UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended June 30, 1998.
[ ] Transition period pursuant to Section 13 or 15(d) of the Securities
Exchange Act for the transition period from __________ to __________.
Commission File Number: 0-21854
DISCOVERY ZONE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 65-0408845
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
565 Taxter Road, 10523
Fifth Floor (Zip Code)
Elmsford, New York
(Address of principal executive offices)
Registrant's telephone number, including area code: (914) 345-4500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Common Stock outstanding as of August 10, 1998: 430,333,492 shares
<PAGE>
DISCOVERY ZONE, INC.
PART 1 -- FINANCIAL INFORMATION
Page No.
--------
ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Statements of
Operations - Three Months Ended June 30, 1998 and 1997 3
Unaudited Condensed Consolidated Statements of Operations - 4
Six Months Ended June 30, 1998 and 1997
Condensed Consolidated Balance Sheets - June 30, 1998
(unaudited) and December 31, 1997 5
Unaudited Condensed Consolidated Statements of Cash
Flows - Six Months Ended June 30, 1998 and 1997 6
Notes to Unaudited Condensed Consolidated Financial
Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 14
AND RESULTS OF OPERATIONS
PART II -- OTHER INFORMATION
Page No.
--------
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22
ITEM 5. OTHER INFORMATION 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 23
2
<PAGE>
DISCOVERY ZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
----------------------- --------------------
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
----------------------- --------------------
<S> <C> <C>
REVENUE $ 29,534 $ 32,498
COST OF GOODS SOLD 4,913 5,405
STORE OPERATING EXPENSES 24,984 24,178
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 6,864 4,705
DEPRECIATION AND AMORTIZATION 5,400 5,141
---------- ----------
OPERATING LOSS (12,627) (6,931)
OTHER INCOME (EXPENSE):
Interest, net (3,545) (1,339)
Other, net 14 18
---------- ----------
Total other expense, net (3,531) (1,321)
---------- ----------
LOSS BEFORE REORGANIZATION ITEMS (16,158) (8,252)
REORGANIZATION ITEMS:
Professional fees -- (2,206)
Other, net -- (364)
---------- ----------
Total reorganization items -- (2,570)
---------- ----------
NET LOSS (16,158) (10,822)
ACCRETION OF CONVERTIBLE REDEEMABLE PREFERRED
STOCK TO REDEMPTION VALUE (56) --
----------- ----------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (16,214) $ (10,822)
=========== ==========
Per common share - basic and diluted $ (4.05) $ (0.19)
=========== ==========
Weighted average number of common shares outstanding 4,000 57,646
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
3
<PAGE>
DISCOVERY ZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
----------------------- --------------------
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
----------------------- --------------------
<S> <C> <C>
REVENUE $ 70,211 $ 71,292
COST OF GOODS SOLD 11,171 12,600
STORE OPERATING EXPENSES 53,134 50,550
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 12,744 9,073
DEPRECIATION AND AMORTIZATION 10,770 10,215
---------- ----------
OPERATING LOSS (17,608) (11,146)
OTHER INCOME (EXPENSE):
Interest, net (6,873) (2,514)
Other, net 53 33
---------- ----------
Total other expense, net (6,820) (2,481)
---------- ----------
LOSS BEFORE REORGANIZATION ITEMS AND INCOME
TAXES (24,428) (13,627)
REORGANIZATION ITEMS:
Professional fees -- (3,686)
Other, net -- (419)
---------- ----------
Total reorganization items -- (4,105)
---------- ----------
LOSS BEFORE INCOME TAXES (24,428) (17,732)
INCOME TAXES 125 --
---------- ----------
NET LOSS (24,553) (17,732)
ACCRETION OF CONVERTIBLE REDEEMABLE PREFERRED
STOCK TO REDEMPTION VALUE (108) --
---------- ----------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (24,661) $ (17,732)
=========== ==========
Per common share - basic and diluted $ (6.17) $ (0.31)
=========== ==========
Weighted average number of common shares outstanding 4,000 57,646
=========== ==========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
4
<PAGE>
DISCOVERY ZONE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
Successor Company
-----------------
June 30, 1998 December 31, 1997
----------------------- --------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 423 $ 8,607
Restricted cash and investments 13,512 13,036
Receivables, net 1,193 750
Inventories 1,936 1,739
Prepaid expenses and other current assets 2,626 5,093
---------- ----------
TOTAL CURRENT ASSETS 19,690 29,225
RESTRICTED CASH AND INVESTMENTS 244 5,981
PROPERTY AND EQUIPMENT, net 115,087 131,352
LAND HELD FOR SALE 3,635 3,635
TRADEMARKS, NET 16,174 --
OTHER ASSETS, NET 6,273 6,398
---------- ----------
TOTAL ASSETS $ 161,103 $ 176,591
=========== ==========
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 14,238 $ 13,657
Accrued liabilities 10,990 11,116
Note payable 290 304
Current portion of long-term debt 1,102 1,102
---------- ----------
TOTAL CURRENT LIABILITIES 26,620 26,179
LONG-TERM DEBT 95,004 87,091
OTHER LONG-TERM LIABILITIES 7,759 7,169
SERIES A CONVERTIBLE PREFERRED STOCK - 1,000
shares authorized, issued and outstanding, redemption
value of $15,000 14,005 13,897
COMMON STOCK AND OTHER EQUITY (DEFICIT):
Common stock - $.01 par value; 10,000,000 shares 40 40
authorized, 4,000,000 shares issued and outstanding
Additional paid-in capital 69,955 70,063
Cumulative translation adjustment 239 118
Accumulated deficit (52,519) (27,966)
---------- ----------
TOTAL COMMON STOCK AND OTHER
EQUITY (DEFICIT) 17,715 42,255
---------- ----------
TOTAL LIABILITIES AND EQUITY (DEFICIT) $ 161,103 $ 176,591
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
5
<PAGE>
DISCOVERY ZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
----------------- -------------------
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
--------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (24,553) $ (17,732)
Adjustments to reconcile net loss to net cash used by operating
activities before reorganization items:
Reorganization items -- 4,105
Depreciation and amortization 10,770 10,215
Amortization of debt discount and other noncash interest charges 1,045 --
Plan administrative payments (17) --
Changes in operating assets and liabilities:
Receivables (443) 447
Inventories (197) 821
Prepaid expenses and other current assets 2,467 (107)
Restricted cash and investments 5,261 --
Accounts payable 3,045 (1,682)
Accrued liabilities 521 (1,303)
Other 334 135
---------- ----------
Net cash used by operating activities before reorganization (1,767) (5,101)
items
Reorganization items -- (4,105)
Adjustments to reconcile reorganization items to cash used by
reorganization items:
Accrued reorganization expenses (525) 1,345
---------- ----------
Net cash used by reorganization items (525) (2,760)
---------- ----------
Net cash used by operating activities (2,292) (7,861)
CASH FLOWS FROM INVESTING ACTIVITY:
Purchases of property and equipment (13,600) (286)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from debtor-in-possession credit facilities -- 4,969
Net proceeds from borrowings 7,708 232
---------- ----------
Net cash provided by financing activities 7,708 5,201
---------- ----------
Net decrease in cash (8,184) (2,946)
Cash and cash equivalents, beginning of period 8,607 3,326
---------- ----------
Cash and cash equivalents, end of period 423 380
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 5,746 $ 2,355
========== ==========
Cash paid for professional fees in connection with
Chapter 11 proceeding $ 214 $ 2,341
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
6
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Discovery Zone, Inc. (the "Company") is the leading owner and operator
of pay-for-play children's entertainment centers ("FunCenters") in North America
with a national network of 202 FunCenters in 39 states, Puerto Rico and Canada.
The Company also operates two entertainment centers targeting adult customers,
under the "Block Party" name.
The accompanying unaudited condensed consolidated financial statements
of the Company have been prepared in accordance with generally accepted
accounting principles for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations. However,
the Company believes that the disclosures contained herein are adequate to make
the information presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the Company's 1997
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K/A.
Discovery Zone, Inc. and its nineteen domestic subsidiaries
(collectively, the "Group") emerged from bankruptcy on July 29, 1997. The Group
had originally filed voluntary petitions for protection under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") on March
25, 1996 (the "Petition Date"). While in Chapter 11, certain claims against the
Group at the Petition Date were stayed while the Company continued its
operations as a Debtor-in-Possession. On July 18, 1997, the Bankruptcy Court
approved the Company's Joint Plan of Reorganization with Birch Holdings LLC
("Birch"), which became effective on July 29, 1997 (the "Effective Date" or
"Emergence Date").
As a result of the reorganization proceedings, the unaudited condensed
consolidated financial statements and notes thereto were subject to material
uncertainties, the outcome of which were not then determinable. The Company's
unaudited condensed consolidated financial statements for periods prior to the
Effective Date were prepared on a going concern basis and do not include any
adjustments for the effect of any changes which were made in connection with the
Company's recapitalization or operations resulting from a plan of
reorganization.
The unaudited condensed consolidated financial statements reflect
accounting principles and practices set forth in American Institute of Certified
Public Accountants Statement of Position ("SOP") 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code," which provides guidance
for financial reporting by entities that have filed voluntary petitions for
relief under, and have reorganized in accordance with, the Bankruptcy Code.
In accordance with SOP 90-7, the Company did not accrue interest on its
prepetition interest bearing obligations during bankruptcy as it was unlikely
such interest would be paid under the Plan. The amount of such unaccrued
contractual interest during the three and six month periods ended June 30, 1997
was approximately $3,950,000 and $7,850,000, respectively.
7
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
The financial statements reflect, in the opinion of management, all
adjustments, which are of a normal recurring nature, and those adjustments
required to adopt fresh-start reporting as described below which are necessary
to present fairly the Company's financial position and results of operations.
Capitalized terms have the meanings defined throughout the Notes to Condensed
Consolidated Financial Statements.
The Company's FunCenters typically experience seasonal fluctuations in
their revenues, with generally higher revenues occurring in the first quarter of
the year due to the fact that many of the Company's facilities are located in
cold weather regions where children are unable to play outside during this time
of the year. Operating results of interim periods are not necessarily indicative
of results that may be expected for the year ending December 31, 1998.
(2) JOINT PLAN OF REORGANIZATION AND EXIT FINANCING
In November 1996, the Company filed with the Bankruptcy Court a Joint
Plan of Reorganization (the "Plan") with Birch which set forth a plan for
repaying or otherwise compensating the Company's creditors in order of relative
seniority of their respective claims while seeking to maintain the Company as a
going concern. On July 18, 1997, the Plan was approved by the requisite number
of creditors in each class and confirmed by the Bankruptcy Court. The Plan
became effective on July 29, 1997 and the Company emerged from bankruptcy as of
that date.
The Plan, among other things, provided for (i) the payment in full of
certain administrative claims against the Company (those claims which arose
after the Petition Date); (ii) conversion of substantially all of the Company's
liabilities subject to compromise (excluding taxes payable, lease assumption
payments and certain other prepetition liabilities permitted under the Plan) to
an equity interest in the Company, and (iii) cancellation of all of the
prepetition equity interests in the Company, all as more fully described in the
Plan. Birch had purchased certain prepetition claims from the original banks
providing a credit facility to the Company, resulting in ownership of 55.7% of
the common stock of the reorganized Company ("Common Stock").
Pursuant to the Plan, substantially all the Company's prepetition
unsecured liabilities were converted to equity in exchange for units consisting
of nine shares of Common Stock and a ten-year warrant to purchase one share of
Common Stock at a price of $17.55 (the "Ten Year Warrants"). Such unsecured
creditors will receive 4,000,000 shares of Common Stock and 444,444 shares of
Common Stock have been reserved for issuance in connection with the Ten Year
Warrants.
8
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In connection with its emergence from bankruptcy, the Company raised
$100 million through the issuance of $15 million of Convertible Redeemable
Preferred Stock ("Preferred Stock") and $85 million of 13.5% Senior Secured
Notes with Warrants, resulting in $93.8 million of net proceeds to the Company
after deducting related offering costs (the "Exit Financing"). The proceeds were
used to repay the Company's debtor-in-possession credit facilities and certain
bankruptcy administrative claims and reorganization costs incurred in connection
with the Company's emergence from bankruptcy and to fund the Bond Interest
Escrow Account, which is reflected as Restricted Cash and Investments in the
accompanying condensed consolidated balance sheets. The Senior Secured Note
holders also received warrants (the "Warrants") to purchase 805,154 shares of
Common Stock at $.01 per share exercisable through August 1, 2007, which
represented approximately 12.5% of the fully diluted shares of Common Stock
after giving effect to the exercise of the Warrants and the Ten Year Warrants
and conversion of the Preferred Stock. A portion of the proceeds from the Senior
Secured Notes was allocated to the Warrants (See Note 4).
The Preferred Stock is convertible at any time into 1,191,626 shares of
Common Stock at an effective conversion price of $12.59 per common share. The
Preferred Stock represented approximately 18.5% of the fully diluted shares of
Common Stock after giving effect to the exercise of the Warrants and the Ten
Year Warrants. The terms of the Preferred Stock include a liquidation
preference, the right to receive dividends, if paid, voting rights, Board of
Directors representation and redemption upon (i) the earlier to occur of a
merger, the sale of substantially all the Common Stock or assets of the Company
or other change of control, or (ii) 180 days prior written notice from any
holder at any time 62 months after the Effective Date.
As part of the Plan, a stock option plan was established. Pursuant to
certain executive employment contracts, options to purchase shares of Common
Stock have been granted to senior executives of the Company at an exercise price
of $11.88 per share. A total of 715,692 shares of Common Stock were reserved for
issuance under the Company's stock option plan.
Approximately 3,157,000 shares of Common Stock were reserved for
issuance in connection with the exercise of all warrants, and options and
conversion of the Preferred Stock. (See Note 8.)
(3) FRESH START REPORTING
Upon emergence from its Chapter 11 proceedings, the Company adopted
fresh start reporting pursuant to the provisions of SOP 90-7. In accordance with
SOP 90-7, assets and liabilities were restated as of July 31, 1997 to reflect
the reorganization value of the Company, which approximates their fair value at
the Emergence Date. In addition, the accumulated deficit of the Company through
the Emergence Date was eliminated and the debt and capital structure of the
Company was recast pursuant to the provisions of the Plan. Thus, the
accompanying condensed consolidated statements of operations and cash flows for
periods prior to the Company's emergence from bankruptcy (the "Predecessor
Company") are not comparable to the results of operations and cash flows of the
Company subsequent to emergence from bankruptcy and the adoption of fresh start
reporting (the "Successor Company").
9
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A reorganization value of the Company's common equity of approximately
$70,200,000 was determined by the Company with the assistance of financial
advisors. These advisors (1) reviewed certain historical information for recent
years and interim periods; (2) reviewed certain internal financial and operating
data including financial projections; (3) met with senior management to discuss
operations and future prospects; (4) reviewed publicly available financial data
and considered the market value of public companies deemed generally comparable
to the Company's operating business; (5) considered certain economic and
industry information relevant to the operating business; (6) reviewed a five-
year forecast prepared by the Company; and (7) conducted such analysis as
appropriate. Based upon the foregoing, the financial advisors developed a range
of values for the Company as of the Effective Date. In developing this valuation
estimate the advisors, using rates of 30% to 35%, discounted the Company's five-
year forecasted free cash flows and an estimate of sales proceeds assuming the
Company would be sold at the end of the five-year period within a range of
comparable Company multiples.
The difference between the Company's reorganized value and a
revaluation of the Company's assets and liabilities resulted in an unallocated
reorganization value of approximately $24,829,000, which was included in
property and equipment in the consolidated balance sheet at December 31, 1997,
net of recorded amortization. During the second quarter of 1998, the Company
completed its allocation of reorganization value as required under fresh start
reporting, pursuant to which approximately $17,226,000 of such amount was
attributed to the Company's trademarks and the balance remained as property and
equipment. This allocation was based on a review of the Company's property and
equipment and an appraisal of the Company's trademarks.
(4) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
Successor Company
----------------- -----------------
June 30, 1998 December 31, 1997
------------- -----------------
(Unaudited)
<S> <C> <C>
Senior Facility (a) $ 7,197 $ --
13.5% Senior Secured Notes due 2002, net of unamortized
discount of $6,137 and $6,652 at June 30, 1998 and
December 31, 1997, respectively (b) 78,863 78,348
Secured Rejection Note (c) 4,416 4,416
Secured Rent Deferral Notes (c) 630 429
Prepetition Tax Claims (d) 5,000 5,000
-------- --------
96,106 88,193
Less current portion (1,102) (1,102)
--------- ---------
Long-term debt $ 95,004 $ 87,091
========= =========
</TABLE>
- -----------
(a) On March 31, 1998, the Company entered into a $10 million Senior
Secured Revolving Credit Facility (the "Senior Facility") with Foothill
Capital Corporation as permitted under the Senior Secured Notes (as
defined herein). The Senior Facility bears interest at prime plus 1%, plus
certain fees, and allows for the Company to borrow 133% of trailing
twelve-month FunCenter contribution (as defined therein) for its top 100
performing FunCenters, up to a maximum loan principal amount of $10
million. The Senior Facility contains restrictions on additional
indebtedness, capital expenditures, and dividends, is secured by
substantially all of the Company's assets and has cross-default provisions
with other obligations of the Company. $2.0 million of the Senior Facility
is reserved for resolution of certain disputes in connection with the
Company's renovation program (see Note 7).
(b) In connection with its exit financing to emerge from bankruptcy, the
Company issued $85,000,000 of 13.5% Senior Secured Notes due August 1,
2002 (the "Private Senior Secured Notes") and the Warrants. A value of
approximately $7,050,000 was allocated to the Warrants based upon their
estimated fair value at the time of the issuance, representing the
original issue discount on the Private Senior Secured Notes. The Private
Senior Secured Notes are secured by substantially all the assets of the
Company and interest is payable quarterly beginning November 1, 1997. A
separate
10
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
interest escrow account was established with the trustee to fund
interest payments through August 1, 1999. The interest escrow
account balance totaled approximately $13,756,000 consisting of
treasury securities and accrued interest thereon, at June 30, 1998.
The Company consummated an offer to exchange $85,000,000 aggregate
principal amount of its 13.5% Senior Secured Notes due 2002 (the "Exchange
Senior Secured Notes"), which have been registered under the Securities
Act of 1933 pursuant to a Registration Statement on Form S-4, for
$85,000,000 aggregate principal amount of the outstanding Private Senior
Secured Notes (the Private Senior Secured Notes together with the Exchange
Senior Secured Notes, the "Senior Secured Notes").
The Senior Secured Notes contain restrictions on additional indebtedness
and cross-default provisions with other obligations of the Company. Among
other things, the Company is permitted to have outstanding up to $10
million of senior secured indebtedness and up to $5 million of new
indebtedness arising from sale and leaseback transactions, capital lease
obligations, or purchase money obligations.
(c) The McDonald's Secured Rejection Note was $4,416,000 at the Emergence
Date and is evidenced by a six- year note payable requiring annual
principal payments of approximately $736,000. The Secured Rejection Note
bears interest at 11% payable annually.
The Company's obligations to repay certain rent deferrals granted by
McDonald's pursuant to the McDonald's Stipulation are evidenced by nine
notes due upon the expiration of each initial sublease term (the "Secured
Rent Deferral Notes"). The rent deferrals total currently $398,196 per
year and, when combined with the initial Emergence Date principal balance
of approximately $266,000, will total approximately $2,567,000 over the
next seven years. The notes bear interest at 11% per annum payable at
maturity and have maturity dates ranging from August 31, 2002 to December
31, 2004.
The Secured Rejection Note and the Secured Rent Deferral Notes are secured
by first mortgages or deeds of trust on fourteen properties owned by the
Company including three undeveloped parcels of land with a book value of
$2,747,000 at June 30, 1998, which are included in Land Held for Sale in
the Company's Consolidated Balance Sheet. The notes contain certain
cross-default provisions including cross-defaults among themselves, with
the McDonald's subleases and with other indebtedness of the Company in
excess of $2.5 million.
(d) The prepetition tax claims (the "Tax Claims") represent taxes assessed
prior to the Company filing for bankruptcy and have an estimated aggregate
principal amount of $5 million. The Tax Claims have maturities of up to
six years from the original date of assessment and require payment of
principal amounts in equal annual installments. The majority of the Tax
Claims accrue simple interest at 10% per annum payable with each annual
principal installment. The remainder accrue interest at 12% per annum.
(5) LOSS PER COMMON SHARE
Loss per common share is calculated based upon the weighted average
number of common shares outstanding during the periods presented. Common
equivalents outstanding during the period and common shares issuable upon
assumed conversion of the Preferred Stock and other potentially dilutive
securities have not been included in the computation of diluted loss per share
as their effect is antidilutive for all relevant periods presented. Shares of
Common Stock to be issued to unsecured creditors pursuant to the Plan have been
reflected as outstanding as of the Effective Date for purposes of calculating
the weighted average common shares outstanding in the accompanying unaudited
condensed consolidated statement of operations for the three and six month
periods ended June 30, 1998.
11
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(6) RELATED PARTY TRANSACTIONS
An officer of Griffin Bacal, Inc. ("Griffin Bacal"), the Company's
advertising agency, serves as a director of the Successor Company. The Company
paid approximately $1,573,000 and $4,140,000 to Griffin Bacal for creative
services and as agent for purchase of media from third parties during the three
and six month periods ended June 30, 1998, respectively.
(7) COMMITMENTS AND CONTINGENCIES
During the fourth quarter of 1997, the Company began an extensive
FunCenter renovation program to broaden their entertainment offerings and
upgrade their facilities, which was broader in scope and costlier than
originally planned. During the first phase of this program, the Company
renovated approximately 60% of its FunCenters and expects to complete
renovations of an additional 15% of its FunCenters by the end of 1998 subject to
available financing (see Note 8). To date, the Company also completed the
conversion of approximately 75% of its FunCenters to permit the sale of Pizza
Hut items and renovated approximately 25% of its locations to offer new weekday
programs under the "DZU" brand name. Through July 31, 1998, the Company has
incurred or committed approximately $28 million in connection with these
programs, including excess billings from general contractors which the Company
is disputing, and approximately $3 million of advance purchases for future
renovation phases.
From time to time, the Company is a party to lawsuits and other legal
matters, including claims relating to injuries which allegedly occurred at the
Company's facilities and to alleged employment discrimination. A portion of
these claims may be covered by insurance. Management has estimated the potential
liabilities resulting from such claims which arose subsequent to the Petition
Date and which are not covered by insurance to be approximately $4,189,000 at
June 30, 1998 and $3,347,000 at December 31, 1997. These amounts are recorded in
accrued liabilities and other long-term liabilities in the accompanying
condensed consolidated balance sheets. Because these amounts represent
estimates, it is reasonably possible that a change in these estimates may occur
in the future.
(8) SUBSEQUENT EVENTS -- ADDITIONAL FINANCING
On July 17, 1998 the Company completed a $29.5 million financing from
the sale of $9.5 million of 14.5% Cumulative Preferred Stock (the "New Preferred
Stock") and $20 million of aggregate principal amount of 13.5% Senior
Collateralized Notes due 2002 ("New Notes"), both together with warrants to
purchase approximately 99.6% of the fully diluted Common Stock for a nominal
purchase price. The offering resulted in net proceeds to the Company of
approximately $27 million after costs and expenses. The proceeds of the offering
(i) were used to repay outstanding borrowings under the Company's Senior
Facility, (ii) were used to purchase $2.8 million of U.S. Treasury Securities
that were placed in escrow and pledged as security for scheduled interest
payments through August 1, 1999 on the New Notes and (iii) are available for
working capital, capital expenditures and other general corporate purposes. In
addition $1 million of existing Preferred Stock was exchanged for $1 million of
New Preferred Stock.
The New Preferred Stock was issued in two series, has an aggregate
liquidation preference of $10 million, a mandatory redemption date of November
1, 2002 and accumulates dividends at an annual rate of 14.5%, compounded
quarterly. Purchasers of the New Preferred Stock, which consisted primarily of
existing common and preferred stockholders, also received warrants to purchase
an aggregate of 50.6% of the fully diluted Common Stock for a nominal exercise
price. DZ intends to launch a rights offering to existing holders of Common
Stock to allow them to purchase units of New Preferred Stock and warrants on
substantially the same terms as were offered to the purchasers of the Series B
Preferred Stock Units.
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DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The terms of the New Notes are substantially the same as the Company's
existing 13.5% Senior Secured Notes due August 1, 2002 (the "Senior Secured
Notes"), rank pari-passu in right of repayment and are due May 1, 2002. The
priority of claims on the collateral securing the Senior Secured Notes are
subordinated to the priority of claims on the collateral securing the New Notes.
Purchasers of the New Notes also received two series of warrants to purchase
approximately 49% of the fully diluted Common Stock for a nominal exercise
price. If the Company redeems the New Notes prior to the end of 1999 and meets
certain other conditions, a portion of these warrants aggregating of 9% of the
fully diluted Common Stock will be redeemed or canceled at no additional cost to
the Company. The Company obtained the required consents to issue the New Notes
from holders of the Senior Secured Notes and to increase the Senior Facility to
$15 million. The Company is obligated to register the New Notes within six
months of issuance.
In connection with this financing, the Company increased the number of
shares of Common Stock authorized for issuance to 2.4 billion and a holder of
the New Preferred Stock Units exercised warrants to purchase 426,333,492 shares
of Common Stock. Accordingly, subsequent to the financing, the number of shares
of Common Stock outstanding was 430.3 million and the number of shares of Common
Stock reserved for issuance in connection with the exercise of all warrants,
options and preferred stock conversions was approximately 1.8 billion.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis relates to the Company's
historical financial results of operations and financial condition, without
giving pro forma effect to the restructuring of the Company which occurred in
connection with the Plan of Reorganization and the implementation of the
Turnaround Plan, except to the extent that such restructuring had occurred prior
to the end of the periods discussed. As a result, management does not believe
that results of operations in future periods will be comparable to prior
periods. This discussion and analysis should be read in conjunction with the
Company's condensed consolidated financial statements and the notes thereto
appearing elsewhere in this report on Form 10-Q.
Overview
The Company is the leading owner and operator of pay-for-play
children's entertainment centers in North America, with a national network of
202 FunCenters in 39 states, Puerto Rico and Canada targeted at children ages
two to 12 and two Block Party Stores which target adult customers.
The Company generates revenue primarily from the operation of the
FunCenters. FunCenter revenues are derived from: (i) admission charges; (ii)
food and beverage sales; (iii) redemption game and other concession revenue; and
(iv) birthday party fees. The Company's revenues are subject to significant
quarterly variations based upon several factors, including seasonal changes in
weather, holidays and the school calendar. The Company experienced negative
comparable store sales while operating in Chapter 11 and this trend continued
through December 1997. Among other factors, comparable store revenues declined
because the Company (a) shortened FunCenter operating hours by approximately 18%
to curtail operations during unprofitable time periods, (b) reduced its
marketing expenditures (see below), and (c) did not update its product offering
while in Chapter 11. The Company also experienced a decline in sales during the
recent renovation of the FunCenters and expects future renovation to temporarily
reduce sales during the renovation period.
The Company's operating expenses at the store level consist primarily
of food and beverage costs, the cost of game merchandise, labor costs, occupancy
and maintenance expense. As a substantial portion of store operating expenses,
including occupancy costs, facility maintenance and core staffing requirements
are fixed, the Company has a high degree of operating leverage. The Company has
reduced its rent expense through renegotiation of certain store leases and,
since the Effective Date, has generated additional annual cost savings at the
store level on a comparable store basis through cost containment measures and
improved financial controls.
The Company incurred substantial restructuring costs while operating
under Chapter 11, including the costs of relocating the Company's headquarters,
terminating certain employees and rejecting selected store leases. A portion of
these costs were discharged in connection with the Plan and other amounts were
repaid with the proceeds of the offering of the Units (as defined herein) and
the Preferred Stock.
The Company is currently implementing its Turnaround Plan, which
consists of a number of cost-cutting and revenue enhancing initiatives,
including an extensive FunCenter renovation program to enhance its product
offerings, improved food and beverage offerings, a revamped marketing and
promotional campaign and an enhanced hiring and training program for store
managers. Through July 31, 1998, the Company had renovated approximately 60% of
the FunCenters, which enables such stores to offer new products that have been
developed by the Company in conjunction with its entertainment and promotional
partners, and converted approximately 75% of its FunCenters to offer Pizza Hut
products. Per-customer spending on food has increased in those FunCenters
offering Pizza Hut menu items since conversion.
Comparable store revenues during the second quarter of 1998 were down
5.3%, as compared to a decline of 11.6% during the second quarter of 1997 and an
increase of 4% in the first quarter of 1998. During the first six
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months of 1998, comparable store revenues declined 0.2%, compared to a 17.7%
decline in comparable store revenues in the first six months of 1997. This
decline in comparable store revenues for the first six months of 1998 consisted
of a 10.5% increase in general admission revenues, offset primarily by decreases
in birthday party and game revenues. During the first six months of 1998, 94
stores (46.5% of total stores) had increased comparable store revenues as
compared to 10 stores (5.0 % of total stores) in the 1997 period, and 163 stores
(80.7% of total stores) had increased general admission revenue as compared to
11 stores (5.5% of total stores) in the 1997 period.
In spite of improvements relative to the comparable period of the prior
year, the Company's revenues in the first six months of 1998 were less than
expected due to (i) construction delays in completing its FunCenter renovation
program and related business disruptions, (ii) corresponding delays in launching
certain marketing and promotional programs, (iii) unseasonably warm spring
weather in many parts of the United States, which diminished demand for a
variety of indoor entertainment activities and (iv) transitional staffing and
training expenses associated with the introduction of new entertainment
attractions at FunCenters.
As a result of these factors, the Company experienced negative
comparable store sales and negative EBITDA (as defined herein) for the second
quarter of 1998. The Company required additional capital to continue funding its
operations and implementing the Turnaround Plan and consummated a $29.5 million
financing on July 17, 1998. See "Liquidity and Capital Resources."
Results of Operations
Upon emergence from Chapter 11, the Company adopted Fresh Start
Accounting. Thus the Company's balance sheets and statements of operations and
cash flows after the Effective Date reflect a new reporting entity (the
"Successor Company") and are not comparable to periods prior to the Effective
Date (the "Predecessor Company").
The three and six month periods ended June 30, 1997 and 1998 include
the results of the Predecessor Company and the Successor Company, respectively.
The principal differences between these periods relate to reporting changes
regarding the Company's capital structure and indebtedness and the revaluation
of the Company's long-term assets, which primarily affect depreciation and
amortization expense and interest expense in the Company's results of
operations.
Comparison of the Three Months Ended June 30, 1998 and 1997
Revenue. The Company had revenue of $29.5 million during the second
quarter of 1998, a decrease of 9.1% from revenue of $32.5 million during the
second quarter of 1997. This decrease was comprised of a 5.3% decrease in
comparable store sales during the 1998 period from the 1997 period (as compared
to a 11.6% decline the 1997 period) and a decline in the number of FunCenters
open during the 1998 period as compared to the 1997 period. Revenues during the
second quarter of 1998 were adversely affected due the factors set forth in
"Overview."
Cost of Goods Sold. Cost of goods sold, which consists primarily of the
cost of food, redemption merchandise and other product sales, was $4.9 million
and $5.4 million during the second quarter of 1998 and 1997, respectively. As a
percentage of revenue, cost of goods sold remained constant at 16.6% for the
1997 and 1998 periods, despite an increase in costs associated with new product
offerings, due to cost reductions attributable to simplified product offerings,
improved cost management and lower costs associated with the conversion to a new
food and supply vendor.
Store Operating Expenses. Store operating expenses, which consist
primarily of compensation and benefits of FunCenter operating personnel,
occupancy expenses and facility repair and maintenance expenses, were $25.0
million and $24.2 million during the second quarter of 1998 and 1997,
respectively ($24.6 million and $24.5
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million, respectively before GAAP Rent Adjustments). This increase was
attributable to increased labor costs associated with the Company's new product
offerings, offset by reductions in central reservation expenses and other cost
savings generated through the Company's cost reduction program and store
closings. During the second quarter of 1998, store operating expenses included
certain non-recurring costs resulting from training and start-up expenses for
new product offerings and disruptions related to the FunCenter renovation
program.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, which include salaries, corporate and regional
management expenses and other administrative, promotional and advertising
expenses, were $6.9 million and $4.7 million during the second quarter of 1998
and 1997, respectively. This increase was primarily attributable to an increase
in sales and marketing programs associated with the Company's Turnaround Plan
during the 1998 period as compared to the 1997 period.
Depreciation and Amortization Expense. Depreciation and amortization
expenses were $5.4 million and $5.1 million during the second quarter of 1998
and 1997, respectively. During the 1998 period this expense reflected
depreciation and amortization expense related to an increase in the carrying
value of the Company's trademarks and property and equipment as a result of its
adoption of Fresh Start Accounting for the Successor Company.
