedule IV attached hereto, the right to sue for past, present
and future infringements of any thereof, all rights corresponding thereto
throughout the world, all extensions and renewals of any thereof and all
proceeds of the foregoing, including licenses, royalties, income, payments,
claims, damages and proceeds of suit.
"Credit Agreement" is defined in the first recital.
"Equipment" is defined in clause (a) of Section 2.1.
"Grantor" is defined in the preamble.
"Intellectual Property Collateral" means, collectively, the Computer
Hardware and Software Collateral, the Copyright Collateral, the Patent
Collateral, the Trademark Collateral and the Trade Secrets Collateral.
"Inventory" is defined in clause (b) of Section 2.1
"Lender" and "Lenders" are defined in the first recital.
"Patent Collateral" means:
(a) all letters patent and applications for letters patent
throughout the world, including all patent applications in preparation
for filing anywhere in the world and including each patent and patent
application referred to in Item A of Schedule II attached hereto;
(b) all reissues, divisions, continuations,
continuations-in-part, extensions, renewals and reexaminations of any
of the items described in clause (a);
(c) all patent licenses, including each patent license
referred to in Item B of Schedule II attached hereto; and
(d) all proceeds of, and rights associated with, the
foregoing (including license royalties and proceeds of infringement
suits), the right to sue third parties for past, present or future
infringements of any patent or patent application, including any
patent or patent application referred to in Item A of Schedule II
attached hereto, and for breach or enforcement of any patent license,
including any patent license referred to in Item B of Schedule II
attached hereto, and all rights corresponding thereto throughout the
world.
"Receivables" is defined in clause (c) of Section 2.1.
"Related Contracts" is defined in clause (c) of Section 2.1.
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"Security Agreement" is defined in the preamble.
"Trademark Collateral" means:
(a) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles,
service marks, certification marks, collective marks, logos, other
source of business identifiers, prints and labels on which any of the
foregoing have appeared or appear, designs and general intangibles of
a like nature (all of the foregoing items in this clause (a) being
collectively called a "Trademark"), now existing anywhere in the world
or hereafter adopted or acquired, whether currently in use or not, all
registrations and recordings thereof and all applications in
connection therewith, whether pending or in preparation for filing,
including registrations, recordings and applications in the United
States Patent and Trademark Office or in any office or agency of the
United States of America or any State thereof or any foreign country,
including those referred to in Item A of Schedule III attached hereto;
(b) all Trademark licenses, including each Trademark license
referred to in Item B of Schedule III attached hereto;
(c) all reissues, extensions or renewals of any of the items
described in clauses (a) and (b);
(d) all of the goodwill of the business connected with the
use of, and symbolized by the items described in, clauses (a) and (b);
and
(e) all proceeds of, and rights associated with, the
foregoing, including any claim by the Grantor against third parties
for past, present or future infringement or dilution of any Trademark,
Trademark registration or Trademark license, including any Trademark,
Trademark registration or Trademark license referred to in Item A and
Item B of Schedule III attached hereto, or for any injury to the
goodwill associated with the use of any such Trademark or for breach
or enforcement of any Trademark license.
"Trade Secrets Collateral" means all common law and statutory trade
secrets and all other confidential or proprietary or useful information and all
know-how obtained by or used in or contemplated at any time for use in the
business of the Grantor (all of the foregoing being collectively called a
"Trade Secret"), whether or not such Trade Secret has been reduced to a writing
or other tangible form, including all documents and things embodying,
incorporating or referring in any way to such Trade Secret, all Trade Secret
licenses, including each Trade Secret license referred to in Schedule V
attached hereto, and including the right to sue for and to enjoin and to
collect damages for the actual or threatened misappropriation of any Trade
Secret and for the breach or enforcement of any such Trade Secret license.
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"U.C.C." means the Uniform Commercial Code, as in effect from time to
time in the State of New York.
SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined
herein or the context otherwise requires, terms used in this Security
Agreement, including its preamble and recitals, have the meanings provided in
the Credit Agreement.
SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or in
the Credit Agreement or the context otherwise requires, terms for which
meanings are provided in the U.C.C. are used in this Security Agreement,
including its preamble and recitals, with such meanings.
ARTICLE II
SECURITY INTEREST
SECTION 2.1. Grant of Security. The Grantor hereby assigns and pledges
to the Administrative Agent for its benefit and the ratable benefit of each of
the Secured Parties, and hereby grants to the Administrative Agent for its
benefit and the ratable benefit of each of the Secured Parties, a security
interest in all of the following, whether now or hereafter existing or acquired
by the Grantor (the "Collateral"):
(a) all equipment in all of its forms of the Grantor,
wherever located, including all parts thereof and all accessions,
additions, attachments, improvements, substitutions and replacements
thereto and therefor and all accessories related thereto (any and all
of the foregoing being the "Equipment");
(b) all inventory in all of its forms of the Grantor,
wherever located, including
(i) all raw materials and work in process therefor,
finished goods thereof, and materials used or consumed in the
manufacture or production thereof,
(ii) all goods in which the Grantor has an interest
in mass or a joint or other interest or right of any kind
(including goods in which the Grantor has an interest or
right as consignee), and
(iii) all goods which are returned to or repossessed
by the Grantor,
and all accessions thereto, products thereof and documents therefor
(any and all such inventory, materials, goods, accessions, products
and documents being the "Inventory");
(c) all accounts, contracts, contract rights, chattel paper,
documents, instruments, and general intangibles (including tax
refunds) of the Grantor, whether or not arising out
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of or in connection with the sale or lease of goods or the rendering
of services, and all rights of the Grantor now or hereafter existing
in and to all security agreements, guaranties, leases and other
contracts securing or otherwise relating to any such accounts,
contracts, contract rights, chattel paper, documents, instruments, and
general intangibles (any and all such accounts, contracts, contract
rights, chattel paper, documents, instruments, and general intangibles
being the "Receivables" (provided, however, that Receivables shall not
include Prescription Receivables sold to Pharmacy Fund pursuant to the
Rapid Remit Program), and any and all such security agreements,
guaranties, leases and other contracts being the "Related Contracts")
(provided, however, that Related Contracts shall not include the Rapid
Remit Program Documents);
(d) all Intellectual Property Collateral of the Grantor;
(e) all books, records, writings, data bases, information and
other property relating to, used or useful in connection with,
evidencing, embodying, incorporating or referring to, any of the
foregoing in this Section 2.1;
(f) all of the Grantor's other property and rights of every
kind and description and interests therein; and
(g) all products, offspring, rents, issues, profits, returns,
income and proceeds of and from any and all of the foregoing
Collateral (including proceeds which constitute property of the types
described in clauses (a), (b), (c), (d), (e) and (f), proceeds
deposited from time to time in the Collateral Account and in any lock
boxes of the Grantor, and, to the extent not otherwise included, all
payments under insurance (whether or not the Administrative Agent is
the loss payee thereof), or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to
any of the foregoing Collateral).
Notwithstanding the foregoing, "Collateral" shall not include any general
intangibles or other rights arising under any contracts, instruments, licenses
or other documents as to which the grant of a security interest would
constitute a violation of a valid and enforceable restriction in favor of a
third party on such grant, unless and until any required consents shall have
been obtained. The Grantor agrees to use its commercially reasonable best
efforts to obtain any such required consent.
SECTION 2.2. Security for Obligations. This Security Agreement secures
the payment of all Obligations of the Grantor now or hereafter existing under
the Credit Agreement, the Notes and each other Loan Document to which the
Grantor is or may become a party, whether for principal, interest, costs, fees,
expenses or otherwise.
SECTION 2.3. Continuing Security Interest; Transfer of Notes. This
Security Agreement shall create a continuing security interest in the
Collateral and shall
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(a) remain in full force and effect until payment in full in
cash of all Obligations, the termination or expiration of all Letters
of Credit, the termination of all Rate Protection Agreements and the
termination of all Commitments,
(b) be binding upon the Grantor, its successors, transferees
and assigns, and
(c) inure, together with the rights and remedies of the
Administrative Agent hereunder, to the benefit of the Administrative
Agent and each other Secured Party.
Without limiting the generality of the foregoing clause (c), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Credit Extension
held by it to any other Person or entity, and such other Person or entity shall
thereupon become vested with all the rights and benefits in respect thereof
granted to such Lender under any Loan Document (including this Security
Agreement) or otherwise, subject, however, to any contrary provisions in such
assignment or transfer, and to the provisions of Section 11.11 and Article X of
the Credit Agreement. Upon the payment in full in cash of all Obligations, the
termination or expiration of all Letters of Credit, the termination of all Rate
Protection Agreements and the termination of all Commitments, the security
interest granted herein shall terminate and all rights to the Collateral shall
revert to the Grantor. Upon any such termination, the Administrative Agent
will, at the Grantor's sole expense, execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such termination.
Upon any sale or other transfer of Collateral permitted by the terms of Section
7.2.9 of the Credit Agreement, the security interest created hereunder in such
Collateral (but not in the proceeds thereof) shall be deemed to be
automatically released and the Administrative Agent will, at the Grantor's sole
expense, execute and deliver to the Grantor such documents as the Grantor shall
reasonably request to evidence such release.
SECTION 2.4. Grantor Remains Liable. Anything herein to the contrary
notwithstanding
(a) the Grantor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein,
and shall perform all of its duties and obligations under such
contracts and agreements to the same extent as if this Security
Agreement had not been executed,
(b) the exercise by the Administrative Agent of any of its
rights hereunder shall not release the Grantor from any of its duties
or obligations under any such contracts or agreements included in the
Collateral, and
(c) neither the Administrative Agent nor any other Secured
Party shall have any obligation or liability under any such contracts
or agreements included in the Collateral by reason of this Security
Agreement, nor shall the Administrative Agent or any other Secured
Party be obligated to perform any of the obligations or duties of the
Grantor
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<PAGE>
thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties. The Grantor represents
and warrants to each Secured Party as set forth in this Article III.
SECTION 3.2. Location of Collateral, etc. All of the Equipment,
Inventory and lock boxes of the Grantor are located at the places specified in
Item A, Item B and Item C, respectively, of Schedule I hereto. None of the
Equipment and Inventory has, within the four months preceding the date of this
Security Agreement (if then owned by the Grantor), been located at any place
other than the places specified in Item A and Item B, respectively, of Schedule
I hereto except as set forth in a footnote thereto. The place(s) of business
and chief executive office of the Grantor and the office(s) where the Grantor
keeps its records concerning the Receivables, and all originals of all chattel
paper which evidence Receivables, are located at the address set forth in Item
D of Schedule I hereto. The Grantor has no trade names other than those set
forth in Item E of Schedule I hereto. During the four months preceding the date
hereof, the Grantor has not been known by any legal name different from the one
set forth on the signature page hereto, nor has the Grantor been the subject of
any merger or other corporate reorganization, except as set forth in Item F of
Schedule I hereto. If the Collateral includes any Inventory located in the
State of California, the Grantor is not a "retail merchant" within the meaning
of Section 9102 of the Uniform Commercial Code - Secured Transactions of the
State of California. All Receivables evidenced by a promissory note or other
instrument, negotiable document or chattel paper have been duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Administrative Agent and delivered and
pledged to the Administrative Agent pursuant to Section 4.8. The Grantor is not
a party to any Federal, state or local government contract except as set forth
in Item G of Schedule I hereto.
SECTION 3.3. Ownership, No Liens, etc. The Grantor owns its Collateral
free and clear of any Lien, security interest, charge or encumbrance except for
the security interest created by this Security Agreement and except as
permitted by the Credit Agreement. No effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is on
file in any recording office, except such as may have been filed in favor of
the Administrative Agent relating to this Security Agreement or as have been
filed in connection with Liens permitted pursuant to Section 7.2.3 of the
Credit Agreement or as to which a duly executed termination statement relating
to such financing statement or other instrument has been delivered to the
Administrative Agent on the Closing Date.
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SECTION 3.4. Possession and Control. The Grantor has exclusive
possession and control of its Equipment and Inventory.