Interest Expense. Interest expense was $3.8 million and $1.3 million
during the second quarter of 1998 and 1997, respectively. Reported interest
expense for the Predecessor Company did not include interest on pre-petition
indebtedness which was suspended during the Company's reorganization under
Chapter 11. Had these interest costs been accrued, reported interest expense for
the 1997 period would have been $5.3 million.
Interest Income. The Company reported interest income of $258,000
during the second quarter of 1998. No interest income was recorded in the second
quarter of 1997. The increase was due to earnings from the Interest Escrow
Account and short-term investment of proceeds from the Company's offering of
Units and Convertible Preferred Stock in the exit financing.
Reorganization Items. Reorganization items of $2.6 million were
incurred by the Company during the second quarter of 1997 during its
reorganization under Chapter 11. These reorganization items primarily consisted
of professional fees.
EBITDA. The Company reported negative EBITDA (Earnings before
Interest, Taxes, Depreciation and Amortization) for the second quarter of 1998
of $6.8 million before reorganization items and non-cash GAAP rent adjustments
which were affected by fresh start accounting ("GAAP Rent Adjustments"), and
$7.2 million after such adjustments, compared to negative EBITDA of $2.1 million
before such adjustments, and $4.4 million after such adjustments, in the
comparable prior year period. This decline was primarily attributable to lower
revenue and increased expenditures for sales and marketing programs.
Comparison of the Six Months Ended June 30, 1998 and 1997
Revenue. The Company had revenue of $70.2 million during the first six
months of 1998, a decrease of 1.5% from revenue of $71.3 million during the
first six months of 1997. This decrease was comprised of a 0.2% decrease in
comparable store sales during the 1998 period over the 1997 period (as compared
to a 17.7% decline in the 1997 period) and a reduction of revenue attributable
to fewer FunCenters being open during the 1998 period as compared to the 1997
period, offset in part by $1.3 million of additional sponsorship revenue during
the 1998 period. Improvements in comparable store revenue trends was primarily
due to a 10.5% increase in general admission revenue offset by declines in
birthday party and game revenues. Revenues during the second quarter of 1998
were adversely affected by the factors set forth in "Overview."
Cost of Goods Sold. Cost of goods sold, which consists primarily of the
cost of food, redemption merchandise and other product sales, was $11.2 million
and $12.6 million during the first six months of 1998 and
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1997, respectively. As a percentage of revenue, cost of goods sold declined from
17.7% in the 1997 period to 15.9% in the 1998 period. This reduction was
primarily attributable to simplified product offerings, improved cost management
and lower costs associated with the conversion to a new food and supply vendor,
offset by increases due to new product offerings.
Store Operating Expenses. Store operating expenses, which consist
primarily of compensation and benefits of FunCenter operating personnel,
occupancy expenses and facility repair and maintenance expenses, were $53.1
million and $50.6 million during the first six months of 1998 and 1997,
respectively ($52.3 million and $51.1 million, respectively, before GAAP Rent
Adjustments). As a percentage of total revenues, store operating expenses
increased from 70.9% in the 1997 period to 75.7% in the 1998 period. This
increase was attributable to increased labor costs associated with the Company's
new product offerings, offset by reductions in central reservation expenses and
other cost savings generated through the Company's cost reduction program and
store closings. During the first six months of 1998, store operating expenses
included certain non-recurring costs resulting from training and start-up
expenses for new product offerings and disruptions related to the FunCenter
renovation program.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, which include salaries, corporate and regional
management expenses and other administrative, promotional and advertising
expenses, were $12.7 million and $9.1 million during the first six months of
1998 and 1997, respectively. This increase was primarily attributable to an
increase in sales and marketing programs associated with the Company's
revitalization plan during the 1998 period as compared to the 1997 period.
Depreciation and Amortization Expense. Depreciation and amortization
expenses were $10.8 million and $10.2 million during the first six months of
1998 and 1997, respectively. During the 1998 period this expense reflected
depreciation and amortization expense related to an increase in the carrying
value of the Company's trademarks and property and equipment as a result of its
adoption of Fresh Start Accounting for the Successor Company.
Interest Expense. Interest expense was $7.5 million and $2.5 million
during the first six months of 1998 and 1997, respectively. Reported interest
expense for the Predecessor Company did not include interest on petition
indebtedness which was suspended during the Company's reorganization under
Chapter 11. Had these interest costs been accrued, reported interest expense for
the 1997 period would have been $10.3 million.
Interest Income. The Company reported interest income of $591,000
during the first six months of 1998. No interest income was recorded in the
first six months of 1997. The increase was due to earnings from the Interest
Escrow Account and short-term investment of proceeds from the Company's offering
of Units and Convertible Preferred Stock in the exit financing.
Reorganization Items. Reorganization items of $4.1 million were
incurred by the Company during the first six months of 1997 during its
reorganization under Chapter 11. These reorganization items primarily consisted
of professional fees.
EBITDA. The Company reported negative EBITDA for the first six months
of 1998 of $5.9 million, before reorganization items and non-cash GAAP rent
adjustments which were affected by fresh start accounting ("GAAP Rent
Adjustments"), and $6.8 million after such adjustments, compared to negative
EBITDA of $1.5 million before such adjustments, and $5.0 million after such
adjustments, in the comparable prior year period. This decline was primarily
attributable to lower revenues during the second quarter of 1998 as compared to
the prior year period and increased expenditures for sales and marketing
programs.
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Liquidity and Capital Resources
The Company does not require significant working capital to operate
because it does not have significant receivables or inventory and utilizes trade
credit in purchasing food products and other supplies. The Company requires cash
primarily to finance capital expenditures to maintain and upgrade existing
stores and to fund operating losses and debt service. Following the
implementation of its Turnaround Plan, the Company will also need cash to build
new stores. Historically, the Company has met these liquidity requirements
primarily through external financing, including through the issuance of debt and
equity securities and borrowings under revolving credit facilities, as well as
through cash flow generated by operating activities.
In connection with the Plan of Reorganization, substantially all of the
Company's pre-petition debt facilities and other obligations to creditors were
restructured, repaid or eliminated, including certain pre-petition tax claims,
the McDonald's Note and the McDonald's Rent Deferral Secured Notes. Upon
emerging from Chapter 11, the Company issued (a) units (the "Units") consisting
of $85.0 million aggregate principal amount of Senior Secured Notes and Warrants
and (b) $15.0 million of Preferred Stock. The net proceeds of the offerings of
the Units and Preferred Stock totaled $93.8 million. Of that amount, the Company
(i) repaid borrowings, claims and expenses incurred while under Chapter 11 of
$45.5 million, (ii) purchased an aggregate of $21.6 million of securities,
consisting of U.S. Treasury Securities, that were placed in escrow (the
"Escrowed Interest Account") and pledged as security for scheduled interest
payments on the Senior Secured Notes through August 1, 1999, and (iii) applied
$26.7 million to finance capital expenditures, and provide capital for working
capital and other general corporate purposes.
The Company holds for sale certain parcels of undeveloped land which
secure the McDonald's Senior Secured Notes. To the extent such sales occur prior
to the due date for debt services, the net proceeds for such sales would be
available to be applied to such payments.
On March 31, 1998, the Company entered into a $10.0 million Senior
Secured Revolving Credit Facility with Foothill Capital Corporation (the "Senior
Facility") as permitted under the Indenture (the "Secured Notes Indenture"),
dated as of July 22, 1997, among the Company, the guarantors named therein and
State Street Bank and Trust Company, trustee. The Senior Facility bears interest
at prime plus 1% plus certain fees and allows the Company to borrow 133% of the
12-month trailing FunCenter contribution (as defined therein) for its 100 top
performing FunCenters up to a maximum principal amount of $10.0 million. As of
July 31, 1998, the Company had the ability to borrow $10 million, subject to a
$2.0 million reserve for certain contractor disputes. See "Financial Statements
- -- Senior Secured Notes to Unaudited Condensed Consolidated Financial
Statements."
The Company is also permitted under the Secured Notes Indenture to
incur up to $5.0 million of new indebtedness under sale and leaseback
transactions, capital lease obligations or purchase money obligations and
recently received the consent from holders of the Senior Secured Notes to
increase the Senior Facility to $15 million, although there can be no assurance
that the Company will be able to enter into a new or amended credit facility
providing for such an increase.
During the fourth quarter of 1997, the Company began an extensive
FunCenter renovation program designed to broaden their entertainment offerings,
upgrade their facilities and give them a "new look." This renovation program was
much broader in scope and costlier than originally planned. During the first
phase of this program, the Company renovated approximately 60% of its
FunCenters, and expects to complete renovations for an additional 15% of its
FunCenters by the end of 1998. Through July 31, 1998, the Company also completed
the conversion of approximately 75% of its FunCenters to permit the sale of
Pizza Hut menu items and renovated approximately 25% of its locations to offer
new weekday programs under the "DZU" brand name. Through July 31, 1998, the
Company has incurred or committed approximately $28 million in connection with
these programs, including excess billings from general contractors which the
Company is disputing, and approximately $3 million of advance purchases for
future renovation phases. The Company estimates that the cost to complete the
renovation of
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an additional 15% of its FunCenters, excluding advanced purchases referred to
above will be approximately $2 to $3 million.
During the six months ended June 30, 1998 and 1997, cash used by
operations was $1.8 million and $5.1 million, respectively, before
reorganizations items. The decrease in cash used in operations was primarily
attributable to increases in payables and accrued expenses in the 1998 period
related to the Company's renovation program.
At June 30, 1998, the Company had an unrestricted cash balance of
approximately $400,000 and borrowings under its Senior Facility of $7.2 million.
The Company repaid all outstanding amounts under the Senior Facility in July
1998 using the proceeds from the offerings of the New Notes and the New
Preferred Stock (each as defined herein). The Company also had $13.8 million in
cash and investments in the Escrowed Interest Account as of June 30, 1998, which
amount is dedicated to making scheduled payments of interest on the Senior
Secured Notes through August 1, 1999.
On July 17, 1998 the Company completed a $29.5 million financing from
the sale of $9.5 million of 14.5% Cumulative Preferred Stock (the "New Preferred
Stock") and $20 million of aggregate principal amount of 13.5% Senior
Collateralized Notes due 2002 (the "New Notes"), both together with warrants to
purchase approximately 99.6% of the fully diluted common stock of the Company
for a nominal purchase price. The offerings resulted in net proceeds to the
Company of approximately $27 million after costs and expenses which (i) were
used to repay outstanding borrowings under the Company's Senior Facility, (ii)
were used to purchase $2.8 million of U.S. Treasury Securities that were placed
in escrow and pledged as security for scheduled interest payments on the $20
million of New Notes through August 1, 1999 and (iii) are available for working
capital, capital expenditures and other general corporate purposes. In addition
$1 million of existing Preferred Stock was exchanged for $1 million of New
Preferred Stock. See Note 8 to the Unaudited Condensed Consolidated Financial
Statements.
If the Company's renovation program is further delayed or costs more
than currently expected, or if results of operations do not improve sufficiently
to generate positive cash flow from operations, later phases of the Company's
renovation program would be delayed and the Company could require additional
financing for working capital and to complete its renovation program.
Historically, the cash necessary to complete the Company's capital expenditure
program, fund operating losses, if any, and working capital has been provided by
the Company's financing activities, including from the proceeds from the sale of
debt and equity securities, and equipment financing, and under the Company's
Senior Facility. Should operating cash flow of existing FunCenters increase to a
level beyond that which is needed to maintain its operations and service its
outstanding indebtedness, the Company also expects to use such cash to fund
capital expenditures at existing FunCenters or to build new FunCenters. If
operating cash flows do not so increase, or additional capital is not raised, it
is unlikely that additional FunCenters, beyond those anticipated to be renovated
in 1998, will be renovated.
If the Company continues to generate negative operating cash flow, less
capital will be available for its renovation program, which may, in turn,
adversely impact implementation of the Company's Turnaround Plan and thus,
future operating results. In the event that the results of its business strategy
are not sufficient for the Company to generate positive cash flow from
operations, or take longer than expected, the Company is likely to need
additional financing for debt service, working capital and later phases of the
renovation program.
Seasonality
The Company's FunCenters experience seasonal fluctuations in their
revenues, with higher revenues occurring in the first quarter of the year due to
the fact that many FunCenters are located in cold weather regions where children
are unable to play outside during this time of year. In 1997, the FunCenters
generated 30% of their revenue in the first quarter versus 25%, 24% and 22% in
the second, third and fourth quarters, respectively. These fluctuations in
revenues are primarily related to the school year and the weather.
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DISCOVERY ZONE, INC.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
Changes in Securities
In connection with its offerings of New Notes and New Preferred Stock
(the "Offering"), the Company obtained the consent from holders of a majority in
aggregate principal amount of the Senior Secured Notes to amend certain
provisions and waive certain covenants of the Secured Notes Indenture and to
enter into a supplemental indenture thereto. The Offering closed on July 17,
1998.
Waivers
The Company received the following waivers which were necessary to
permit the Offering, including:
(i) a waiver of the "Limitation on Incurrence of Additional
Indebtedness and Issuance of Preferred Stock" covenant to permit the
Company to issue up to $20 million of New Notes without meeting the
tests currently required by such covenant for the incurrence of
additional indebtedness;
(ii) a waiver of the "Limitation on Liens" covenant to permit
the Company to incur additional liens on collateral securing the
Senior Secured Notes in connection with the issuance of the New Notes
(which liens are senior in priority to the liens on the collateral
securing the Senior Secured Notes);
(iii) a waiver of the "Impairment of Security Interest" covenant
to permit the Company to enter into an indenture, an intercreditor
agreement and certain related agreements with respect to the New
Notes pursuant to which the holders of New Notes were granted
security interests in and liens on certain collateral securing the
New Notes;
(ii) a waiver of certain provisions of the Secured Notes
Indenture providing that the trustee thereunder could execute a new
intercreditor agreement providing for liens on the New Notes that are
senior in priority of payment to the Senior Secured Notes, that the
New Notes be fully secured and that holders of the New Notes be
permitted to apply for, and that holders of Senior Secured Notes not
object to, any application for adequate protection in favor of the
holders of the New Notes in the event of a bankruptcy filing by the
Company.
Amendments
The Company obtained the necessary consents to amend certain
provisions of the Indenture to permit the Offering, including:
(i) amendments to the "Limitation on Restricted Payments"
covenant permitting the Company (A) to redeem and repurchase the New
Notes under certain circumstances, such as upon a change of control
and following certain asset sales, in each case on terms
substantially similar to the corresponding provisions of the Secured
Note Indenture (B) at the Company's option, upon the closing of
certain public equity offerings by the Company, to redeem up to 100%
of the original principal amount of the New Notes and to apply the
proceeds of such offerings to pay accrued and unpaid dividends on the
New
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Preferred Stock upon the conversion thereof into Common Stock; and
(C) to redeem or repurchase the warrants issued in connection with
any such public equity offerings under certain circumstances
(ii) an amendment to the definition of "Permitted Indebtedness"
to permit the Company to incur up to $20 million of additional
indebtedness in connection with the issuance of the New Notes,
(iii) an amendment to the "Limitation on the Incurrence of
Additional Indebtedness and Issuance of Preferred Stock" covenant to
permit certain subsidiaries of the Company to guarantee the New
Notes;
(iv) an amendment to the definition of "Permitted Liens" to
permit the Company, in connection with the issuance of the New Notes,
to incur additional liens on the collateral securing the Senior
Secured Notes;
(v) an amendment to the definition of "Permitted Investments"
to permit the Company to make investments in the New Notes;
(vi) amendments to the "Limitation on Impairment of Security
Interests" covenant, the "Grant of Security Interest" covenant, the
"Execution of Intercreditor Agreement" covenant, the "Release of
Collateral" covenant, the "Specified Releases of Collateral"
covenant, the "Authorization of Actions to Be Taken by the Trustee
Under the Collateral Agreements" covenant and the "Subordination of
Security Interest" covenant, in each case to permit the Trustee to
enter into an intercreditor agreement with respect to the New Notes;
(vii) amendments to the "Limitation on Merger, Consolidation and
Sale of Assets" covenant and the "Successor Corporation Substituted"
covenant, in each case to the extent necessary to require that any
successor corporation to the Company as a result of a merger,
consolidation, sale of assets or other transaction involving the
Company, assume the Company's obligations under an intercreditor
agreement with respect to the New Notes;
(viii) an amendment to the "Limitation on Incurrence of
Additional Indebtedness and Issuance of Preferred Stock" covenant to
permit the Company to incur additional secured indebtedness under an
amended or additional Senior Facility secured by a first priority
security interest in and lien upon, among other things, the
collateral securing the Senior Secured Notes;
(ix) an amendment to the "Limitation on Liens" covenant to
permit the Company to incur additional liens (which liens will be
senior in priority to liens securing collateral under the Senior
Secured Notes) in connection with an amended or additional Senior
Facility;
(x) an amendment to the "Impairment of Security Interest"
covenant to permit the Company and the trustee with respect to the
Senior Secured Notes to enter into an intercreditor agreement and
certain related agreements in connection with the incurrence of any
additional senior secured indebtedness pursuant to which the new
lenders thereunder will be granted a security interest and lien on
the collateral securing the Senior Secured Notes that will be senior
in priority to the security interests and liens securing collateral
under the Existing Notes;
(xi) amendments to the definitions of "Eligible Credit
Facility," "Intercreditor Agreement" and "Permitted Indebtedness" to
permit the Company to incur up to $5 million of additional senior
secured indebtedness under the "Limitation on the Incurrence of
Additional Indebtedness and Issuance of Preferred Stock" covenant;
and
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(xii) an amendment to the "Merger, Consolidation and Sale of
Assets" and the "Successor Corporation Substituted" covenants, in
each case to the extent necessary to require that any successor
corporation to the Company as a result of a merger, consolidation,
sale of assets or other transaction involving the Company, assume the
Company's obligations in connection with any intercreditor agreement
entered into in connection with any additional senior secured
indebtedness; and
(xiii) various amendments to the provisions of "Grant of
Security Interest" covenant, the "Execution of Intercreditor
Agreement" covenant, the "Release of Collateral" covenant, the
"Specified Releases of Collateral" covenant; the "Authorization of
Actions to Be Taken by the Trustee under the Collateral Agreements"
covenants and "Subordination of Security Interest" covenants to
permit the trustee with respect to the Senior Secured Notes to enter
into an intercreditor agreement with respect to the Senior Secured
Notes.
Use of Proceeds
The Company used approximately $2.8 million of the proceeds from the
offerings of New Notes and New Preferred Stock to purchase a portfolio of
securities, consisting of U.S. government securities, that were pledged as
security for the scheduled interest payments on the New Notes through August 1,
1999. The Company used approximately $8.0 million of such proceeds to repay
outstanding advances under the Senior Facility. Of the remaining net proceeds of
such offerings, the Company expects to use approximately $12.0 million to
finance capital expenditures and the remainder to pay certain obligations
incurred by the Company in connection with its store renovation program and for
general corporate purposes, including funding operating losses and changes in
working capital. Pending such uses, the proceeds from such offerings will be
invested in investment grade short-term interest-bearing securities or money
market funds.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
On July 14, 1998, a majority of the stockholders of the Company
authorized the Company by written consent to amend the Company's Amended and
Restated Certificate of Incorporation to, among other things, (i) increase the
authorized share capital of the Company to 2,400,000,000 shares, consisting of
2,200,000,000 shares of Class A Voting Common Stock, par value $.00017 per
share, 190,000,000 shares of Class B Nonvoting Common Stock, par value $.00017
per share and 10,000,000 shares of Preferred Stock, par value $.01 per share and
(ii) modify certain corporate governance provisions thereunder with respect to
the size and composition of the Board of Directors and the ability of the Board
of Directors to authorize any filing for bankruptcy.
Item 5. Other Information
Not Applicable
22
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
1.1 Purchase Agreement dated July 9, 1998, between the Company
and Jefferies & Company, Inc. (the "Initial Purchaser").
3.1 Amended and Restated By-laws of the Company.
4.1 First Supplemental Indenture, dated as of July 17, 1998,
among the Company, the guarantors named therein and State
Street Bank and Trust Company.
4.2 Indenture, dated as of July 17, 1998, among the Company,
as issuer, Discovery Zone (Canada) Limited, Discovery Zone
(Puerto Rico), Inc. and Discovery Zone Licensing, Inc., as
guarantors (the "Subsidiary Guarantors") and Firstar Bank of
Minnesota, N.A., as trustee.
4.3 Registration Rights Agreement, dated as of July 17, 1998,
between the Company and the Initial Purchaser.
4.4 Warrant Agreement, dated as of July 17, 1998, between the
Company and Firstar Bank of Minnesota, N.A., as warrant
agent (the "Warrant Agent"), relating to the Series A
Preferred Units.
4.5 Warrant Agreement, dated as of July 17, 1998, between the
Company and the Warrant Agent, relating to the Series B
Preferred Units.
4.6 Escrow and Security Agreement, dated as of July 17, 1998,
between the Company, as pledgor, and Firstar Bank of
Minnesota, N.A., as trustee and security agent.
4.7 Pledge Agreement, dated as of July 17, 1998, between the
Company and the Firstar Bank of Minnesota, N.A., as
collateral agent (the "Collateral Agent").
4.8 Subsidiary Pledge Agreement, dated as of July 17, 1998,
between the Subsidiary Guarantors and the Collateral Agent.
23
<PAGE>
4.9 Intercreditor Agreement, dated as of July 17, 1998, between
Foothill Capital Corporation and the Firstar Bank of
Minnesota, N.A., as trustee and collateral agent.
4.10 Intercreditor Agreement, dated as of July 17, 1998, between
Firstar Bank of Minnesota, N.A., as collateral agent, and
State Street Bank and Trust Company, as collateral agent.
27.1 Financial Data Schedule, for the six months ended June 30,
1998.
27.2 Financial Data Schedule, for the six months ended June 30,
1997.
(b) Reports on Form 8-K
Current Report on Form 8-K, dated July 17, 1998: Item 5
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: August 14, 1998 DISCOVERY ZONE, INC.
Signature Title
--------- -----
/s/ Scott W. Bernstein Chief Executive Officer,
- -----------------------
Scott W. Bernstein President and Director
/s/ Robert G. Rooney Senior Vice President, Chief Financial
- -----------------------
Robert G. Rooney and Administrative Officer
25
July 9, 1998
20,000 Units
Discovery Zone, Inc.
13 1/2% Senior Collateralized Notes due 2002
with Warrants to Purchase Shares of Common Stock
JEFFERIES & COMPANY, INC.
11100 Santa Monica Blvd., 10th Floor
Los Angeles, California 90025
Ladies and Gentlemen:
Discovery Zone, Inc., a Delaware corporation (the "Company"),
hereby confirms its agreement with you (the "Initial Purchaser"), as set forth
below. Capitalized terms used in this agreement ("Agreement") and not otherwise
defined herein shall have the meanings assigned to such terms in the Indenture
(as defined below).
1. Issuance of Securities. Subject to the terms and conditions herein
contained, the Company shall issue and sell to the Initial Purchaser 20,000
Units (each a "Unit" and collectively, the "Units"), each consisting of (a)
$1,000 principal amount of its 13 1/2% Senior Collateralized Notes due 2002
(collectively, the "Notes"), (b) 17 Series A warrants (collectively, the "Series
A Warrants") to purchase an aggregate of 30,079.2611 shares of the Company's
common stock, par value $0.01 per share (consisting of either voting common
stock (the "Voting Common Stock") or convertible nonvoting common stock (the
"Nonvoting Common Stock" and, together with the Voting Common Stock, the "Common
Stock"), and (c) 17 Series B redeemable warrants (collectively, the "Series B
Warrants" and, together with the Series A Warrants, the "Warrants") to purchase
an aggregate of 13,270.2612 shares of Common Stock, in each case at an exercise
price of $0.01 per share, subject to adjustment.
As compensation for services to be rendered hereunder, the
Initial Purchaser will receive its discount in connection with offering of the
Units described herein and in the Final Memorandum (the "Units Offering") in
Series B Preferred Units (as defined in the Final Memorandum) consisting of
$1,000,000 stated value of the Company's Series B Junior Cumulative Redeemable
Preferred Stock, liquidation preference $25.00 per share, and warrants to
purchase in the aggregate 4.819% of the Common Stock on a fully diluted basis
before giving effect to future issuances of options under the Company's Stock
Incentive Plan (as defined in the Final Memorandum) pursuant to the terms of a
Purchase
<PAGE>
Agreement (the "Preferred Units Purchase Agreement"), to be entered into prior
to the Closing Date by and among the Company, the Initial Purchaser and certain
other parties named therein, substantially in the form attached hereto as
Exhibit D.
The Notes are to be issued under an indenture (the
"Indenture") to be dated as of the Closing Date (as defined in Section 3 hereof)
by and between the Company, each of the Subsidiary Guarantors listed thereon and
Firststar Bank of Minnesota, as trustee (the "Trustee"). Pursuant to an Escrow
and Security Agreement (the "Escrow Agreement") dated as of the Closing Date
among the Company and the Trustee for the holders of the Notes, a portion of the
proceeds from the sale of the Units will be placed in an account (the "Escrowed
Interest Account"), to be held and invested by the Trustee in certain U.S.
Government Obligations (the "Pledged Securities") in accordance with the
provisions of the Escrow Agreement. Interest and other income, if any, earned on
the Pledged Securities will be added to and shall be deemed a part of the
Escrowed Interest Account.
Pursuant to certain of the Collateral Agreements to be entered
into by the Company and the Trustee on the Closing Date, the Company will grant
and pledge to the Trustee, for the equal and ratable benefit of the holders of
the Notes, (i) a security interest in certain collateral of the Company
(including cash, accounts receivable, inventory, equipment, general intangibles,
intellectual property rights, books and records and furnishings and fixtures),
(ii) a pledge of all of the capital stock of the Company's current and future
subsidiaries (other than DZ Party, Inc. and any Limited Investment Subsidiaries)
(the "Pledged Subsidiaries Stock"), (iii) subject to obtaining certain third
party consents, a subordinated mortgage lien on substantially all of the
Company's real property and improvements thereon and (iv) subject to certain
conditions, mortgage liens on leasehold interests in the premises and
improvements thereon occupied by the Company pursuant to leases of store
properties entered into by the Company after the date of issuance of the
Existing Notes (as defined below), in each case to secure the payment and
performance of the obligations of the Company under the Indenture and the Notes.
The security interests in the collateral securing the Notes will be senior to
the security interests securing the Existing Notes (as defined below) and will
be subordinated to a lien securing the obligations under the Revolving Credit
Facility and any future Eligible Credit Facility and, in certain circumstances,
statutory liens in favor of certain creditors of the Company.
Additionally, all current and future subsidiaries of the
Company (other than DZ Party, Inc. and Limited Investment Subsidiaries), jointly
and severally, shall fully and unconditionally guarantee, on a senior secured
basis, to each holder of Notes and the Trustee, the payment and performance of
the Company's obligations under the Indenture and the Notes (each such
subsidiary being referred to herein as a "Subsidiary
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<PAGE>
Guarantor" and each such guarantee being referred to herein as a "Guarantee");
provided, however, that the Guarantees shall be subject to the rights of lenders
under the Revolving Credit Facility and any future Eligible Credit Facility.
The Warrants are to be issued by the Company under a warrant
agreement to be dated as of the Closing Date (the "Warrant Agreement") for the
benefit of the holders of the certificates evidencing the Warrants. The shares
of Common Stock and Non-Voting Common Stock issuable upon exercise of the
Warrants are collectively herein referred to as the "Warrant Shares". The Notes,
Warrants, Warrant Shares and Units are collectively referred to herein as the
"Securities."
The Units are being offered and sold to the Initial Purchaser
without being registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on certain exemptions therefrom.
In connection with the offer and sale of the Units, the
Company has prepared a preliminary offering memorandum, dated June 22, 1998 (the
"Preliminary Memorandum"), and a final offering memorandum dated July 9, 1998
(the "Final Memorandum"), setting forth a description of the terms of the
Securities and the Collateral Agreements, the terms of the offering of the Units
and a description of the business of the Company. "Memorandum" means, as of any
date or time referred to in this Agreement, the most recent offering memorandum
(whether the Preliminary Offering Memorandum or the Final Memorandum, or any
amendment or supplement to either such document), including exhibits and
schedules thereto.
The Company understands from the Initial Purchaser that the
Initial Purchaser proposes to make the Units Offering on the terms and in the
manner set forth herein and in the Final Memorandum as soon as the Initial
Purchaser deems advisable after this Agreement has been executed and delivered.
The Company also understands from the Initial Purchaser that, at such time, the
Initial Purchaser intends to make an offering of the Units (i) to persons in the
United States whom the Initial Purchaser reasonably believes to be qualified
institutional buyers ("QIBs") as defined in Rule 144A under the Act, as such
rule may be amended from time to time ("Rule 144A"), (ii) in transactions under
Rule 144A to a limited number of persons whom the Initial Purchaser reasonably
believes (based upon written representations made by such persons to the Initial
Purchaser) to be institutional "accredited investors" ("Accredited Investors")
as defined in Rule 501(a)(1), (2), (3) or (7) under the Act, and (iii) outside
the United States in compliance with Regulation S under the Act.
The Initial Purchaser and its direct and indirect transferees
of the Units will be entitled to the benefits of a registration rights
agreement, substantially in the form attached
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<PAGE>
hereto as Exhibit A (the "Registration Rights Agreement"), pursuant to which the
Company shall agree, among other things, (i) to file a registration statement
with the Securities and Exchange Commission (the "Commission") registering under
the Act the Notes, the Exchange Notes or the Private Exchange Notes (the
Exchange Notes, together with the Private Exchange Notes, shall sometimes be
referred to hereinafter as the "New Notes"), and (ii) to grant certain
registration rights to the holders of the Warrant Shares.
2. Representations and Warranties. The Company, on behalf of itself and
each of its Subsidiaries, represents and warrants to and agrees with the Initial
Purchaser that:
(a) Neither the Preliminary Memorandum, the Final Memorandum,
nor any amendment or supplement thereto, as of the date thereof and at all times
subsequent thereto up to the Closing Date, contained or contains any untrue
statement of a material fact, or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this Section 2(a) do not apply to statements or
omissions made in reliance upon and in conformity with information relating to
the Initial Purchaser and furnished to the Company in writing by the Initial
Purchaser or its counsel expressly for use in the Preliminary Memorandum or the
Final Memorandum or any amendment or supplement thereto. Each of the Preliminary
Memorandum and the Final Memorandum, as of their respective dates, contained,
and the Final Memorandum, as amended or supplemented as of the Closing Date,
will contain, all the information specified in, and meet the requirements of,
Rule 144A(d)(4) under the Act.
(b) The Company has the authorized capitalization set forth in
the Final Memorandum, and the authorized capital stock of the Company conforms
to the statements relating thereto contained in the Final Memorandum. All of the
outstanding shares of capital stock of the Company and its Subsidiaries have
been duly authorized and, on the Closing Date, will be validly issued, fully
paid and nonassessable and will not have been issued in violation of any
preemptive or similar rights. Except as disclosed in the Final Memorandum, (i)
all of the outstanding shares of capital stock of each of the Subsidiaries of
the Company are owned, directly or indirectly, by the Company, free and clear of
all liens, security interests, mortgages, pledges, charges, equities, claims or
restrictions on transferability or encumbrances of any kind (collectively,
"Encumbrances"), other than those imposed by the Act and the securities or "Blue
Sky" laws of certain jurisdictions, (ii) except for the grant of options to
purchase shares of Common Stock which may be granted subsequent to the date of
the Final Memorandum pursuant to the Stock Incentive Plan (as defined in the
Final Memorandum), there are no outstanding (A) options, warrants or other
rights to purchase from the Company or any of its Subsidiaries, (B)
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<PAGE>
agreements, contracts, arrangements or other obligations of the Company or any
of its Subsidiaries to issue or (C) other rights to convert any obligation into
or exchange any securities for, in the case of each of clauses (A) through (C),
shares of capital stock or any other Equity Interests of the Company or any of
its Subsidiaries. Except as set forth in the Final Memorandum, the Company does
not own and does not have any Subsidiaries that own, directly or indirectly, any
Equity Interests of any kind in any firm, partnership, joint venture or other
entity.
(c) Each of the Company and its Subsidiaries is duly
incorporated, validly existing and in good standing as a corporation under the
laws of its jurisdiction of incorporation, with all requisite corporate power
and authority to own its properties and conduct its business as now conducted,
and as described in the Final Memorandum. Each of the Company and its
Subsidiaries is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions where the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified would not, individually or in the
aggregate, result in a Material Adverse Effect. For the purposes of this
Agreement, a "Material Adverse Effect" shall mean a material adverse effect on
(i) the management, business, condition (financial or otherwise), prospects or
results of operations of the Company and its Subsidiaries, taken as a whole, or
(ii) the Company's ability to perform any of its material obligations under any
of the agreements, documents or instruments contemplated to be entered into by
the Company hereby, by the Transaction Documents (as defined below) or by the
Final Memorandum.
(d) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the Notes. The
Notes have been duly and validly authorized by the Company and, when executed by
the Company and each Subsidiary Guarantor party thereto and authenticated by the
Trustee in accordance with the provisions of the Indenture, and, in the case of
the Notes, when delivered to and paid for by the Initial Purchaser in accordance
with the terms of this Agreement and the Indenture, will have been duly
executed, issued and delivered and will constitute valid and legally binding
obligations of the Company, entitled to the benefits of the Indenture, the
Collateral Agreements, the New Intercreditor Agreements and the Registration
Rights Agreement (such agreements, together with all transactions and agreements
contemplated thereby, may sometimes hereinafter be referred to as the
"Transaction Documents"), and enforceable against the Company and its
Subsidiaries (including each Subsidiary Guarantor party thereto) in accordance
with their respective terms, except that the enforcement thereof may be subject
to (i) bankruptcy, insolvency, reorganization, receivership, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect relating
to creditors' rights generally and (ii) general principles of equity (whether
applied
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<PAGE>
by a court of law or equity) and the discretion of the court before which any
proceeding therefore may be brought.
(e) The Company and each of its Subsidiaries has all requisite
corporate power and authority to execute, deliver and perform each of its
obligations under the Indenture, the New Intercreditor Agreements and the
Collateral Agreements. The Indenture meets the requirements for qualification
under the Trust Indenture Act of 1939, as amended (the "TIA"). The Indenture,
the New Intercreditor Agreements and the Collateral Agreements have been duly
and validly authorized by the Company and each Subsidiary Guarantor party
thereto and, when executed and delivered by the Company, each such Subsidiary
Guarantor and each of the other parties thereto, will each constitute a valid
and legally binding agreement of the Company and the Subsidiary Guarantors,
enforceable against the Company and each Subsidiary Guarantor in accordance with
its respective terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally, (ii) general principles of equity (whether applied
by a court of law or equity) and the discretion of the court before which any
proceeding therefor may be brought and (iii), in the case of the Collateral
Agreements, federal or state securities laws or principles of public policy
affecting enforcement of rights to indemnity or contribution.
(f) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the Registration
Rights Agreement. The Registration Rights Agreement has been duly and validly
authorized by the Company and when executed and delivered by the Company, will
constitute a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, except that (A) the
enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, receivership, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally, and
(ii) general principles of equity (whether applied by a court of law or equity)
and the discretion of the court before which any proceeding therefor may be
brought and (B) any rights to indemnity or contribution thereunder may be
limited by federal or state securities laws or public policy considerations.
(g) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the Warrant
Agreement.The Warrant Agreement has been duly and validly authorized by the
Company and, when executed and delivered by the Company, will constitute a valid
and legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, except that the enforcement thereof may be subject to
(i) bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors rights
- 6 -
<PAGE>
generally, (ii) general principles of equity (whether applied by a court of law
or equity) and the discretion of the court before which any proceeding therefor
may be brought, and (iii) federal or state securities laws or principles of
public policy affecting enforcement of rights to indemnity or contribution.
(h) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the Warrants.
The Warrants have been duly and validly authorized by the Company and, when
executed by the Company and countersigned by the Warrant Agent in accordance
with the provisions of the Warrant Agreement and when delivered to and paid for
by the Initial Purchaser in accordance with the terms of the Warrant Agreement
and this Agreement, will have been duly executed, issued and delivered and will
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms, except that the enforcement
thereof may be subject to (i) bankruptcy, insolvency, reorganization,
receivership, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights generally, (ii) general
principles of equity (whether applied by a court of law or equity) and the
discretion of the court before which any proceeding therefor may be brought and
(iii) federal or state securities laws or principles of public policy affecting
enforcement of rights to indemnity or contribution.
(i) The Warrant Shares, upon becoming available for issuance
upon the exercise of the Warrants in accordance with their respective terms,
will have been duly and validly authorized for issuance by the Company and, when
issued in accordance with the terms and conditions contained in the Warrants and
the Warrant Agreement, as applicable, will be duly authorized, validly issued,
fully paid and non-assessable, will conform to the description thereof contained
in the Final Memorandum, will not be subject to any preemptive or similar rights
and will be free of any Encumbrances. The Warrant Shares, upon becoming
available for issuance upon the exercise of the Warrants in accordance with
their respective terms, will have been duly reserved for issuance in accordance
with the terms of the Warrants and the Warrant Agreement, as the case may be.
Upon becoming available for issuance upon conversion of the shares of Non-Voting
Common Stock in accordance with their respective terms, the shares of Common
Stock issuable upon conversion of the Non-Voting Common Stock (the "Non-Voting
Shares"), will have been duly and validly authorized for issuance by the Company
and, when issued in accordance with the terms and conditions contained in the
Warrants, the Warrant Agreement and the Company's Third Amended and Restated
Certificate of Incorporation, will be duly authorized, validly issued, fully
paid and non-assessable, will conform to the description thereof contained in
the Final Memorandum, will not be subject to any preemptive or similar rights
and will be free of any Encumbrances. The Non-Voting Shares, upon becoming
available for issuance upon conversion of
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<PAGE>
the Non-Voting Common Stock in accordance with their terms, will have been duly
reserved for issuance in accordance with the terms of the Warrants and the
Warrant Agreement.
(j) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. This Agreement has been
duly and validly authorized, executed and delivered by the Company. Except for
(i) the consent (the "Noteholder Consent") of the holders of a majority of the
Company's outstanding 13 1/2 Senior Secured Notes due 2002 (the "Existing
Notes") which the Company is soliciting pursuant to a Consent Solicitation
Statement, dated July 9, 1998 (the "Consent Solicitation Statement"), (ii) the
consent dated as of July 9, 1998 (the "Wafra Consent") of the holders of the
Company's Convertible Preferred Stock (as defined in the Final Memorandum),
including Wafra Investment Advisory Group, Inc. and/or its affiliates, which the
Company is soliciting in connection with the issuance of the Preferred Unit
Warrants (as defined in the Final Memorandum) and (iii) the consent of Foothill
Capital Corporation as a lender under an Eligible Credit Facility (the "Bank
Consent"), no consent, approval, authorization or order of any court or
governmental agency or body, or third party (in each case, a "Consent") is
required for the performance of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby, except such
other Consents as have been obtained and such other Consents as may be required
under the Act or state securities or "Blue Sky" laws in connection with the
purchase and resale of the Securities by the Initial Purchaser. The Company is
not (i) in violation of its certificate of incorporation or bylaws, (ii) in
breach or violation of any statute, judgment, decree, order, rule or regulation
applicable to it or any of its properties or assets, except for any such breach
or violation which would not, individually or in the aggregate, have a Material
Adverse Effect or (iii) in breach of or default under (nor has any event
occurred which, with notice or passage of time or both, would constitute a
breach of or default under) or in violation of any of the terms or provisions of
any indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate, contract or other agreement or
instrument to which the Company is a party or to which the Company or any of its
properties or assets is subject, except for any such breach, default, violation
or event which would not, individually or in the aggregate, have a Material
Adverse Effect.
(k) Subject to receipt by the Company of the Noteholder
Consent, the Wafra Consent and the Bank Consent, the execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby, and the fulfillment of the terms
hereof, will not conflict with or constitute or result in a breach of or a
default under (or an event which with notice of passage of time
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<PAGE>
or both would constitute a breach of or default under) or violation of (i) any
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate, contract or other agreement or
instrument to which the Company is a party or to which the Company or any of its
properties or assets is subject other than any such breaches, defaults,
violations or events which would not, individually or in the aggregate, have a
Material Adverse Effect, (ii) the certificate of incorporation or bylaws of the
Company, or (iii) assuming compliance with the Act and all applicable state
securities or "Blue Sky" laws, any statute, judgment, decree, order, rule or
regulation applicable to the Company or any of its properties or assets other
than any such breaches, defaults, violations or events which would not,
individually or in the aggregate, have a Material Adverse Effect.
(l) The audited consolidated financial statements and related
notes of the Company included in the Final Memorandum present fairly in all
material respects the consolidated financial position, the results of operations
and cash flows of the Company and its Subsidiaries at of the dates and for the
periods to which they relate and have been prepared in conformity with generally
accepted accounting principles ("GAAP"), consistently applied, except as
otherwise stated therein. The unaudited consolidated financial statements and
related notes and schedules of the Company and its Subsidiaries included in the
Final Memorandum present fairly the consolidated financial position, results of
operations and cash flows of the Company and its Subsidiaries at the dates and
for the periods to which they relate, subject to year-end audit adjustments, and
have been prepared on a basis consistent with the audited consolidated financial
statements of the Company and its Subsidiaries and in conformity with GAAP,
consistently applied. The summary consolidated historical financial data in the
Final Memorandum present fairly in all material respects the financial
information shown therein and have been prepared and compiled on a basis
consistent with the audited and unaudited financial statements included therein,
except as otherwise stated therein.
(m) The pro forma "as-adjusted" financial information
(including the notes thereto) included in the Final Memorandum (x) have been
prepared in accordance with applicable requirements of Regulation S-X
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (y) if applicable, have been prepared in accordance with the Commission's
rules and guidelines with respect to pro forma financial information, and (z)
have been properly computed on the bases described therein. The estimates and
assumptions used by the Company in the preparation of the pro forma
"as-adjusted" financial information (including the notes thereto) included in
the Final Memorandum are believed in good faith by the Company to be reasonable,
the adjustments used therein are appropriate to give effect to the transactions
or circumstances referred to therein, and the Company believes that such
information is reasonable and
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<PAGE>
attainable based on the facts and circumstances existing on the Closing Date and
the assumptions stated therein.
(n) Each of Ernst & Young LLP and Price Waterhouse LLP, which
firms have audited certain of such financial statements as set forth in their
reports included in the Final Memorandum, is an independent public accounting
firm within the meaning of the Act.
(o) Except as described in the Final Memorandum, there is not
pending or, to the knowledge of the Company, threatened, any action, suit,
proceeding, inquiry or investigation to which the Company or any Subsidiary of
the Company is a party, or to which any of the property or assets of the Company
or any Subsidiary of the Company are subject, before or brought by any court or
governmental agency or body which, if determined adversely to the Company or
such Subsidiary, would have, individually or in the aggregate, a Material
Adverse Effect or which seeks to restrain, enjoin, prevent the consummation of
or otherwise challenge the issuance or sale of the Units to be sold hereunder or
the consummation of the other transactions described in the Final Memorandum.
(p) The Company and each of its Subsidiaries owns or possesses
adequate licenses or other rights to use all trademarks, service marks, trade
names and know-how necessary to conduct the businesses as now conducted or as
proposed to be conducted as described in the Final Memorandum, and the
consummation of the transactions contemplated hereby and by the Transaction
Documents will not alter or impair any of such rights. No claims have been
asserted, and the Company has not received any notice of conflict with (or knows
of any such conflict with) asserted rights of others with respect to the use,
validity or the effectiveness of any trademarks, service marks, trade names or
know-how which, if such claim or assertion of conflict were the subject of an
unfavorable decision, ruling or finding would, individually or in the aggregate,
have a Material Adverse Effect.
(q) The Company and each of its Subsidiaries possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and foreign governmental authorities with jurisdiction,
all self-regulatory organizations and all courts and other tribunals, presently
required or necessary for the Company and each of its Subsidiaries to own or
lease, as the case may be, and to possess or operate its properties and to carry
on its business as now conducted or proposed to be conducted as set forth in the
Final Memorandum, except where the failure to obtain such licenses, permits,
certificates, consents, orders, approvals and other authorizations, or to make
all declarations and filings (collectively, "Permits"), would not, individually
or in the aggregate, have a Material Adverse Effect; and the Company has
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fulfilled and performed all of its obligations with respect to such Permits
except obligations which the failure to fulfill or perform would not have a
Material Adverse Effect, and to the best of the Company's knowledge, no event
has occurred that allows, or after notice or lapse of time would allow,
revocation or termination thereof, or results in any material impairment of the
rights of the holder of any such Permit; and neither the Company nor any of its
Subsidiaries has received any notice of any proceeding relating to revocation or
modification of any such Permit, except as described in the Final Memorandum or
except where such revocation or modification would not, individually or in the
aggregate, have a Material Adverse Effect.
(r) Since the respective dates as of which information is
given in the Final Memorandum, except as described therein or contemplated
thereby, (i) neither the Company nor any Subsidiary of the Company has incurred
any liabilities or obligations, direct or contingent, or entered into or agreed
to enter into any transactions or contracts (written or oral) not in the
ordinary course of business and (ii) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock or otherwise.
(s) Each of the Company and its Subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns that are
required to be filed, except where the failure to so file such returns would
not, individually or in the aggregate, have a Material Adverse Effect, and,
except as set forth in the Final Memorandum, has paid all taxes, assessments,
fees and other charges (including, without limitation, withholding taxes,
penalties and interest) due or claimed to be due thereon that are due and
payable; other than tax deficiencies which (i) the Company or any Subsidiary of
the Company is contesting in good faith and for which the Company or such
Subsidiary has provided adequate reserves in accordance with GAAP or (ii) the
failure to pay would not have a Material Adverse Effect. There is no tax
deficiency or actual or proposed tax assessment that has been asserted against
the Company or any Subsidiary of the Company that would have, individually or in
the aggregate, a Material Adverse Effect.
(t) None of the Company or any agent acting on its behalf has
taken or will take any action that could cause the transactions contemplated by
this Agreement (including, without limitation, any pledge of the capital stock
of any Subsidiary of the Company pursuant to the Pledge Agreement) or the sale
of the Units to violate Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System, in each case as in effect, or as the same may hereafter
be in effect, on the Closing Date.
(u) The Company and its Subsidiaries have (a) good and
marketable title to all real property and other material assets
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(personal, tangible, intangible or mixed) described in the Final Memorandum as
owned by them, and, good and marketable title to all leasehold estates in the
real and personal property described in the Final Memorandum as being leased by
them, and such title will be free and clear of all Liens, except (x) Permitted
Liens, (y) Liens securing the obligations under the Revolving Credit Facility or
any Eligible Credit Facility and (z) such Liens that are not material and do not
interfere with the use made or proposed to be made of such property and (b)
peaceful and undisturbed possession under all leases to which it is a party as
lessee or sublessee, except for such defects in title or lack of possession
that, in the aggregate, would not have a Material Adverse Effect. Each of the
Company and its Subsidiaries operates all real and personal property leased by
it under valid and enforceable leases and has performed in all material respects
the obligations required to be performed by it with respect to each such lease
except for such leases and obligations which, in the aggregate, would not have a
Material Adverse Effect. As to leases with respect to which the Company or any
of its Subsidiaries is the lessor, the lessees and other parties under such
leases are in compliance with all material terms and conditions thereunder and
such leases are in full force and effect except for such leases which, it not in
full force and effect, would not, in the aggregate, have Material Adverse
Effect. All tangible assets and properties of the Company and its Subsidiaries
are in good working order (subject to ordinary wear and tear) and are adequate
for the uses to which they are being put or would be put in the ordinary course
of business except for such assets and properties as are not material,
individually or in the aggregate, to the business, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries taken as
a whole.
(v) There are no legal or governmental proceedings involving
or, to the Company's knowledge, affecting the Company or any Subsidiary of the
Company or any of their respective properties or assets which would be required
to be described in a prospectus pursuant to the Act that are not described in
the Final Memorandum, nor are there any material contracts or other documents
which would be required to be described in a prospectus pursuant to the Act that
are not described in the Final Memorandum.
(w) Except as described in the Final Memorandum, there are no
consensual encumbrances or restrictions on the ability of any Subsidiary of the
Company (x) to pay dividends or make any other distributions on such
Subsidiary's capital stock or to pay any indebtedness owed to the Company or any
other Subsidiary of the Company, (y) to make any loans or advances to, or
investments in, the Company or any other Subsidiary of the Company or (z) to
transfer any of its property or assets to the Company or any other Subsidiary of
the Company.
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(x) Except as stated in the Final Memorandum, there are no
outstanding claims for services, either in the nature of a finder's fee,
financial advisory fee, origination fee or similar fee, with respect to the
transactions contemplated hereby and by the Transaction Documents.
(y) Except as described in the Final Memorandum, each of the
Company and its Subsidiaries is in compliance in all respects with all existing
and applicable domestic and foreign laws, rules or regulations relating to
pollution or protection of public or employee health or the environment
("Environmental Law") and with the terms and conditions of any Permit, issued to
the Company or its Subsidiaries thereunder in connection with the ownership,
operation or use of its business, property and assets, except where the failure
to be in such compliance would not, individually or in the aggregate, have a
Material Adverse Effect; except as disclosed in the Final Memorandum, none of
the Company or its Subsidiaries is subject to any known liability, absolute or
contingent, under any Environmental Law except for any such liability which
would not, individually or in the aggregate, have a Material Adverse Effect;
except as disclosed in the Final Memorandum, there is no civil, criminal or
administrative action, suit, demand, hearing, notice of violation or deficiency,
investigation, proceeding or notice of potential responsibility or demand letter
or request for information pending or, to the knowledge of the Company
threatened against the Company or any of its Subsidiaries under any
Environmental Law which, if determined adversely to the Company or any
Subsidiary of the Company would, individually or in the aggregate, result in a
Material Adverse Effect.
(z) Except as disclosed in the Final Memorandum, each of the
Company or its Subsidiaries carries insurance (including self insurance) in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its properties and as shall be customary, in the good faith
judgment of the Company, for companies similarly situated within the industry of
the Company.
(aa) None of the Company or its Subsidiaries has any liability
for any prohibited transaction or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing, 401(k) plan or
other plan which is subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), to which the Company or any Subsidiary of the
Company makes or ever has made a contribution and in which any employee of the
Company or any Subsidiary of the Company is or has ever been a participant. With
respect to such plans, the Company and each of its Subsidiaries is in compliance
in all material respects with all applicable provisions of ERISA. The execution
and delivery of this Agreement by the Company and the sale of the Units by the
Company to the Initial Purchaser will not involve any prohibited transaction
(within the meaning of Section 406 of ERISA) of the Company.
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(bb) The Company is not and, after giving effect to the
offering and sale of the Units, the Company will not be an "investment company"
or a company "controlled by" an "investment company" or "promoter" or "principal
underwriter" for an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(cc) Except as disclosed in the Final Memorandum, no holder of
securities of the Company or any Subsidiary of the Company will be entitled to
have such securities registered under the registration statements required to be
filed by the Company pursuant to the Registration Rights Agreement.
(dd) As of the Closing Date and immediately after the
consummation of the transactions contemplated by this Agreement and by the
Transaction Documents, the fair value and current fair saleable value of the
assets of the Company (on a consolidated basis) will exceed the sum of its
stated liabilities and identified contingent liabilities. The Company (on a
consolidated basis) is not, after giving effect to the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby and by the Transaction Documents, (a) left with unreasonably
small capital with which to carry on its business as it is proposed to be
conducted as described in the Final Memorandum, (b) unable to pay its debts
(contingent or otherwise) as they mature or (c) otherwise insolvent.
(ee) Neither the Company nor any person acting on its behalf
has offered or sold the Units by means of any general solicitation or general
advertising within the meaning of Rule 502(c) under the Act or, with respect to
Securities sold outside the United States to non-U.S. persons (as defined in
Rule 902 under the Act), by means of any directed selling efforts within the
meaning of Rule 902 under the Act, and the Company, any affiliate of the Company
and any person acting on its or their behalf have complied with and will
implement the "offering restrictions" within the meaning of such Rule 902;
provided, that no representation is made in this subsection with respect to
actions by the Initial Purchaser.
(ff) Except as disclosed in the Final Memorandum, neither the
Company nor any other person acting on behalf of the Company (other than the
Initial Purchaser as to whom the Company makes no representation) has solicited
offers to buy or offered or sold or otherwise negotiated in respect of any
security (as defined in the Act) that is or could be integrated with the sale of
the Units in a manner that would require the registration under the Act of any
of the Securities; and the Company will take reasonable precautions designed to
insure that any offer or sale, direct or indirect, in the United States or to
any U.S. person (as defined in Rule 902 under the Act) of any Securities or any
substantially similar security issued by the Company, within six
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months subsequent to the date on which the distribution of the Units has been
completed, is made under restrictions and other circumstances reasonably
designed not to affect the status of the offer and sale of the Units in the
United States and to U.S. persons contemplated by this Agreement as transactions
exempt from the registration requirements of the Act;
(gg) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes.
(hh) Assuming the accuracy of and compliance with the
representations and warranties of the Initial Purchaser in Section 8 hereof, it
is not necessary in connection with the offer, sale and delivery of the Units to
the Initial Purchaser in the manner contemplated by this Agreement to register
any of the Securities under the Act or to qualify the Indenture under the TIA.
(ii) No other securities of the Company are of the same class
(within the meaning of Rule 144A under the Act) as the Securities and listed on
a national securities exchange registered under Section 6 of the Exchange Act,
or quoted in a U.S. automated inter-dealer quotation system.
(jj) None of the Company or its Subsidiaries has taken, nor
will any of them take, directly or indirectly, any action designed to, or that
might be reasonably expected to, cause or result in stabilization or
manipulation of the price of the Securities.
(kk) Upon (i) execution and delivery of the Collateral
Agreements by the Company, the Subsidiary Guarantors parties thereto and the
Trustee, (ii) the execution and filing of all appropriate forms as required
under the Uniform Commercial Code and (iii) in the case of (A) the Pledged
Securities and (B) the Pledged Subsidiaries Stock pledged to the Trustee
pursuant to the Pledge Agreement, the delivery to and possession by the Trustee
of such Pledged Securities and Pledged Subsidiaries Stock, duly endorsed for
transfer in accordance with Article 8 of the Uniform Commercial Code, the
Collateral Agreements will create and constitute a valid and enforceable first
priority pledge of and perfected security interest in the Collateral.
(ll) Neither the Company nor any of its Subsidiaries is a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
3. Purchase, Sale and Delivery of the Units. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein
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set forth, the Company agrees to issue and sell to the Initial Purchaser, and
the Initial Purchaser agrees to purchase from the Company, 20,000 Units at a
purchase price of 100% of the principal amount of Notes being issued and sold.
One or more certificates in definitive form for the Units that the Initial
Purchaser has agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Initial Purchaser
requests upon notice to the Company at least 24 hours prior to the Closing Date,
shall be delivered by or on behalf of the Company to the Initial Purchaser,
against payment by or on behalf of the Initial Purchaser of the purchase price
therefor in accordance with the terms of this Agreement and the Preferred Units
Purchase Agreement. Such delivery of and payment for the Units shall be made at
the offices of Shearman & Sterling at 9:00 a.m., New York City time, on July 15,
1998, or at such other place, time or date as the Initial Purchaser, on the one
hand, and the Company, on the other hand, may agree upon, such time and date of
delivery against payment being herein referred to as the "Closing Date". With
respect to Securities to be delivered in definitive certificated form, the
Company will make certificates for such Securities available for checking and
packaging by the Initial Purchaser at the offices of Jefferies & Company, Inc.
in New York, New York, or at such other place as the Initial Purchaser may
designate, on the business day next preceding the Closing Date. Securities to be
represented by one or more definitive global Securities in book-entry form will
be deposited on the Closing Date, by or on behalf of the Company, with The
Depository Trust Company ("DTC") or its designated custodian, and registered in
the name of Cede & Co.
4. Offering by the Initial Purchaser. The Initial Purchaser proposes to
make an offering of the Units at the price and upon the terms set forth in the
Final Memorandum, as soon as practicable after this Agreement is entered into
and as in the judgment of the Initial Purchaser is advisable.
5. Covenants of the Company. The Company covenants and agrees with the
Initial Purchaser that:
(a) The Company shall not make any amendment or supplement to
the Final Memorandum of which the Initial Purchaser shall not previously have
been advised and furnished a copy for a reasonable period of time prior to the
proposed amendment or supplement and as to which the Initial Purchaser shall not
have given its consent. The Company shall promptly, upon the reasonable request
of the Initial Purchaser, make any amendments or supplements to the Preliminary
Memorandum or the Final Memorandum that may be necessary or advisable in
connection with the resale of the Securities by the Initial Purchaser.
(b) The Company shall use its best efforts, in cooperation
with the Initial Purchaser, to arrange for the qualification of the Units for
offering and sale under the
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securities or "Blue Sky" laws of such jurisdictions as the Initial Purchaser may
designate and shall continue such qualifications in effect for as long as may be
necessary to complete the resale of the Securities.
(c) If, at any time prior to the completion of the initial
resale of the Units by the Initial Purchaser to persons other than affiliates of
the Initial Purchaser (as determined by the Initial Purchaser), any event occurs
as a result of which the Final Memorandum as then amended or supplemented would
include any untrue statement of a material fact, or omit to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if for any other reason it is
necessary at any time to amend or supplement the Final Memorandum to comply with
applicable law, the Company will promptly notify the Initial Purchaser thereof
and will prepare, at the expense of the Company, an amendment or supplement to
the Final Memorandum that corrects such statement or omission or effects such
compliance.
(d) The Company will, without charge, provide to the Initial
Purchaser and to counsel for the Initial Purchaser as many copies of the Final
Memorandum or any amendment or supplement thereto as the Initial Purchaser or
such counsel may reasonably request.
(e) For so long as any of the Securities remain outstanding,
the Company will furnish to the Initial Purchaser copies of all reports and
other communications (financial or otherwise) furnished by the Company to the
Trustee, the Warrant Agent or the holders of the Securities and, as soon as
available, copies of any reports or financial statements furnished to or filed
by the Company with the Commission or any national securities exchange on which
any class of securities of the Company may be listed.
(f) Except as described in the Final Memorandum, none of the
Company or any of its affiliates will sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any "security" (as defined in the Act)
which could be integrated with the sale of the Units in a manner which would
require the registration of the Units under the Act.
(g) The Company will not solicit any offer to buy or offer to
sell the Units by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Act) or in any
manner involving a public offering within the meaning of Section 4(2) of the
Act.
(h) For so long as any of the Securities remain outstanding,
the Company will make available, upon request, to any seller or prospective
purchaser of such Securities, the information specified in Rule 144A(d)(4) under
the Act, unless
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the Company is then subject to Section 13 or 15(d) of the Exchange Act.
(i) The Company will use its best efforts to (i) permit the
Units and the Securities to be designated PORTAL securities in accordance with
the rules and regulations adopted by the NASD relating to trading in the Private
Offering, Resales and Trading through Automated Linkages market (the "PORTAL
Market") and (ii) permit the Units and Securities to be eligible under Rule 144A
for clearance and settlement through DTC.
(j) (i) During the period beginning from the date hereof and
continuing until the date 180 days after the Closing Date, except as
contemplated by the Final Memorandum, the Company will not offer, sell, contract
to sell or otherwise dispose of, except as provided hereunder, any securities
that are similar to the Units or the Securities, including but not limited to,
any securities that are convertible into or exchangeable for, or that represent
the right to receive, Common Stock or any such securities similar to the
Securities, and the Company shall not offer, sell, contract to sell or otherwise
dispose of securities of the Company after such 180 day period if such
transaction would cause the initial offer and sale by the Company and resale by
the Initial Purchaser of the Units not to be exempt from the registration
requirements of the Act, and (ii) the Company will use its best efforts to cause
each person who has entered into a Lock-up Agreement (as herein defined) to
comply therewith, will not grant any waivers or consents to noncompliance
therewith and will enforce its rights under each such agreement, in each case
unless and to the extent that it shall have obtained the Initial Purchaser's
prior written consent, which consent shall not be unreasonably withheld.
(k) During the two year period after the Closing Date (or such
shorter period as may be provided for in Rule 144(k) under the Act, as the same
may be in effect from time to time), the Company will not, and will not permit
any of its Subsidiaries or other affiliates (as defined in Rule 144A under the
Act) controlled by it to, resell any of the Securities which constitute
"restricted securities" under Rule 144 that have been required by any of them,
except pursuant to an effective registration statement under the Act.
(l) The Company shall pay all stamp and other duties, if any,
which may be imposed by the United States or any political subdivision thereof
or taxing authority thereof or therein with respect to the issuance of any of
the Securities.
(m) On the Closing Date, Anderson Kill & Olick, P.C., counsel
to the Initial Purchaser, shall have received confirmation reasonably
satisfactory to it that the Certificate of Designations in the form attached to
the Preferred Units Purchase Agreement was filed on the Closing Date with the
Secretary of State of the State of Delaware.
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6. Expenses. The Company agrees to pay all costs and expenses incident
to the performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 11 hereof, including all costs and expenses incident to (i)
the printing, word processing or other production of documents with respect to
the transactions contemplated hereby, including any costs of preparing the
Preliminary Memorandum and the Final Memorandum and any amendment or supplement
thereto, (ii) all arrangements relating to the delivery to the Initial Purchaser
of copies of the foregoing documents, (iii) the fees and disbursements of the
counsel, the accountants and any other experts or advisors retained by the
Company, (iv) the preparation, issuance and delivery to the Initial Purchaser of
the Securities, (v) the qualification for the Securities under state securities
and "Blue Sky" laws, including filing fees and fees and disbursements of counsel
incurred by the Initial Purchaser relating thereto, (vi) the fees, disbursements
and out-of-pocket expenses of the Initial Purchaser in connection with its
services to be rendered under this Agreement, including, without limitation, the
reasonable fees, disbursements and charges of Anderson Kill & Olick, P.C.,
counsel to the Initial Purchaser, incurred in connection with the transactions
contemplated hereby, travel and lodging expenses, word processing charges,
messenger and duplicating services, fasimile expenses and other customary
expenditures, including printing expenses, if any, all of which fees,
disbursements and out-of-pocket expenses, (with the exception of the discount to
the Initial Purchaser payable by the Company in connection with the Units
Offering which shall be paid by the Company to the Initial Purchaser in
accordance with the terms of this Agreement and the Preferred Units Purchase
Agreement) shall be paid in cash, (vii) expenses in connection with any meetings
with prospective investors in the Securities, (viii) fees and expenses of the
Trustee, the Warrant Agent and the transfer agent and registrar for the Common
Stock including fees and expenses of their respective counsel incurred by any of
them, (ix) all expenses and listing fees incurred in connection with the
application for quotation of the Securities on the PORTAL Market, and (x) any
fees charged by investment rating agencies for the rating of any of the
Securities. If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Initial Purchaser set forth in
Section 7 hereof is not satisfied, because this Agreement is terminated or
because of any failure, refusal or inability on the part of the Company to
perform all obligations and satisfy all conditions on its part to be performed
or satisfied hereunder other than solely by reason of a default by the Initial
Purchaser on its obligations hereunder after all conditions hereunder have been
satisfied in accordance herewith, the Company agrees to promptly reimburse the
Initial Purchaser in cash upon demand for all out-of-pocket expenses (including
reasonable fees, disbursements and charges of Anderson Kill & Olick, P.C.,
counsel for the Initial Purchaser) that shall have
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been incurred by the Initial Purchaser in connection with the proposed purchase
and sale of the Securities.
7. Conditions of the Initial Purchaser's Obligations. The obligations
of the Initial Purchaser to purchase and pay for the Securities shall be subject
to the satisfaction or waiver of the following conditions on or prior to the
Closing Date:
(a) On the Closing Date, the Initial Purchaser shall have
received an opinion, dated as of the Closing Date and addressed to the Initial
Purchaser, of Shearman & Sterling, counsel for the Company, in form and
substance satisfactory to counsel for the Initial Purchaser, substantially to
the effect that:
(i) Each of the Company and Block Party, Inc.
is duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Final Memorandum.
(ii) Except as set forth in the Final
Memorandum, based solely upon certificates by officers of the Company
which such counsel has no reason to believe are inaccurate and to the
best of such counsel's knowledge, (A) no options, warrants or other
rights to purchase from the Company any Equity Interests in the Company
are outstanding, (B) no agreements or other obligations of the Company
to issue, or other rights granted by the Company to cause the Company
to convert, any obligation into, or exchange any securities for, any
Equity Interests in the Company are outstanding and (C) the Company is
not obligated to have any of its securities registered under a
registration statement filed by the Company under the Act with respect
to any of the Securities.
(iii) The Notes have been duly and validly
authorized and executed by the Company and, (A) when duly authenticated
by the Trustee in accordance with the Indenture and when delivered by
the Company and paid for by the Initial Purchaser in accordance with
the terms of this Agreement, the Notes will constitute the valid and
legally binding obligations of the Company and each of the Subsidiary
Guarantors, enforceable in accordance with their terms, except that the
enforcement thereof may be subject to (i) bankruptcy, insolvency
(including all laws relating to fraudulent transfer), reorganization,
receivership, moratorium, or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) general
principles of equity (whether applied by a court of law or equity) and
the discretion of the court before which any proceeding therefor may be
brought; and (B) the holders of the Notes will be entitled to the
benefits of the Indenture.