SECTION 3.5. Negotiable Documents, Instruments and Chattel Paper. The
Grantor has, contemporaneously herewith, delivered to the Administrative Agent
possession of all originals of all negotiable documents, instruments and
chattel paper currently owned or held by the Grantor (duly endorsed in blank,
if requested by the Administrative Agent).
SECTION 3.6. Intellectual Property Collateral. With respect to any
Intellectual Property Collateral the loss, impairment or infringement of which
might have a Material Adverse Effect:
(a) such Intellectual Property Collateral is subsisting and
has not been adjudged invalid or unenforceable, in whole or in part;
(b) such Intellectual Property Collateral is valid and
enforceable;
(c) the Grantor has made all necessary filings and
recordations to protect its interest in such Intellectual Property
Collateral, including recordations of all of its interests in the
Patent Collateral and Trademark Collateral in the United States Patent
and Trademark Office and in corresponding offices in countries in
which the failure to so file and/or record could reasonably be
expected to have a Material Adverse Effect and its claims to the
Copyright Collateral in the United States Copyright Office and in
corresponding offices in countries in which the failure to so file
and/or record could reasonably be expected to have a Material Adverse
Effect;
(d) the Grantor is the exclusive owner of the entire and
unencumbered right, title and interest in and to such Intellectual
Property Collateral and no claim has been made that the use of such
Intellectual Property Collateral does or may violate the asserted
rights of any third party; and
(e) the Grantor has performed and will continue to perform
all acts and has paid and will continue to pay all required fees and
taxes to maintain each and every such item of Intellectual Property
Collateral in full force and effect throughout the world, as
applicable.
The Grantor owns directly or is entitled to use by license or otherwise, all
patents, Trademarks, Trade Secrets, copyrights, mask works, licenses,
technology, know-how, processes and rights with respect to any of the foregoing
used in, necessary for or of importance to the conduct of the Grantor's
business.
SECTION 3.7. Validity, etc. This Security Agreement creates a valid
first priority security interest in the Collateral securing the payment of the
Obligations, and
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(a) in the case of Collateral comprised of certificated
securities or instruments, upon the delivery of such Collateral to the
Administrative Agent, such security interest will be a first priority
perfected security interest;
(b) in the case of Collateral comprised of uncertificated
securities with respect to which a security interest therein may not
be perfected under applicable law by the filing of a Uniform
Commercial Code financing statement, upon a "transfer" (as such term
is used in Section 8-313 of the U.C.C.) of such Collateral to the
Administrative Agent, such security interest will be a first priority
perfected security interest; and
(c) in the case of all other Collateral, upon the filing of
the Uniform Commercial Code financing statements delivered by the
Grantor to the Administrative Agent with respect to such Collateral,
such security interest will be a first priority perfected security
interest.
The Grantor has filed all Uniform Commercial Code financing statements referred
to above in the appropriate offices therefor (or has provided the
Administrative Agent with copies thereof suitable for filing in such offices),
and has taken all of the other actions referred to above necessary to create
perfected, first-priority security interests in the applicable Collateral.
SECTION 3.8. Authorization, Approval, etc. Except as have been
obtained or made and are in full force and effect (or otherwise provided for to
the satisfaction of the Agents), no authorization, approval or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required either
(a) for the grant by the Grantor of the security interest
granted hereby or for the execution, delivery and performance of this
Security Agreement by the Grantor, or
(b) for the perfection of or the exercise by the
Administrative Agent of its rights and remedies hereunder.
SECTION 3.9. Compliance with Laws. The Grantor is in compliance with
the requirements of all applicable laws (including the provisions of the Fair
Labor Standards Act), rules, regulations and orders of every governmental
authority, the non-compliance with which could reasonably be expected to have a
Material Adverse Effect or which could reasonably be expected to materially
adversely affect the value of the Collateral or the worth of the Collateral as
collateral security.
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ARTICLE IV
COVENANTS
SECTION 4.1. Certain Covenants. The Grantor covenants and agrees that,
so long as any portion of the Obligations shall remain unpaid, any Letters of
Credit shall be outstanding, any Rate Protection Agreements shall remain in
full force and effect, or any Lender shall have any outstanding Commitment, the
Grantor will, unless the Required Lenders shall otherwise consent in writing,
perform, comply with and be bound by the obligations set forth in this Article
IV.
SECTION 4.2. As to Equipment and Inventory. The Grantor hereby agrees
that it shall
(a) keep all the Equipment and Inventory (other than
Inventory sold in the ordinary course of business) at the places
therefor specified in Section 3.2 or, upon 30 days' prior written
notice to the Administrative Agent, at such other places in a
jurisdiction where all representations and warranties set forth in
Article III (including Section 3.7) shall be true and correct, and all
action required pursuant to the first sentence of Section 4.8 shall
have been taken with respect to the Equipment and Inventory;
(b) cause the Equipment to be maintained and preserved as
required by Section 7.1.3 of the Credit Agreement; and promptly
furnish to the Administrative Agent a statement respecting any loss or
damage to any of such material Equipment; and
(c) pay promptly when due all property and other material
taxes, assessments and governmental charges or levies imposed upon,
and all claims (including claims for labor, materials and supplies)
against, the Equipment and Inventory, except to the extent the
validity thereof is being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
have been set aside.
SECTION 4.3. As to Receivables.
(a) The Grantor shall keep its place(s) of business and chief
executive office and the office(s) where it keeps its records
concerning the Receivables, and all originals of all chattel paper
which evidences Receivables, located at the address(es) set forth in
Item D of Schedule I hereto, or, upon 30 days' prior written notice to
the Administrative Agent, at such other locations in a jurisdiction
where all actions required by the first sentence of Section 4.8 shall
have been taken with respect to the Receivables; not change its name
except upon 30 days' prior written notice to the Administrative Agent;
hold and preserve such records and chattel paper; and permit
representatives of the Administrative Agent at any time during normal
business hours to inspect and make abstracts from such records and
chattel paper. In addition, the Grantor shall give the Administrative
Agent a supplement to Schedule I hereto on each date a Compliance
Certificate is required to be
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delivered to the Administrative Agent under the Credit Agreement,
which shall set forth any changes to the information set forth in
Section 3.2.
(b) Upon written notice by the Administrative Agent to the
Grantor pursuant to this Section 4.3(b), all proceeds of Collateral
received by the Grantor shall be delivered in kind to the
Administrative Agent for deposit to a deposit account (the "Collateral
Account") of the Grantor maintained with the Administrative Agent, and
the Grantor shall not commingle any such proceeds, and shall hold
separate and apart from all other property, all such proceeds in
express trust for the benefit of the Administrative Agent until
delivery thereof is made to the Administrative Agent. The
Administrative Agent will not give the notice referred to in the
preceding sentence unless there shall have occurred and be continuing
a Default of the nature set forth in Section 8.1.9 of the Credit
Agreement or an Event of Default.
(c) The Administrative Agent shall have the right to apply
any amount in the Collateral Account to the payment of any Obligations
which are due and payable or payable upon demand, or to the payment of
any Obligations at any time that an Event of Default shall exist.
SECTION 4.4. As to Collateral.
(a) Until the occurrence and continuance of a Default of the
nature set forth in Section 8.1.9 of the Credit Agreement or an Event
of Default, and such time as the Administrative Agent shall notify the
Grantor of the revocation of such power and authority the Grantor (i)
may in the ordinary course of its business (except as otherwise
permitted under the Credit Agreement), at its own expense, sell, lease
or furnish under the contracts of service any of the Inventory
normally held by the Grantor for such purpose, and use and consume, in
the ordinary course of its business (except as otherwise permitted
under the Credit Agreement), any raw materials, work in process or
materials normally held by the Grantor for such purpose, (ii) will, at
its own expense, endeavor to collect, as and when due, all amounts due
with respect to any of the Collateral, including the taking of such
action with respect to such collection as the Administrative Agent may
reasonably request following the occurrence of a Default of the nature
set forth in Section 8.1.9 of the Credit Agreement or an Event of
Default or, in the absence of such request, as the Grantor may deem
advisable, and (iii) may grant, in the ordinary course of business
(except as otherwise permitted under the Credit Agreement), to any
party obligated on any of the Collateral, any rebate, refund or
allowance to which such party may be lawfully entitled, and may
accept, in connection therewith, the return of goods, the sale or
lease of which shall have given rise to such Collateral. The
Administrative Agent, however, may, at any time following a Default of
the nature set forth in Section 8.1.9 of the Credit Agreement or an
Event of Default, whether before or after any revocation of such power
and authority or the maturity of any of the Obligations, notify any
parties obligated on any of the Collateral to make payment to the
Administrative Agent of any amounts due or to become due thereunder
and enforce collection of any of
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the Collateral by suit or otherwise and surrender, release, or
exchange all or any part thereof, or compromise or extend or renew for
any period (whether or not longer than the original period) any
indebtedness thereunder or evidenced thereby. Upon request of the
Administrative Agent following a Default of the nature set forth in
Section 8.1.9 of the Credit Agreement or an Event of Default, the
Grantor will, at its own expense, notify any parties obligated on any
of the Collateral to make payment to the Administrative Agent of any
amounts due or to become due thereunder.
(b) Following a Default of the nature set forth in Section
8.1.9 of the Credit Agreement or an Event of Default, the
Administrative Agent is authorized to endorse, in the name of the
Grantor, any item, howsoever received by the Administrative Agent,
representing any payment on or other proceeds of any of the
Collateral.
SECTION 4.5. As to Intellectual Property Collateral. The Grantor
covenants and agrees to comply with the following provisions as such provisions
relate to any Intellectual Property Collateral of the Grantor:
(a) the Grantor shall not, unless the Grantor shall either
(i) reasonably and in good faith determine (and notice of such
determination shall have been delivered to the Administrative Agent)
that any of the Patent Collateral is of negligible economic value to
the Grantor, or (ii) have a valid business purpose to do otherwise, do
any act, or omit to do any act, whereby any of the Patent Collateral
may lapse or become abandoned or dedicated to the public or
unenforceable.
(b) the Grantor shall not, and the Grantor shall not permit
any of its licensees to, unless the Grantor shall either (i)
reasonably and in good faith determine (and notice of such
determination shall have been delivered to the Administrative Agent)
that any of the Trademark Collateral is of negligible economic value
to the Grantor, or (ii) have a valid business purpose to do otherwise,
(i) fail to continue to use any of the Trademark
Collateral in order to maintain all of the Trademark
Collateral in full force free from any claim of abandonment
for non-use,
(ii) fail to maintain as in the past the quality of
products and services offered under all of the Trademark
Collateral,
(iii) fail to employ all of the Trademark Collateral
registered with any Federal or state or foreign authority
with an appropriate notice of such registration,
(iv) adopt or use any other Trademark which is
confusingly similar or a colorable imitation of any of the
Trademark Collateral,
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(v) use any of the Trademark Collateral registered
with any Federal or state or foreign authority except for the
uses for which registration or application for registration
of all of the Trademark Collateral has been made, and
(vi) do or permit any act or knowingly omit to do
any act whereby any of the Trademark Collateral may lapse or
become invalid or unenforceable.
(c) the Grantor shall not, unless the Grantor shall either
(i) reasonably and in good faith determine (and notice of such
determination shall have been delivered to the Administrative Agent)
that any of the Copyright Collateral or any of the Trade Secrets
Collateral is of negligible economic value to the Grantor, or (ii)
have a valid business purpose to do otherwise, do or permit any act or
knowingly omit to do any act whereby any of the Copyright Collateral
or any of the Trade Secrets Collateral may lapse or become invalid or
unenforceable or placed in the public domain except upon expiration of
the end of an unrenewable term of a registration thereof.
(d) the Grantor shall notify the Administrative Agent
immediately if it knows, or has reason to know, that any application
or registration relating to any material item of the Intellectual
Property Collateral may become abandoned or dedicated to the public or
placed in the public domain or invalid or unenforceable, or of any
adverse determination or development (including the institution of, or
any such determination or development in, any proceeding in the United
States Patent and Trademark Office, the United States Copyright Office
or any foreign counterpart thereof or any court) regarding the
Grantor's ownership of any of the Intellectual Property Collateral,
its right to register the same or to keep and maintain and enforce the
same.