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(iv) The Company has all requisite corporate
power and authority to execute, deliver and perform its obligations
under the Indenture, the Notes, the New Intercreditor Agreements and
the Collateral Agreements. The Indenture is in sufficient form for
qualification under the TIA. Each of the Indenture, the Notes, the New
Intercreditor Agreements and the Collateral Agreements has been duly
and validly authorized by the Company. Each of the Indenture, the
Notes, the New Intercreditor Agreement between the Trustee and the
trustee under the indenture governing the Existing Notes, the New
Intercreditor Agreement between the Trustee and Foothill Capital
Corporation, and the Collateral Agreements has been executed and
delivered by the Company, and, assuming due authorization, execution
and delivery by the Trustee, in the case of any agreement to which the
Trustee is a party, each constitutes (and, with respect to any New
Intercreditor Agreement not executed and delivered on the Closing Date,
upon the execution and delivery of such New Intercreditor Agreement,
will constitute) a valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms, except
that the enforcement thereof may be subject to (i) bankruptcy,
insolvency (including all laws relating to fraudulent transfer),
reorganization, receivership, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors'
rights generally, (ii) general principles of equity (whether applied by
a court of law or equity) and the discretion of the court before which
any proceeding therefor may be brought and (iii), in the case of the
Collateral Agreements, federal or state securities laws or principles
of public policy affecting enforcement of rights to indemnity or
contribution.
(v) The Company has all requisite corporate
power and authority to execute, deliver and perform its obligations
under the Registration Rights Agreement. The Registration Rights
Agreement has been duly and validly authorized, executed and delivered
by the Company and constitutes a valid and legally binding obligation
of the Company, enforceable against the Company in accordance with its
terms, except that (A) the enforcement thereof may be subject to (i)
bankruptcy, insolvency (including all laws relating to fraudulent
transfer), reorganization, receivership, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity (whether applied by a court of
law or equity) and discretion of the court before which any proceeding
therefor may be brought and (B) any rights to indemnity or contribution
thereunder may be limited by federal or state securities laws or public
policy considerations.
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(vi) The Company has all requisite corporate
power and authority to execute, deliver and perform its obligations
under the Warrant Agreement. The Warrant Agreement has been duly and
validly authorized, executed and delivered by the Company and
constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except
that the enforcement thereof may be subject to (i) bankruptcy,
insolvency (including all laws relating to fraudulent transfer),
reorganization, receivership, moratorium, or other similar laws now or
hereafter in effect relating to creditors' rights generally, (ii)
general principles of equity (whether applied by a court of law or
equity) and the discretion of the court before which any proceeding
therefor may be brought and (iii) federal or state securities laws or
principles of public policy affecting enforcement of rights to
indemnity or contribution.
(vii) The Company has all requisite corporate
power and authority to execute, deliver and perform its obligations
under the Warrants. The Warrants have been duly and validly authorized
and executed by the Company and, when duly countersigned by the Warrant
Agent in accordance with the Warrant Agreement and delivered and paid
for by the Initial Purchaser, will have been duly issued and delivered
and will constitute valid and legally binding obligations of the
Company, entitled to the benefits of the Warrant Agreement, and
enforceable against the Company in accordance with their terms, except
that the enforcement thereof may be subject to (i) bankruptcy,
insolvency (including all laws relating to fraudulent transfer),
reorganization, receivership, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, (ii)
general principles of equity (whether applied by a court of law or
equity) and the discretion of the court before which any proceeding
therefor may be brought and (iii) federal or state securities laws or
principles of public policy affecting enforcement of rights to
indemnity or contribution.
(viii) When issued in accordance with the terms
and conditions contained in the Warrant Agreement, upon exercise of the
Warrants, the Warrant Shares will be duly authorized, validly issued,
fully paid and non-assessable and will not be subject to any preemptive
or similar rights. When issued in accordance with the terms and
conditions contained in the Company's certificate of incorporation,
upon conversion of the Non-Voting Common Stock, the Non-Voting Shares
will be duly authorized, validly issued, fully paid and non-assessable
and will not be subject to any preemptive or similar rights.
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(ix) The Company has all requisite corporate
power and authority to execute, deliver and perform its obligations
under this Agreement. This Agreement has been duly and validly
authorized, executed and delivered by the Company.
(x) The statements set forth in the Final
Memorandum under the captions "Description of Units", Description of
Notes", "Description of Warrants" and "Description of Capital Stock",
insofar as such statements purport to constitute a summary of the legal
matters and documents referred to therein, fairly summarize in all
material respects the legal matters and documents referred to therein.
(xi) To the knowledge of such counsel and
except as set forth in the Final Memorandum, no legal or governmental
proceedings are pending or threatened to which the Company or any of
its Subsidiaries is a party or to which the property or assets of the
Company or any Subsidiary of the Company is subject which, if
determined adversely to the Company or such Subsidiary, would result,
individually or in the aggregate, in a Material Adverse Effect, or
which seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the Securities to be sold
hereunder or the consummation of the other transactions described in
the Final Memorandum.
(xii) Assuming that the New Notes have been duly
authorized by all necessary corporate action of the Company, such New
Notes when duly authenticated by the Trustee in accordance with the
Indenture and duly executed and delivered by the Company in accordance
with the terms of the Registration Rights Agreement and the Indenture,
the New Notes will constitute the valid and legally binding obligations
of the Company and the Subsidiary Guarantors, entitled to the benefits
of the Indenture and enforceable in accordance with their terms, except
that the enforcement thereof may be subject to (i) bankruptcy,
insolvency (including all laws relating to fraudulent transfer),
reorganization, receivership, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity (whether applied by a court of law or
equity) and the discretion of the court before which any proceeding
therefor may be brought.
(xiii) Except as set forth in the Final
Memorandum, the execution and delivery of this Agreement, the
Indenture, the Collateral Agreements, the New Intercreditor Agreements,
the Warrant Agreement and the Registration Rights Agreement and the
consummation of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and sale of the Units to
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the Initial Purchaser) will not conflict with or constitute or result
in a material breach or violation of or a default under (or an event
which with notice or passage of time or both would constitute a
material default under) (i) any of the terms or provisions of (A) any
indenture, mortgage, deed of trust, loan agreement, note, or (B) based
upon certificates by officers of the Company with respect to
materiality, any material lease, license, franchise agreement, Permit,
certificate, contract or other agreement or instrument to which the
Company or any Subsidiary of the Company is a party, except, with
respect to each of clauses (A) and (B) hereof, for any such conflict,
breach, violation, default or event which would not, individually or in
the aggregate, have a Material Adverse Effect, (ii) the certificate of
incorporation or bylaws of the Company, or (iii) any existing
applicable Federal, New York or Delaware statute, law, rule or
regulation, which are normally applicable to corporations such as the
Company (other than the securities or blue sky laws of the various
states, as to which, in each case, we express no opinion), or any
judgment, order or decree of any court, governmental agency or body or
arbitrator applicable to the Company, its Subsidiaries or any of their
respective properties or assets, except for any such conflict, breach,
violation, default or event would not, individually or in the
aggregate, have a Material Adverse Effect.
(xiv) To the knowledge of such counsel, no
consent, approval, authorization or order of any domestic governmental
authority is required for the issuance and sale by the Company of the
Units to the Initial Purchaser or the other transactions contemplated
hereby or by the Transaction Documents, except such as have previously
been obtained and such as may be required under applicable state
securities or Blue Sky laws, as to which such counsel need express no
opinion pursuant to this clause (xiv).
(xv) Based upon the representations, warranties
and agreements of the Company in Sections 1 and 5 of this Agreement and
of the Initial Purchaser in Section 8 of this Agreement, it is not
necessary in connection with the offer, sale and delivery of the Units
to the Initial Purchaser under this Agreement or in connection with the
initial resale of such Units by the Initial Purchaser in accordance
with Section 4 of this Agreement to register the Units under the
Securities Act, it being understood that no opinion is expressed as to
any subsequent resale of any Unit. Prior to the commencement of the
Exchange Offer (as defined in the Registration Rights Agreement) or the
effectiveness of the Shelf Registration Statement (as defined in the
Registration Rights Agreement), the Indenture is not required to be
qualified under the TIA.
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(xvi) Neither the consummation of the
transactions contemplated by this Agreement (including, without
limitation, any pledge of the capital stock of any Subsidiary of the
Company pursuant to the Pledge Agreement) nor the sale, issuance,
execution or delivery of the Units will violate Regulation G, T, U or X
of the Board of Governors of the Federal Reserve System.
(xvii) The Security Agreement creates a valid
security interest for the benefit of the Trustee in all of the
Company's right, title and interest in the Collateral to the extent
that a security interest therein can be created under Article 9 of the
UCC, and, to the extent provided in Section 9-306 of the UCC, all
proceeds thereof. Assuming that the Financing Statements executed by
the Company have been filed in the offices listed in the Security
Agreement, the security interests of the Trustee, in the Collateral,
will be perfected security interests to the extent such security
interests can be perfected solely by filing a financing statement under
the UCC.
(xviii) Assuming (a) the delivery to and the
continued exclusive possession by the Trustee pursuant to the Pledge
Agreement of stock certificates representing the capital stock of the
Subsidiary Guarantors (the "Pledged Shares") referred to in the Pledge
Agreement, together with stock powers properly executed in blank with
respect thereto and (b) that the Trustee was without notice of any
adverse claim (as such term is used in Section 8-302 of the UCC) with
respect to the Pledged Shares, the Pledge Agreement, together with the
delivery of the certificates representing the Pledged Shares thereunder
to Trustee, creates in Trustee's favor a perfected security interest
under the UCC in such Pledged Shares. Assuming the Trustee acquired its
interest in such Pledged Shares in good faith and without notice of any
adverse claims and that each such certificate is either in bearer or
registered form issued or endorsed in Trustee's name or in blank,
assuming delivery to and the exclusive possession of the stock
certificates representing the Pledged Shares, Trustee will acquire
Trustee's security interest in such Pledged Shares free of adverse
claims.
(xix) Each Subsidiary Security Agreement creates
a valid security interest for the benefit of the Trustee in all of the
right, title and interest of the Subsidiary of the Company that is a
party to such Subsidiary Security Agreement in such Subsidiary's
Collateral to the extent that a security interest therein can be
created under Article 9 of the UCC, and, to the extent provided in
Section 9-306 of the UCC, all proceeds thereof. Assuming that the
Financing Statements executed by the Company and each Subsidiary
Guarantor have been filed in the offices listed in such Subsidiary
Security Agreement, the security interests of the Trustee, in such
Collateral, will be perfected security
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interests to the extent such security interests can be perfected solely
by filing a financing statement under the UCC.
(xx) The Escrow Agreement creates a valid
perfected security interest for the benefit of the Collateral Agent in
all of the Company's right, title and interest in the Escrowed Interest
Account, including, without limitation, the Escrow Funds and the
Pledged Securities, to the extent that a security interest therein can
be created under Article 8 of the UCC. Assuming the Collateral Agent
acquired its interest in the Escrowed Interest Account, including,
without limitation, the Escrow Funds and the Pledged Securities, in
good faith and without notice of any adverse claims (as such term is
used in Section 8-302 of the UCC), the Collateral Agent will acquire
its security interest in the Escrowed Interest Account, including,
without limitation, the Escrow Funds and the Pledged Securities, free
of adverse claims.
(xxi) Assuming the Collateral Agreements have
been duly authorized, executed and delivered by the Collateral Agent
and upon execution and delivery of each of the Mortgages, each such
Mortgage shall be a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms and shall
create a valid lien with respect to the premises described therein
subject only to Permitted Liens, including, without limitation, the
lien of the mortgage for the benefit of McDonald's Corporation. In that
regard, in the event of foreclosure of the lien of the Mortgages (on
and after execution and delivery thereof), the Collateral Agent will be
entitled to obtain a deficiency judgment against the Company for the
differences between the total amount of the obligations secured by the
Mortgages and the amount realized upon foreclosure. The financing
statements with respect to the fixtures, attachments and other articles
and personal property described in the Mortgages are in appropriate
form, pursuant to the Uniform Commercial Code in effect in such State
(the "UCC") will upon their filing result in the perfection of the
security interests created by the Mortgages in the fixtures,
attachments and other articles and personal property described in the
Mortgages, within the meaning of the UCC without the necessity of any
action by and Person with respect thereto.
(xxii) Assuming that each Subsidiary Guarantor
existing on the Closing Date (i) is duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation and (ii) has all requisite corporate power and authority
to execute, deliver and perform its obligations under the Subsidiary
Guarantee to which it is a party, the Subsidiary Guarantee to which
each existing Subsidiary Guarantor is a party constitutes the
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<PAGE>
valid and legally binding agreement of such Subsidiary Guarantor,
enforceable in accordance with its terms except that the enforcement
thereof may be subject to (i) bankruptcy, insolvency (including all
laws relating to fraudulent transfer), reorganization, receivership,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of equity
(whether applied by a court of law or equity) and the discretion of the
court before which any proceeding therefor may be brought.
Such counsel shall also state that it has reviewed and
participated in discussions concerning the preparation of the Final Memorandum
with certain officers or employees of the Company, with its counsel and its
auditors, and with representatives of the Initial Purchaser and its counsel. The
limitations inherent in the independent verification of factual matters and in
the role of outside counsel are such, however, that such counsel will not assume
any responsibility for the accuracy, completeness or fairness of any of the
statements made in the Final Memorandum except as set forth in subparagraph (x)
of this Section 7(a). Such counsel shall advise the Initial Purchaser that,
subject to the limitations set forth above, on the basis of the information such
counsel gained in the course of performing the services referred to above, (i)
no facts came to such counsel's attention which gave such counsel reason to
believe that the Final Memorandum (other than the financial statements and
related notes thereto and the other financial, statistical, and other accounting
data contained in the Final Memorandum or omitted therefrom, as to which such
counsel expresses no view), as of its date or the Closing Date, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. In rendering such
opinion, such counsel may (i) rely with respect to matters of fact upon the
representations and warranties of the Company and its Subsidiaries set forth
herein, upon certificates of officers of the Company and its Subsidiaries and
upon information obtained from public officials, (ii) assume that all documents
submitted to such counsel as originals are authentic, that all copies submitted
to such counsel conform to the originals thereof, and that the signatures on all
documents examined by such counsel are genuine, (iii) state that such counsel's
opinion is limited to the federal law of the United States and the laws of the
State of New York and the General Corporation Law of the State of Delaware, and
(iv) may make such other assumptions and qualifications as may be reasonably
acceptable to the Initial Purchaser. The opinion of Shearman & Sterling
described in this subsection (a) shall be rendered at the request of the Company
to, and may be relied upon solely by, the Initial Purchaser and shall so state
therein.
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<PAGE>
References to the Final Memorandum in this subsection (a) shall include
any amendment or supplement thereto prepared in accordance with the provisions
of this Agreement at the Closing Date.
(b) On the Closing Date, the Initial Purchaser shall have
received the opinion, in form and substance satisfactory to the Initial
Purchaser, dated as of the Closing Date and addressed to the Initial Purchaser,
of Anderson Kill & Olick P.C., counsel for the Initial Purchaser, with respect
to certain legal matters relating to this Agreement and such other related
matters as the Initial Purchaser may require. In rendering such opinion,
Anderson Kill & Olick P.C. shall have received and may rely upon such
certificates and other documents and information as it may reasonably request to
pass upon such matters.
(c) The Initial Purchaser shall have received from the
Independent Accountants a comfort letter dated the date hereof, in form and
substance satisfactory to the Initial Purchaser, to the effect set forth in
Exhibit B hereto.
(d) The Company shall have received (i) the Wafra Consent,
(ii) the Noteholder Consent, and (iii) the Bank Consent, in each case for the
purpose of permitting the offering of the Securities and the transactions
contemplated by this Agreement, the Transaction Documents and the Final
Memorandum.
(e) The representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
on and as of the date hereof and on and as of the Closing Date as if made on and
as of the Closing Date (except for the representations and warranties which were
true and correct as of a certain specified date which shall continue to be true
and correct as of such date). The statements of the Company's officers made
pursuant to any certificate delivered in accordance with the provisions hereof
shall be true and correct in all material respects on and as of the date made
and on and as of the Closing Date. The Company shall have complied in all
material respects with all agreements and satisfied all conditions to be
performed or satisfied hereunder at or prior to the Closing Date. Except as
described in the Final Memorandum (exclusive of any amendment or supplement
thereto after the date hereof), subsequent to the date of the most recent
financial statements in such Final Memorandum, there shall have been no
development that, singly or in the aggregate, is reasonably likely to have a
Material Adverse Effect.
(f) The sale of the Units hereunder shall not be enjoined
(temporarily or permanently) on the Closing Date, and no injunction or order
shall have been issued that either (i) asserts that any of the transactions
contemplated by this Agreement or the Transaction Documents is subject to the
registration requirements of the Act or (ii) would prevent or suspend the
issuance or sale of the Units or the use of the
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<PAGE>
Preliminary Memorandum, the Final Memorandum or any amendment or supplement
thereto in any jurisdiction.
(g) Subsequent to the date of the most recent financial
statements in the Final Memorandum (exclusive of any amendment or supplement
thereto after the date hereof), other than as described in such Final Memorandum
or contemplated hereby, neither the Company nor any Subsidiary of the Company
shall have incurred any liabilities or obligations, direct or contingent not in
the ordinary course of business that are material to the Company and its
Subsidiaries, taken as a whole, or entered into any transactions not in the
ordinary course of business that are material to the business, condition
(financial or otherwise) or results of operations or prospects of the Company,
taken as a whole, and there shall not have been any adverse change in the
capital stock or long-term indebtedness of the Company or any Subsidiary of the
Company that is material to the business, condition (financial or otherwise) or
results of operations or prospects of the Company and the Subsidiaries, taken as
a whole.
(h) Subsequent to the date of the most recent financial
statements in the Final Memorandum and except as stated therein (exclusive of
any amendment or supplement thereto after the date hereof), the conduct of the
business and operations of the Company shall not have been interfered with by
strike, fire, flood, hurricane, accident or other calamity (whether or not
insured) or by any court or governmental action, order or decree, and the
properties of the Company shall not have sustained any loss or damage (whether
or not insured) as a result of any such occurrence, except any such
interference, loss or damage which would not, individually or in the aggregate,
have a Material Adverse Effect.
(i) The Initial Purchaser shall have received certificates of
the Company, dated the Closing Date, signed on behalf of the Company by the
Chairman of the Board, President or Chief Executive Officer and their Chief
Financial Officer, to the effect that:
(i) the representations and warranties of the Company
and its Subsidiaries contained in this Agreement are true and correct
in all material respects as of the date hereof and as of the Closing
Date (except for the representations and warranties which were true and
correct as of a certain specified date which shall continue to be true
and correct as of such date), and the Company and its Subsidiaries have
performed all covenants and agreements and satisfied hereunder all
conditions on their part to be performed or satisfied hereunder at or
prior to the Closing Date;
(ii) at the Closing Date, since the date hereof or
since the date of the most recent financial statements in
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the Final Memorandum (exclusive of any amendment or supplement thereto
after the date hereof), no event or events have occurred, no
information has become known nor does any condition exist that,
individually or the aggregate, would have a Material Adverse Effect;
(iii) since the date hereof or since the date of the
most recent financial statements in the Final Memorandum (exclusive of
any amendment or supplement thereto after the date hereof), other than
as described in the Final Memorandum or contemplated hereby, neither
the Company nor any Subsidiary of the Company has incurred any
liabilities or obligations, direct or contingent, not in the ordinary
course of business, that are material to the Company and its
Subsidiaries, taken as a whole, or entered into any transactions not in
the ordinary course of business that are material to the business,
condition (financial or otherwise) or results of operations or
prospects of the Company and its Subsidiaries, taken as a whole, and
there has not been any change in the capital stock or long-term
indebtedness of the Company or any Subsidiary of the Company that is
material to the business, condition (financial or otherwise) or results
of operations or prospects of the Company and its Subsidiaries, taken
as a whole; and
(iv) the sale of the Units hereunder has not been
enjoined (temporarily or permanently).
(j) On the Closing Date, the Initial Purchaser shall have
received the Registration Rights Agreement executed by the Company and such
agreement shall be in full force and effect at all times from and after the
Closing Date.
(k) On the Closing Date, the Initial Purchaser shall have
received an opinion of counsel, in form and substance satisfactory to the
Initial Purchaser, to the effect that each Subsidiary Guarantor existing on the
Closing Date (i) is duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Final Memorandum and (ii) has all
requisite corporate power and authority to execute, deliver and perform its
obligations under the Subsidiary Guarantee to which it is a party.
(l) The directors and executive officers of the Company who
are holders of outstanding shares of or securities exercisable or exchangeable
for or convertible into shares of capital stock of the Company and the principal
holders of the Company's Series A Convertible Preferred Stock (the "Convertible
Preferred Stock") and Series A Junior Preferred Stock (the "Junior Preferred
Stock") shall have entered into a written agreement with the Initial Purchaser
in the form of Exhibit C hereto (each such agreement, a "Lock-up Agreement"),
and executed
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originals of each Lock-up Agreement shall have been delivered to you.
(m) On the Closing Date, the Company's issuance and sale of
its Junior Preferred Stock and Preferred Unit Warrants (as defined in the Final
Memorandum) shall have been consummated in the manner set forth in the Final
Memorandum.
(n) On the Closing Date, the Company will pay or cause to be
paid in cash the reasonable fees and expenses of (i) Shearman & Sterling,
counsel to the Company, and (ii) Anderson Kill & Olick, P.C., counsel to the
Initial Purchaser.
(o) The Company shall have amended its charter and bylaws, as
necessary, to increase the size of the Company's board of directors to eleven
and to elect two nominees designated in writing by the Trustee to fill two of
such vacancies (the "Noteholder Representatives").
(p) The Company shall have delivered to the Initial Purchaser
a voting or similar agreement, in form and substance satisfactory to the Initial
Purchaser, executed by and among the Company and holders of 1% or more of the
outstanding Voting Common Stock.
(q) Policano and Manzo LLP shall have completed a review,
satisfactory to counsel to the Initial Purchaser, of the Company's financial
controls and procedures.
(r) On or prior to the Closing Date, the Company shall have
delivered to the Initial Purchaser a written appraisal of the Company prepared
by American Appraisal, Inc. (or such other appraiser acceptable to the Initial
Purchaser) in form and substance satisfactory to the Initial Purchaser.
(s) The Company shall have executed and delivered to the
Initial Purchaser the Preferred Units Purchase Agreement.
On or before the Closing Date, the Initial Purchaser and
counsel for the Initial Purchaser shall each have received such further
documents, opinions, certificates, letters and schedules or instruments relating
to the business, corporate, legal and financial affairs of the Company and its
Subsidiaries as they shall have heretofore reasonably requested from the Company
and its Subsidiaries.
All such documents, opinions, certificates, letters, schedules
or instruments delivered pursuant to this Agreement will comply with the
provision hereof only if they are reasonably satisfactory in all respects to the
Initial Purchaser and counsel for the Initial Purchaser. The Company shall
furnish to the Initial Purchaser such conformed copies of such documents,
opinions, certificates, letters, schedules and instruments in
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such quantities as the Initial Purchaser shall reasonably request.
8. Representations and Warranties by the Initial Purchaser. The Initial
Purchaser represents and warrants (as to itself only) that it is a QIB with such
knowledge and experience in financial and business matters as are necessary in
order to evaluate the merits and risks of an investment in the Units. The
Initial Purchaser agrees with the Company (as to itself only) that (a) it has
not and will not solicit offers for, or offer or sell, the Securities by any
form of general solicitation or general advertising (as those terms are used in
Regulation D under the Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Act and the rules and regulations promulgated
thereunder, and (b) it has and will solicit offers for the Units only from, and
will offer and sell the Securities only to (A) in the case of offers inside the
United States, (i) persons whom the Initial Purchaser reasonably believes to be
QIBs or, if any such person is buying for one or more institutional accounts for
which such person is acting as fiduciary or agent, only when such person has
represented to the Initial Purchaser that each such account is a QIB, to whom
notice has been given that such sale or delivery is being made in reliance on
Rule 144A, and, in each case, in transactions under Rule 144A or (ii) a limited
number of other institutional investors reasonably believed by the Initial
Purchaser to be Accredited Investors that, prior to their purchase of the
Securities, deliver to the Initial Purchaser a letter containing the
representations and agreements set forth in Exhibit C to the Final Memorandum
and (B) in the case of offers outside the United States, persons other than U.S.
persons ("foreign purchaser"), which term shall include dealers or other
professional fiduciaries in the United States acting on a discretionary basis
for foreign beneficial owners (other than an estate or trust); provided,
however, that, in the case of this clause (b), in purchasing such Securities,
such persons are deemed to have represented and agreed as provided under the
caption "Notice to Investors" contained in the Final Memorandum. The Initial
Purchaser acknowledges and agrees that, except as permitted by this Agreement,
it will not offer, sell or deliver any Units as part of the distribution at any
time. The Initial Purchaser acknowledges and agrees that it will not offer, sell
or deliver any Securities in any jurisdiction outside of the United States, its
territories or possessions except under circumstances that will result in
compliance with the provisions of Regulation S under the Act and the applicable
laws of such jurisdiction.
9. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless the Initial Purchaser, and each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, against any losses, claims, damages or
liabilities to which the Initial Purchaser or such controlling person may become
subject under the Act, the Exchange Act or otherwise,
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insofar as any such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any
material fact contained in any Memorandum or any amendment or
supplement thereto;
(ii) the omission or alleged omission to state, in any
Memorandum or any amendment or supplement thereto, a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; or
(iii) any breach by the Company or any of its Subsidiaries of
their respective representations, warranties and agreements set forth
in subsections (t), (ee), (ff), (gg), (hh), (ii), (jj) or (ll);
and, subject to the provisions hereof, will reimburse, as incurred, the Initial
Purchaser and each such controlling person for any legal or other expenses
reasonably incurred by the Initial Purchaser or such controlling person in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action in
respect thereof; provided, however, the Company will not be liable in any such
case to the extent (but only to the extent) that any such loss, claim, damage or
liability is finally judicially determined by a court of competent jurisdiction
in a final, unappealable judgment, to have resulted primarily from any untrue
statement or alleged untrue statement or omission or alleged omission made in
any Memorandum or any amendment or supplement thereto in reliance upon and in
conformity with written information concerning the Initial Purchaser furnished
to the Company by the Initial Purchaser specifically for use therein. This
indemnity agreement will be in addition to any liability that the Company may
otherwise have to the indemnifiable parties. The Company shall not be liable
under this Section 9 for any settlement of any claim or action effected without
its prior written consent, which shall not be unreasonably withheld; and
provided further, however, that this indemnity, as to the Preliminary
Memorandum, shall not inure to the benefit of the Initial Purchaser (or any
person controlling such Initial Purchaser) on account of any loss, claim, damage
or liability arising from the sale of Units to any person by such Initial
Purchaser if such Initial Purchaser failed to send or give a copy of the Final
Memorandum (as the same may be supplemented or amended) to such person at or
prior to the written confirmation of the sale of the Securities to such person,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact in such Preliminary Memorandum was corrected in the
Final Memorandum, unless such failure resulted from noncompliance by the Company
with Section 5(c).
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(b) The Initial Purchaser agrees to indemnify and hold
harmless each of the Company, its directors, officers and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act against any losses, claims, damages or liabilities to
which the Company or any such director, officer or controlling person may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) are finally
judicially determined by a court of competent jurisdiction in a final,
unappealable judgment, to have resulted solely from (i) any untrue statement or
alleged untrue statement of any material fact contained in any Memorandum or any
amendment or supplement thereto, (ii) the omission or the alleged omission to
state therein a material fact required to be stated in any Memorandum or any
amendment or supplement thereto or necessary to make the statements therein not
misleading, in each case to the extent, (but only to the extent) that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information concerning such
Initial Purchaser, furnished to the Company by the Initial Purchaser
specifically for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses incurred by the Company or any such director, officer or
controlling person in connection with any such loss, claim, damage, liability or
action in respect thereof. This indemnity agreement will be in addition to any
liability that the Initial Purchaser may otherwise have to the indemnified
parties.
(c) As promptly as reasonably practical after receipt by an
indemnified party under this Section 9 of notice of the commencement of any
action for which such indemnified party is entitled to indemnification under
this Section 9, such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 9, notify the
indemnifying party of the commencement thereof in writing; but the omission to
so notify the indemnifying party (i) will not relieve such indemnifying party
from any liability under paragraph (a) or (b) above unless and to the extent it
is not materially prejudiced as a result thereof and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraphs (a) and
(b) above. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
determine, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if (i) the use of counsel chosen by
the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have
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been advised by counsel that there may be one or more legal defenses available
to it and/or other indemnified parties that are different from or additional to
those available to the indemnifying party, or (iii) the indemnifying party shall
not have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after receipt by the
indemnifying party of notice of the institution of such action, then, in each
such case, the indemnifying party shall not have the right to direct the defense
of such action on behalf of such indemnified party or parties and such
indemnified party or parties shall have the right to select separate counsel to
defend such action on behalf of such indemnified party or parties at the expense
of the indemnifying party. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 9 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the immediately preceding
sentence (it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated by the Initial Purchaser
in the case of paragraph (a) of this Section 9 or the Company in the case of
paragraph (b) of this Section 9, representing the indemnified parties under such
paragraph (a) or paragraph (b), as the case may be, who are parties to such
action or actions) or (ii) the indemnifying party has authorized in writing the
employment of counsel for the indemnified party at the expense of the
indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the prior written consent of the indemnifying party (which consent shall
not be unreasonably withheld), unless such indemnified party waived in writing
its rights under this Section 9, in which case the indemnified party may effect
such a settlement without such consent.
(d) No indemnifying party shall be liable under this Section 9
for any settlement of any claim or action (or threatened claim or action)
effected without its written consent, which shall not be unreasonably withheld,
but if a claim or action settled with its written consent, or if there be a
final judgment for the plaintiff with respect to any such claim or action, each
indemnifying party jointly and severally agrees, subject to the exceptions and
limitations set forth above, to indemnify and hold harmless each indemnified
party from and
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against any and all losses, claims, damages or liabilities (and legal and other
expenses as set forth above) incurred by reason of such settlement or judgment.
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement or compromise of any pending or
threatened proceeding in respect of which the indemnified party is or could have
been a party, or indemnity could have been sought hereunder by the indemnified
party, unless such settlement (A) includes an unconditional written release of
the indemnified party, in form and substance satisfactory to the indemnified
party, from all liability on claims that are the subject matter of such
proceeding and (B) does not include any statement as to an admission of fault,
culpability or failure to act by or on behalf of the indemnified party.
(e) In circumstances in which the indemnity agreement provided
for in the preceding paragraphs of this Section 9 is unavailable to, or
insufficient to hold harmless, an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contributions,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative benefits received by the Company on
the one hand and the Initial Purchaser on the other shall be deemed to be in the
same proportion as the total proceeds from the Units Offering (before deducting
expenses) received by the Company bear to the total discounts and commissions
received by such Initial Purchaser. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand,
or such Initial Purchaser on the other, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission or alleged statement or omissions, and any other equitable
considerations appropriate in the circumstances.
(f) The Company and the Initial Purchaser agree that it would
not be equitable if the amount of such contribution determined pursuant to
paragraph (e) were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations
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<PAGE>
referred to in the first sentence of the immediately preceding paragraph (e).
Notwithstanding any other provision of this Section 9, the Initial Purchaser
shall not be obligated to make contributions hereunder that in the aggregate
exceed the total discounts, commissions and other compensation received by such
Initial Purchaser under this Agreement, less the aggregate amount of any damages
that such Initial Purchaser has otherwise been required to pay by reason of the
untrue or alleged untrue statements or the omissions or alleged omissions to
state a material fact. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of the immediately preceding paragraph (e), each person, if any, who controls
the Initial Purchaser within the meaning of Section 15 of the Act or Section 20
of the Exchange Act shall have the same rights to contribution as the Initial
Purchaser, and each director of the Company, each officer of the Company and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company.
10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company and its
officers and the Initial Purchaser set forth in this Agreement or made by or on
behalf of them pursuant to this Agreement shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Company and its
Subsidiaries, any of their respective officers or directors, the Initial
Purchaser or any controlling person referred to in Section 9 hereof and shall
survive delivery of and payment for the Units. The respective agreements,
covenants, indemnities and other statements set forth in Sections 6, 9 and 14
hereof shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in the sole
discretion of the Initial Purchaser by notice to the Company given prior to the
Closing Date in the event that the Company shall have failed, refused or been
unable to perform all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder at or prior thereto or, if at or prior to the
Closing Date:
(i) the Company shall have sustained any loss or
interference with respect to its businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any strike, labor dispute, slow down or work
stoppage or any legal or governmental proceeding, which loss or
interference, in the sole judgment of the Initial Purchaser, has had or
has a Material Adverse Effect or there shall have been, in the sole
judgment of the Initial Purchaser, any event or development involving
or reasonably likely to cause or
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<PAGE>
result in a Material Adverse Effect (including without limitation a
change in management or control of the Company), except in each case as
described in the Final Memorandum (exclusive of any amendment or
supplement thereto);
(ii) trading in securities generally on the New York
Stock Exchange, American Stock Exchange or the NASDAQ National Market
shall have been suspended or minimum or maximum prices shall have been
established on any such exchange or market;
(iii) a banking moratorium shall have been declared
by New York or United States authorities; or
(iv) there shall have been (A) an outbreak or
escalation of hostilities between the United States and any foreign
power, or (B) an outbreak or escalation of any other insurrection or
armed conflict involving the United States or any other national or
international calamity or emergency, or (C) any material change in the
financial markets of the United States which, in the case of clause
(A), (B) or (C) and in the sole judgment of the Initial Purchaser,
makes it impracticable or inadvisable to proceed with the private
offering or the delivery of the Units as contemplated by the Final
Memorandum.
(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Information Supplied by the Initial Purchaser. The statements set
forth in the last paragraph on the front cover page, the first and second
sentence of the second full paragraph on page iv (to the extent such statements
relate to the Initial Purchaser), and in the first, fourth and sixth paragraphs
under the heading "Plan of Distribution" in the Memorandum (to the extent such
statements relate to the Initial Purchaser) constitute the only information
furnished by the Initial Purchaser to the Company or its Subsidiaries for the
purposes of Sections 2(a) and 9 hereof.
13. Notices. All communications hereunder shall be in writing and, if
sent to the Initial Purchaser, shall be mailed or delivered or telecopied and
confirmed in writing to (i) Jefferies & Company, Inc., 11100 Santa Monica Blvd.,
10th Floor, Los Angeles, CA 90025, Attention: Andrew R. Whittaker, Telecopy No.
(310) 575-5166; with a copy to Anderson Kill & Olick P.C., 1251 Avenue of the
Americas, New York, New York 10022, Attention: Ronald S. Brody, Esq. and if sent
to the Company, shall be mailed or delivered or telecopied and confirmed in
writing to it at 565 Taxter Road, Suite 570, Elmsford, New York 10523,
Attention: Chief Financial Officer, Telecopy No. (914) 345-4527; with a copy to
Shearman & Sterling, 599 Lexington Avenue, New York, New York
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<PAGE>
10022, Attention: Stephen T. Giove, Esq., Telecopy No. (212) 848-7179.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the United States mail, postage prepaid, if
mailed; one business day after being timely delivered to a next-day air courier;
and when receipt is acknowledged by the addressed, if telecopied.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon the Initial Purchaser, the Company and their respective successors
and legal representatives, and nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any other person any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person except that (i) the indemnities
of the Company contained in Section 9 of this Agreement shall also be for the
benefit of any person or persons who control the Initial Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Initial Purchaser contained in Section 9 of this Agreement
shall also be for the benefit of the directors of the Company their respective
officers and any person or persons who control the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of
Securities from the Initial Purchaser will be deemed a successor because of such
purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among the Company and
the Initial Purchaser.
* * * * *
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<PAGE>
Very truly yours,
DISCOVERY ZONE, INC.
By: /s/ Scott W. Bernstein
----------------------------------------------
Name: Scott W. Bernstein
Title: President and Chief Executive Officer
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written.
JEFFERIES & COMPANY, INC.
By: /s/ Andrew Booth
-------------------------------
Name: Andrew Booth
Title: Senior Vice President
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<PAGE>
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
- 41 -
<PAGE>
EXHIBIT B
FORM OF COMFORT LETTER
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<PAGE>
EXHIBIT C
FORM OF LOCK-UP AGREEMENT
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<PAGE>
EXHIBIT D
Preferred Units Purchase Agreement
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AMENDED AND RESTATED BY-LAWS
of
DISCOVERY ZONE, INC.
----------------------
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE -- The registered office of
Discovery Zone, Inc. (the "Corporation") shall be established and maintained at
the office of The Corporation Trust Company at The Corporation Trust Center,
1209 Orange Street in the City of Wilmington, County of New Castle, State of
Delaware, and said Corporation Trust Company shall be the registered agent of
the Corporation in charge thereof.
SECTION 2. OTHER OFFICES -- The Corporation may have other
offices, either within or without the State of Delaware, at such place or places
as the Board of Directors of the Corporation (the "Board of Directors") may from
time to time select or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS -- Annual meetings of stockholders
for the election of directors, and for such other business as may be stated in
the notice of the meeting, shall be held at such place, either within or without
the State of Delaware, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the meeting. If
the Board of Directors fails so to determine the time, date and place of
meeting, the annual meeting of stockholders shall be held at the registered
office of the Corporation on the first Tuesday in April. If the date of the
annual meeting shall fall upon a legal holiday, the meeting shall be held on the
next succeeding business day. At each annual meeting, the stockholders
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entitled to vote shall elect a Board of Directors and they may transact such
other corporate business as shall be stated in the notice of the meeting.
SECTION 2. SPECIAL MEETINGS -- Special meetings of the
stockholders for any purpose or purposes may be called by the President or the
Secretary of the Corporation, by resolution of the Board of Directors or by any
Director thereof.
SECTION 3. VOTING -- Each stockholder entitled to vote in
accordance with the terms of the Certificate of Incorporation (as the same may
be amended or restated from time to time, the "Certificate of Incorporation")
and these By-Laws may vote in person or by proxy, but no proxy shall be voted
after three years from its date unless such proxy provides for a longer period.
All elections for directors shall be decided by plurality vote; all other
questions shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is entitled to be present.
SECTION 4. QUORUM -- Except as otherwise required by law, the
Certificate of Incorporation or these By-Laws, the presence, in person or by
proxy, of stockholders holding shares constituting a majority of the voting
power of the Corporation shall constitute a quorum at all meetings of the
stockholders. In case a quorum shall not be present at any meeting, a majority
in interest of the stockholders entitled to vote thereat, present in person or
by proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until the requisite amount of
stock entitled to vote shall be present. At any such adjourned meeting at which
the requisite amount of stock entitled to vote shall be represented, any
business may be transacted that might have been transacted at the meeting as
originally noticed, but only those stockholders entitled to vote at the meeting
as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof.
SECTION 5. NOTICE OF MEETINGS -- Written notice, stating the
place, date and time of the meeting, and the general nature of the business to
be considered, shall be given to each stockholder entitled to vote thereat, at
his or her address as it appears on the records of the Corporation, not less
than ten nor more than sixty days before the date of the meeting. No business
other than that stated in the notice shall be transacted at any meeting without
the unanimous consent of all the stockholders entitled to vote thereat.
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<PAGE>
SECTION 6. ACTION WITHOUT MEETING -- Unless otherwise provided
by the Certificate of Incorporation, any action required or permitted to be
taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted; provided that the stockholders shall not
adopt any new provisions, or amend any existing provisions of its Amended and
Restated Certificate of Incorporation or its Amended and Restated By-Laws at any
special meeting of stockholders other than by a unanimous consent of the
dorecedors. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM -- The business and affairs of the
Corporation shall be managed under the direction of a Board of Directors which
shall consist of two persons. The exact number of directors shall be eleven and
may thereafter be fixed from time to time by the Board of Directors; provided,
however, that the director nominated by the Official Committee of Unsecured
Creditors of the Corporation shall serve a term of at least three (3) years,
notwithstanding any assignment of any ownership interest in the Corporation;
provided further, however, that the directors (the "Noteholder Representatives")
nominated by the Trustee under the Indenture dated as of July 15, 1998, among
the Corporation, the Subsidiary Guarantors listed therein and Firstar Bank of
Minnesota, N.A., as trustee shall constitute a separate class of directors for
the purposes of certain votes. Directors shall be elected at the annual meeting
of stockholders and each director shall be elected to serve until his or her
successor shall be elected and shall qualify. A director need not be a
stockholder.
SECTION 2. RESIGNATIONS -- Any director may resign at any
time. Such resignation shall be made in writing, and shall take effect at the
time specified therein, and if no time be specified, at the time of its receipt
by the Chairman of the Board, the President or the Secretary. The acceptance of
a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES -- If the office of any director becomes
vacant, the remaining directors in the office, though less than a quorum, by a
majority vote, may appoint any qualified person to fill such vacancy, who shall
hold office for the unexpired term and until his or her successor shall be duly
chosen. Upon receipt by the Company of notice of any death, disability,
retirement, resignation or removal of any director which results in a vacancy,
the next scheduled meeting of the Board of Directors shall be delayed for a
reasonable period, not to exceed 30 days, so as to permit the designation of a
replacement director. If the office of any
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director becomes vacant and there are no remaining directors, the stockholders,
by the affirmative vote of the holders of shares constituting a majority of the
voting power of the Corporation, at a special meeting called for such purpose,
may appoint any qualified person to fill such vacancy.
SECTION 4. REMOVAL -- Except as hereinafter provided, any
director or directors may be removed either for or without cause at any time by
the affirmative vote of the holders of a majority of the voting power entitled
to vote for the election of directors, at an annual meeting or a special meeting
called for the purpose, and the vacancy thus created may be filled, at such
meeting, by the affirmative vote of holders of shares constituting a majority of
the voting power of the Corporation; provided that directors in the class of
Bondholder Directors may not be removed except by the affirmative vote of a
majority of the class of Bondholder Directors.
SECTION 5. COMMITTEES -- The Board of Directors may, by
resolution or resolutions passed by a majority of the whole Board of Directors,
designate one or more committees, each committee to consist of one or more
directors of the Corporation; provided, however, that such committee shall
consist of not less than three persons. No committee may be formed without the
affirmative vote of the Noteholder Representatives.
Any such committee, to the extent provided in the resolution
of the Board of Directors, or in these By-Laws, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, subject to the same limitations on
powers and authority of the Board of Directors set forth in these Amended and
Restated By-Laws, and may authorize the seal of the Corporation to be affixed to
all papers which may require it.
SECTION 6. MEETINGS -- The newly elected directors may hold
their first meeting for the purpose of organization and the transaction of
business, if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent of
all the Directors.
Directors must receive notice of regular meetings of the Board
of Directors not less than ten and not more than 60 days prior to such regular
meetings. Meetings may be held at such places and times as shall be determined
from time to time by resolution of the Board of Directors and set forth in the
notice to the directors of such meeting..
Special meetings of the Board of Directors may be called by
the Chairman of the Board, the President or any director, or by the Secretary
upon on the written request of any director, on at least two days' notice to
each director given personally or by telegram or facsimile transmission (except
that notice to any director may be waived in writing by such director) and shall
be held at such place or places as may be determined by the Board of Directors,
or as shall be stated in the call of the meeting.
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<PAGE>
Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in any meeting
of the Board of Directors or any committee thereof by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
SECTION 7. QUORUM -- A majority of six Directors shall
constitute a quorum for the transaction of business. If at any meeting of the
Board of Directors there shall be less than a quorum of six directors present, a
majority of those present may adjourn the meeting from time to time until a
quorum is obtained, and no further notice thereof need by given other than by
announcement at the meeting which shall be so adjourned. The vote of the
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors unless the Certificate of
Incorporation or these By-Laws shall require the vote of a greater number.
SECTION 8. COMPENSATION -- Directors shall not receive any
stated salary for their services as directors or as members of committees;
provided that the Noteholder Representatives shall receive compensation of
$3,000 per quarter, plus out-of-pocket expenses. By resolution of the Board of
Directors a fixed fee and expenses of attendance may be allowed to all of the
other directors for attendance at each meeting. Nothing herein contained shall
be construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
SECTION 9. ACTION WITHOUT MEETING -- Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent thereto is
signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS -- The officers of the Corporation shall
be a Chairman of the Board, a President, one or more Vice Presidents, a
Treasurer and a Secretary, all of whom shall be elected by the Board of
Directors and shall hold office until their successors are duly elected and
qualified. In addition, the Board of Directors may elect such Assistant
Secretaries and Assistant Treasurers as they may deem proper. The board of
Directors may appoint such other officers and agents as it may deem advisable,
who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors.
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SECTION 2. CHAIRMAN OF THE BOARD -- The Chairman of the Board
shall be the Chief Executive Officer of the Corporation. He or she shall preside
at all meetings of the Board of Directors and shall have and perform such other
duties as may be assigned to him or her by the Board of Directors. The Chairman
of the Board shall have the power to execute bonds, mortgages and other
contracts on behalf of the Corporation, and to cause the seal of the Corporation
to be affixed to any instrument requiring it, and when so affixed the seal shall
be attested to by the signature of the Secretary or the Treasurer or an
Assistant Secretary or an Assistant Treasurer.
SECTION 3. PRESIDENT -- The President shall be the Chief
Operating Officer of the Corporation. He or she shall have the general powers
and duties of supervision and management usually vested in the office of
President of a corporation. The President shall have the power to execute bonds,
mortgages and other contracts on behalf of the Corporation, and to cause the
seal to be affixed to any instrument requiring it, and when so affixed the seal
shall be attested to by the signature of the Secretary or the Treasurer or an
Assistant Secretary or an Assistant Treasurer.
SECTION 4. VICE PRESIDENTS -- Each Vice President shall have
such powers and shall perform such duties as shall be assigned to him or her by
the Board of Directors.
SECTION 5. TREASURER -- The Treasurer shall be the Chief
Financial Officer of the Corporation. He or she shall have the custody of the
Corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. He or she
shall deposit all moneys and other valuables in the name and to the credit of
the Corporation in such depositaries as may be designated by the Board of
Directors. He or she shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, the Chairman of the Board, or the President,
taking proper vouchers for such disbursements. He or she shall render to the
Chairman of the Board, the President and Board of Directors at the regular
meetings of the Board of Directors, or whenever they may request it, an account
of all his or her transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, he or she shall give the
Corporation a bond for the faithful discharge of his or her duties in such
amount and with such surety as the Board of Directors shall prescribe.
SECTION 6. SECRETARY -- The Secretary shall give, or cause to
be given, notice of all meetings of stockholders and of the Board of Directors
and all other notices required by law or by these By-Laws, and in case of his or
her absence or refusal or neglect so to do, any such notice may be given by any
person thereunto directed by the Chairman of the Board or the President, or by
the Board of Directors, upon whose request the meeting is called as provided in
these By-Laws. He or she shall record all the proceedings of the meetings of the
Board of Directors, any committees thereof and the stockholders of the
Corporation in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him or her by the
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Board of Directors, the Chairman of the Board or the President. He or she shall
have the custody of the seal of the Corporation and shall affix the same to all
instruments requiring it, when authorized by the Board of Directors, the
Chairman of the Board or the President, and attest to the same.
SECTION 7. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES --
Assistant Treasurers and Assistant Secretaries, if any, shall be elected and
shall have such powers and shall perform such duties as shall be assigned to
them, respectively, by the Board of Directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK -- A certificate of stock
shall be issued to each stockholder certifying the number of shares owned by
such stockholder in the Corporation. Certificates of stock of the Corporation
shall be of such form and device as the Board of Directors may from time to time
determine.
SECTION 2. LOST CERTIFICATES -- A new certificate of stock may
be issued in the place of any certificate theretofore issued by the Corporation,
alleged to have been lost or destroyed, and the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or such
owner's legal representatives, to give the Corporation a bond, in such sum as
they may direct, not exceeding double the value of the stock, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of any such certificate, or the issuance of any such new
certificate.
SECTION 3. TRANSFER OF SHARES -- The shares of stock of the
Corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the Corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Board of Directors may designate, by
whom they shall be cancelled, and new certificates shall thereupon be issued. A
record shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer. The Corporation shall be entitled to treat the holder of record
of any share or shares as the holder in fact thereof and shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person, and shall not be liable for any registration or transfer of
shares which are registered or to be registered in the name of a fiduciary or
the nominee of a fiduciary unless made with actual knowledge that a fiduciary or
nominee of a fiduciary is committing a breach of trust in requesting such
registration or transfer, or with knowledge of such facts that its participation
therein amounts to bad faith.
7
<PAGE>
SECTION 4. STOCKHOLDERS RECORD DATE -- In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and which
record date: (1) in the case of determination of stockholders entitled to vote
at any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty nor less than ten days before the date
of such meeting; (2) in the case of determination of stockholders entitled to
express consent to corporate action in writing without a meeting, shall not be
more than ten days from the date upon which the resolution fixing the record
date is adopted by the Board of Directors; and (3) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (1) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; (2) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting
when no prior action of the Board of Directors is required by law, shall be the
first day on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation in accordance with
applicable law, or, if prior action by the Board of Directors is required by
law, shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action; and (3) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting, provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 5. DIVIDENDS -- Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may, out of funds legally
available therefor at any regular or special meeting, declare dividends upon
stock of the Corporation as and when they deem appropriate. Before declaring any
dividend there may be set apart out of any funds of the Corporation available
for dividends, such sum or sums as the Board of Directors from time to time in
their discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
Board of Directors shall deem conducive to the interests of the Corporation.
SECTION 6. SEAL -- The corporate seal of the Corporation shall
be in such form as shall be determined by resolution of the Board of Directors.
Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise imprinted upon the subject document or paper.
8
<PAGE>
SECTION 7. FISCAL YEAR -- The fiscal year of the Corporation
shall be determined by resolution of the Board of Directors.
SECTION 8. CHECKS -- All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, or agent or
agents, of the Corporation, and in such manner as shall be determined from time
to time by resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE -- Whenever any notice
is required to be given under these By-Laws, personal notice is not required
unless expressly so stated, and any notice so required shall be deemed to be
sufficient if given by depositing the same in the United States mail, postage
prepaid, addressed to the person entitled thereto at his or her address as it
appears on the records of the Corporation, and such notice shall be deemed to
have been given on the day of such mailing. Notice to directors may also be
given by telegram or facsimile transmission. Stockholders not entitled to vote
shall not be entitled to receive notice of any meetings except as otherwise
provided by law. Whenever any notice is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation or of these By-Laws, a waiver thereof, in writing and signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to such required notice.
ARTICLE VI
AMENDMENTS
The directors shall not adopt any new provisions, or amend any
existing provisions of these By-Laws.
9
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FIRST SUPPLEMENTAL INDENTURE
Dated as of July 17, 1998
(Supplemental to Indenture dated as of July 22, 1997)
------------------------------------------------------------------------------
DISCOVERY ZONE, INC., as Issuer
AND
THE SUBSIDIARY GUARANTORS NAMED THEREIN
AND
STATE STREET BANK AND TRUST COMPANY, as Trustee
------------------------------------------------------------------------------
13 1/2% SENIOR SECURED NOTES DUE 2002
and
13 1/2% SENIOR SECURED NOTES DUE 2002, SERIES B
------------------------------------------------------------------------------
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of the 17th day of
July, 1998 among Discovery Zone, Inc., a Delaware corporation (the "Company"),
the Subsidiary Guarantors (as defined in the Original Indenture) and State
Street Bank and Trust Company, as trustee (the "Trustee").
WHEREAS, the Company and the Subsidiary Guarantors executed
and delivered to the Trustee an Indenture, dated as of July 22, 1997, (the
"Original Indenture") providing for the issuance of the Company's 13 1/2% Senior
Secured Notes due 2002 (the "Initial Notes") and its 13 1/2% Senior Secured
Notes due 2002, Series B (the "Exchange Notes", and together with the Initial
Notes, the "Notes"); and
WHEREAS, the Company proposes to issue (the "Offering") on or
about the date hereof (i) up to 20,000 units (the "New Note Units"), consisting
of $20,000,000 principal amount of the Company's 13 1/2% Senior Collateralized
Notes due 2002 (the "New Notes"), with detachable warrants (the "New Series A
Warrants") to purchase shares of the Company's common stock, par value $.00017
per share (the "Common Stock") or shares of the Company's non-voting common
stock, par value $.00017 per share (the "Non-Voting Common Stock"), and with
detachable redeemable warrants (the "New Series B Warrants" and collectively,
with the New Series A Warrants, the "New Warrants") to purchase shares of the
Company's Common Stock or shares of the Company's Non-Voting Common Stock,
collectively representing approximately 49% of the Company's common equity on a
fully diluted basis (before giving effect to the future issuance of options
under the Company's stock incentive plan in effect at the time of the Offering
(the "Stock Incentive Plan")), (ii) units (the "Series A Preferred Stock
Units"), consisting of 80,000 shares of Series A Junior Cumulative Preferred
Stock, liquidation preference $25.00 per share (the "Series A Preferred Stock"),
with detachable warrants (the "Series A Preferred Warrants") to purchase shares
of Common Stock, representing approximately 9.638% of the Common Stock on a
fully diluted basis (before giving effect to the future issuance of options
under the Company's Stock Incentive Plan), and (iii) units (the "Series B
Preferred Stock Units" and, together with the Series A Preferred Stock Units,
the "Preferred Stock Units") consisting of 340,000 shares of Series B Junior
Cumulative Preferred Stock, liquidation preference $25.00 per share (the "Series
B Preferred Stock" and, together with the Series A Preferred Stock, the "New
Preferred Stock"), with detachable warrants (the "Series B Preferred Warrants"
and, together with the Series A Preferred Warrants, the "Preferred Warrants") to
purchase shares of Common Stock, representing approximately 40.962% of the
Common Stock on a fully diluted basis (before giving effect to the future
issuance of options under the Company's Stock Incentive Plan);
WHEREAS, Holders (as defined in the Original Indenture)
representing at least a majority in aggregate principal amount ("Majority
Holders") of the Notes have agreed to waive the application of the provisions of
the Original Indenture as more particularly set forth in Article 2 hereof to the
full extent necessary to (i) permit the Offering (the "Offering Waiver"), and
(ii) permit the Trustee, on behalf of the Holders, to enter into an agreement
(the "New Notes Intercreditor Agreement") with the trustee for the holders of
the New Notes (the "New Notes Trustee") to the effect that (a) the priority of
the security interests in and liens on the collateral under the indenture (the
"New Notes Indenture") and related agreements governing the New Notes be senior
to the security interests in and liens on the collateral under the Original
Indenture and related agreements governing the Notes, (b) the New Notes are
fully secured and (c) in the event of a bankruptcy proceeding, Holders will not
object to an application for "adequate
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<PAGE>
protection" in favor of the holders of the New Notes (the "Intercreditor Waiver"
and, collectively with the Offering Waiver, the "Waivers"); and
WHEREAS, the Majority Holders have agreed to certain
amendments to the Indenture (A) to permit the Company (i) to incur up to $20
million of additional Indebtedness (as defined in the Original Indenture)
pursuant to the New Notes, (ii) to incur additional liens on the collateral
securing the Notes for the benefit of the holders of the New Notes, (iii) to
make future investments in the New Notes, (iv) to incur up to $5 million of
additional Indebtedness (as defined in the Original Indenture) (which
Indebtedness may include additional Indebtedness evidenced by an Eligible Credit
Facility (as defined herein) and secured by a first priority security interest
in, among other things, the collateral securing the Notes ("Additional Secured
Indebtedness")), (v) to make certain future redemptions and repurchases of the
New Notes in accordance with their terms and the terms of the New Notes
Indenture, and (vi) to make future redemptions in connection with a Primary
Offering (as defined in the Original Indenture) of certain shares of Common
Stock that represented accrued and unpaid dividends on New Preferred Stock held
by holders of New Preferred Stock whose shares of New Preferred Stock were
converted into Common Stock on or prior to the completion of such Primary
Offering, and (B) to permit the Trustee to enter into the New Notes
Intercreditor Agreement and an Intercreditor Agreement (as defined herein) with
the Lender or Lenders (as defined in the Original Indenture) of any Additional
Secured Indebtedness.
NOW THEREFORE, the Company, the Subsidiary Guarantors and the
Trustee hereby agree as follows:
ARTICLE 1.
Amendments
1. Section 1.01 of the Original Indenture is hereby amended as
follows:
(a) The definition of "Eligible Credit Facility" is hereby
amended in its entirety to read as follows:
" "Eligible Credit Facility" means one or
more credit facilities (and any permitted
refinancings or replacements thereof) between the
Company and one or more Lenders, including any
related notes, guarantees, collateral documents,
instruments and agreements executed in connection
therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time
to time as permitted herein, which credit facility or
facilities (and any permitted refinancings or
replacements thereof) (i) has or have terms and
conditions (including with respect to applicable
interest rates and fees) customary for similar
facilities extended to borrowers comparable to the
Company, (ii) collectively do not permit the Company
to incur Indebtedness thereunder at any time
outstanding in excess of $15,000,000 in the aggregate
principal amount, and (iii) may be secured by certain
assets of the Company, subject to the terms and
conditions of an Intercreditor Agreement."
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<PAGE>
(b) The definition of "Intercreditor Agreement" is hereby
amended in its entirety to read as follows:
" "Intercreditor Agreement" means one or
more agreements between the Trustee and one or more
Lenders, each substantially in the form of Exhibit
G-1 attached to the First Supplemental Indenture
hereto, to be entered into after the Issue Date, if
the Company and such Lender or Lenders enter into an
Eligible Credit Facility, as such agreement or
agreements may be amended from time to time."
(c) Subparagraph (h) of the definition of "Permitted
Indebtedness" is hereby amended in its entirety and a new subparagraph (i) is
hereby added to the definition of "Permitted Indebtedness," each to read as
follows:
"(h) other Indebtedness of the Company in an
aggregate amount not to exceed $15 million at any one
time outstanding, which Indebtedness may include
Indebtedness evidenced by an Eligible Credit
Facility; and
(i) Indebtedness of the Company represented
by the New Notes and in an aggregate principal amount
not to exceed $20 million."
(d) The subsection (vi) of the definition of "Permitted
Investments" is hereby amended in its entirety to read as follows:
"(vi) Investments in the Notes and/or the
New Notes."
(e) Subparagraph (xiii) of the definition of "Permitted Liens"
is hereby amended in its entirety to read as follows:
"(xiii) Liens securing Indebtedness of the
Company under an Eligible Credit Facility or the New
Notes;"
(f) The following definitions are hereby added to Section
1.01:
" "New Indenture Primary Offering" means an offering of
Qualified Capital Stock of the Company.
" "New Note Units" means units consisting of New Notes, New
Series A Warrants and New Series B Warrants to be initially sold
by the Company in a private offering on July 17, 1998."
" "New Notes" means up to $20,000,000 aggregate principal
amount of the Company's 13 1/2% Senior Collateralized Notes due
2002 and the Company's 13 1/2% Series B Senior Collateralized
Notes due 2002."
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<PAGE>
" "New Notes Indenture" means the Indenture dated as of July
17, 1998 among the Company, the Subsidiary Guarantors named
therein and the New Notes Trustee."
" "New Notes Intercreditor Agreement" means an agreement
between the Trustee and the New Notes Trustee in substantially
the form of Exhibit G-2 attached to the First Supplemental
Indenture hereto to be entered into on the date on which the New
Notes are issued providing that (i) the priority of the security
interests in and liens on the collateral under the New Notes
Indenture and related agreements governing the New Notes be
senior to the security interests in and liens on the collateral
under this Indenture and related agreements governing the Notes,
(ii) the New Notes are fully secured and (iii) in the event of a
bankruptcy proceeding, the Holders will not object to an
application for "adequate protection" in favor of the holders of
the New Notes."
" "New Notes Trustee" means Firstar Bank of Minnesota, N.A.
as trustee under the New Indenture or any successor trustee under
the New Indenture."
" "New Preferred Stock" means collectively, (i) the 80,000
shares of the Company's Series A Junior Cumulative Preferred
Stock, liquidation preference $25.00 per share, and (ii) the
340,000 shares of Series B Junior Cumulative Preferred Stock,
liquidation preference $25.00 per share, issued on the date on
which the New Notes are issued."
" "New Series A Warrants" means warrants to purchase shares
of the Company's common stock, par value $.00017 per share or
shares of the Company's non-voting common stock, par value
$.00017 per share representing approximately 34% of the Company's
common equity on a fully diluted basis (before giving effect to
the future issuance of options under the Company's Stock
Incentive Plan as in effect on the date of issuance of the New
Note Units) issued in connection with the New Note Units pursuant
to the terms of the New Warrant Agreement."
" "New Series B Warrants" means warrants to purchase shares
of the Company's common stock, par value $.00017 per share or
shares of the Company's non-voting common stock, par value
$.00017 per share representing approximately 15% of the Company's
common equity on a fully diluted basis (before giving effect to
the future issuance of options under the Company's Stock
Incentive Plan as in effect on the date of issuance of the New
Note Units) issued in connection with the New Note Units pursuant
to the terms of the New Warrant Agreement."
" "New Warrant Agreement" means the Warrant Agreement dated
as of July 17, 1998, between the Company and Firstar Bank of
Minnesota, N.A. as Warrant Agent pursuant to which the New
Warrants are issued, as amended and supplemented from time to
time in accordance with its terms."
- 4 -
<PAGE>
" "New Warrants" means collectively, the New Series A
Warrants and the New Series B Warrants issued by the Company
pursuant to the terms and conditions of the New Warrant
Agreement."
" "Public Equity Offering" means an underwritten public
offering of Qualified Capital Stock of the Company pursuant to a
registration statement filed with and declared effective by the
SEC pursuant to the Securities Act (other than a registration
statement on Form S-8 or otherwise relating to equity securities
under any employee benefit plans) that results in net proceeds to
the Company of at least $20 million."
2. Section 4.10 of the Original Indenture is hereby amended:
(a) by deleting the word "and" in the twenty-ninth line of the
second full paragraph thereof;
(b) by adding the words "; (x) the redemption or repurchase of
New Notes, in accordance with the terms of the New Notes Indenture, in
connection with an Asset Sale; (xi) the redemption or repurchase of New Notes,
in accordance with the terms of the New Notes Indenture, following the
occurrence of a Change of Control (as defined in the New Notes Indenture); (xii)
the redemption, in accordance with the terms of the New Notes Indenture, of up
to 100% of the original principal amount of the New Notes, utilizing the
proceeds of a New Indenture Primary Offering provided that such redemption shall
occur within 30 days of the date of the closing of such New Indenture Primary
Offering; (xiii) the payment, in accordance with the terms of the New Preferred
Stock utilizing the proceeds of a Public Equity Offering, of accrued and unpaid
dividends on New Preferred Stock held by holders thereof whose New Preferred
Stock was converted into Common Stock, either concurrently with or prior to the
consummation of such Public Equity Offering; and (xiv) the purchase, redemption,
defeasance or other acquisition or retirement of New Warrants required by the
terms of the New Warrant Agreement", immediately following the word "Indenture"
in the thirty fourth line of the second full paragraph thereof.
3. Section 4.22 of the Original Indenture is hereby amended by
adding the words ", the New Notes Intercreditor Agreement" immediately after the
words "Intercreditor Agreement" in the first and twelfth lines thereof.
4. Section 5.01(a) of the Original Indenture is hereby amended
by adding the words ", the New Notes Intercreditor Agreement" immediately after
the words "the Intercreditor Agreement" in the thirteenth line thereof.
5. Section 5.02 of the Original Indenture is hereby amended by
adding the words ", the New Notes Intercreditor Agreement" immediately after the
words "the Warrant Agreement" in the seventh line thereof.
6. Section 10.01 of the Original Indenture is hereby amended
(x) by adding the words "subject to the terms of the Intercreditor Agreement and
the New Notes Intercreditor Agreement"
- 5 -
<PAGE>
immediately after the word "Interests" in the ninth line of the first paragraph
thereof, (y) by adding the words "or in the New Notes Intercreditor Agreement"
immediately after the word "Agreement" in the sixteenth line of the second
paragraph thereof and (z) by adding the words "in the New Notes Intercreditor
Agreement," immediately prior to the phrase "in the Subordination Agreement" in
the nineteenth line of the second paragraph thereof.