(e) in no event shall the Grantor or any of its agents,
employees, designees or licensees file an application for the
registration of any Intellectual Property Collateral with the United
States Patent and Trademark Office, the United States Copyright Office
or any similar office or agency in any other country or any political
subdivision thereof, unless it promptly informs the Administrative
Agent, and upon request of the Administrative Agent, executes and
delivers any and all agreements, instruments, documents and papers as
the Administrative Agent may reasonably request to evidence the
Administrative Agent's security interest in such Intellectual Property
Collateral and the goodwill and general intangibles of the Grantor
relating thereto or represented thereby.
(f) the Grantor shall take all necessary steps, including in
any proceeding before the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in
any other country or any political subdivision thereof, to maintain
and pursue any application (and to obtain the relevant registration)
filed with respect to, and to maintain any registration of, the
Intellectual Property Collateral, including the filing of applications
for renewal, affidavits of use, affidavits of incontestability and
opposition, interference and cancellation proceedings and the
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payment of fees and taxes (except to the extent that dedication,
abandonment or invalidation is permitted under the foregoing clauses
(a), (b) and (c)).
(g) the Grantor shall, contemporaneously herewith, execute
and deliver to the Administrative Agent a Trademark Security Agreement
in the form of Exhibit B hereto, and shall execute and deliver to the
Administrative Agent any other document required to acknowledge or
register or perfect the Administrative Agent's interest in any part of
the Intellectual Property Collateral.
SECTION 4.6. Insurance. The Grantor will maintain or cause to be
maintained with responsible insurance companies insurance with respect to its
business and properties (including the Equipment and Inventory) against such
casualties and contingencies and of such types and in such amounts as is
required pursuant to the Credit Agreement and will, upon the request of the
Administrative Agent, furnish a certificate of a reputable insurance broker
setting forth the nature and extent of all insurance maintained by the Grantor
in accordance with this Section.
SECTION 4.7. Transfers and Other Liens. The Grantor shall not:
(a) sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral, except Inventory in the
ordinary course of business or as permitted by the Credit Agreement;
or
(b) create or suffer to exist any Lien or other charge or
encumbrance upon or with respect to any of the Collateral to secure
Indebtedness of any Person or entity, except for the security interest
created by this Security Agreement and except as permitted by the
Credit Agreement.
SECTION 4.8. Further Assurances, etc. The Grantor agrees that, from
time to time at its own expense, it will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Administrative Agent may request, in order
to perfect, preserve and protect any security interest granted or purported to
be granted hereby or to enable the Administrative Agent to exercise and enforce
its rights and remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, the Grantor will
(a) mark conspicuously each document included in the
Inventory, each chattel paper included in the Receivables and each
Related Contract and, at the request of the Administrative Agent, each
of its records pertaining to the Collateral with a legend, in form and
substance satisfactory to the Administrative Agent, indicating that
such document, chattel paper, Related Contract or Collateral is
subject to the security interest granted hereby;
(b) if any Receivable shall be evidenced by a promissory note
or other instrument, negotiable document or chattel paper, deliver and
pledge to the
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Administrative Agent hereunder such promissory note, instrument,
negotiable document or chattel paper duly endorsed and accompanied by
duly executed instruments of transfer or assignment, all in form and
substance satisfactory to the Administrative Agent;
(c) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or
notices (including any assignment of claim form under or pursuant to
the federal assignment of claims statute, 31 U.S.C. ss. 3726, any
successor or amended version thereof or any regulation promulgated
under or pursuant to any version thereof), as may be necessary or
desirable, or as the Administrative Agent may request, in order to
perfect and preserve the security interests and other rights granted
or purported to be granted to the Administrative Agent hereby; and
(d) furnish to the Administrative Agent, from time to time at
the Administrative Agent's request, statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral as the Administrative Agent may
reasonably request, all in reasonable detail.
With respect to the foregoing and the grant of the security interest hereunder,
the Grantor hereby authorizes the Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all
or any part of the Collateral without the signature of the Grantor where
permitted by law. A carbon, photographic or other reproduction of this Security
Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law.
ARTICLE V
THE ADMINISTRATIVE AGENT
SECTION 5.1. Administrative Agent Appointed Attorney-in-Fact. The
Grantor hereby irrevocably appoints the Administrative Agent the Grantor's
attorney-in-fact, with full authority in the place and stead of the Grantor and
in the name of the Grantor or otherwise, from time to time in the
Administrative Agent's discretion, following the occurrence and continuation of
a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or
an Event of Default, to take any action and to execute any instrument which the
Administrative Agent may deem necessary or advisable to accomplish the purposes
of this Security Agreement, including:
(a) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause
(a) above;
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(c) to file any claims or take any action or institute any
proceedings which the Administrative Agent may deem necessary or
desirable for the collection of any of the Collateral or otherwise to
enforce the rights of the Administrative Agent with respect to any of
the Collateral; and
(d) to perform the affirmative obligations of the Grantor
hereunder (including all obligations of the Grantor pursuant to
Section 4.8).
The Grantor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
SECTION 5.2. Administrative Agent May Perform. If the Grantor fails to
perform any agreement contained herein, the Administrative Agent may itself
perform, or cause performance of, such agreement, and the expenses of the
Administrative Agent incurred in connection therewith shall be payable by the
Grantor pursuant to Section 6.2.
SECTION 5.3. Administrative Agent Has No Duty. In addition to, and not
in limitation of, Section 2.4, the powers conferred on the Administrative Agent
hereunder are solely to protect its interest (on behalf of the Secured Parties)
in the Collateral and shall not impose any duty on it to exercise any such
powers. Except for reasonable care of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Administrative
Agent shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
SECTION 5.4. Reasonable Care. The Administrative Agent is required to
exercise reasonable care in the custody and preservation of any of the
Collateral in its possession; provided, however, the Administrative Agent shall
be deemed to have exercised reasonable care in the custody and preservation of
any of the Collateral, if it takes such action for that purpose as the Grantor
reasonably requests in writing at times other than upon the occurrence and
during the continuance of any Event of Default, but failure of the
Administrative Agent to comply with any such request at any time shall not in
itself be deemed a failure to exercise reasonable care.
ARTICLE VI
REMEDIES
SECTION 6.1. Certain Remedies. If any Event of Default shall have
occurred and be continuing:
(a) The Administrative Agent may exercise in respect of the
Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party on default under the U.C.C. (whether or not the U.C.C.
applies to the affected Collateral) and also may
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(i) require the Grantor to, and the Grantor hereby
agrees that it will, at its expense and upon request of the
Administrative Agent forthwith, assemble all or part of the
Collateral as directed by the Administrative Agent and make
it available to the Administrative Agent at a place to be
designated by the Administrative Agent which is reasonably
convenient to both parties, and
(ii) without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at
public or private sale, at any of the Administrative Agent's
offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Administrative
Agent may deem commercially reasonable. The Grantor agrees
that, to the extent notice of sale shall be required by law,
at least ten days' prior notice to the Grantor of the time
and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable
notification. The Administrative Agent shall not be obligated
to make any sale of Collateral regardless of notice of sale
having been given. The Administrative Agent may adjourn any
public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was
so adjourned.
(b) All cash proceeds received by the Administrative Agent in
respect of any sale of, collection from, or other realization upon,
all or any part of the Collateral shall be applied by the
Administrative Agent against, all or any part of the Obligations as
follows:
(i) first, to the payment of any amounts payable to
the Administrative Agent pursuant to Section 11.3 of the
Credit Agreement and Section 6.2;
(ii) second, to the equal and ratable payment of
Obligations, in accordance with each Secured Party's
Obligations owing to it under or pursuant to the Credit
Agreement or any other Loan Document, or under or pursuant to
any Hedging Obligation included in the Obligations as to each
Secured Party, applied
(A) first to fees and expense
reimbursements then due to such Secured Party,
(B) then to interest due to such Secured
Party,
(C) then to pay or prepay principal of the
Loans owing to, or to reduce the "credit exposure"
of, such Secured Party under such Hedging
Obligation, as the case may be, and
(D) then to pay the remaining outstanding
Obligations and cash collateralize all Letter of
Credit Outstandings;
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(iii) third, without duplication of any amounts paid
pursuant to clause (b)(ii) above, to the Indemnified Parties
to the extent of any amounts owing pursuant to Section 11.4
of the Credit Agreement; and
(iv) fourth, to be held as additional collateral
security until the payment in full in cash of all of the
Obligations, the termination or expiration of all Letters of
Credit, the termination of all Rate Protection Agreements and
the termination of all Commitments, after which such
remaining cash proceeds shall be paid over to the Grantor or
to whomsoever may be lawfully entitled to receive such
surplus.
For purposes of this Security Agreement, the "credit exposure" at any
time of any Secured Party with respect to a Hedging Obligation to
which such Secured Party is a party shall be determined at such time
in accordance with the customary methods of calculating credit
exposure under similar arrangements by the counterparty to such
arrangements, taking into account potential interest rate movements
and the respective termination provisions and notional principal
amount and term of such Hedging Obligation.
SECTION 6.2. Indemnity and Expenses.
(a) The Grantor agrees to indemnify the Administrative Agent
from and against any and all claims, losses and liabilities arising
out of or resulting from this Security Agreement (including
enforcement of this Security Agreement), except claims, losses or
liabilities resulting from the Administrative Agent's gross negligence
or wilful misconduct.
(b) The Grantor will upon demand pay to the Administrative
Agent the amount of any and all reasonable expenses, including the
reasonable fees and disbursements of its counsel and of any experts
and agents, which the Administrative Agent may incur in connection
with
(i) the administration of this Security Agreement,
(ii) the custody, preservation, use or operation of,
or the sale of, collection from, or other realization upon,
any of the Collateral,
(iii) the exercise or enforcement of any of the
rights of the Administrative Agent or the Secured Parties
hereunder, and
(iv) the failure by the Grantor to perform or
observe any of the provisions hereof.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. Loan Document. This Security Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof.
SECTION 7.2. Amendments; etc. No amendment to or waiver of any
provision of this Security Agreement nor consent to any departure by the
Grantor herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Administrative Agent (on behalf of the Lenders or the
Required Lenders, as the case may be), and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
SECTION 7.3. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including
telegraphic communication) and mailed or telecopied or delivered to either
party hereto, addressed to such party at the address of such party specified in
the Credit Agreement. All such notices and other communications, when mailed
and properly addressed with postage prepaid or if properly addressed and sent
by pre-paid courier service, shall be deemed given when received; any such
notice or communication, if transmitted by telecopier, shall be deemed given
when transmitted and electronically confirmed.
SECTION 7.4. Section Captions. Section captions used in this Security
Agreement are for convenience of reference only, and shall not affect the
construction of this Security Agreement.
SECTION 7.5. Severability. Wherever possible each provision of this
Security Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Security Agreement
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Security Agreement.
SECTION 7.6. Counterparts. This Security Agreement may be executed by
the parties hereto in several counterparts, each of which shall be deemed an
original and all of which shall constitute together but one and the same
agreement.
SECTION 7.7. Governing Law, Entire Agreement, etc. THIS SECURITY
AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY
OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF NEW YORK. THIS SECURITY
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AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING
AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF
AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
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<PAGE>
IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
DUANE READE
By Daboco Inc., a general partner
By /s/ William Tennant
-----------------------------------
Name:
Title:
By Duane Reade Inc., a general partner
By /s/ William Tennant
-----------------------------------
Name:
Title:
FLEET NATIONAL BANK,
as Administrative Agent
By /s/ Authorized Signatory
-------------------------------------
Name:
Title:
-22-
<PAGE>
SCHEDULE I
to Borrower
Security Agreement
Item A. Location of Equipment
Description Location
----------- --------
1. Equipment used in connection See Item 6.9 of Schedule I
with the Borrower's business. to the Credit Agreement.
Item B. Location of Inventory
Description Location
----------- --------
1. Inventory held by the Borrower for sale See Item 6.9 of Schedule I
or other use in connection with the to the Credit Agreement.
Borrower's business.
Item C. Location of Lock Boxes
Contact
Bank Name and Address Account Number Person
--------------------- -------------- ------
1. None.
Item D. Place(s) of Business and Chief Executive Office
1. See Item 6.9 of Schedule I to the Credit Agreement.
Item E. Trade Names
1. Duane Reade
<PAGE>
Item F. Merger or Other Corporate Reorganization
1. None.
Item G. Government Contracts
1. None.
<PAGE>
SCHEDULE II
to Borrower
Security Agreement
Item A. Patents
Issued Patents
*Country Patent No. Issue Date Inventor(s) Title
- -------- ---------- ---------- ----------- -----
NONE.
Pending Patent Applications
*Country Serial No. Filing Date Inventor(s) Title
- -------- ---------- ----------- ----------- -----
NONE.
Patent Applications in Preparation
Expected
*Country Docket No. Filing Date Inventor(s) Title
- -------- ---------- ----------- ----------- -----
NONE.
Item B. Patent Licenses
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
--------- -------- -------- ---- ---- ------
NONE.
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
SCHEDULE III
to Borrower
Security Agreement
Item A. Trademarks
Registered Trademarks
*Country Trademark Registration No. Registration Date
U.S. DR (Stylized) 1,099,871 08/15/78
U.S. DUANE READE 1,106,451 11/21/78
U.S. DR (Stylized) 1,106,961 11/28/78
U.S. DUANE READE 1,092,555 05/30/78
U.S. DR (Stylized) 1,099,209 08/15/78
U.S. DUANE READE 1,105,420 11/07/78
Pending Trademark Applications
*Country Trademark Serial No. Filing Date
- -------- --------- ---------- -----------
NONE.
Trademark Applications in Preparation
Expected Products/
*Country Trademark Docket No. Filing Date Services
- -------- --------- ---------- ----------- --------
NONE.
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
Item B. Trademark Licenses
*Country or Effective Expiration
Territory Trademark Licensor Licensee Date Date
--------- --------- -------- -------- ---- ----
NONE.
<PAGE>
SCHEDULE IV
to Borrower
Security Agreement
Item A. Copyrights/Mask Works
Registered Copyrights/Mask Works
*Country Registration No. Registration Date Author(s) Title
- -------- ---------------- ----------------- --------- -----
NONE.
Copyright/Mask Work Pending Registration Applications
*Country Serial No. Filing Date Author(s) Title
- -------- ---------- ----------- --------- -----
NONE.
Copyright/Mask Work Registration Applications in Preparation
Expected
*Country Docket No. Filing Date Author(s) Title
- -------- ---------- ----------- --------- -----
NONE.
Item B. Copyright/Mask Work Licenses
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
--------- -------- -------- ---- ---- ------
NONE.
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
SCHEDULE V
to Borrower
Security Agreement
Trade Secret or Know-How Licenses
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
--------- -------- -------- ---- ---- ------
NONE.
- --------
* List items related to the United States first for ease of
recordation. List items related to other countries next, grouped by
country and in alphabetical order by country name.
<PAGE>
EXHIBIT A
to Borrower
Security Agreement
PATENT SECURITY AGREEMENT
This PATENT SECURITY AGREEMENT (this "Agreement"), dated as of
__________ __, ____, is made between DUANE READE, a New York general
partnership (the "Grantor"), and FLEET NATIONAL BANK, as Administrative Agent
(together with its successor(s) thereto in such capacity, the "Administrative
Agent") for each of the Secured Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Credit Agreement, dated as of September 30,
1997 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "Credit Agreement"), among the Grantor, each of the Parent
Guarantors named therein, the various financial institutions as are, or may
from time to time become, parties thereto (each, individually, a "Lender", and
collectively, the "Lenders"), DLJ Capital Funding, Inc., as Syndication Agent,
the Administrative Agent and Credit Lyonnais New York Branch, as Documentation
Agent, the Lenders and the Issuer have extended Commitments to make Credit
Extensions to the Grantor;
WHEREAS, in connection with the Credit Agreement, the Grantor has
executed and delivered a Borrower Security Agreement, dated as of September 30,
1997 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "Security Agreement");
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
the Grantor is required to execute and deliver this Agreement and to grant to
the Administrative Agent a continuing security interest in all of the Patent
Collateral (as defined below) to secure all Obligations; and
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and in order to induce the Lenders and the Issuer
to make Credit Extensions (including the initial Credit Extension) to the
Grantor pursuant to the Credit Agreement, and to induce the Secured Parties to
enter into Rate Protection Agreements, the Grantor agrees, for the benefit of
each Secured Party, as follows:
<PAGE>
SECTION 1. Definitions. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security Agreement.
SECTION 2. Grant of Security Interest. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, to
secure all of the Obligations, the Grantor does hereby mortgage, pledge and
hypothecate to the Administrative Agent, and grant to the Administrative Agent
a security interest in, for its benefit and the benefit of each Secured Party,
all of the following property (the "Patent Collateral"), whether now owned or
hereafter acquired or existing by it:
(a) all letters patent and applications for letters patent
throughout the world, including all patent applications in preparation
for filing anywhere in the world and including each patent and patent
application referred to in Item A of Attachment 1 attached hereto;
(b) all reissues, divisions, continuations,
continuations-in-part, extensions, renewals and reexaminations of any
of the items described in clause (a);
(c) all patent licenses, including each patent license
referred to in Item B of Attachment 1 attached hereto; and
(d) all proceeds of, and rights associated with, the
foregoing (including license royalties and proceeds of infringement
suits), the right to sue third parties for past, present or future
infringements of any patent or patent application, including any
patent or patent application referred to in Item A of Attachment 1
attached hereto, and for breach or enforcement of any patent license,
including any patent license referred to in Item B of Attachment 1
attached hereto, and all rights corresponding thereto throughout the
world.
SECTION 3. Security Agreement. This Agreement has been executed and
delivered by the Grantor for the purpose of registering the security interest
of the Administrative Agent in the Patent Collateral with the United States
Patent and Trademark Office and corresponding offices in other countries of the
world. The security interest granted hereby has been granted as a supplement
to, and not in limitation of, the security interest granted to the
Administrative Agent for its benefit and the benefit of each Secured Party
under the Security Agreement. The Security Agreement (and all rights and
remedies of the Administrative Agent and each Secured Party thereunder) shall
remain in full force and effect in accordance with its terms.
SECTION 4. Release of Security Interest. Upon payment in full in cash
of all Obligations, the termination or expiry of all Letters of Credit, the
termination of all Rate Protection Agreements and the termination of all
Commitments, the Administrative Agent shall, at the Grantor's expense, execute
and deliver to the Grantor all instruments and other documents
-2-
<PAGE>
as may be necessary or proper to release the lien on and security interest in
the Patent Collateral which has been granted hereunder.
SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge
and affirm that the rights and remedies of the Administrative Agent with
respect to the security interest in the Patent Collateral granted hereby are
more fully set forth in the Security Agreement, the terms and provisions of
which (including the remedies provided for therein) are incorporated by
reference herein as if fully set forth herein.
SECTION 6. Loan Document, etc. This Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions of the Credit Agreement.
SECTION 7. Counterparts. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
DUANE READE
By Daboco Inc., a general partner
By
--------------------------------
Name:
Title:
By Duane Reade Inc., a general partner
By
--------------------------------
Name:
Title:
FLEET NATIONAL BANK, as
Administrative Agent
By
-------------------------------------
Name:
Title:
-4-
<PAGE>
ATTACHMENT 1
to Borrower Patent
Security Agreement
Item A. Patents
Issued Patents
***Country Patent No. Issue Date Inventor(s) Title
- ---------- ---------- ---------- ----------- -----
Pending Patent Applications
*Country Serial No. Filing Date Inventor(s) Title
- -------- ---------- ----------- ----------- -----
Patent Applications in Preparation
Expected
*Country Docket No. Filing Date Inventor(s) Title
- -------- ---------- ----------- ----------- -----
Item B. Patent Licenses
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
--------- -------- -------- ---- ---- ------
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
EXHIBIT B
to Borrower
Security Agreement
TRADEMARK SECURITY AGREEMENT
This TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as of
__________ __, ____, is made between DUANE READE, a New York general
partnership (the "Grantor"), and FLEET NATIONAL BANK, as Administrative Agent
(together with its successor(s) thereto in such capacity, the "Administrative
Agent") for each of the Secured Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Credit Agreement, dated as of September 30,
1997 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "Credit Agreement"), among the Grantor, each of the Parent
Guarantors named therein, the various financial institutions as are, or may
from time to time become, parties thereto (each, individually, a "Lender", and
collectively, the "Lenders"), DLJ Capital Funding, Inc., as Syndication Agent,
the Administrative Agent and Credit Lyonnais New York Branch, as Documentation
Agent, the Lenders and the Issuer have extended Commitments to make Credit
Extensions to the Grantor;
WHEREAS, in connection with the Credit Agreement, the Grantor has
executed and delivered a Borrower Security Agreement, dated as of September 30,
1997 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "Security Agreement");
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
the Grantor is required to execute and deliver this Agreement and to grant to
the Administrative Agent a continuing security interest in all of the Trademark
Collateral (as defined below) to secure all Obligations; and
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and in order to induce the Lenders and the Issuer
to make Credit Extensions (including the initial Credit Extension) to the
Grantor pursuant to the Credit Agreement, and to induce the Secured Parties to
enter into Rate Protection Agreements, the Grantor agrees, for the benefit of
each Secured Party, as follows:
<PAGE>
SECTION 1. Definitions. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security Agreement.
SECTION 2. Grant of Security Interest. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, to
secure all of the Obligations, the Grantor does hereby mortgage, pledge and
hypothecate to the Administrative Agent, and grant to the Administrative Agent
a security interest in, for its benefit and the benefit of each Secured Party,
all of the following property (the "Trademark Collateral"), whether now owned
or hereafter acquired or existing by it:
(a) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles,
service marks, certification marks, collective marks, logos, other
source of business identifiers, prints and labels on which any of the
foregoing have appeared or appear, designs and general intangibles of
a like nature (all of the foregoing items in this clause (a) being
collectively called a "Trademark"), now existing anywhere in the world
or hereafter adopted or acquired, whether currently in use or not, all
registrations and recordings thereof and all applications in
connection therewith, whether pending or in preparation for filing,
including registrations, recordings and applications in the United
States Patent and Trademark Office or in any office or agency of the
United States of America or any State thereof or any foreign country,
including those referred to in Item A of Attachment 1 attached hereto;
(b) all Trademark licenses, including each Trademark license
referred to in Item B of Attachment 1 attached hereto;
(c) all reissues, extensions or renewals of any of the items
described in clauses (a) and (b);
(d) all of the goodwill of the business connected with the
use of, and symbolized by the items described in, clauses (a) and (b);
and
(e) all proceeds of, and rights associated with, the
foregoing, including any claim by the Grantor against third parties
for past, present or future infringement or dilution of any Trademark,
Trademark registration or Trademark license, including any Trademark,
Trademark registration or Trademark license referred to in Item A and
Item B of Attachment 1 attached hereto, or for any injury to the
goodwill associated with the use of any such Trademark or for breach
or enforcement of any Trademark license.
SECTION 3. Security Agreement. This Agreement has been executed and
delivered by the Grantor for the purpose of registering the security interest
of the Administrative Agent in the Trademark Collateral with the United States
Patent and Trademark Office and corresponding offices in other countries of the
world. The security interest granted hereby has been granted as
-2-
<PAGE>
a supplement to, and not in limitation of, the security interest granted to the
Administrative Agent for its benefit and the benefit of each Secured Party
under the Security Agreement. The Security Agreement (and all rights and
remedies of the Administrative Agent and each Secured Party thereunder) shall
remain in full force and effect in accordance with its terms.