7. Section 10.02 of the Original Indenture is hereby amended
by (x) amending the heading thereof to add the words "; Execution of New Notes
Intercreditor Agreement" at the end thereof and (y) by adding a second paragraph
thereto which shall read in its entirety as follows: "The Company is permitted
to enter into the New Notes Intercreditor Agreement, substantially in the form
of Exhibit G-2 attached hereto, at any time on or after the date on which the
New Notes are initially issued, providing, among other things, that (i) the
priority of the security interests in and Liens on the Collateral under the New
Notes Indenture and related agreements governing the New Notes be senior to the
security interests in and Liens on the Collateral under this Indenture and
related agreements governing the Notes, (ii) the New Notes are fully secured,
(iii) in the event of a bankruptcy proceeding, the Holders will not object to an
application for "adequate protection" in favor of the holders of the New Notes,
(iv) during any insolvency proceedings, the collateral agent with respect to the
New Notes and the Collateral Agent will coordinate their efforts to give effect
to the relative priority of their security interests in such properties and
assets, and (v) following an Event of Default, all decisions with respect to
such properties and assets, including the time and method of any disposition
thereof, will be made in accordance with the terms of such New Notes
Intercreditor Agreement, in each case, subject to the terms and provisions of
this Indenture, the Intercreditor Agreement, and the Collateral Agreements."
8. Section 10.04 of the Original Indenture is hereby amended
by (x)(i) deleting the word "Neither" in the first line of subsection (a)
thereof and (ii) substituting therefor the words "Subject to the Intercreditor
Agreement and the New Notes Intercreditor Agreement, neither," (y)(i) deleting
the word "At" in the first line of subsection (b) thereof and (ii) substituting
therefor the words "Subject to the Intercreditor Agreement and the New Notes
Intercreditor Agreement, at" and (z) by adding the words "or pursuant to the
Intercreditor Agreement or the New Notes Intercreditor Agreement" immediately
after the word "Agreements" in the fourth line of subsection (c) thereof.
9. Section 10.05 of the Original Indenture is hereby amended
(x) by adding the words "and to the extent applicable, the Intercreditor
Agreement and the New Notes Intercreditor Agreement," immediately after the word
"Agreements" in the fourth line of subsection (a) thereof, (y) by adding the
words "and, to the extent applicable, the Intercreditor Agreement and the New
Notes Intercreditor Agreement" immediately after the word "Agreements" in the
fifth line of subsection (b) thereof and (z) by adding the words "and, to the
extent applicable, the Intercreditor Agreement and the New Notes Intercreditor
Agreement" immediately after the word "Agreements" in the fourth line of
subparagraph (b)(iv) thereof.
10. Section 10.08 of the Original Indenture is hereby amended
by adding the words ", the New Notes Intercreditor Agreement" immediately after
the words "Subordination Agreement" in the second line thereof.
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<PAGE>
11. Section 12.01 of the Original Indenture is hereby amended
by adding the following paragraph at the end thereof, "The Company agrees and
each Holder by its acceptance thereof likewise agrees, that the Trustee, on
behalf of each Holder, may enter into the New Notes Intercreditor Agreement with
the New Trustee pursuant to which, among other things, (i) to better secure the
Company's payment obligations in Section 7.07 of the Indenture, the Trustee
shall have a claim prior to the New Notes on all assets or money held or
collected by the New Notes Trustee in its capacity as New Notes Trustee,
including assets or money held in trust to pay principal of or interest on
particular New Notes, to the extent, if any, that the Company fails promptly to
pay amounts owed the Trustee under said Section 7.07 and (ii) the New Notes
Trustee, on behalf of the holders of the New Notes, shall be granted a security
interest in and lien on certain assets of the Company to the extent of the
Indebtedness outstanding under the New Notes. Notwithstanding the foregoing, the
grant of a Lien on such assets pursuant to the terms of the New Indenture, and
related collateral and security agreements, neither the New Notes nor the New
Notes Intercreditor Agreement, shall, other than as specifically set forth in
the New Notes Intercreditor Agreement, adversely effect in any manner whatsoever
the security interests created by this Indenture, the Notes and the Collateral
Agreements."
ARTICLE 2.
Waivers
As of July 17, 1998, consents were received from the holders
of 88.24% of the aggregate principal amount of the outstanding Notes to:
(a) the waiver of the application of the following provisions of the Original
Indenture in connection with the New Offering:
(i) Section 1.01 (Definition of "Permitted
Indebtedness") and Section 4.12 - to the full extent necessary to
permit the Company to issue up to $20 million aggregate principal
amount of the New Notes and to permit the Subsidiary Guarantors to
guaranty the Company's obligations under the New Notes and the New
Indenture, in each case, without meeting the tests currently set forth
in Section 4.12 for the incurrence of additional Indebtedness;
(ii) Section 1.01 (Definition of "Permitted Liens")
and Section 4.17 - to the full extent necessary to permit the Company,
in connection with the issuance of the New Notes, to incur additional
Liens on the Collateral for the purpose of securing the New Notes; and
(iii) Section 4.22 - to the full extent necessary to
permit the Company and the Trustee to enter into the New Indenture and
certain related collateral and security agreements, with the effect
that the holders of New Notes will be granted a Lien on the Collateral
for the purpose of securing the New Notes, which Lien will be senior in
priority to the Lien on the Collateral securing the Notes; and
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<PAGE>
(b) to the waiver of the application of the provisions of the Original Indenture
including, but not limited to, Section 4.22, Section 10.01 and Section 10.08
thereof to the full extent necessary to permit the Trustee, on behalf of the
Holders, to enter into the New Notes Intercreditor Agreement.
ARTICLE 3.
Miscellaneous
1. All provisions of this First Supplemental Indenture shall
be deemed to be incorporated in, and made a part of, the Original Indenture; and
the Original Indenture, as supplemented by this First Supplemental Indenture,
shall be read, taken and construed as one and the same instrument.
2. The Trustee accepts the trusts created by the Original
Indenture, as supplemented by this First Supplemental Indenture, and agrees to
perform the same upon the terms and conditions in the Original Indenture, as
supplemented by this First Supplemental Indenture. The Trustee is relying on the
Opinion of Counsel and the Officers' Certificate delivered to the Trustee by the
Company stating that this First Supplemental Indenture complies with and has
received all necessary authorizations under the Original Indenture, including,
without limitation, Section 9.02 thereof. The Trustee shall not be responsible
in any manner whatsoever for or in respect of the validity or sufficiency of
this First Supplemental Indenture, except for the Trustee's certificate of
authentication, or the due execution hereof by the Company and the Subsidiary
Guarantors, or for or in respect of the recitals contained herein, all of which
recitals are made by the Company and the Subsidiary Guarantors.
3. All capitalized terms used and not defined herein shall
have the respective meanings assigned to them in the Original Indenture.
4. This First Supplemental Indenture may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, as of the date first above written.
DISCOVERY ZONE, INC.
By: /s/ Scott W. Bernstein
--------------------------------------
Name: Scott W. Bernstein
Title: President and Chief Executive Officer
Attest: /s/ Robert G. Rooney
------------------------------
Name: Robert G. Rooney
Title: Senior Vice President
and Chief Financial and
Administrative Officer
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By: /s/ M. L. Storrs
--------------------------------------
Name: M. L. Storrs
Title: Vice President
SUBSIDIARY GUARANTORS
DISCOVERY ZONE (CANADA) LIMITED
By: /s/ Scott W. Bernstein
--------------------------------------
Name: Scott W. Bernstein
Title: President and Chief Executive Officer
Attest: /s/ Robert G. Rooney
--------------------------------------
Name: Robert G. Rooney
Title: Senior Vice President
and Chief Financial and
Administrative Officer
<PAGE>
DISCOVERY ZONE (PUERTO RICO),
INC.
By: /s/ Scott W. Bernstein
--------------------------------------
Name: Scott W. Bernstein
Title: President and Chief Executive Officer
Attest: /s/ Robert G. Rooney
--------------------------------------
Name: Robert G. Rooney
Title: Senior Vice President
and Chief Financial and
Administrative Officer
DISCOVERY ZONE LICENSING, INC.
By: /s/ Scott W. Bernstein
--------------------------------------
Name: Scott W. Bernstein
Title: President and Chief Executive Officer
Attest: /s/ Robert G. Rooney
--------------------------------------
Name: Robert G. Rooney
Title: Senior Vice President
and Chief Financial and
Administrative Officer
================================================================================
DISCOVERY ZONE, INC.,
as Issuer,
and
THE SUBSIDIARY GUARANTORS NAMED HEREIN
and
Firstar Bank of Minnesota, N.A.
as Trustee
---------------------------------------------
INDENTURE
Dated as of July 17, 1998
---------------------------------------------
$20,000,000
13 1/2% Senior Collateralized Notes due 2002
and
13 1/2% Senior Collateralized Notes due 2002, Series B
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
---------------------
TIA Section Indenture 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; 13.02
(c).................................................................. N.A.
311(a).................................................................... 7.11
(b).................................................................. 7.11
(c).................................................................. N.A.
312(a).................................................................... 2.05
(b)................................................................. 13.03
(c)................................................................. 13.03
313(a).................................................................... 7.06
(b)(1).............................................................. 10.05
(b)(2)............................................................... 7.07
(c)........................................................... 7.06; 13.02
(d).................................................................. 7.06
314(a)....................................................... 4.07; 4.08; 13.02
(b)................................................................. 10.03
(c)(1).............................................................. 13.04
(c)(2).............................................................. 13.04
(c)(3)............................................................... N.A.
(d)................................................................. 10.04
(e)................................................................. 13.05
(f).................................................................. N.A.
315(a)................................................................. 7.01(b)
(b)........................................................... 7.05; 13.02
(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
(c).................................................................. 9.04
317(a)(1)................................................................. 6.08
(a)(2)............................................................... 6.09
(b).................................................................. 2.04
318(a)................................................................... 13.01
(c)................................................................. 13.01
- --------------
N.A. means not applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE................................... 1
SECTION 1.01. Definitions............................................ 1
SECTION 1.02. Other Definitions...................................... 22
SECTION 1.03. Incorporation by Reference of TIA...................... 23
SECTION 1.04. Rules of Construction.................................. 23
ARTICLE TWO
THE NOTES.................................................................... 24
SECTION 2.01. Form and Dating........................................ 24
SECTION 2.02. Execution and Authentication; Aggregate
Principal Amount....................................... 25
SECTION 2.03. Registrar and Paying Agent............................. 26
SECTION 2.04. Paying Agent To Hold Assets in Trust................... 26
SECTION 2.05. Holder Lists........................................... 27
SECTION 2.06. Transfer and Exchange.................................. 27
SECTION 2.07. Replacement Notes...................................... 28
SECTION 2.08. Outstanding Notes...................................... 28
SECTION 2.09. Treasury Notes......................................... 29
SECTION 2.10. Temporary Notes........................................ 29
SECTION 2.11. Cancellation........................................... 29
SECTION 2.12. CUSIP Number........................................... 30
SECTION 2.13. Deposit of Monies...................................... 30
SECTION 2.14. Book-Entry Provisions for Global Note.................. 30
SECTION 2.15. Special Transfer Provisions............................ 32
SECTION 2.16. Defaulted Interest..................................... 34
ARTICLE THREE
REDEMPTION................................................................... 35
SECTION 3.01. Notices to Trustee..................................... 35
SECTION 3.02. Selection of Notes To Be Redeemed...................... 35
SECTION 3.03. Optional Redemption.................................... 36
SECTION 3.04. Notice of Redemption................................... 36
SECTION 3.05. Effect of Notice of Redemption......................... 37
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<PAGE>
SECTION 3.06. Deposit of Redemption Price............................ 37
SECTION 3.07. Notes Redeemed in Part................................. 38
ARTICLE FOUR
COVENANTS.................................................................... 38
SECTION 4.01. Payment of Notes....................................... 38
SECTION 4.02. Maintenance of Office or Agency........................ 38
SECTION 4.03. Corporate Existence.................................... 39
SECTION 4.04. Payment of Taxes and other Claims...................... 39
SECTION 4.05. Maintenance of Properties and Insurance................ 39
SECTION 4.06. Compliance Certificate; Notice of Default.............. 40
SECTION 4.07. Compliance with Laws................................... 40
SECTION 4.08. Reports................................................ 41
SECTION 4.09. Waiver of Stay, Extension or Usury Laws................ 41
SECTION 4.10. Limitation on Restricted Payments...................... 42
SECTION 4.11. Limitation on Transactions with Affiliates............. 44
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness and
Issuance of Preferred Stock............................ 45
SECTION 4.13. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries................................. 45
SECTION 4.14. Limitation on Change of Control........................ 46
SECTION 4.15. Limitation on Asset Sales.............................. 47
SECTION 4.16. Limitation on Issuances and Sales of Capital Stock of
Subsidiaries........................................... 50
SECTION 4.17. Limitation on Liens.................................... 50
SECTION 4.18. Conduct of Business.................................... 51
SECTION 4.19. Payments For Consent................................... 51
SECTION 4.20. Registration Rights Agreement.......................... 51
SECTION 4.21. Warrant Agreement...................................... 51
SECTION 4.22. Impairment of Security Interest........................ 51
SECTION 4.23. Intercompany Indebtedness.............................. 52
SECTION 4.24. Key Man Life Insurance................................. 52
SECTION 4.25. Real Estate Mortgages and Filings...................... 52
SECTION 4.26. Leasehold Mortgages and Filings........................ 53
SECTION 4.27. Rating of Notes........................................ 53
SECTION 4.28. Noteholder Designation of Directors.................... 54
SECTION 4.29. Appointment of Chief Operating Officer................. 55
SECTION 4.30. Approval of Bankruptcy Filings......................... 55
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<PAGE>
ARTICLE FIVE
SUCCESSOR CORPORATION........................................................ 55
SECTION 5.01. Merger, Consolidation and Sale of Assets............... 55
SECTION 5.02. Successor Corporation Substituted...................... 57
ARTICLE SIX
DEFAULT AND REMEDIES......................................................... 57
SECTION 6.01. Events of Default...................................... 57
SECTION 6.02. Acceleration........................................... 59
SECTION 6.03. Other Remedies......................................... 59
SECTION 6.04. Waiver of Past Defaults................................ 60
SECTION 6.05. Control by Majority.................................... 60
SECTION 6.06. Limitation on Suits.................................... 60
SECTION 6.07. Rights of Holders To Receive Payment................... 61
SECTION 6.08. Collection Suit by Trustee............................. 61
SECTION 6.09. Trustee May File Proofs of Claim....................... 61
SECTION 6.10. Priorities............................................. 62
SECTION 6.11. Undertaking for Costs.................................. 62
SECTION 6.12. Restoration of Rights and Remedies..................... 63
SECTION 6.13. Rights and Remedies Cumulative......................... 63
SECTION 6.14. Delay or Omission Not Waiver........................... 63
ARTICLE SEVEN
TRUSTEE...................................................................... 63
SECTION 7.01. Duties of Trustee...................................... 63
SECTION 7.02. Rights of Trustee...................................... 65
SECTION 7.03. Individual Rights of Trustee........................... 66
SECTION 7.04. Trustee's Disclaimer................................... 66
SECTION 7.05. Notice of Default...................................... 66
SECTION 7.06. Reports by Trustee to Holders.......................... 66
SECTION 7.07. Compensation and Indemnity............................. 67
SECTION 7.08. Replacement of Trustee................................. 68
SECTION 7.09. Successor Trustee by Merger, Etc....................... 69
SECTION 7.10. Eligibility; Disqualification.......................... 69
SECTION 7.11. Preferential Collection of Claims Against Company...... 69
iii
<PAGE>
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE...................................... 70
SECTION 8.01. Legal Defeasance and Covenant Defeasance............... 70
SECTION 8.02. Satisfaction and Discharge............................. 72
SECTION 8.03. Survival of Certain Obligations........................ 73
SECTION 8.04. Acknowledgment of Discharge by Trustee................. 73
SECTION 8.05. Application of Trust Monies............................ 73
SECTION 8.06. Repayment to the Company; Unclaimed Money.............. 74
SECTION 8.07. Reinstatement.......................................... 74
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS.......................................... 75
SECTION 9.01. Without Consent of Holders............................. 75
SECTION 9.02. With Consent of Holders................................ 76
SECTION 9.03. Compliance with TIA.................................... 77
SECTION 9.04. Revocation and Effect of Consents...................... 77
SECTION 9.05. Notation on or Exchange of Notes....................... 78
SECTION 9.06. Trustee To Sign Amendments, Etc........................ 78
ARTICLE TEN
SECURITY..................................................................... 78
SECTION 10.01. Grant of Security Interest............................. 78
SECTION 10.02. Execution of Intercreditor Agreement................... 79
SECTION 10.03. Recording and Opinions................................. 80
SECTION 10.04. Release of Collateral.................................. 81
SECTION 10.05. Specified Releases of Collateral....................... 82
SECTION 10.06. Form and Sufficiency of Release........................ 83
SECTION 10.07. Purchaser Protected.................................... 84
SECTION 10.08. Authorization of Actions To Be Taken by the Trustee
Under the Collateral Agreements........................ 84
SECTION 10.09. Authorization of Receipt of Funds by the Trustee Under
the Collateral Agreements.............................. 84
SECTION 10.10. Escrowed Interest Account.............................. 84
ARTICLE ELEVEN
GUARANTEE.................................................................... 87
SECTION 11.01. Unconditional Guarantee................................ 87
SECTION 11.02 Limitations on Subsidiary Guarantees................... 88
iv
<PAGE>
SECTION 11.03. Evidence of Execution and Delivery of
Subsidiary Guarantee................................... 89
SECTION 11.04. Release of a Subsidiary Guarantor...................... 89
SECTION 11.05. Waiver of Subrogation.................................. 90
SECTION 11.06. Immediate Payment...................................... 91
SECTION 11.07. No Set-Off............................................. 91
SECTION 11.08. Obligations Absolute................................... 91
SECTION 11.09. Obligations Continuing................................. 91
SECTION 11.10. Obligations Not Reduced................................ 92
SECTION 11.11. Obligations Reinstated................................. 92
SECTION 11.12. Obligations Not Affected............................... 92
SECTION 11.13. Waiver................................................. 93
SECTION 11.14. No Obligation To Take Action Against the Company....... 94
SECTION 11.15. Dealing with the Company and Others.................... 94
SECTION 11.16. Default and Enforcement................................ 94
SECTION 11.17. Certain Bankruptcy Events.............................. 95
SECTION 11.18. Amendment, Etc......................................... 95
SECTION 11.19. Acknowledgment......................................... 95
SECTION 11.20. Costs and Expenses..................................... 95
SECTION 11.21. No Merger or Waiver; Cumulative Remedies............... 95
SECTION 11.22. Survival of Obligations................................ 96
SECTION 11.23. Subsidiary Guarantee in Addition to Other Obligations.. 96
SECTION 11.24. Severability........................................... 96
SECTION 11.25. Successors and Assigns................................. 96
ARTICLE TWELVE
AGREEMENT TO SUBORDINATE SECURITY INTEREST................................... 97
SECTION 12.01. Subordination of Security Interest..................... 97
SECTION 12.02. Authorization of Trustee and Collateral Agent.......... 97
ARTICLE THIRTEEN
MISCELLANEOUS................................................................ 97
SECTION 13.01. TIA Controls........................................... 97
SECTION 13.02. Notices................................................ 98
SECTION 13.03. Communications by Holders with Other Holders........... 99
SECTION 13.04. Certificate and Opinion as to Conditions Precedent..... 99
SECTION 13.05. Statements Required in Certificate or Opinion.......... 99
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar..............100
SECTION 13.07. Legal Holidays.........................................100
SECTION 13.08. Governing Law; Jurisdiction; Submission to Venue.......100
SECTION 13.09. No Adverse Interpretation of other Agreements..........101
SECTION 13.10. No Recourse Against Others.............................101
v
<PAGE>
SECTION 13.11. Successors.............................................101
SECTION 13.12. Duplicate Originals....................................101
SECTION 13.13. Severability...........................................102
SECTION 13.14. Independence of Covenants..............................102
SECTION 13.15. Table of Contents, Headings, Etc.......................102
SIGNATURES...................................................................103
vi
<PAGE>
EXHIBITS
EXHIBIT A - FORM OF INITIAL NOTES.....................................A-1
EXHIBIT B - FORM OF EXCHANGE NOTES....................................B-1
EXHIBIT C - FORM OF LEGEND FOR GLOBAL NOTES...........................C-1
EXHIBIT D - CERTIFICATE IN CONNECTION WITH TRANSFERS TO
INSTITUTIONAL ACCREDITED INVESTORS...............D-1
EXHIBIT E - CERTIFICATE IN CONNECTION WITH
REGULATION S TRANSFERS...........................E-1
EXHIBIT F - FORM OF ESCROW AND SECURITY AGREEMENT.....................F-1
EXHIBIT G - 1 FORM OF ELIGIBLE CREDIT FACILITY INTERCREDITOR
AGREEMENT........................................G-1
EXHIBIT G - 2 FORM OF NOTES INTERCREDITOR AGREEMENT............G-_
EXHIBIT H - FORM OF PLEDGE AGREEMENT..................................H-1
EXHIBIT I - FORM OF SECURITY AGREEMENT................................I-1
EXHIBIT J - FORM OF NOTATION ON NOTE RELATING
TO SUBSIDIARY GUARANTEE..........................J-1
EXHIBIT K - FORM OF TRADEMARK ASSIGNMENT..............................K-1
EXHIBIT L - FORM OF SUBSIDIARY PLEDGE AGREEMENT ......................L-1
EXHIBIT M - FORM OF SUBSIDIARY SECURITY AGREEMENT.....................M-1
EXHIBIT N - FORM OF LEASEHOLD MORTGAGE ...............................N-1
EXHIBIT O - FORM OF LESSOR'S CONSENT TO LEASEHOLD MORTGAGE............O-1
EXHIBIT P - FORM OF SUBORDINATION AGREEMENT..................P-1
EXHIBIT Q - FORM OF STOCKHOLDERS' AGREEMENT ..........................Q-1
EXHIBIT R - FORM OF PLEDGE POSSESSION AGREEMENT ......................R-1
SCHEDULE
SCHEDULE 4.25(a) - REAL PROPERTIES OWNED IN FEE BY THE COMPANY
vii
<PAGE>
INDENTURE, dated as of July 17, 1998, among Discovery Zone,
Inc., a Delaware corporation (the "Company"), the Subsidiary Guarantors referred
to below and Firstar Bank of Minnesota, N.A., as trustee (the "Trustee").
The Company has duly authorized the creation of an issue of
13 1/2% Senior Collateralized Notes due May 1, 2002 (the "Initial Notes"), and
13 1/2% Senior Collateralized Notes due May 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to the Registration Rights Agreement (as
defined) (the "Exchange Notes" and, together with the Private Exchange Notes (as
defined) and the Initial Notes, the "Notes") and, to provide therefor, the
Company has duly authorized the execution and delivery of this Indenture. The
Notes will be secured by a lien and security interest in the Escrowed Interest
Account (as defined) maintained with the Collateral Agent (as defined) pursuant
to the terms of the Escrow Agreement (as defined). The Notes will also be
secured by a lien and security interest in the Collateral (as defined) pursuant
to the terms of the Security Agreement (as defined), subject to the
subordination of such lien after the date hereof as provided herein, and by a
pledge of all of the outstanding capital stock of all Subsidiary Guarantors (as
defined), pursuant to the terms of the Pledge Agreement (as defined) and the
Subsidiary Pledge Agreements (as defined). The Notes will be jointly and
severally guaranteed, on an unconditional senior secured basis, by the
Subsidiary Guarantors (as defined). All things necessary to make the Notes, when
duly issued and executed by the Company, and authenticated and delivered
hereunder, the valid obligations of the Company and the Subsidiary Guarantors,
and to make this Indenture a valid and binding agreement of the Company and the
Subsidiary Guarantors, have been done.
Each party hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders (as defined),
without preference of one series of the Notes over the other.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Debt" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, excluding
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person.
"Additional Interest" has the meaning set forth in the
Registration Rights Agreement.
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<PAGE>
"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 purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
specified Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management of policies of such
specified Person, whether through the ownership of voting securities, by
agreement or otherwise; provided, however, that beneficial ownership of 10% or
more of the aggregate voting power of the voting securities of a Person shall be
deemed to be control.
"Agent" means any Registrar, Paying Agent, Collateral Agent,
Authenticating Agent or co-Registrar.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly-Owned Subsidiary
of the Company of (a) any Capital Stock of any Subsidiary of the Company; or (b)
any other property or assets of the Company or any Subsidiary of the Company
other than in the ordinary course of business; provided, however, that Asset
Sales shall not include (i) a transaction or series of related transactions for
which the Company or its Subsidiaries receive aggregate consideration of less
than $500,000 and (ii) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of the Company as permitted
under Section 5.01 hereof.
"Bankruptcy Law" or "Bankruptcy Code" means Title 11, U.S.
Code or any similar Federal, state or foreign law for the relief of debtors.
"Block Party" means a Subsidiary of the Company in existence
prior to the Issue Date that is the owner of certain family entertainment
centers.
"Board of Directors" means, as to any Person, the board of
directors of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy
of a resolution delivered to the Trustee and certified by the secretary or an
assistant secretary of such Person to have been duly adopted by the Board of
Directors of such Person and to be in full force and effect on the date of such
certification.
"Business Day" means a day that is not a Legal Holiday.
"Capital 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
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
-2-
<PAGE>
"Capital Stock" means, with respect to any Person, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock and any and all warrants, options and rights with
respect thereto, including, without limitation, each class of common stock and
preferred stock, partnership interests and other indicia of ownership of such
Person.
"Cash Equivalents" means: (i) obligations issued or
unconditionally guaranteed by the United States of America or any agency
thereof, or obligations issued by any agency or instrumentality thereof and
backed by the full faith and credit of the United States of America; (ii)
commercial paper rated the highest grade by Moody's Investors Service, Inc. and
Standard & Poor's Ratings Group and maturing not more than one year from the
date of creation thereof; (iii) time deposits with, and certificates of deposit
and banker's acceptances issued by, any bank having capital surplus and
undivided profits aggregating at least $500 million and maturing not more than
one year from the date of creation thereof; (iv) repurchase agreements that are
secured by a perfected security interest in an obligation described in clause
(i) and are with any bank described in clause (iii); (v) money market accounts
with any bank having capital surplus and undivided profits aggregating at least
$500 million; (vi) readily marketable direct obligations issued by any state of
the United States of America or any political subdivision thereof having one of
the two highest rating categories obtainable from either Moody's Investors
Service, Inc. or Standard & Poor's Ratings Group; and (vii) money market funds
investing only in U.S. Government Obligations.
"Change of Control" means the occurrence of one or more of
the following events:
(i) any Person or Group (as defined below) other than the
Permitted Holder is or becomes the direct or indirect beneficial owner
(as defined below) of more than 50% of the Voting Stock of the
Company;
(ii) any Person or Group other than the Permitted Holder is
or becomes the direct or indirect beneficial owner of more than 50% of
the interests or participations in, or measured by the profits of, the
Company;
(iii) any sale, lease, exchange or other transfer (in one
transaction or in a series of related transactions) of all or
substantially all of the assets of the Company to any Person or Group,
together with any Affiliates thereof (whether or not otherwise in
compliance with the provisions of this Indenture) that is not
beneficially owned or controlled, directly or indirectly, by the
Permitted Holder;
(iv) the Permitted Holder ceases to have the right or
ability, by voting power, control, contract or otherwise, to control a
majority of the Board of Directors of the Company other than in the
event of the exercise by the New Notes Trustee or at least 25% of the
holders of New Notes of their right pursuant to the terms of the New
Notes Indenture following the occurrence of an event of default under
the New
-3-
<PAGE>
Notes Indenture, to designate nominees for election or appointment to
the Company's Board of Directors which represent a majority of the
Board; or
(v) the occurrence of a Change of Control (as defined in the
Existing Notes Indenture).
The terms "beneficially own", "beneficial owner" and "Group"
shall have the meanings ascribed to such terms in Sections 13(d) and 14(d) of
the Exchange Act; provided, however, that, for the purposes of this definition
of "Change of Control" only, any Person or Group other than the Permitted Holder
shall be deemed to be the current beneficial owner of any shares of Voting Stock
of the Company, or any interests or participations in, or measured by the
profits of, the Company, that are issuable upon the exercise of any option,
warrant or similar right, or upon the conversion any convertible security, in
either case owned by such Person or Group without regard to whether such option,
warrant or convertible security is currently exercisable or convertible or will
become convertible or exercisable within 60 days if the exercise or conversion
price thereof at the time of grant was lower than the fair market value of the
underlying security at the time of grant.
"Collateral" shall have the meaning assigned to such term in
the Security Agreement.
"Collateral Agent" shall have the meaning assigned to such
term in the Security Agreement.
"Collateral Agreements" means, collectively, the Escrow
Agreement, the Pledge Agreement, the Subsidiary Pledge Agreements, the Security
Agreement, the Subsidiary Security Agreements, the Trademark Assignment, the
Pledge Possession Agreement and the Mortgages, in each case, as the same may be
in force from time to time.
"Common Stock" of any Person means any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or non-voting) of such Person's common stock, whether
outstanding on the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"Company" means the party named as such above, until a
successor replaces such Person in accordance with the terms of this Indenture,
and thereafter means such successor.
"Consolidated Cash Flow" means, with respect to any Person
for any period, the Consolidated Net Income of such Person for such period plus
(without duplication) (a) an amount equal to any extraordinary loss plus any net
loss realized in connection with an Asset Sale (to the extent such losses were
deducted in computing Consolidated Net Income), (b) provision for taxes based on
income or profits to the extent such provision for taxes was included in
computing Consolidated Net Income, (c) consolidated interest expense of such
Person for such period, whether paid or accrued (including deferred financing
costs, non-
-4-
<PAGE>
cash interest payments and the interest component of capital lease obligations),
to the extent such expense was deducted in computing Consolidated Net Income,
(d) accretion of deferred rent expense under the McDonald's Rent Deferral
Secured Notes, to the extent such expense was deducted in computing Consolidated
Net Income, and (e) depreciation and amortization (including amortization of
goodwill and other intangibles) for such period to the extent such deprecation
or amortization were deducted in computing Consolidated Net Income, in each
case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, that: (i) the Net Income of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid to
the referent Person or a Wholly-Owned Subsidiary thereof, (ii) the Net Income of
any Person that is a Subsidiary (other than a Subsidiary of which at least 80%
of the Capital Stock having ordinary voting power for the election of directors
or other governing body of such Subsidiary is owned by the referent Person
directly or indirectly through one or more Subsidiaries) shall be included only
to the extent of the amount of dividends or distributions paid to the referent
Person or a Wholly-Owned Subsidiary thereof; (iii) for the purpose of
determining whether the Company may make a Restricted Payment under clause (c)
of Section 4.10 hereof only, the Net Income of any Person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
shall be excluded; and (iv) the cumulative effect of a change in accounting
principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries plus (ii) the respective amounts reported on
such Person's most recent balance sheet with respect to any series of preferred
stock (other than Disqualified Stock) that by its terms is not entitled to the
payment of dividends unless such dividends may be declared and paid only out of
net earnings in respect of the year of such declaration and payment, but only to
the extent of (a) any cash received by such Person upon issuance of such
preferred stock and (b) the fair market value of any non-cash consideration
received by such Person upon issuance of such preferred stock provided that such
value has been determined in good faith by a nationally recognized investment
bank, less (x) all write-ups, subsequent to the date of this Indenture, in the
book value of assets owned by such Person or a consolidated Subsidiary of such
Person, other than (a) write-ups resulting from foreign currency translations
and (b) write-ups upon the acquisition of assets acquired in a transaction to be
accounted for by purchase accounting under GAAP, (y) all investments in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in
each case, a Permitted Investment), and (z) all unamortized debt discount and
expense and unamortized deferred financing charges (except such amounts arising
from the issuance of the Notes), all of the foregoing determined in accordance
with GAAP.
"Custodian" means any receiver, trustee, assignee,
liquidator, sequestrator or similar official under any Bankruptcy Law.
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"Default" means any event known to the Company or which
should have been known to the Company after due inquiry that is, or with the
passage of time or the giving of notice or both would be, an Event of Default.
"Depository" means The Depository Trust Company, its nominees
and successors.
"Disqualified Stock" means any 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
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the Maturity Date.
"DTC" means The Depository Trust Company, a New York
corporation.
"Eligible Credit Facility" means one or more credit
facilities (and any permitted refinancing or replacement thereof) between the
Company and one or more Lenders, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time as permitted herein, which credit facility or
facilities (and any permitted refinancing or replacement thereof) (i) has or
have terms and conditions (including with respect to applicable interest rates
and fees) customary for similar facilities extended to borrowers comparable to
the Company, (ii) collectively do not permit the Company to incur Indebtedness
thereunder at any time outstanding in excess of $15,000,000 in aggregate
principal amount, and (iii) may be secured by certain assets of the Company,
subject to the terms and conditions of an Eligible Credit Facility Intercreditor
Agreement between the Trustee and the Lender or Lenders providing such Eligible
Credit Facility.
"Eligible Credit Facility Intercreditor Agreement" means an
agreement between the Trustee and one or more Lenders substantially in the form
of Exhibit G-1 hereto entered into in connection with the Company and such
Lender or Lenders entering into an Eligible Credit Facility.