SECTION 4. Release of Security Interest. Upon payment in full in cash
of all Obligations, the termination or expiry of all Letters of Credit, the
termination of all Rate Protection Agreements and the termination of all
Commitments, the Administrative Agent shall, at the Grantor's expense, execute
and deliver to the Grantor all instruments and other documents as may be
necessary or proper to release the lien on and security interest in the
Trademark Collateral which has been granted hereunder.
SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge
and affirm that the rights and remedies of the Administrative Agent with
respect to the security interest in the Trademark Collateral granted hereby are
more fully set forth in the Security Agreement, the terms and provisions of
which (including the remedies provided for therein) are incorporated by
reference herein as if fully set forth herein.
SECTION 6. Loan Document, etc. This Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions of the Credit Agreement.
SECTION 7. Counterparts. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
DUANE READE
By Daboco Inc., a general partner
By
---------------------------------
Name:
Title:
By Duane Reade Inc., a general partner
By
---------------------------------
Name:
Title:
FLEET NATIONAL BANK,
as Administrative Agent
By
--------------------------------------
Name:
Title:
-4-
<PAGE>
ATTACHMENT 1
to Borrower Trademark
Security Agreement
Item A. Trademarks
Registered Trademarks
***Country Trademark Registration No. Registration Date
- ---------- --------- ---------------- -----------------
Pending Trademark Applications
*Country Trademark Serial No. Filing Date
- -------- --------- ---------- -----------
Trademark Applications in Preparation
Expected Products/
*Country Trademark Docket No. Filing Date Services
- -------- --------- ---------- ----------- --------
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
Item B. Trademark Licenses
*Country or Effective Expiration
Territory Trademark Licensor Licensee Date Date
--------- --------- -------- -------- ---- ----
<PAGE>
EXHIBIT C
to Borrower
Security Agreement
COPYRIGHT SECURITY AGREEMENT
This COPYRIGHT SECURITY AGREEMENT (this "Agreement"), dated as of
__________ __, ____, is made between DUANE READE, a New York general
partnership (the "Grantor"), and FLEET NATIONAL BANK, as Administrative Agent
(together with its successor(s) thereto in such capacity, the "Administrative
Agent") for each of the Secured Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Credit Agreement, dated as of September 30,
1997 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "Credit Agreement"), among the Grantor, each of the Parent
Guarantors named therein, the various financial institutions as are, or may
from time to time become, parties thereto (each, individually, a "Lender", and
collectively, the "Lenders"), DLJ Capital Funding, Inc., as Syndication Agent,
the Administrative Agent and Credit Lyonnais New York Branch, as Documentation
Agent, the Lenders and the Issuer have extended Commitments to make Credit
Extensions to the Grantor;
WHEREAS, in connection with the Credit Agreement, the Grantor has
executed and delivered a Borrower Security Agreement, dated as of September 30,
1997 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "Security Agreement");
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
the Grantor is required to execute and deliver this Agreement and to grant to
the Administrative Agent a continuing security interest in all of the Copyright
Collateral (as defined below) to secure all Obligations; and
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and in order to induce the Lenders and the Issuer
to make Credit Extensions (including the initial Credit Extension) to the
Grantor pursuant to the Credit Agreement, and to induce the Secured Parties to
enter into Rate Protection Agreements, the Grantor agrees, for the benefit of
each Secured Party, as follows:
<PAGE>
SECTION 1. Definitions. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security Agreement.
SECTION 2. Grant of Security Interest. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, to
secure all of the Obligations, the Grantor does hereby mortgage, pledge and
hypothecate to the Administrative Agent, and grant to the Administrative Agent
a security interest in, for its benefit and the benefit of each Secured Party,
all of the following property (the "Copyright Collateral"), whether now owned
or hereafter acquired or existing by it, being all copyrights (including all
copyrights for semi-conductor chip product mask works) of the Grantor, whether
statutory or common law, registered or unregistered, now or hereafter in force
throughout the world including all of the Grantor's right, title and interest
in and to all copyrights registered in the United States Copyright Office or
anywhere else in the world and also including the copyrights referred to in
Item A of Attachment 1 attached hereto, and all applications for registration
thereof, whether pending or in preparation, all copyright licenses, including
each copyright license referred to in Item B of Attachment 1 attached hereto,
the right to sue for past, present and future infringements of any thereof, all
rights corresponding thereto throughout the world, all extensions and renewals
of any thereof and all proceeds of the foregoing, including licenses,
royalties, income, payments, claims, damages and proceeds of suit.
SECTION 3. Security Agreement. This Agreement has been executed and
delivered by the Grantor for the purpose of registering the security interest
of the Administrative Agent in the Copyright Collateral with the United States
Copyright Office and corresponding offices in other countries of the world. The
security interest granted hereby has been granted as a supplement to, and not
in limitation of, the security interest granted to the Administrative Agent for
its benefit and the benefit of each Secured Party under the Security Agreement.
The Security Agreement (and all rights and remedies of the Administrative Agent
and each Secured Party thereunder) shall remain in full force and effect in
accordance with its terms.
SECTION 4. Release of Security Interest. Upon payment in full in cash
of all Obligations, the termination or expiry of all Letters of Credit, the
termination of all Rate Protection Agreements and the termination of all
Commitments, the Administrative Agent shall, at the Grantor's expense, execute
and deliver to the Grantor all instruments and other documents as may be
necessary or proper to release the lien on and security interest in the
Copyright Collateral which has been granted hereunder.
SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge
and affirm that the rights and remedies of the Administrative Agent with
respect to the security interest in the Copyright Collateral granted hereby are
more fully set forth in the Security Agreement, the terms and provisions of
which (including the remedies provided for therein) are incorporated by
reference herein as if fully set forth herein.
-2-
<PAGE>
SECTION 6. Loan Document, etc. This Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions of the Credit Agreement.
SECTION 7. Counterparts. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
DUANE READE
By Daboco Inc., a general partner
By
--------------------------------
Name:
Title:
By Duane Reade Inc., a general partner
By
--------------------------------
Name:
Title:
FLEET NATIONAL BANK,
as Administrative Agent
By
-------------------------------------
Name:
Title:
-4-
<PAGE>
ATTACHMENT 1
to Borrower Copyright
Security Agreement
Item A. Copyrights/Mask Works
Registered Copyrights/Mask Works
****Country Registration No. Registration Date Author(s) Title
- ----------- ---------------- ----------------- --------- -----
Copyright/Mask Work Pending Registration Applications
*Country Serial No. Filing Date Author(s) Title
- -------- ---------- ----------- --------- -----
Copyright/Mask Work Registration Applications in Preparation
Expected
*Country Docket No. Filing Date Author(s) Title
- -------- ---------- ----------- --------- -----
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
Item B. Copyright/Mask Work Licenses
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
<PAGE>
[EXECUTION COPY]
PARENT PLEDGE AGREEMENT
This PARENT PLEDGE AGREEMENT (as amended, supplemented, amended and
restated or otherwise modified from time to time, this "Pledge Agreement"),
dated as of September 30, 1997, is made by each party identified as a "Pledgor"
on the signature pages hereto (each, individually, a "Pledgor", and
collectively, the "Pledgors"), in favor of FLEET NATIONAL BANK, as
administrative agent (together with its successor(s) thereto, in such capacity
the "Administrative Agent") for each of the Secured Parties.
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated as of September 30,
1997 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "Credit Agreement"), among Duane Reade, a New York general
partnership (the "Borrower"), the Pledgors, Duane Reade, Inc., a Delaware
corporation, the various financial institutions as are, or may from time to
time become, parties thereto (each, individually, a "Lender", and collectively,
the "Lenders"), DLJ Capital Funding, Inc., as Syndication Agent, the
Administrative Agent and Credit Lyonnais New York Branch, as the Documentation
Agent, the Lenders and the Issuer have extended Commitments to make Credit
Extensions to the Borrower;
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
each Pledgor is required to execute and deliver this Pledge Agreement;
WHEREAS, each Pledgor has duly authorized the execution, delivery and
performance of this Pledge Agreement; and
WHEREAS, it is in the best interests of each Pledgor to execute this
Pledge Agreement inasmuch as such Pledgor will derive substantial direct and
indirect benefits from the Credit Extensions made from time to time to the
Borrower by the Lenders and the Issuer pursuant to the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the
Lenders and the Issuer to make Credit Extensions (including the initial Credit
Extension) to the Borrower pursuant to the Credit Agreement, and to induce
Secured Parties to enter into Rate Protection Agreement(s), each Pledgor
agrees, for the benefit of each Secured Party, as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not
underscored) when used in this Pledge Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"Administrative Agent" is defined in the preamble.
"Borrower" is defined in the first recital.
"Collateral" is defined in Section 2.1.
"Credit Agreement" is defined in the first recital.
"Distributions" means all stock dividends, liquidating dividends,
shares of stock resulting from (or in connection with the exercise of) stock
splits, reclassifications, warrants, options, non-cash dividends, mergers,
consolidations, and all other distributions (whether similar or dissimilar to
the foregoing) on or with respect to any Pledged Shares or other shares of
capital stock constituting Collateral, but shall not include Dividends.
"Dividends" means cash dividends and cash distributions with respect
to any Pledged Shares or other Pledged Property made in the ordinary course of
business and not a liquidating dividend.
"Lender" and "Lenders" are defined in the first recital.
"Pledge Agreement" is defined in the preamble.
"Pledged Note Issuer" means each Person identified in Item A of
Attachment 1 hereto as the issuer of the Pledged Note identified opposite the
name of such Person.
"Pledged Notes" means all promissory notes of any Pledged Note Issuer
in substantially the form of Exhibit A hereto which are delivered by any
Pledgor to the Administrative Agent as Pledged Property hereunder, as such
promissory notes, in accordance with Section 4.6, are amended, modified or
supplemented from time to time, together with any promissory note of any
Pledged Note Issuer taken in extension or renewal thereof or substitution
therefor.
"Pledged Property" means all Pledged Shares, all Pledged Notes, and
all other pledged shares of capital stock or promissory notes, all other
securities, all assignments of any amounts due or to become due, all other
instruments which are now being delivered by
-2-
<PAGE>
any Pledgor to the Administrative Agent or may from time to time hereafter be
delivered by such Pledgor to the Administrative Agent for the purpose of pledge
under this Pledge Agreement or any other Loan Document, and all proceeds of any
of the foregoing.
"Pledged Share Issuer" means each Person identified in Item B of
Attachment 1 hereto as the issuer of the Pledged Shares identified opposite the
name of such Person.
"Pledged Shares" means all shares of capital stock of any Pledged
Share Issuer which are delivered by any Pledgor to the Administrative Agent as
Pledged Property hereunder.
"Pledgor" and "Pledgors" are defined in the preamble.
"Secured Obligations" is defined in Section 2.2.
"Securities Act" is defined in Section 6.2.
"U.C.C." means the Uniform Commercial Code, as in effect from time to
time in the State of New York.
SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined
herein or the context otherwise requires, terms used in this Pledge Agreement,
including its preamble and recitals, have the meanings provided in the Credit
Agreement.
SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or in
the Credit Agreement or the context otherwise requires, terms for which
meanings are provided in the U.C.C. are used in this Pledge Agreement,
including its preamble and recitals, with such meanings.
ARTICLE II
PLEDGE
SECTION 2.1. Grant of Security Interest. Each Pledgor hereby pledges,
hypothecates, assigns, charges, mortgages, delivers, and transfers to the
Administrative Agent, for its benefit and the ratable benefit of each of the
Secured Parties, and hereby grants to the Administrative Agent, for its benefit
and the ratable benefit of the Secured Parties, a continuing security interest
in, all of the following property of such Pledgor (the "Collateral"):
(a) all promissory notes of each Pledged Note Issuer
identified in Item A of Attachment 1 hereto;
(b) all other Pledged Notes issued from time to time;
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(c) all issued and outstanding shares of capital stock of
each Pledged Share Issuer identified in Item B of Attachment 1 hereto;
(d) all other Pledged Shares issued from time to time;
(e) all other Pledged Property, whether now or hereafter
delivered to the Administrative Agent in connection with this Pledge
Agreement;
(f) all Dividends, Distributions, interest, and other
payments and rights with respect to any Pledged Property; and
(g) all proceeds of any of the foregoing.