"Equity Interests" means Capital Stock or warrants, options
or other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"Escrow Agreement" means the Escrow and Security Agreement,
dated as of even date herewith, between the Company and the Trustee,
substantially in the form of Exhibit F attached hereto, as amended and
supplemented from time to time in accordance with its terms.
"Escrow Funds" means approximately $2.8 million of net
proceeds from the sale of Units to be deposited in the Escrowed Interest Account
in an aggregate amount specified in the Escrow Agreement to, among other things,
pay interest on the Notes that
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accrues and is unpaid from the Issue Date through and including the Interest
Payment Date on August 1, 1999.
"Escrowed Interest Account" means one or more accounts
established with the Trustee pursuant to the terms of the Escrow Agreement for
the deposit of the Escrow Funds and the Pledged Securities.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"Exchange Notes" has the meaning provided in the Preamble to
this Indenture.
"Exchange Offer" means the offer that may be made by the
Company, pursuant to the Registration Rights Agreement, to exchange for any and
all the Initial Notes a like aggregate principal amount of Exchange Notes.
"Existing Notes" means the $85.0 million aggregate principal
amount of 13 1/2 Senior Secured Notes due 2002.
"Existing Notes Indenture" means the Indenture, dated as of
July 22, 1997, by and among the Company, the Subsidiary Guarantors named therein
and State Street Bank and Trust Company, as Trustee.
"Existing Notes Intercreditor Agreement" means the
intercreditor agreement between the Existing Notes Trustee and Foothill Capital
Corporation, dated as of March 31, 1998.
"Existing Notes Trustee" means State Street Bank and Trust
Company and any permitted successor thereto.
"Existing Warrant Agreement" means the Warrant Agreement
dated July 22, 1997 between the Company and the Existing Notes Trustee, as
Warrant Agent, pursuant to which the Existing Warrants were issued, as amended
and supplemented from time to time in accordance with its terms.
"Existing Warrants" means the warrants to purchase shares of
the Company's common stock, par value $.00017 per share, issued by the Company
contemporaneously with the Existing Notes pursuant to the terms of the Existing
Warrant Agreement.
"fair market value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Unless otherwise provided herein, fair market value shall be
determined by the Board of Directors of the Company acting reasonably and in
good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
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"Fixed Charge Coverage Ratio" means, with respect to any
Person for any period, the ratio of the Consolidated Cash Flow of such Person
for such period to the Fixed Charges of such Person for such period. In the
event that the Company or any of its Subsidiaries incurs, assumes, guarantees,
repays, repurchases or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems Preferred Stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the event for which the calculation of the Fixed Charge Coverage Ratio
is made, then the Fixed Charge Coverage Ratio (both the numerator and the
denominator therein) shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee, repayment, repurchase or redemption of
Indebtedness, or such issuance or redemption of Preferred Stock, as if the same
had occurred at the beginning of the applicable period; provided that pro forma
effect shall be given to repayments, repurchases or redemptions of Indebtedness
or Preferred Stock only to the extent such Indebtedness or Preferred Stock is
permanently retired (and, in the case of the Notes, surrendered to the Trustee
for cancellation). For purposes of making the computation referred to above, in
the event that acquisitions, divestitures, mergers or consolidations have been
made by the Company or any of its Subsidiaries subsequent to the commencement of
the four-quarter period over which the Fixed Charge Coverage Ratio is being
calculated, but prior to the event for which the calculation of the Fixed Charge
Ratio is being made, then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such acquisitions, divestitures, mergers and
consolidations as if such transactions had occurred at the beginning of the
applicable period.
"Fixed Charges" means, with respect to any Person for any
period, the sum of (a) consolidated interest expense of such Person for such
period, whether paid or accrued, to the extent such expense was deducted in
computing Consolidated Net Income (including amortization of non-cash interest
payments and the interest component of capital leases but excluding amortization
of deferred financing fees) and (b) the product of (i) all dividend payments,
whether paid in cash, assets, securities or otherwise, in the case of a Person
that is a Subsidiary of the Company, on any series of preferred stock of such
Person, and all dividend payments in respect of any series of preferred stock of
the Company, whether paid in cash, assets, securities or otherwise (other than
dividends payable in additional shares of the preferred stock on which such
dividends are paid), times (ii) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession, which are in effect on the date of this Indenture.
"Holder" or "holder" means the Person in whose name a Note is
registered on the Registrar's books.
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"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including
pursuant to capital leases) or representing any Interest Swap Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing Indebtedness (other than Interest Swap
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, and also includes, to the extent not otherwise
included, the guarantee (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), direct or indirect, by such
Person in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any of the
items which would be included within this definition.
"Indenture" means this Indenture, as amended or supplemented
from time to time in accordance with the terms hereof.
"Independent Financial Advisor" means an investment banking
firm (i) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the Company
or any of its Subsidiaries and (ii) which, in the judgment of the Board of
Directors of the Company, is otherwise independent and qualified to perform the
task for which it is to be engaged.
"Initial Notes" has the meaning provided in the Preamble to
this Indenture.
"Initial Purchaser" means Jefferies & Company, Inc.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act.
"Interest Payment Date" means the stated maturity of an
installment of interest on the Notes.
"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 and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended to the date hereof and from time to time hereafter.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the form
of loans (including direct or
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indirect guarantees), advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"Issue Date" means the date of original issuance of the
Initial Notes under this Indenture.
"Junior Preferred Stock" means, collectively, the 80,000
shares of the Company's Series A Junior Cumulative Preferred Stock, liquidation
preference $25.00 per share, and the 340,000 shares of the Company's Series B
Junior Cumulative Preferred Stock, liquidation preference $25.00 per share,
issued on the Issue Date.
"Lender" means a Person that is not an Affiliate of the
Company and is a lender in an Eligible Credit Facility.
"Lien" means, with respect to any asset, mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction, excluding true lease and consignment filings).
"Limited Investment Subsidiary" means, with respect to the
Company or any subsidiary of the Company, any corporation, partnership, joint
venture, association or other business entity in which the Company or any
Subsidiary of the Company (i) has at any time made an Investment permitted by
clause (viii) of the definition of "Permitted Investment" and (ii) has not at
any time made any other Investment.
"Maturity Date" means May 1, 2002.
"McDonald's" means the McDonald's Corporation, a Delaware
corporation, and its successors and assigns.
"McDonald's Collateral" means those certain fourteen parcels
of real property and related fixtures, including, without limitation, any
proceeds thereof and subject to McDonald's Senior Liens (as hereinafter
defined).
"McDonald's Documents" means the agreement to indemnify as
set forth in Section 10.3(f) and Section 11.2(a)(iii) of that certain Agreement
and Plan of Merger, dated as of August 30, 1994, by and among Discovery Zone,
Inc., Discovery Zone International, Inc., Leaps & Bounds, Inc. and McDonald's;
the McDonald's Secured Note (as hereinafter defined); and the McDonald's Rent
Deferral Secured Notes (as hereinafter defined).
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"McDonald's Rent Deferral Secured Notes" means secured
promissory notes issued on July 22, 1997 by the Company in favor of McDonald's
pursuant to the Plan of Reorganization, which notes represent restructuring of
rent deferrals which McDonald's granted to the Company during bankruptcy
proceedings of the Company in an estimated aggregate principal amount of to
$265,000, which rent deferrals will continue to accrue after the Issue Date and
increase the principal amount owing under such notes and the interest on which
notes will be capitalized and payable on maturity.
"McDonald's Secured Note" means the secured promissory note
issued on July 22, 1997 by the Company in favor of McDonald's pursuant to the
Plan of Reorganization, which note represents restructured secured claims
against the Company in an estimated aggregate principal amount of up to
$4,600,000.
"McDonald's Senior Liens" shall mean the first priority liens
of McDonald's on the McDonald's Collateral, as set forth in the first mortgages,
deeds of trust and/or deeds to secure debt, which McDonald's Senior Liens
secure, among other things, the payment of the McDonald's Secured Note, the
McDonald's Rent Deferral Secured Notes and any obligations of the Debtors (as
defined in the Plan of Reorganization) or the Company or any of the other
Reorganized Debtors (as defined in the Plan of Reorganization) that may arise
under (i) the agreement to indemnify as set forth in Section 10.3(f) and Section
11.2(a)(iii) of the Agreement and Plan of Merger, dated as of August 30, 1994,
by and among Discovery Zone, Inc., Discovery Zone International, Inc., Leaps &
Bounds, Inc. and McDonald's Corporation and (ii) the Stipulation and Order
Between Debtors and McDonald's Corporation Providing for the Resolution,
Settlement and Compromise of Disputes and for Rent Deferrals and Allowance of
Certain Claims, entered by the United States Bankruptcy Court for the District
of Delaware on November 18, 1996, which liens are senior to the subordinate
liens on the McDonald's Properties granted by the Company to the Collateral
Agent as set forth in the Subordination Agreement (as hereinafter defined).
"Mortgages" means the mortgages, deeds of trust, deeds to
secure debt or other similar documents securing liens on the Premises and/or the
Leased Premises, as well as the other collateral secured by and described in the
mortgages, deeds of trust, deeds to secure debt or other similar documents.
"Net Cash Proceeds" means, 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 (other than the portion of any such deferred payment
constituting interest) 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 after
taking into account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts to be provided by the Company or any Subsidiary, as
the case may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Subsidiary,
as
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the case may be, after such Asset Sale, including, without limitation, pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale.
"Net Income" means, with respect to any Person, the net
income (loss) of such Person, determined in accordance with GAAP, excluding,
however, any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with any Asset Sale
(including, without limitation, dispositions pursuant to sale and leaseback
transactions), and excluding any extraordinary gain (but not loss), together
with any related provisions for taxes on such extraordinary gain (but not loss).
"New Intercreditor Agreements" means, collectively, (i) one
or more Eligible Credit Facility Intercreditor Agreements (or, if applicable, an
amendment to the Existing Notes Intercreditor Agreement), to be entered into on
or after the Issue Date between the Trustee and one or more Lenders (including,
without limitation, Foothill Capital Corporation) and (ii) the Notes
Intercreditor Agreement.
"Non-U.S. Person" means a Person who is not a U.S. Person, as
defined in Regulation S.
"Notes" has the meaning provided in the Preamble to this
Indenture and means the Initial Notes, the Exchange Notes, and the Private
Exchange Notes, if any, treated as a single class of securities, as amended or
supplemented from time to time in accordance with the terms hereof, that are
issued pursuant to this Indenture.
"Notes Intercreditor Agreement" means the intercreditor
agreement to be entered into on the Issue Date between the Trustee and the
Existing Notes Trustee substantially in the form of Exhibit G-2 hereto.
"Obligations" means any principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Offering Circular" means as of any time referred to in this
Indenture, the most recent offering memorandum (whether the preliminary
Confidential Offering Circular, dated June 22, 1998, as amended by the final
Confidential Offering Circular, dated July 9, 1998, or any amendment or
supplement thereto), in each case relating to the offering of the Initial Notes.
"Officer" means, with respect to any Person, the chief
executive officer, the president, any vice president, the chief financial
officer, the treasurer, the controller, or the secretary or assistant secretary
of such Person, or any other officer designated by the Board of Directors to
serve in a similar capacity.
"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
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such Person and otherwise complying with the requirements of Sections 13.04 and
13.05, as they relate to the making of an Officers' Certificate.
"Opinion of Counsel" means a written opinion from legal
counsel, who may be counsel for the Company and who is reasonably acceptable to
the Trustee, complying with the requirements of Sections 13.04 and 13.05, as
they relate to the giving of an Opinion of Counsel.
"Permitted Holder" means Birch Acquisition L.L.C. so long as
such entity is directly or indirectly controlled by Martin S. Davis or, in the
event of his death, by Greg S. Feldman.
"Permitted Indebtedness" means each of the following:
(a) Indebtedness incurred by the Company or its Subsidiaries
in connection with or arising out of Sale and Leaseback Transactions,
Capital Lease Obligations or Purchase Money Obligations; provided that
the aggregate principal amount at any one time outstanding of all such
Sale and Leaseback Transactions, Capital Lease Obligations and
Purchase Money Obligations does not exceed $5 million;
(b) Indebtedness of the Company represented by the Notes
(whether incurred on the Issue Date or in connection with the Exchange
Offer);
(c) Indebtedness owed by the Company to any of its
Wholly-Owned Subsidiaries for so long as such Indebtedness is held by
a Wholly-Owned Subsidiary of the Company, in each case subject to no
Lien; provided that (i) any such Indebtedness of the Company is
unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under this Indenture and the Notes and (ii) if
as of any date any Person other than a Wholly-Owned Subsidiary of the
Company owns or holds any such Indebtedness or any such Person holds a
Lien in respect of such Indebtedness, such date shall be deemed the
date of incurrence of Indebtedness not constituting Permitted
Indebtedness of the Company;
(d) Indebtedness of a Wholly-Owned Subsidiary of the Company
to the Company or to a Wholly-Owned Subsidiary of the Company for so
long as such Indebtedness is held by the Company or a Wholly-Owned
Subsidiary of the Company and, if such Indebtedness from the Company
to any Subsidiary exceeds $500,000 in aggregate principal amount,
evidenced by a written promissory note or other instrument in form and
substance reasonably satisfactory to the Trustee, in each case subject
to no Lien held by a Person other than the Company or a Wholly-Owned
Subsidiary of the Company; provided that if, as of any date any Person
other than the Company or a Wholly-Owned Subsidiary of the Company
owns or holds such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the date of incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of
such Indebtedness;
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(e) the incurrence by the Company and its Subsidiaries of
Indebtedness issued in exchange for, or the proceeds of which are
contemporaneously used to extend, refinance, renew, replace, or refund
(collectively, "Refinance") Permitted Indebtedness referred to in
clauses (a), (b) and (c) above and clause (i) below and outstanding
Indebtedness incurred in accordance with Section 4.12 hereof (other
than pursuant to this definition of Permitted Indebtedness except to
the extent provided in clauses (a), (b) and (c) thereof) (the
"Refinancing Indebtedness"); provided, however, that (i) the principal
amount of such Refinancing Indebtedness shall not exceed the principal
amount of Indebtedness so refinanced (plus the amount of reasonable
expenses incurred in connection therewith); (ii) the Refinancing
Indebtedness shall rank in right of payment no more senior (and at
least as subordinated) to the Notes than did the Indebtedness being
refinanced; (iii) if the Indebtedness being refinanced is Indebtedness
of the Company, then such Refinancing Indebtedness shall be
Indebtedness solely of the Company; (iv) such Refinancing Indebtedness
shall have a Weighted Average Life longer, and a stated maturity which
is later than, that of the Indebtedness being refinanced; and (v) the
Indebtedness so refinanced is permanently retired (and, in case of the
Notes, surrendered to the Trustee for cancellation);
(f) Interest Swap Obligations of the Company covering
Indebtedness of the Company or any of its Subsidiaries and Interest
Swap Obligations of any Subsidiary covering Indebtedness of such
Subsidiary; provided, however, that such Interest Swap Obligations are
entered into to protect the Company and its Subsidiaries from
fluctuations in interest rates on Indebtedness incurred in accordance
with this Indenture 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;
(g) Indebtedness of the Company outstanding on the Issue Date
pursuant to the McDonald's Secured Note, the McDonald's Rent Deferral
Secured Notes (including Indebtedness resulting from future rent
deferrals to the extent and in the manner contemplated by the
McDonald's Rent Deferral Secured Notes as in effect on the Issue Date)
and the Pre-petition Tax Payables, as reduced by the amount of any
prepayments permitted by this Indenture or scheduled amortization
payments when actually paid or by any permanent reductions thereof;
(h) other Indebtedness of the Company in an aggregate amount
not to exceed $15 million at any one time outstanding, which
Indebtedness may include Indebtedness evidenced by an Eligible Credit
Facility; and
(i) Indebtedness of the Company represented by the Existing
Notes and in an aggregate principal amount not to exceed $85 million.
"Permitted Investments" means: (i) Investments by the Company
or any of its Subsidiaries in any Person that is or will become immediately
after such Investment a Wholly-Owned Subsidiary of the Company or that will
merge or consolidate into the Company or a Wholly-Owned Subsidiary of the
Company, (ii) Investments in the Company
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by any Subsidiary of the Company; provided that any Indebtedness evidencing such
Investment is unsecured and subordinated, pursuant to a written agreement, to
the Company's obligations under the Notes and this Indenture; (iii) investments
in cash and Cash Equivalents; (iv) Interest Swap Obligations entered into in the
ordinary course of the Company's or its Subsidiaries' businesses and otherwise
in compliance with this Indenture; (v) Investments in securities of trade
creditors or customers received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade creditors or
customers solely in exchange for a claim against any such trade creditor or
customer; (vi) Investments in the Notes; (vii) Investments in the Existing
Notes; (viii) Investments made by the Company or its Subsidiaries as a result of
an Asset Sale made in compliance with Section 4.15 hereof; and (ix) other
Investments in joint ventures, corporations, limited liability companies or
partnerships formed by the Company, which joint ventures, corporations, limited
liability companies or partnerships engage in businesses which are the same as,
or similar or related to, the business of the Company as contemplated by the
Offering Circular; provided, however, that the amount which may be invested
pursuant to this clause (ix) shall not exceed, in the twelve-month period
commencing on the Issue Date, $500,000 and in any successive twelve-month period
commencing on the Issue Date thereafter, $500,000 plus any cumulative,
unutilized portion of such amounts which could have been invested pursuant to
this clause (ix) during any of the prior twelve-month periods.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or
claims either (a) not delinquent or (b) contested in good faith by
appropriate proceedings and as to which the Company or its
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith, if such
reserve or other appropriate provision, if any, as shall be required
by GAAP shall have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security, including any Lien
securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to secure
the performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed
money);
(iv) judgment Liens not giving rise to an Event of Default so
long as such Lien is adequately bonded and any appropriate legal
proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
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(v) easements, rights-of-way, zoning restrictions and other
similar charges or encumbrances in respect of real property not
interfering in any material respect with the ordinary conduct of the
business of the Company or any of its Subsidiaries;
(vi) any interest or title of a lessor under any Capital
Lease Obligation; provided that such Liens do not extend to any
property or assets which are not leased property subject to such
Capital Lease Obligation;
(vii) Purchase Money Liens of the Company or any Subsidiary
of the Company acquired in the ordinary course of business; provided,
however, that (A) the related Purchase Money Obligation shall not
exceed the cost of such property or assets and shall not be secured by
any property or assets of the Company or any Subsidiary of the Company
other than the property and assets so acquired and (B) the Lien
securing such Indebtedness shall be created within 90 days of such
acquisition;
(viii) Liens securing reimbursement obligations with respect
to commercial letters of credit which encumbered documents and other
property relating to such letters of credit and products and proceeds
thereof;
(ix) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual, or warranty
requirements of the Company or any of its Subsidiaries, including
rights of offset and set-off;
(x) Liens securing Interest Swap Obligations, which Interest
Swap Obligations relate to Indebtedness that is otherwise permitted
under this Indenture;
(xi) Liens securing Acquired Debt incurred in accordance with
Section 4.12 hereof; provided that (A) such Liens secured such
Acquired Debt at the time of and prior to the incurrence of such
Acquired Debt by the Company or a Subsidiary of the Company and were
not granted in connection with, or in anticipation of, the incurrence
of such Indebtedness by the Company or a Subsidiary of the Company and
(B) such Liens do not extend to or cover any property or assets of the
Company or of any of its Subsidiaries other than the property or
assets that secured the Acquired Debt prior to the time such
Indebtedness became Acquired Debt of the Company or a Subsidiary of
the Company and are no more favorable to the lienholders than those
securing the Acquired Debt prior to the incurrence of such Acquired
Debt by the Company or a Subsidiary of the Company;
(xii) Liens existing on the Issue Date but only to the extent
such Liens are in effect on the Issue Date, including, without
limitation the McDonald's Senior Liens and Liens securing the Existing
Notes;
(xiii) Liens securing Indebtedness of the Company under an
Eligible Credit Facility;
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(xiv) Liens in favor of the Company or a Wholly-Owned
Subsidiary of the Company on assets of any Subsidiary of the Company;
and
(xv) Liens securing Refinancing Indebtedness which is
incurred to refinance any Indebtedness which has been secured by a
Lien permitted under this Indenture and which has been incurred in
accordance with the provisions of this Indenture; provided, however,
that such Liens (a) are no less favorable to the Holders and are not
more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being refinanced and (b) do not
extend to or cover any property or assets of the Company or any of its
Subsidiaries not securing the Indebtedness so refinanced.
"Person" means any individual, corporation, partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Plan of Reorganization" means the Third Amended Joint Plan
of Reorganization of Discovery Zone, Inc., dated March 11, 1997, as amended.
"Pledge Agreement" means the Pledge Agreement, dated as of
even date herewith, between the Company and the Trustee, substantially in the
form of Exhibit H attached hereto, as amended or supplemented from time to time
in accordance with its terms.
"Pledge Possession Agreement" means the Pledge Possession
Agreement, dated as of even date herewith between the Trustee and the Existing
Notes Trustee, substantially in the form of Exhibit R attached hereto, as
amended or supplemented from time to time in accordance with its terms.
"Pledged Collateral" shall have the meaning assigned to such
term in the Pledge Agreement.
"Pledged Securities" means the U.S. Government Obligations to
be purchased by the Company and held in the Escrowed Interest Account in
accordance with the Escrow Agreement.
"Pledged Subsidiary Collateral" shall have the meaning
ascribed to such term in the Subsidiary Pledge Agreements.
"Preferred Stock" means, with respect to any Person, any
Capital Stock of such Person or its Subsidiaries in respect of which a holder
thereof is entitled to receive payment upon dissolution or otherwise before any
payment may be made with respect to any other Capital Stock of such Person or
its Subsidiaries.
"Pre-petition Tax Payables" means pre-petition tax claims
restructured pursuant to the Plan of Reorganization as pre-petition tax payables
having an estimated aggregate maximum principal amount of up to $5,000,000,
which claims have maturities of
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up to six years from the original date of assessment, require principal payments
in equal installments and accrue simple interest at 10% per annum from the date
of issuance of the Existing Notes.
"Primary Offering" means an offering of Qualified Capital
Stock of the Company.
"Private Exchange Notes" shall have the meaning assigned to
such term in the Registration Rights Agreement.
"Private Placement Legend" means the legend initially set
forth on the Notes in the form set forth in Exhibit A attached hereto.
"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 Eleven of Regulation S-X under the Securities Act, as
determined by the Board of Directors of the Company in consultation with its
independent public accountants.
"Public Equity Offering" means an underwritten public
offering of Qualified Capital Stock of the Company pursuant to a registration
statement filed with and declared effective by the SEC pursuant to the
Securities Act (other than a registration statement on Form S-8 or otherwise
relating to equity securities under any employee benefit plans) that results in
net proceeds to the Company of at least $20 million.
"Purchase Agreement" means the Purchase Agreement, dated July
9, 1998, relating to the purchase and sale of the Units, entered into between
the Company and the Initial Purchaser.
"Purchase Money Liens" means (i) Liens to secure or securing
Purchase Money Obligations permitted to be incurred under this Indenture and
(ii) Liens to secure Refinancing Indebtedness incurred solely to refinance
Purchase Money Obligations, provided that such Refinancing Indebtedness is
incurred no later than six (6) months after the satisfaction of such Purchase
Money Obligations and such Lien extends to or covers only the asset or property
securing the Purchase Money Obligations being refinanced.
"Purchase Money Obligations" means Indebtedness representing,
or incurred to finance, the cost of acquiring any assets (including Purchase
Money Obligations of any other Person at the time such other Person is merged
with or into or is otherwise acquired by the Company or any of its wholly-owned
Subsidiaries); provided that (i) the principal amount of such Indebtedness does
not exceed 100% of such cost, (ii) any Lien securing such Indebtedness does not
extend to or cover any other asset or property other than the asset or property
being so acquired and (iii) such Indebtedness is incurred, and any Liens with
respect thereto are granted, within 90 days of the acquisition of such property
or asset.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
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"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A under the Securities Act.
"Qualified Offering" means a Primary Offering resulting in
net proceeds to the Company of at least $20 million, all or a portion of which
are used to redeem 100% of the Notes and such redemption occurs within 30 days
of the date of the closing of such offering.
"Record Date" means any of the Record Dates specified in the
Notes, whether or not a Legal Holiday.
"Refinancing Indebtedness" has the meaning provided in clause
(e) of the definition of "Permitted Indebtedness" in this Section 1.01.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of even date herewith, between the Company and the Initial
Purchaser, as the same may be amended or modified from time to time in
accordance with the terms thereof.
"Regulation S" means Regulation S under the Securities Act,
as such regulation may be amended from time to time.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Security" has the meaning assigned to such term
in Rule 144(a)(3) under the Securities Act; provided that the Trustee shall be
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether any Note constitutes a Restricted Security.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party providing for
the leasing to the Company or a Subsidiary of the Company of any property,
whether owned by the Company or any Subsidiary of the Company at the Issue Date
or later acquired, which has been or is to be sold or transferred by the Company
or such Subsidiary to such Person or to any other Person from whom funds have
been or are to be advanced by such Person on the security of such Property.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Security Agreement" means the Security Agreement, dated as
of even date herewith, between the Company and the Trustee, as amended or
supplemented from time to time in accordance with its terms, substantially in
the form of Exhibit I attached hereto.
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"Security Interests" means the Liens on the Collateral
created by this Indenture and the Collateral Agreements in favor of the
Collateral Agent for the benefit of the Collateral Agent and the Holders.
"Significant Subsidiary" means any Subsidiary which would be
a "significant subsidiary" as defined in Article One, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect
on the date hereof.
"Subordination Agreement" means that certain Subordination
Agreement, dated July 22, 1997, substantially in the form of Exhibit P attached
hereto, by and between McDonald's Corporation and the Collateral Agent.
"Subsidiary" means, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person or a
combination thereof; provided, however, that with respect to the Company or any
of its Subsidiaries, the term Subsidiary shall not include Block Party or any
Limited Investment Subsidiary.
"Subsidiary Collateral" shall have the meaning assigned to
such term in the Subsidiary Security Agreements.
"Subsidiary Guarantees" means, individually, the guarantee
and, collectively, the guarantees given by the Subsidiary Guarantors pursuant
hereto or pursuant to supplemental indentures executed by Subsidiaries formed
after the Issue Date pursuant to which such Subsidiaries agree to be bound by
the terms of this Indenture.
"Subsidiary Guarantor" means each of Discovery Zone (Canada)
Limited, Discovery Zone (Puerto Rico), Inc., Discovery Zone Licensing, Inc. and
all future Subsidiaries of the Company other than (a) any Limited Investment
Subsidiary or (b) Block Party.
"Subsidiary Pledge Agreements" means the Subsidiary Pledge
Agreements to be entered into between each Subsidiary Guarantor and the Trustee,
each substantially in the form of Exhibit L attached hereto, as amended or
supplemented from time to time in accordance with its terms.
"Subsidiary Security Agreements" means, individually, the
subsidiary security agreement and, collectively, the subsidiary security
agreements, each substantially in the form of Exhibit M attached hereto,
executed by each Subsidiary Guarantor on the Issue Date in favor of the Trustee,
pursuant to which such Subsidiary Guarantor grants a security interest in and
lien on its properties and assets as collateral security for the debts,
liabilities and obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee, as the same may be amended or modified from time to time in
accordance with its terms.
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"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 this Indenture, until
such time as this Indenture is qualified under the TIA, and thereafter as in
effect on the date of such qualification, except as otherwise provided in
Section 9.03.
"Trademark Assignment" means the Collateral Assignment of
Patents, Trademarks and Copyrights (Security Agreement), dated as of even date
herewith, by the Company in favor of the Trustee, substantially in the form of
Exhibit K attached hereto, as amended and supplemented from time to time in
accordance with its terms.
"Trust Officer" means any officer of the Trustee assigned by
the Trustee to administer this Indenture, or in the case of a successor trustee,
an officer assigned to the department, division or group performing the
corporation trust work of such successor and assigned to administer this
Indenture.
"Trustee" means the party named as such in the Preamble to
this Indenture until a successor replaces it in accordance with the provisions
of this Indenture and thereafter means such successor.
"Units" means units consisting of Initial Notes and Warrants
sold to the Initial Purchaser on the Issue Date pursuant to a private offering
conducted by the Company and as described in the Offering Circular.
"U.S. Government Obligations" means non-callable direct
obligations of, and non-callable obligations guaranteed by, the United States of
America for the payment of which the full faith and credit of the United States
of America is pledged.
"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.
"Voting Common Stock" shall mean the Company's common stock,
par value $.00017 per share other than the Non-Voting Common Stock.
"Voting Stock" means, with respect to any Person, one or more
classes of the Capital Stock of such Person having general voting power under
ordinary circumstances to elect at least a majority of the Board of Directors,
managers or trustees of such Person (irrespective of whether or not at the time
Capital Stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
"Warrant Agreement" means the Warrant Agreement, dated as of
even date herewith, between the Company and Firstar Bank of Minnesota, N.A., as
Warrant Agent (the "Warrant Agent"), pursuant to which the Warrants are issued,
as amended and supplemented from time to time in accordance with its terms.
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"Warrants" means collectively, the Series A Warrants to
purchase shares of the Company's common stock, par value $0.00017 per share, or
the Company's non-voting common stock, par value $0.00017 per share (the
"Non-Voting Common Stock") and the Series B Redeemable Warrants to purchase
shares of the Company's common stock, par value $.00017 per share or the
Company's Non-Voting Common Stock, comprising the Units and issued by the
Company contemporaneously with the Initial Notes pursuant to the terms and
conditions of the Warrant Agreement.
"Weighted Average Life" means, as of the date of
determination, with respect to any Indebtedness, the quotient obtained by
dividing (i) the sum of the products of the numbers of years from the date of
determination to the date of each successive scheduled principal payment of such
Indebtedness multiplied by the amount of such principal payment by (ii) the sum
of all such principal payments.
"Wholly-Owned Subsidiary" means, with respect to any Person,
any Subsidiary of such Person of which all of the voting Capital Stock (other
than directors' qualifying shares, if any) is owned by such Person or any
Wholly-Owned Subsidiary of such Person.
SECTION 1.02. Other Definitions.
Term Defined in Section
---- ------------------
"Acceleration Notice"................................6.02(a)
"Affiliate Transaction"..............................4.11
"Agent Members"......................................2.14
"Authenticating Agent"...............................2.02
"Change of Control Offer"............................4.14
"Change of Control Payment"..........................4.14
"Change of Control Payment Date".....................4.14
"Covenant Defeasance"................................8.01
"Default Interest Payment Date"......................2.16
"Event of Default"...................................6.01
"Global Note"........................................2.01
"Lease"..............................................4.26
"Leased Premises"....................................4.26
"Legal Defeasance"...................................8.01
"Legal Holiday".....................................13.07
"Net Proceeds Offer".................................4.15
"Net Proceeds Offer Amount"..........................4.15
"Net Proceeds Offer Payment Date"....................4.15
"Net Proceeds Offer Trigger Date"....................4.15
"Paying Agent".......................................2.03
"Physical Notes".....................................2.01
"Premises"...........................................4.25
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"Proceeds Purchase Date".............................4.15
"Registrar"..........................................2.03
"Released Interests" .........................10.05
"Replacement Assets".................................4.15
"Restricted Payments"................................4.10
"Separability Date"..................................2.15(f)
"Valuation Date"....................................10.05
SECTION 1.03. Incorporation by Reference of TIA.
Whenever this Indenture or any Exhibit hereto 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:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company, the
Subsidiary Guarantors or any other obligor on the Notes.
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 1.04. 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) words in the singular include the plural, and words in
the plural include the singular;
(4) "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;
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(5) any reference to a statute, law or regulation means that
statute, law or regulation as amended and in effect from time to time and
includes any successor statute, law or regulation; provided, however, that any
reference to the Bankruptcy Law shall mean the Bankruptcy Law as applicable to
the relevant case;
(6) provisions apply to successive events and transactions;
and
(7) all references to Sections or Articles refer to Sections
or Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.
The Initial Notes, the Exchange Notes and the Trustee's
respective certificates of authentication relating thereto shall be
substantially in the forms of Exhibits A and B attached hereto. The Private
Exchange Notes, if required, and the Trustee's certificate of authentication
relating thereto shall be substantially in the form of Exhibit B attached
hereto, but shall bear the Private Placement Legend. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
depository rule or usage. The Company and the Trustee shall approve the forms of
the Notes and any notation, legend or endorsement on them. Each Note shall be
dated the date of its issuance and shall show the date of its authentication.
The terms and provisions contained in the Notes annexed
hereto as Exhibits A and B shall constitute, and are hereby expressly made, a
part of this 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.