SECTION 2.2. Security for Obligations. This Pledge Agreement secures
the payment in full in cash of all Obligations of the Borrower now or hereafter
existing under the Credit Agreement, the Notes and each other Loan Document to
which the Borrower is or may become a party, whether for principal, interest,
costs, fees, expenses, or otherwise, and all obligations of each Pledgor and
each other Obligor whether now or hereafter existing under this Pledge
Agreement and each other Loan Document to which such Pledgor or such other
Obligor is or may become a party (all such obligations of the Borrower, such
Pledgor and such other Obligor being the "Secured Obligations").
SECTION 2.3. Delivery of Pledged Property. All certificates or
instruments representing or evidencing any Collateral, including all Pledged
Shares and all Pledged Notes, shall be delivered to and held by or on behalf of
(and, in the case of the Pledged Notes, endorsed to the order of) the
Administrative Agent pursuant hereto, shall be in suitable form for transfer by
delivery, and shall be accompanied by all necessary instruments of transfer or
assignment, duly executed in blank.
SECTION 2.4. Dividends on Pledged Shares and Payments on Pledged
Notes. In the event that any Dividend is to be paid on any Pledged Share or any
payment of principal or interest is to be made on any Pledged Note at a time
when no Default of the nature referred to in Section 8.1.9 of the Credit
Agreement or Event of Default has occurred and is continuing or would result
therefrom, such Dividend or payment may be paid directly to the applicable
Pledgor. If any such Default or Event of Default has occurred and is
continuing, then any such Dividend or payment shall be paid directly to the
Administrative Agent.
SECTION 2.5. Continuing Security Interest; Transfer of Note. This
Pledge Agreement shall create a continuing security interest in the Collateral
and shall
(a) remain in full force and effect until payment in full in
cash of all Secured Obligations, the termination or expiration of all
Letters of Credit, the termination of all Rate Protection Agreements
and the termination of all Commitments,
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(b) be binding upon each Pledgor and its successors,
transferees and assigns, and
(c) inure, together with the rights and remedies of the
Administrative Agent hereunder, to the benefit of the Administrative
Agent and each other Secured Party.
Without limiting the foregoing clause (c), any Lender may assign or otherwise
transfer (in whole or in part) any Note or Loan held by it to any other Person
or entity, and such other Person or entity shall thereupon become vested with
all the rights and benefits in respect thereof granted to such Lender under any
Loan Document (including this Pledge Agreement) or otherwise, subject, however,
to any contrary provisions in such assignment or transfer, and to the
provisions of Section 11.11 and Article X of the Credit Agreement. Upon (i) the
sale, transfer or other disposition of Collateral in accordance with the Credit
Agreement or (ii) the payment in full in cash of all Secured Obligations, the
termination or expiration of all Letters of Credit, the termination of all Rate
Protection Agreements and the termination of all Commitments, the security
interests granted herein shall automatically terminate with respect to (x) such
Collateral (in the case of clause (i)) or (y) all Collateral (in the case of
clause (ii)). Upon any such sale, transfer, disposition or termination, the
Administrative Agent will, at such Pledgor's sole expense, deliver to such
Pledgor, without any representations, warranties or recourse of any kind
whatsoever, all certificates and instruments representing or evidencing all
Pledged Shares and all Pledged Notes, together with all other Collateral held
by the Administrative Agent hereunder, and execute and deliver to such Pledgor
such documents as such Pledgor shall reasonably request to evidence such
termination.
SECTION 2.6. Security Interest Absolute. All rights of the
Administrative Agent and the security interests granted to the Administrative
Agent hereunder, and all obligations of each Pledgor hereunder, shall be
absolute and unconditional, irrespective of
(a) any lack of validity or enforceability of the Credit
Agreement, any Note or any other Loan Document,
(b) the failure of any Secured Party or any holder of any
Note
(i) to assert any claim or demand or to enforce any
right or remedy against the Borrower, any other Obligor or
any other Person under the provisions of the Credit
Agreement, any Note, any other Loan Document or otherwise, or
(ii) to exercise any right or remedy against any
other guarantor of, or collateral securing, any Secured
Obligations,
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(c) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Secured Obligations or any
other extension, compromise or renewal of any Secured Obligation,
(d) any reduction, limitation, impairment or termination of
any Secured Obligations for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject
to (and such Pledgor hereby waives any right to or claim of) any
defense or setoff, counterclaim, recoupment or termination whatsoever
by reason of the invalidity, illegality, nongenuineness, irregularity,
compromise, unenforceability of, or any other event or occurrence
affecting, any Secured Obligations or otherwise,
(e) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of
the Credit Agreement, any Note or any other Loan Document,
(f) any addition, exchange, release, surrender or
non-perfection of any collateral (including the Collateral), or any
amendment to or waiver or release of or addition to or consent to
departure from any guaranty, for any of the Secured Obligations, or
(g) any other circumstances which might otherwise constitute
a defense available to, or a legal or equitable discharge of, the
Borrower, any other Obligor, any surety or any guarantor.
SECTION 2.7. Postponement of Subrogation, etc. Each Pledgor will not
exercise any rights which it may acquire by reason of any payment made
hereunder, whether by way of subrogation, reimbursement or otherwise, until the
prior payment, in full and in cash, of all Secured Obligations, the termination
or expiration of all Letters of Credit, the termination of all Rate Protection
Agreements and the termination of all Commitments. Any amount paid to any
Pledgor on account of any payment made hereunder prior to the payment in full
in cash of all Secured Obligations shall be held in trust for the benefit of
the Secured Parties and each holder of a Note and shall immediately be paid to
the Secured Parties and each holder of a Note and credited and applied against
the Secured Obligations, whether matured or unmatured, in accordance with the
terms of the Credit Agreement; provided, however, that if
(a) such Pledgor has made payment to the Secured Parties and
each holder of a Note of all or any part of the Secured Obligations,
and
(b) all Secured Obligations have been paid in full in cash,
all Letters of Credit have been terminated or expired, all Rate
Protection Agreements have been terminated and all Commitments have
been permanently terminated,
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each Secured Party and each holder of a Note agrees that, at such Pledgor's
request, the Secured Parties and the holders of the Notes will execute and
deliver to such Pledgor appropriate documents (without recourse and without
representation or warranty) necessary to evidence the transfer by subrogation
to such Pledgor of an interest in the Secured Obligations resulting from such
payment by such Pledgor. In furtherance of the foregoing, for so long as any
Secured Obligations, Letters of Credit or Commitments remain outstanding or any
Rate Protection Agreement remains in full force and effect, such Pledgor shall
refrain from taking any action or commencing any proceeding against the
Borrower or any other Obligor (or its successors or assigns, whether in
connection with a bankruptcy proceeding or otherwise) to recover any amounts in
respect of payments made under this Pledge Agreement to any Secured Party or
any holder of a Note.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties, etc. Each Pledgor
represents and warrants to each Secured Party, as at the date of each pledge
and delivery hereunder (including each pledge and delivery of Pledged Shares
and each pledge and delivery of a Pledged Note) by such Pledgor to the
Administrative Agent of any Collateral, as set forth in this Article III.
SECTION 3.2. Ownership, No Liens, etc. Such Pledgor is the legal and
beneficial owner of, and has good and marketable title to (and has full right
and authority to pledge and assign) such Collateral, free and clear of all
liens, security interests, options, or other charges or encumbrances, except
any lien or security interest granted pursuant hereto in favor of the
Administrative Agent.
SECTION 3.3. Valid Security Interest. The delivery of such Collateral
to the Administrative Agent is effective to create a valid, perfected, first
priority security interest in such Collateral and all proceeds thereof,
securing the Secured Obligations. No filing or other action will be necessary
to perfect or protect such security interest.
SECTION 3.4. As to Pledged Shares. In the case of any Pledged Shares
constituting such Collateral, all of such Pledged Shares are duly authorized
and validly issued, fully paid, and non-assessable, and constitute all of the
issued and outstanding shares of capital stock of each Pledged Share Issuer.
Such Pledgor has no Subsidiaries other than the Pledged Share Issuers, except
as set forth in Item C of Attachment 1.
SECTION 3.5. As to Pledged Notes. In the case of each Pledged Note,
all of such Pledged Notes have been duly authorized, executed, endorsed, issued
and delivered, and are the legal, valid and binding obligation of the issuers
thereof, and are not in default.
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SECTION 3.6. Authorization, Approval, etc. No authorization, approval,
or other action by, and no notice to or filing with, any governmental
authority, regulatory body or any other Person is required either
(a) for the pledge by such Pledgor of any Collateral pursuant
to this Pledge Agreement or for the execution, delivery, and
performance of this Pledge Agreement by such Pledgor, or
(b) for the exercise by the Administrative Agent of the
voting or other rights provided for in this Pledge Agreement, or,
except with respect to any Pledged Shares, as may be required in
connection with a disposition of such Pledged Shares by laws affecting
the offering and sale of securities generally, the remedies in respect
of the Collateral pursuant to this Pledge Agreement.
SECTION 3.7. Compliance with Laws. Such Pledgor is in compliance with
the requirements of all applicable laws (including the provisions of the Fair
Labor Standards Act), rules, regulations and orders of every governmental
authority, the non-compliance with which could reasonably be expected to have a
Material Adverse Effect or which could reasonably be expected to materially
adversely affect the value of the Collateral or the worth of the Collateral as
collateral security.
ARTICLE IV
COVENANTS
SECTION 4.1. Certain Covenants. Each Pledgor covenants and agrees
that, so long as any portion of the Secured Obligations shall remain unpaid,
any Letters of Credit shall be outstanding, any Rate Protection Agreement shall
remain in full force and effect or any Secured Party shall have any outstanding
Commitment, such Pledgor will, unless the Required Lenders shall otherwise
consent in writing, perform, comply with and be bound by the obligations set
forth in this Article IV.
SECTION 4.2. Protect Collateral; Further Assurances, etc. Such Pledgor
agrees and covenants that it will not sell, assign, transfer, pledge, or
encumber in any other manner the Collateral (except in favor of the
Administrative Agent hereunder). Such Pledgor will warrant and defend the right
and title herein granted unto the Administrative Agent in and to the Collateral
(and all right, title, and interest represented by the Collateral) against the
claims and demands of all Persons whomsoever. Such Pledgor agrees that at any
time, and from time to time, at the expense of such Pledgor, such Pledgor will
promptly execute and deliver all further instruments, and take all further
action, that may be necessary or desirable, or that the Administrative Agent
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the
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Administrative Agent to exercise and enforce its rights and remedies hereunder
with respect to any Collateral.
SECTION 4.3. Stock Powers, etc. Such Pledgor agrees that all Pledged
Shares (and all other shares of capital stock constituting Collateral)
delivered by such Pledgor pursuant to this Pledge Agreement will be accompanied
by duly executed undated blank stock powers, or other equivalent instruments of
transfer acceptable to the Administrative Agent. Such Pledgor will, from time
to time upon the request of the Administrative Agent, promptly deliver to the
Administrative Agent such stock powers, instruments, and similar documents,
satisfactory in form and substance to the Administrative Agent, with respect to
the Collateral as the Administrative Agent may reasonably request and will,
from time to time upon the request of the Administrative Agent after the
occurrence of any Event of Default, promptly transfer any Pledged Shares or
other shares of common stock constituting Collateral into the name of any
nominee designated by the Administrative Agent.
SECTION 4.4. Continuous Pledge. Such Pledgor will, at all times, keep
pledged to the Administrative Agent pursuant hereto all Pledged Shares and all
other shares of capital stock constituting Collateral, all Dividends and
Distributions with respect thereto, all Pledged Notes, all interest, principal
and other proceeds received by the Administrative Agent with respect to the
Pledged Notes, and all other Collateral and other securities, instruments,
proceeds, and rights from time to time received by or distributable to such
Pledgor in respect of any Collateral and will not permit any Pledged Share
Issuer to issue any capital stock which shall not have been immediately duly
pledged hereunder on a first priority perfected basis.
SECTION 4.5. Voting Rights; Dividends, etc. Such Pledgor agrees:
(a) after any Default of the nature referred to in Section
8.1.9 of the Credit Agreement or any Event of Default shall have
occurred and be continuing, promptly upon receipt of notice thereof by
such Pledgor and without any request therefor by the Administrative
Agent, to deliver (properly endorsed where required hereby or
requested by the Administrative Agent) to the Administrative Agent all
Dividends, Distributions, all interest, all principal, all other cash
payments, and all proceeds of the Collateral, all of which shall be
held by the Administrative Agent as additional Collateral for use in
accordance with Section 6.4; and
(b) after any Event of Default shall have occurred and be
continuing and the Administrative Agent has notified such Pledgor of
the Administrative Agent's intention to exercise its voting power
under this Section 4.5(b)
(i) the Administrative Agent may exercise (to the
exclusion of such Pledgor) the voting power and all other
incidental rights of ownership with respect to any Pledged
Shares or other shares of capital stock constituting
Collateral and such Pledgor hereby grants the Administrative
Agent an
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irrevocable proxy, exercisable under such circumstances, to
vote the Pledged Shares and such other Collateral; and
(ii) promptly to deliver to the Administrative Agent
such additional proxies and other documents as may be
necessary to allow the Administrative Agent to exercise such
voting power.
All Dividends, Distributions, interest, principal, cash payments, and proceeds
which may at any time and from time to time be held by such Pledgor but which
such Pledgor is then obligated to deliver to the Administrative Agent, shall,
until delivery to the Administrative Agent, be held by such Pledgor separate
and apart from its other property in trust for the Administrative Agent. The
Administrative Agent agrees that unless an Event of Default shall have occurred
and be continuing and the Administrative Agent shall have given the notice
referred to in Section 4.5(b), such Pledgor shall have the exclusive voting
power with respect to any shares of capital stock (including any of the Pledged
Shares) constituting Collateral and the Administrative Agent shall, upon the
written request of such Pledgor, promptly deliver such proxies and other
documents, if any, as shall be reasonably requested by such Pledgor which are
necessary to allow such Pledgor to exercise voting power with respect to any
such share of capital stock (including any of the Pledged Shares) constituting
Collateral; provided, however, that no vote shall be cast, or consent, waiver,
or ratification given, or action taken by such Pledgor that would impair any
Collateral or be inconsistent with or violate any provision of the Credit
Agreement or any other Loan Document (including this Pledge Agreement).
SECTION 4.6. Additional Undertakings. Such Pledgor will not, without
the prior written consent of the Administrative Agent:
(a) enter into any agreement amending, supplementing, or
waiving any provision of any Pledged Note (including any underlying
instrument pursuant to which such Pledged Note is issued) or
compromising or releasing or extending the time for payment of any
obligation of the maker thereof; or
(b) take or omit to take any action the taking or the
omission of which would result in any impairment or alteration of any
obligation of the maker of any Pledged Note or other instrument
constituting Collateral.
ARTICLE V
THE ADMINISTRATIVE AGENT
SECTION 5.1. Administrative Agent Appointed Attorney-in-Fact. Each
Pledgor hereby irrevocably appoints the Administrative Agent such Pledgor's
attorney-in-fact, with full authority in the place and stead of such Pledgor
and in the name of such Pledgor or
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otherwise, from time to time in the Administrative Agent's discretion, to take
any action and to execute any instrument which the Administrative Agent may
deem necessary or advisable to accomplish the purposes of this Pledge
Agreement, including after the occurrence and during the continuance of a
Default of the nature referred to in Section 8.1.9 of the Credit Agreement or
an Event of Default:
(a) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause
(a) above; and
(c) to file any claims or take any action or institute any
proceedings which the Administrative Agent may deem necessary or
desirable for the collection of any of the Collateral or otherwise to
enforce the rights of the Administrative Agent with respect to any of
the Collateral.
Such Pledgor hereby acknowledges, consents and agrees that the power of
attorney granted pursuant to this Section is irrevocable and coupled with an
interest.
SECTION 5.2. Administrative Agent May Perform. If any Pledgor fails to
perform any agreement contained herein, the Administrative Agent may itself
perform, or cause performance of, such agreement, and the expenses of the
Administrative Agent incurred in connection therewith shall be payable by such
Pledgor pursuant to Section 6.4.
SECTION 5.3. Administrative Agent Has No Duty. The powers conferred on
the Administrative Agent hereunder are solely to protect its interest (on
behalf of the Secured Parties) in the Collateral and shall not impose any duty
on it to exercise any such powers. Except for reasonable care of any Collateral
in its possession and the accounting for moneys actually received by it
hereunder, the Administrative Agent shall have no duty as to any Collateral or
responsibility for
(a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative
to any Pledged Property, whether or not the Administrative Agent has
or is deemed to have knowledge of such matters, or
(b) taking any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
SECTION 5.4. Reasonable Care. The Administrative Agent is required to
exercise reasonable care in the custody and preservation of any of the
Collateral in its possession; provided, however, the Administrative Agent shall
be deemed to have exercised reasonable care in the custody and preservation of
any of the Collateral, if it takes such action for that
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purpose as any Pledgor reasonably requests in writing at times other than upon
the occurrence and during the continuance of any Event of Default, but failure
of the Administrative Agent to comply with any such request at any time shall
not in itself be deemed a failure to exercise reasonable care.
ARTICLE VI
REMEDIES
SECTION 6.1. Certain Remedies. If any Event of Default shall have
occurred and be continuing:
(a) The Administrative Agent may exercise in respect of the
Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party on default under the U.C.C. (whether or not the U.C.C.
applies to the affected Collateral) and also may, without notice
except as specified below, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any of the
Administrative Agent's offices or elsewhere, for cash, on credit or
for future delivery, and upon such other terms as the Administrative
Agent may deem commercially reasonable. Each Pledgor agrees that, to
the extent notice of sale shall be required by law, at least ten days'
prior notice to such Pledgor of the time and place of any public sale
or the time after which any private sale is to be made shall
constitute reasonable notification. The Administrative Agent shall not
be obligated to make any sale of Collateral regardless of notice of
sale having been given. The Administrative Agent may adjourn any
public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
(b) The Administrative Agent may
(i) transfer all or any part of the Collateral into
the name of the Administrative Agent or its nominee, with or
without disclosing that such Collateral is subject to the
lien and security interest hereunder,
(ii) notify the parties obligated on any of the
Collateral to make payment to the Administrative Agent of any
amount due or to become due thereunder,
(iii) enforce collection of any of the Collateral by
suit or otherwise, and surrender, release or exchange all or
any part thereof, or compromise or extend or renew for any
period (whether or not longer than the original period) any
obligations of any nature of any party with respect thereto,
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(iv) endorse any checks, drafts, or other writings
in such Pledgor's name to allow collection of the Collateral,
(v) take control of any proceeds of the Collateral,
and
(vi) execute (in the name, place and stead of such
Pledgor) endorsements, assignments, stock powers and other
instruments of conveyance or transfer with respect to all or
any of the Collateral.
SECTION 6.2. Securities Laws. If the Administrative Agent shall
determine to exercise its right to sell all or any of the Collateral pursuant
to Section 6.1, each Pledgor agrees that, upon request of the Administrative
Agent, such Pledgor will, at its own expense:
(a) execute and deliver, and cause each issuer of the
Collateral contemplated to be sold and the directors and officers
thereof to execute and deliver, all such instruments and documents,
and do or cause to be done all such other acts and things, as may be
necessary or, in the opinion of the Administrative Agent, advisable to
register such Collateral under the provisions of the Securities Act of
1933, as from time to time amended (the "Securities Act"), and to
cause the registration statement relating thereto to become effective
and to remain effective for such period as prospectuses are required
by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectus which, in the opinion of the
Administrative Agent, are necessary or advisable, all in conformity
with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable
thereto;
(b) use its best efforts to qualify the Collateral under the
state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Collateral, as requested by
the Administrative Agent;
(c) cause each such issuer to make available to its security
holders, as soon as practicable, an earnings statement that will
satisfy the provisions of Section 11(a) of the Securities Act; and
(d) do or cause to be done all such other acts and things as
may be necessary to make such sale of the Collateral or any part
thereof valid and binding and in compliance with applicable law.
Each Pledgor further acknowledges the impossibility of ascertaining the amount
of damages that would be suffered by the Administrative Agent or the Secured
Parties by reason of the failure by any Pledgor to perform any of the covenants
contained in this Section and, consequently, agrees that, if such Pledgor shall
fail to perform any of such covenants, it shall pay, as liquidated damages and
not as a penalty, an amount equal to the value (as determined
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by the Administrative Agent) of the Collateral on the date the Administrative
Agent shall demand compliance with this Section.
SECTION 6.3. Compliance with Restrictions. Each Pledgor agrees that in
any sale of any of the Collateral whenever an Event of Default shall have
occurred and be continuing, the Administrative Agent is hereby authorized to
comply with any limitation or restriction in connection with such sale as it
may be advised by counsel is necessary in order to avoid any violation of
applicable law (including compliance with such procedures as may restrict the
number of prospective bidders and purchasers, require that such prospective
bidders and purchasers have certain qualifications, and restrict such
prospective bidders and purchasers to persons who will represent and agree that
they are purchasing for their own account for investment and not with a view to
the distribution or resale of such Collateral), or in order to obtain any
required approval of the sale or of the purchaser by any governmental
regulatory authority or official, and such Pledgor further agrees that such
compliance shall not result in such sale being considered or deemed not to have
been made in a commercially reasonable manner, nor shall the Administrative
Agent be liable nor accountable to such Pledgor for any discount allowed by the
reason of the fact that such Collateral is sold in compliance with any such
limitation or restriction.
SECTION 6.4. Application of Proceeds. All cash proceeds received by
the Administrative Agent in respect of any sale of, collection from, or other
realization upon, all or any part of the Collateral shall be applied by the
Administrative Agent against, all or any part of the Secured Obligations as
follows:
(a) first, to the payment of any amounts payable to the
Administrative Agent pursuant to Section 11.3 of the Credit Agreement
and Section 6.5;
(b) second, to the equal and ratable payment of Secured
Obligations, in accordance with each Secured Party's Secured
Obligations owing to it under or pursuant to the Credit Agreement or
any other Loan Document, or under or pursuant to any Hedging
Obligation included in the Secured Obligations as to each Secured
Party, applied
(i) first to fees and expense reimbursements then
due to such Secured Party,
(ii) then to interest due to such Secured Party,
(iii) then to pay or prepay principal of the Loans
owing to, or to reduce the "credit exposure" of, such Secured
Party under such Hedging Obligation, as the case may be, and
(iv) then to pay the remaining outstanding Secured
Obligations and cash collateralize all Letter of Credit
Outstandings;
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(c) third, without duplication of any amounts paid pursuant
to clause (b) above, to the Indemnified Parties to the extent of any
amounts owing pursuant to Section 11.4 of the Credit Agreement; and
(d) fourth, to be held as additional collateral security
until the payment in full in cash of all of the Secured Obligations,
the termination or expiration of all Letters of Credit, the
termination of all Rate Protection Agreements and the termination of
all Commitments, after which such remaining cash proceeds shall be
paid over to the applicable Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.
For purposes of this Pledge Agreement, the "credit exposure" at any time of any
Secured Party with respect to a Hedging Obligation to which such Secured Party
is a party shall be determined at such time in accordance with the customary
methods of calculating credit exposure under similar arrangements by the
counterparty to such arrangements, taking into account potential interest rate
movements and the respective termination provisions and notional principal
amount and term of such Hedging Obligation.
SECTION 6.5. Indemnity and Expenses. Each Pledgor hereby agrees to
jointly and severally indemnify and hold harmless the Administrative Agent from
and against any and all claims, losses, and liabilities arising out of or
resulting from this Pledge Agreement (including enforcement of this Pledge
Agreement), except claims, losses, or liabilities resulting from the
Administrative Agent's gross negligence or wilful misconduct. Upon demand, such
Pledgor will pay to the Administrative Agent the amount of any and all
reasonable expenses, including the reasonable fees and disbursements of its
counsel and of any experts and agents, which the Administrative Agent may incur
in connection with:
(a) the administration of this Pledge Agreement, the Credit
Agreement and each other Loan Document;
(b) the custody, preservation, use, or operation of, or the
sale of, collection from, or other realization upon, any of the
Collateral;
(c) the exercise or enforcement of any of the rights of the
Administrative Agent hereunder; or
(d) the failure by such Pledgor to perform or observe any of
the provisions hereof.
-15-
<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. Loan Document. This Pledge Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof.
SECTION 7.2. Amendments, etc. No amendment to or waiver of any
provision of this Pledge Agreement nor consent to any departure by any Pledgor
herefrom shall in any event be effective unless the same shall be in writing
and signed by the Administrative Agent (on behalf of the Lenders or the
Required Lenders, as the case may be) and the Pledgors in the case of an
amendment, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it is given.
SECTION 7.3. Protection of Collateral. The Administrative Agent may
from time to time, at its option, perform any act which each Pledgor agrees
hereunder to perform and which such Pledgor shall fail to perform after being
requested in writing so to perform (it being understood that no such request
need be given after the occurrence and during the continuance of an Event of
Default) and the Administrative Agent may from time to time take any other
action which the Administrative Agent reasonably deems necessary for the
maintenance, preservation or protection of any of the Collateral or of its
security interest therein.
SECTION 7.4. Addresses for Notices. All notices and other
communications provided for hereunder to any party hereto shall be in writing
(including telegraphic communication) and mailed or telecopied or delivered to
such party, addressed to such party at its address specified in the Credit
Agreement. All such notices and other communications, when mailed and properly
addressed with postage prepaid or if properly addressed and sent by pre-paid
courier service, shall be deemed given when received; any such notice or
communication, if transmitted by telecopier, shall be deemed given when
transmitted and electronically confirmed.
SECTION 7.5. Section Captions. Section captions used in this Pledge
Agreement are for convenience of reference only, and shall not affect the
construction of this Pledge Agreement.
SECTION 7.6. Severability. Wherever possible each provision of this
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Pledge Agreement shall
be prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Pledge
Agreement.
-16-
<PAGE>
SECTION 7.7. Counterparts. This Pledge Agreement may be executed by
the parties hereto in several counterparts, each of which shall be deemed to be
an original and all of which shall constitute together but one and the same
agreement.
SECTION 7.8. Governing Law, Entire Agreement, etc. THIS PLEDGE
AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY
OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF NEW YORK. THIS PLEDGE AGREEMENT AND THE OTHER LOAN
DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS,
WRITTEN OR ORAL, WITH RESPECT THERETO.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the day and year first above written.
PLEDGORS:
DUANE READE HOLDING CORP.,
a Delaware corporation
By /s/ William Tennant
--------------------------------------
Name:
Title:
DABOCO INC., a New York corporation
By /s/ William Tennant
--------------------------------------
Name:
Title:
FLEET NATIONAL BANK,
as Administrative Agent
By /s/ Authorized Signatory
--------------------------------------
Name:
Title:
-18-
<PAGE>
EXHIBIT A
to Parent
Pledge Agreement
PROMISSORY NOTE
$ , 19__
FOR VALUE RECEIVED, the undersigned, ______________, a _______________
corporation (the "Maker"), promises to pay to the order of ________________, a
___________ _________ (the "Payee"), in equal ________ installments, commencing
__________ __, ____ to and including __________ __, ____, the principal sum of
DOLLARS ($ ), representing the aggregate principal amount of
an intercompany loan made by the Payee to the Maker.
The unpaid principal amount of this promissory note (this "Note") from
time to time outstanding shall bear interest at a rate of interest equal to
____________, which the Maker represents to be a lawful and commercially
reasonable rate, payable __________, and all payments of principal of and
interest on this Note shall be payable in lawful currency of the United States
of America. All such payments shall be made by the Maker to an account
established by the Payee at _______________ and shall be recorded on the grid
attached hereto by the holder hereof (including the Administrative Agent
(hereinafter defined) as pledgee). Upon notice from the Administrative Agent
that a Default (as defined in the Credit Agreement, dated as of September 30,
1997 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "Credit Agreement"), among Duane Reade, a New York general
partnership (the "Borrower"), the Payee and the other Parent Guarantors named
therein, the various financial institutions as are, or may from time to time
become, parties thereto (each, individually, a "Lender", and collectively, the
"Lenders"), DLJ Capital Funding, Inc., as Syndication Agent, Fleet National
Bank, as the administrative agent (in such capacity, the "Administrative
Agent") and Credit Lyonnais New York Branch, as the Documentation Agent) of the
nature referred to in Section 8.1.9 of the Credit Agreement or an Event of
Default (as defined in the Credit Agreement) has occurred and is continuing
under the Credit Agreement, the Maker shall make such payments, in same day
funds, to such other account as the Administrative Agent shall direct in such
notice.
This Note is one of the Pledged Notes referred to in the Pledge
Agreement. Upon the occurrence and continuance of an Event of Default under the
Credit Agreement, and notice thereof by the Administrative Agent to the Maker,
the Administrative Agent shall have all rights of the Payee to collect and
accelerate, and enforce all rights with respect to, the Indebtedness evidenced
by this Note. Unless otherwise defined herein or the context otherwise
requires, terms used herein have the meanings provided in the Credit Agreement.
<PAGE>
Reference is made to the Credit Agreement for a description of the
Pledge Agreement pursuant to which this Note has been pledged to the
Administrative Agent as security for the Secured Obligations outstanding from
time to time under the Credit Agreement and each other Loan Document.
In addition to, but not in limitation of, the foregoing, the Maker
further agrees to pay all expenses, including reasonable attorneys' fees and
legal expenses, incurred by the holder (including the Administrative Agent as
pledgee) of this Note endeavoring to collect any amounts payable hereunder
which are not paid when due, whether by acceleration or otherwise.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK.
-2-
<PAGE>
THE MAKER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON
THIS NOTE. THE MAKER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE PAYEE TO ACCEPT THIS NOTE.
[NAME OF MAKER]
By
--------------------------------------
Name:
Title:
Pay to the order of FLEET NATIONAL
BANK, as Administrative Agent
[NAME OF PAYEE]
By
--------------------------------------
Name:
Title:
-3-
<PAGE>
GRID
Intercompany Loans made by [Name of Payee] to [Name of Maker] and
payments of principal of such Loans.
- -------------------------------------------------------------------------------
Amount of Amount of Outstanding
Intercompany Principal Principal Notation
Date Loan Payment Balance Made By
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ATTACHMENT 1
to Parent
Pledge Agreement
DUANE READE HOLDING CORP.
Item A. Pledged Notes
Pledged Note Issuer Description
NONE.
Item B. Pledged Shares
Common Stock
----------------------------------------------
% of
Authorized Outstanding Shares
Shares Shares Pledged
---------- ----------- -------
Pledged Share Issuer
Daboco Inc. 300 200 100%
Item C. Additional Subsidiaries
NONE.
<PAGE>
ATTACHMENT 1
to Parent
Pledge Agreement
DABOCO INC.
Item A. Pledged Notes
Pledged Note Issuer Description
NONE.
Item B. Pledged Shares
Common Stock
---------------------------------------------
% of
Authorized Outstanding Shares
Shares Shares Pledged
---------- ----------- -------
Pledged Share Issuer
Duane Reade Inc. 1000 1000 100%
Item C. Additional Subsidiaries
NONE.
<PAGE>
DUANE READE HOLDING CORP. EXHIBIT 11.1
EARNINGS PER SHARE
<TABLE>
<CAPTION>
MONTHS SHARES WEIGHTED WEIGHTED AVG. NET NET LOSS
OUTSTANDING OUTSTANDING SHARES SHARES LOSS PER SHARE
----------- ----------- ------ ------ ---- ---------
52 WEEKS ENDED DECEMBER 31, 1994
- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at 1/2/94 12 84,541,378.1 1,014,496,537 84,541,378.1
Issuance of Common Stock 8 84,699.8 677,598 56,466.5
-------- --------
84,626,077.9 84,597,844.6 (16,438,000) (0.19)
------------ ------------
52 WEEKS ENDED DECEMBER 30, 1995
- --------------------------------
Balance at 1/1/95 3 84,626,077.9 253,878,234 21,156,519.5
After repurchase of certain shares 9 84,456,713.8 760,110,424 63,342,535.4
Issuance of Common Stock 8.5 338,799.1 2,879,792 239,982.7
------------ ------------
84,739,037.5 (18,058,000) (0.21)
------------
52 WEEKS ENDED DECEMBER 28, 1996
- --------------------------------
Balance at 12/31/95 3 84,795,512.9 254,386,539 21,198,878.2
After repurchase of certain shares 3 84,117,950.1 252,353,850 21,029,487.5
After repurchase of certain shares 6 83,779,186.5 502,675,119 41,889,593.3
------------ ------------
84,117,959.0 (17,854,000) (0.21)
------------
39 WEEKS ENDED SEPTEMBER 28, 1996
- ---------------------------------
Balance at 12/31/95 3 84,795,512.9 254,386,539 28,265,171.0
After repurchase of certain shares 3 84,117,950.1 254,353,850 28,039,316.7
After repurchase of certain shares 3 83,779,186.5 251,337,560 27,926,395.5
------------ ------------
84,230,883.2 (12,485,000) (0.15)
------------
39 WEEKS ENDED SEPTEMBER 27, 1997
- ---------------------------------
Balance at 12/28/96 9 83,779,186.5 754,012,679 83,779,186.5
Issuance of Common Stock 3 1,626,338.0 4,879,014 542,112.7
------------ ------------
85,405,524.5 84,321,299.2 (14,165,000) (0.17)
------------ ------------
</TABLE>
<PAGE>
SCHEDULE 21.1
SUBSIDIARIES OF THE REGISTRANT
Daboco Inc., a New York corporation
DRI I, Inc., a Delaware corporation
Duane Reade, a New York general partnership
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 18, 1997,
except as to the recapitalization described in Note 12 which is as of June
18, 1997, relating to the financial statements of Duane Reade Holding Corp.,
which appears in such Prospectus. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
New York, New York
November 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 28, 1996 AND SEPTEMBER 27,
1997 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE 52 WEEKS
ENDED DECEMBER 28,1996 AND 39 WEEKS ENDED SEPTEMBER 27, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> OTHER OTHER
<FISCAL-YEAR-END> DEC-28-1996 DEC-27-1997
<PERIOD-END> DEC-28-1996 SEP-27-1997
<CASH> 216 218
<SECURITIES> 0 0
<RECEIVABLES> 7,171 9,084
<ALLOWANCES> 0 0
<INVENTORY> 47,914 65,872
<CURRENT-ASSETS> 56,466 76,545
<PP&E> 30,090 34,771
<DEPRECIATION> (7,025) (9,553)
<TOTAL-ASSETS> 222,476 239,520
<CURRENT-LIABILITIES> 46,549 46,696
<BONDS> 245,657 262,649
0 0
0 0
<COMMON> 13 854
<OTHER-SE> (59,409) 74,415
<TOTAL-LIABILITY-AND-EQUITY> 222,476 239,520
<SALES> 381,466 313,796
<TOTAL-REVENUES> 381,466 313,796
<CGS> 288,505 236,413
<TOTAL-COSTS> 288,505 236,413
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 32,396 25,433
<INCOME-PRETAX> (17,854) (14,165)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (17,854) (14,165)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (17,854) (14,165)
<EPS-PRIMARY> (0.21) (0.17)
<EPS-DILUTED> 0 0
</TABLE>