Initial Notes offered and sold in reliance on Rule 144A and
Notes offered and sold in off-shore transactions in reliance on Regulation S
shall be issued initially in the form of one or more permanent global notes in
registered form, substantially in the form set forth in Exhibit A attached
hereto (each such Note, a "Global Note"), deposited with the Trustee, as
custodian for the Depository, and shall bear the legend set forth in Exhibit C
attached hereto, and be duly executed by the Company and authenticated by the
Trustee as hereinafter provided. Exchange Notes shall be issued initially in the
form of one or more permanent Global Notes, substantially in the form set forth
in Exhibit B attached hereto, deposited with the Trustee, as custodian for the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided and shall bear the legend set forth in Exhibit C attached
hereto. The aggregate principal amount of a Global Note may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depository, as hereinafter provided.
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Notes issued in exchange for an interest in a Global Note
pursuant to Section 2.14 may be issued in the form of permanent certificated
Notes in registered form in substantially the form set forth in Exhibit A
attached hereto (each such Note, a "Physical Note"). Initial Notes offered and
sold to Institutional Accredited Investors and Private Exchange Notes shall be
issued in the form of Physical Notes in substantially the form set forth in
Exhibits A and B, respectively, attached hereto and shall bear the Private
Placement Legend.
SECTION 2.02. Execution and Authentication; Aggregate
Principal Amount.
Two Officers, or an Officer and an assistant secretary of the
Company, shall sign, or one Officer shall sign and one Officer or an assistant
secretary of the Company (each of whom shall, in each case, have been duly
authorized by all requisite corporate actions) shall attest to, the Notes for
the Company by manual or facsimile signature. The corporate seal of the Company
shall be affixed to each Note or reproduced thereon.
If an Officer or assistant secretary of the Company, whose
signature is on a Note was an Officer or assistant secretary of the Company at
the time of such execution but no longer holds that office or position at the
time the Trustee authenticates the Note, the Note shall nevertheless be valid.
A Note shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Initial Notes for original
issue in the aggregate principal amount not to exceed $20,000,000, (ii) Private
Exchange Notes from time to time, and (iii) Exchange Notes from time to time for
issue only in exchange for a like principal amount of Initial Notes, in each
case upon written orders of the Company in the form of an Officers' Certificate.
The Officers' Certificate shall specify the amount of Notes to be authenticated
and the date on which the Notes are to be authenticated, whether the Notes are
to be Initial Notes, Private Exchange Notes or Exchange Notes, and shall further
specify the amount of such Notes to be issued as the Global Notes or Physical
Notes. The aggregate principal amount of Notes outstanding at any time may not
exceed $20,000,000, except as provided in Section 2.07. In addition, with
respect to authentication pursuant to clause (ii) of the first sentence of this
paragraph, the first such written order from the Company shall be accompanied by
an Opinion of Counsel of the Company in a form reasonably satisfactory to the
Trustee stating that the issuance of the Exchange Notes or Private Exchange
Notes, as the case may be, does not give rise to an Event of Default, complies
with this Indenture and has been duly authorized by the Company.
The Trustee may appoint an authenticating agent (the
"Authenticating Agent") reasonably acceptable to the Company to authenticate
Notes. Unless otherwise provided in the appointment, an Authenticating Agent may
authenticate Notes whenever the Trustee may
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do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such Authenticating Agent. An Authenticating Agent
has the same rights as an Agent to deal with the Company and Affiliates of the
Company.
The Notes shall be issuable in fully registered form only,
without coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall
be located in the Borough of Manhattan in the City of New York, State of New
York), which shall initially be the agent of Firstar Bank of Minnesota, N.A.,
where (a) Notes may be presented or surrendered for registration of transfer or
for exchange, (b) Notes may be presented or surrendered for payment and (c)
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served (the "New York Presenting Agent"), in addition to the
Corporate Trust Office which is located at Firstar Bank of Minnesota, N.A.,
Corporate Trust, 101 East 5th Street, St. Paul, Minnesota 55101. In addition,
the Company shall maintain an office or agency to maintain the Note register,
for purposes of registration of record ownership of the Notes ("Registrar") and
one or more paying agents ("Paying Agent") for payment of the Notes. The Company
hereby initially appoints the Trustee as Registrar and Paying Agent. The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company, upon prior written notice to the Trustee, may have one or more
co-Registrars and one or more additional Paying Agents reasonably acceptable to
the Trustee. Neither the Company nor any Affiliate of the Company may act as
Paying Agent.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which agreement shall incorporate
the provisions of the TIA and 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, or fails to give the foregoing notice, the Trustee shall act as
such (provided, however, that such requirement shall not be construed to
obligate the Trustee to maintain an office in New York).
The Company initially appoints the Trustee as Registrar,
Paying Agent and agent for service of demands and notices in connection with the
Notes, until such time as the Trustee has resigned or a successor has been
appointed. The Paying Agent or Registrar may resign upon 30 days notice to the
Company.
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 to 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,
premium, if any, or interest on, the Notes
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(whether such assets have been distributed to it by the Company, a Subsidiary
Guarantor or any other obligor on the Notes), and the Company and the Paying
Agent shall notify the Trustee of any Default by the Company (or any other
obligor on the Notes) in making any such payment. 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. Holder 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 and shall otherwise comply with TIA ss. 312(a). If the
Trustee is not the Registrar, the Company shall furnish or cause the Registrar
to furnish to the Trustee at least seven Business Days before each Record Date
and at such other times as the Trustee may request in writing a list in such
form and as of such date as the Trustee may reasonably require of the names and
addresses of the Holders, including the aggregate principal amount thereof,
which list may be conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to the provisions of Sections 2.14 and 2.15, when
Notes are presented to the Registrar or a co-Registrar with a request to
register the transfer of such Notes or to exchange such Notes for an equal
principal amount of Notes 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, including an Opinion of Counsel
with respect to whether (i) such Note constitutes a Restricted Security and (ii)
the requirements for transfer of such Note have been satisfied, including the
requirements provided for in Section 2.15; provided, however, that the Notes
presented or surrendered for registration of transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer in form satisfactory
to the Company, the Trustee and the Registrar or co-Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing. To permit
registrations of transfer and exchanges, the Company shall execute and the
Trustee shall authenticate Notes 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 2.10, 3.07, 4.14, 4.15 or 9.05, in which event
the Company shall be responsible for the payment of such taxes).
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The Registrar or co-Registrar shall not be required to
register the transfer or exchange of any Note (i) during a period commencing at
the opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 and ending at the close of business on such day of
selection, and (ii) selected for redemption in whole or in part pursuant to
Article Three, except the unredeemed portion of any Note being redeemed in part.
Any Holder of the Global Note shall, by acceptance of such
Global Note, agree that transfers of beneficial interests in such Global Note
may be effected only through a book entry system maintained by the Depository,
and that ownership of a beneficial interest in the Note shall be required to be
reflected in a book entry.
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the
Holder of a Note claims that the Note has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Note if the Trustee's requirements are met. If required by the Trustee or the
Company, such Holder must provide an affidavit of lost certificate and 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 Note is replaced. The Company may
charge such Holder for its reasonable, out-of-pocket expenses in replacing a
Note, including any tax or governmental charge that may be imposed in relation
thereto and reasonable fees and expenses of its counsel and of the Trustee and
its counsel. Every replacement Note shall constitute an additional obligation of
the Company and shall be entitled to all the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
In case any such mutilated, lost, destroyed or wrongfully
taken Note has become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new Note, pay such Note.
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes 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.
Subject to the provisions of Section 2.09, a Note does not cease to be
outstanding because the Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.07.
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If on a redemption date or the Maturity Date the Paying Agent
holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of
the principal and interest due on the Notes payable on that date and is not
prohibited from paying such money to the Holders thereof pursuant to the terms
of this Indenture, then on and after that date such Notes (to the extent of the
principal amount redeemed, in the case of a partial redemption) cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.09. Treasury Notes.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver, consent or notice,
Notes owned by the Company or any of its Affiliates shall be considered as
though they are not outstanding, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Notes which a Trust Officer of the Trustee actually knows are
so owned shall be so considered. The Company shall notify the Trustee, in
writing (which notice shall constitute actual notice for purposes of the
foregoing sentence), when it or any of its Affiliates repurchases or otherwise
acquires Notes, of the aggregate principal amount of such Notes so repurchased
or otherwise acquired and such other information as the Trustee may reasonably
request and the Trustee shall be entitled to rely thereon.
SECTION 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Notes 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 Notes to be
authenticated and the date on which the temporary Notes are to be authenticated.
Temporary Notes shall be substantially in the form of definitive Notes but may
have variations that the Company considers appropriate for temporary Notes and
so indicates in the Officers' Certificate. 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 Notes of
authorized denominations and in like principal amount as the temporary Notes for
which they are being exchanged in exchange for the temporary Notes, upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 4.02, without charge to the
Holder. Until so exchanged, the temporary Notes shall be entitled to the same
benefits under this Indenture as definitive Notes.
SECTION 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent, and no one
else, shall cancel and, at the written direction of
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the Company, shall dispose, in its customary manner, of all Notes surrendered
for transfer, exchange, payment or cancellation, and deliver a certificate of
destruction to the Company. Subject to Section 2.07, the Company may not issue
new Notes to replace Notes that it has paid or delivered to the Trustee for
cancellation. If the Company shall acquire any of the Notes, such acquisition
shall not operate as a redemption or satisfaction of the Indebtedness
represented by such Notes unless and until the same are surrendered to the
Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. CUSIP Number.
The Company in issuing the Notes of each series 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; however, that no
representation is hereby deemed to be made by the Trustee as to the correctness
or accuracy of the CUSIP number printed in the notice or on the Notes, and that
reliance may be placed only on the other identification numbers printed on the
Notes. The Company shall promptly, upon its becoming aware of any change in
CUSIP numbers, notify the Trustee of any change in the CUSIP number.
SECTION 2.13. Deposit of Monies.
Prior to 11:00 a.m. New York City time on each Interest
Payment Date, Maturity Date, redemption date, Change of Control Payment Date and
Net Proceeds Offer Payment Date, the Company shall have deposited with the
Paying Agent in immediately available funds U.S. Legal Tender sufficient to make
cash payments, if any, due on such Interest Payment Date, Maturity Date,
redemption date, Change of Control Payment Date and Net Proceeds Offer Payment
Date, as the case may be, in a timely manner which permits the Paying Agent to
remit payment to the Holders on such Interest Payment Date, Maturity Date,
redemption date, Change of Control Payment Date and Net Proceeds Offer Payment
Date, as the case may be. At the option and direction of the Company, payment of
interest on Physical Notes may be made by the Paying Agent by check mailed to
the Holders on or before the relevant Interest Payment Date. Payments to Holders
to be made by wire transfer of immediately available funds shall require prior
receipt by the Paying Agent of appropriate wire transfer instructions.
SECTION 2.14. Book-Entry Provisions for Global Note.
(a) The Global Note initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set forth
in Exhibit C attached hereto.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depository, or the Trustee as its custodian, or
under the Global Note, and the Depository
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may be treated by the Company, the Trustee, any agent of the Company, or the
Trustee as the absolute owner of the Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Note.
(b) Transfers of the Global Note shall be limited to
transfers of such Global Note in whole, but not in part, to the Depository, its
successors or their respective nominees. Interests of beneficial owners in the
Global Note may be transferred or exchanged for Physical Notes in accordance
with the rules and procedures of the Depository and the provisions of Section
2.15. In addition, Physical Notes shall be transferred to all beneficial owners
in exchange for their beneficial interests in the Global Note (in each case
directed by the Depository) if (i) the Depository notifies the Company that it
is unwilling or unable to continue as Depository for the Global Note or the
Depository ceases to be a "Clearing Agency" registered under the Exchange Act
and a successor depositary is not appointed by the Company within 90 days of
such notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a request from the Depository to issue Physical Notes.
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in the Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute, and the Trustee shall authenticate and deliver, one or more
Physical Notes of like tenor and amount.
(d) In connection with the transfer of the entire Global Note
to beneficial owners pursuant to paragraph (b), the Global Note shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall authenticate and deliver, to each beneficial
owner identified by the Depository in exchange for its beneficial interest in
the Global Note, an equal aggregate principal amount of Physical Notes of
authorized denominations.
(e) Any Physical Note constituting a Restricted Security
delivered in exchange for an interest in the Global Note pursuant to paragraph
(b) or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c)
of Section 2.15, bear the legend regarding transfer restrictions applicable to
the Physical Notes set forth in Exhibit A attached hereto.
(f) The Holder of the Global Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
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(g) Neither the Trustee nor the Paying Agent shall have any
responsibility or liability for the accuracy of the records of the Depository or
its Agent Members, or for any actions or omissions of the Depository or its
Agent Members.
SECTION 2.15. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors
and Non-U.S. Persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any
Note constituting a Restricted Security, whether or not such Note
bears the Private Placement Legend, if (x) the requested transfer is
after July 17, 2000; provided, however, that neither the Company nor
any Affiliate of the Company has held any beneficial interest in such
Note or portion thereof, at any time on or prior to July 17, 1999 (as
certified to the Trustee by an Officers' Certificate of the Company),
or (y) (1) in the case of a transfer to an Institutional Accredited
Investor which is not a QIB (excluding Non-U.S. Persons), the proposed
transferee has delivered to the Registrar a certificate substantially
in the form of Exhibit D attached hereto or (2) in the case of a
transfer to a Non-U.S. Person, the proposed transferor has delivered
to the Registrar a certificate substantially in the form of Exhibit E
attached hereto; and
(ii) if the proposed transferor is an Agent Member
holding a beneficial interest in the Global Note, upon receipt by the
Registrar of (x) the certificate, if any, required by paragraph (i)
above and (y) instructions given in accordance with the Depository's
and the Registrar's customary procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Notes) a
decrease in the principal amount of the Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred, and (b) the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Notes of like tenor and amount to
that amount of the beneficial interest in the Global Note to be transferred.
(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of a Note constituting
a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if
such transfer is being made by a proposed transferor who has checked
the box provided for on the form of Note stating, or has otherwise
advised the Company and the Registrar in writing, that the sale has
been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form
of Note stating, or has otherwise advised the Company and the
Registrar in writing, that it is
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purchasing the Note for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such
account is a QIB within the meaning of Rule 144A, and is aware that
the sale to it is being made in reliance on Rule 144A and acknowledges
that it has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member,
and the Notes to be transferred consist of Physical Notes which after
transfer are to be evidenced by an interest in the Global Note, upon
receipt by the Registrar of written instructions given in accordance
with the Depository's and the Registrar's customary procedures, the
Registrar shall reflect on its books and records the date and an
increase in the principal amount of the Global Note in an amount equal
to the principal amount of the Physical Notes to be transferred, and
the Trustee shall cancel the Physical Notes so transferred.
(c) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless (i) the circumstance contemplated by paragraph (a)(i)(x) of this Section
2.15 exist or (ii) there is delivered to the Registrar an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act.
(d) General. By its acceptance of any Note bearing the
Private Placement Legend, each Holder of such a Note acknowledges the
restrictions on transfer of such Note set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Note only as
provided in this Indenture. The Registrar shall not register a transfer of any
Note unless such transfer complies with the restrictions on transfer of such
Note set forth in this Indenture. In connection with any transfer of Notes, each
Holder agrees by its acceptance of the Notes to furnish the Registrar of the
Company such certifications, legal opinions or other information as either of
them may reasonably require to confirm that such transfer is being made pursuant
to an exemption from, or a transaction not subject to, the registration
requirements of the Securities Act; provided that the Registrar shall not be
required to determine (but may rely on a determination made by the Company with
respect to) the sufficiency of any such certifications, legal opinions or other
information.
(e) Transfers of Notes Held by Affiliates. Any certificate
(i) evidencing a Note that has been transferred to an Affiliate of the Company
within two years after the Issue Date, as evidenced by a notation on the
assignment form for such transfer or in the representation letter delivered in
respect thereof or (ii) evidencing a Note that has been acquired from an
Affiliate (other than by an Affiliate) in a transaction or a chain of
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transactions not involving any public offering, shall, until two years after the
last date on which the Company or any Affiliate of the Company was as owner of
such Note, in each case, bear a Private Placement Legend in substantially the
form set forth in this Section 2.15 hereof, unless otherwise agreed by the
Company (with written notice thereof to the Trustee).
(f) No Separate Transfers Prior to Separability Dates.
Notwithstanding any other provision of this Article Two, no Note may be
transferred separately from the Series A Warrants until the date which is the
earlier of (i) the date on which the Exchange Offer is commenced or the date on
which a Shelf Registration Statement (as defined in the Registration Rights
Agreement) with respect to the Initial Notes becomes effective or (ii) such
earlier date as the Initial Purchaser may, in its sole discretion, determine, as
such date is specified to the Company and the Trustee in writing (the "Series A
Separability Date") and no Note may be transferred separately from the Series B
Warrants until December 31, 1999 (the "Series B Separability Date"). The Company
shall promptly notify the Registrar of the occurrence of the Series A
Separability Date.
The Registrar shall retain copies of all letters, notices and
other written communications received by it pursuant to Section 2.14 or this
Section 2.15 for so long as this Indenture remains in effect. The Company shall
have the right to inspect and make copies of all such letters, notices or other
written communications at any reasonable time upon the giving of reasonable
written notice to the Registrar.
SECTION 2.16. Defaulted Interest.
The Company shall pay interest on overdue principal from time
to time on demand at the rate of interest then borne by the Notes. The Company
shall, to the extent lawful, pay interest on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the rate of interest then borne by the Notes. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months, and, in the case of a
partial month, the actual number of days elapsed.
If the Company defaults in a payment of interest on the
Notes, it shall 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 special record 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.
The Company shall notify the Trustee in writing of the amount of defaulted
interest proposed to be paid on each Note and the date of the proposed payment
(a "Default Interest Payment Date"), and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such defaulted interest or shall make
arrangements satisfactory to the Trustee for such deposit on or prior to the
date of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such defaulted interest as provided in
this Section; provided, however, that in no event shall the Company deposit
monies proposed to be paid in respect
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of defaulted interest later than 11:00 a.m. New York City time of the proposed
Default Interest Payment Date. At least 15 days before the subsequent special
record date, the Company shall mail (or cause to be mailed) to each Holder, as
of a recent date selected by the Company, 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. Notwithstanding the foregoing, any interest which is paid prior to
the expiration of the 10-day period set forth in Section 6.01(a) shall be paid
to Holders as of the regular record date for the Interest Payment Date for which
interest has not been paid. Notwithstanding the foregoing, the Company may make
payment of any defaulted interest in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Notes may be
listed, and upon such notice as may be required by such exchange.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to Paragraph 5
of the Notes, it shall deliver to the Trustee and the Paying Agent, at least 30
days but not more than 60 days before a redemption date, a notice complying with
the provisions of Section 13.02 setting forth (i) the redemption date, (ii) the
principal amount of the Notes to be redeemed and that, after the redemption
date, upon cancellation of the original Note, a new Note or Notes in principal
amount equal to the unredeemed portion shall be issued, (iii) the redemption
price, and (iv) the paragraph of the Notes and/or the section of this Indenture
pursuant to which the Notes called for redemption are being redeemed.
The Company shall give each notice provided for in this
Section 3.01, at its expense, at least 30 days before the applicable redemption
date (unless a shorter notice period shall be satisfactory to the Trustee, as
evidenced in a writing signed on behalf of the Trustee), together with an
Officers' Certificate stating that such redemption shall comply with the
conditions contained herein and in the Notes.
SECTION 3.02. Selection of Notes To Be Redeemed.
If fewer than all of the Notes are to be redeemed at any
time, selection of Notes for redemption will be made by the Trustee in
compliance with the requirements of the national securities exchange, if any, on
which the Notes are listed or, if the Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee deems to be fair and appropriate.
The Trustee shall make the selection from the Notes outstanding and not
previously called for redemption and shall promptly notify the Company in
writing of the Notes selected for redemption and, in the case of any Note
selected for partial redemption,
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the principal amount thereof to be redeemed. Notes in denominations of $1,000 or
less may not be redeemed in part. The Trustee may select for redemption portions
(equal to $1,000 or any integral multiple thereof) of the principal of Notes
that have denominations larger than $1,000. Provisions of this Indenture that
apply to Notes called for redemption also apply to portions of Notes called for
redemption.
SECTION 3.03. Optional Redemption.
At any time, the Company may, at its option, use all or a
portion of the net proceeds of a Primary Offering to redeem Notes with a value
up to 100% of the principal amount of Initial Notes issued on the Issue Date, at
a redemption price equal to 100% of the principal amount thereof on the
redemption date, plus accrued and unpaid interest, if any, thereon to the
redemption date; provided, however, that such redemption shall occur within 30
days of the date of the closing of such Primary Offering.
The Notes also will be redeemable, at the Company's option,
in whole or in part at the times and at the prices set forth in the Notes.
SECTION 3.04. Notice of Redemption.
At least 15 days but not more than 60 days before a
redemption date, the Company shall mail or cause to be mailed a notice of
redemption by first class mail, postage prepaid, to each Holder at each Holder's
registered address whose Notes are to be redeemed, with a copy to the Trustee
and any Paying Agent. At the Company's written request, the Trustee shall give
the notice of redemption in the Company's name and at the Company's expense. The
Company shall provide such notices of redemption to the Trustee at least fifteen
days before the intended mailing date.
Each notice for redemption shall identify (including the
CUSIP number) the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price and the amount of accrued interest,
if any, to be paid;
(3) the name and address of the Paying Agent;
(4) the subparagraph of the Notes pursuant to which such
redemption is being made;
(5) that any Physical Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price plus
accrued interest, if any;
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(6) that, unless the Company defaults in making the
redemption payment, interest on Notes (or applicable portions thereof)
called for redemption ceases to accrue on and after the redemption
date, and the only remaining right of the Holders of such Notes is to
receive payment of the redemption price plus accrued interest, if any,
as of the redemption date upon surrender to the Paying Agent of the
Notes redeemed;
(7) that if any Physical Note is being redeemed in part, the
portion of the principal amount of such Note to be redeemed and that,
after the redemption date, and upon surrender, and subsequent
cancellation of such Note, a new Note or Notes in the aggregate
principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder; and
(8) that, if fewer than all the Notes are to be redeemed, the
identification of the particular Physical Notes (or portion thereof)
to be redeemed, as well as the principal amount of Notes to be
redeemed and the principal amount of Notes to be outstanding after
such partial redemption.
The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
purchase of Notes.
SECTION 3.05. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with
Section 3.04, Notes called for redemption become due and payable on the
applicable redemption date and at the applicable redemption price plus accrued
interest, if any. Upon surrender to the Trustee or Paying Agent, such Notes
called for redemption shall be paid at the redemption price (which shall include
accrued and unpaid interest thereon to the redemption date), but installments of
interest, the maturity of which is on or prior to the redemption date, shall be
payable to Holders of record at the close of business on the applicable Record
Dates referred to in the Notes.
SECTION 3.06. 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
plus accrued interest to but excluding the redemption date, if any, of all Notes
to be redeemed on that date. The Paying Agent shall promptly return to the
Company any U.S. Legal Tender so deposited which is not required for that
purpose, 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 plus accrued interest,
if any, to but
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excluding the redemption date, interest on the Notes to be redeemed will cease
to accrue, on and after the applicable redemption date, whether or not such
Notes are presented for payment.
SECTION 3.07. Notes Redeemed in Part.
Upon surrender of a Note that is to be redeemed in part, the
Trustee shall authenticate for the Holder a new Note or Notes equal in principal
amount to the unredeemed portion of the Note surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
The Company shall pay the principal of and interest on the
Notes on the dates and in the manner provided in the Notes and in this
Indenture. An installment of principal of or interest on the Notes shall be
considered paid on the date it is due if the Trustee or Paying Agent (other than
the Company or an Affiliate of the Company) holds on that date U.S. Legal Tender
designated for and sufficient to pay the installment in full and is not
prohibited from paying such money to the Holders pursuant to the terms of this
Indenture.
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 from principal or interest payments
hereunder.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain the office or agency required
under Section 2.03. The Company shall give prompt written notice to the Trustee
of the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 13.02.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Notes may be presented or surrendered for any or all such purposes and may from
time to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company shall give prompt written notice to the Trustee of
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any such designation or rescission and any change in the location of any such
other office or agency.
SECTION 4.03. Corporate Existence.
Except as otherwise permitted by Article Five, the Company
shall do or cause to be done, at its own cost and expense, all things necessary
to preserve and keep in full force and effect its corporate existence and the
corporate 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.
SECTION 4.04. 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 material 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 its properties or any of its Subsidiaries' properties and
(ii) all material lawful claims for labor, materials and supplies that, if
unpaid, might by law become a Lien upon its properties or any of its
Subsidiaries' properties; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being or
shall be contested in good faith by appropriate proceedings properly instituted
and diligently conducted for which adequate reserves, to the extent required
under GAAP, have been taken.
SECTION 4.05. Maintenance of Properties and Insurance.
(a) The Company shall, and shall cause each of its
Subsidiaries to, maintain its properties used or held in the conduct of its
business or the business of any of its Subsidiaries in good working order and
condition in all material respects (subject to ordinary wear and tear) and make
all necessary repairs, renewals, replacements, additions, betterments and
improvements thereto necessary or desirable to actively conduct and carry on its
business.
(b) The Company shall, and shall cause each of its
Subsidiaries to, maintain insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the good faith judgment of the
Company, are adequate and appropriate for the conduct of the business of the
Company and its 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 are adequate for the conduct of its business and the value of its
material properties and shall be
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customary, in the good faith judgment of the Company, for companies similarly
situated within the industry of the Company.
SECTION 4.06. 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 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 such Officer's knowledge, after due inquiry, the Company
during such preceding fiscal year has kept, observed, performed and fulfilled
each and every such covenant under this Indenture, and that 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 notify the Trustee should the Company elect to
change the manner in which it fixes its fiscal year end.
(b) The annual financial statements delivered pursuant to
Section 4.08 shall be accompanied by a written report of the Company's
independent accountants (who shall be a firm of established national reputation)
that in conducting their audit of such financial statements nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article Four, Five or Six of this Indenture insofar as they
relate to accounting matters or, if any such violation has occurred, specifying
the nature and period of existence thereof, it being understood that such
accountants shall not be liable hereunder directly or indirectly to any Person
for any failure to obtain knowledge of any such violation.
(c) (i) If any Default or Event of Default has occurred and
is continuing or (ii) if any Holder seeks to exercise any remedy hereunder with
respect to a claimed Default under this Indenture or the Notes, the Company
shall deliver to the Trustee, at its address set forth in Section 13.02 hereof,
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
becoming aware of such occurrence.
SECTION 4.07. Compliance with Laws.
The Company shall, and shall cause each of its Subsidiaries
to, comply with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of its businesses and the ownership of its properties,
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except for such noncompliances as are not in the aggregate reasonably likely to
have a material adverse effect on the financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole.
SECTION 4.08. Reports.
(a) The Company shall deliver to the Trustee and mail to each
Holder, within 15 days after the filing of the same with the SEC, copies of its
quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act. The Company shall also comply with the
other provisions of Section 314(a) of the TIA.
(b) If at any time the Company is not subject to the
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the SEC, to the extent permitted, and distribute to the Trustee and to each
Holder copies of the quarterly and annual financial information that would have
been required to be contained in a filing with the SEC on Forms 10-Q and 10-K
and all current reports that would be required to be filed with the SEC on Form
8-K had the Company been subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act. All such financial information shall include
consolidated financial statements (including footnotes) prepared in accordance
with GAAP. Such annual financial information shall also include an opinion
thereon expressed by an independent accounting firm of established national
reputation. All such consolidated financial statements shall be accompanied by a
"Management's Discussion and Analysis of Financial Condition and Results of
Operation." The financial and other information to be distributed to Holders
shall be filed with the Trustee and mailed to the Holders at their respective
addresses appearing in the register of the Notes maintained by the Registrar,
within 120 days after the end of the Company's fiscal year and within 60 days
after the end of each of the first three quarters of each such fiscal year. Such
information shall be made available to securities analysts and prospective
investors upon request. In addition, the Company shall furnish to the Holders
and to securities analysts and to prospective purchasers upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act for so long as is required for an offer or sale of the Notes
under Rule 144A. From and after the date of effectiveness of any registration
statement filed with the SEC with respect to the Notes, the Company will file
with the SEC such Forms 10-Q and 10-K and any other information required to be
filed by it. The Company will provide a copy of this Indenture, the Registration
Rights Agreement and the Warrant Agreement to prospective purchasers upon
request.
SECTION 4.09. 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
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Notes 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 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 4.10. Limitation on Restricted Payments.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend or make any distribution
on account of the Company's or any of its Subsidiaries' Equity Interests (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or dividends or distributions payable to the
Company or any Wholly-Owned Subsidiary of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company or any
Subsidiary or other Affiliate of the Company (other than any such Equity
Interests owned by the Company or any Wholly-Owned Subsidiary of the Company);
(iii) voluntarily purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is pari passu with or subordinated to the Notes; or
(iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments") unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) immediately after giving effect to such transaction, on a
pro forma basis as if such transaction had occurred at the beginning
of the applicable four-quarter period, the Company would be permitted
to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of
Section 4.12 hereof; and
(c) the amount of such Restricted Payment, together with the
aggregate amount of all other Restricted Payments made by the Company
and its Subsidiaries after the Issue Date, is less than the sum of (x)
25% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first
quarter next succeeding the quarter ended June 30, 1998 to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, 100% of such deficit), plus (y) 100% of the aggregate net
cash proceeds received by the Company from the issuance or sale of
Equity Interests of the Company (other than Equity Interests sold to a
Subsidiary of the Company and other than Disqualified Stock) since the
Issue Date, plus (z) 100% of the Net Cash Proceeds received by the
Company from the issuance or sale, other than to a Subsidiary of the
Company, of any debt security of the Company that has
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been converted into Equity Interests of the Company (other than
Disqualified Stock) since the Issue Date. For purposes of this clause
(c) the amount of any Restricted Payment paid in property other than
cash shall be the fair market value of such property as determined
reasonably and in good faith by the Board of Directors of the Company.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (i) if no Default or Event of
Default shall have occurred and be continuing, the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of this
Indenture; (ii) if no Default or Event of Default shall have occurred and be
continuing, the redemption, repurchase, retirement or other acquisition of any
Indebtedness or Equity Interests of the Company in exchange for, or solely out
of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Equity Interests of the Company (other than
any Disqualified Stock); (iii) if no Default or Event of Default shall have
occurred and be continuing, the redemption, repurchase or payoff of Purchase
Money Obligations; (iv) if no Default or Event of Default shall have occurred
and be continuing, the redemption, repurchase or payoff of any Indebtedness with
proceeds of any Refinancing Indebtedness permitted to be incurred under Section
4.12 hereof; (v) if no Default or Event of Default shall have occurred and be
continuing, the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company held by any officer or employee of
the Company or its Subsidiaries; provided, however, that the aggregate amount of
all such repurchases, redemptions and other acquisitions and retirements under
this clause (v) on or after the date of this Indenture shall not exceed
$1,000,000; (vi) if no Default or Event of Default shall have occurred and be
continuing, the voluntary purchase, redemption, defeasance or other acquisition
or retirement of all or any portion of the Indebtedness represented by the
McDonald's Documents with the Net Cash Proceeds of an Asset Sale that (A) is
permitted under Section 4.15 of this Indenture and (B) relates solely to
collateral for the obligations owed to McDonald's under the McDonald's Documents
in the form of undeveloped real estate not used or, in the reasonable judgment
of the Board of Directors, useful in the Company's business; (vii) if no Default
or Event of Default shall have occurred and be continuing, the purchase,
redemption, defeasance or other acquisition or retirement of Warrants required
by the terms of the Warrant Agreement; (viii) distributions required under the
Plan of Reorganization, but only in the manner and to the extent contemplated
thereby; (ix) if no Default or Event of Default shall have occurred and be
continuing, payments or distributions to dissenting stockholders (it being
understood that such dissenting stockholders shall not include any Class 14
Interests (as defined in the Plan of Reorganization) required by applicable law
pursuant to or in connection with a consolidation, merger or Asset Sale that
complies with all applicable provisions of this Indenture; (x) the redemption or
repurchase of Existing Notes in connection with a Change of Control as provided
for in the Existing Notes Indenture; (xi) the redemption, prior to August 1,
1999 of up to 35% of the original principal amount of Existing Notes with the
proceeds of a Primary Offering (as defined in the Existing Notes Indenture) in
accordance with the provisions contained in the Existing Notes Indenture; (xii)
the payment, in accordance with the terms of the Junior Preferred Stock,
utilizing the proceeds of a Public Equity Offering, of accrued and unpaid
dividends on Junior Preferred Stock held by holders
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of Junior Preferred Stock whose Junior Preferred Stock was converted into shares
of Common Stock, either concurrently with, or prior to, the consummation of such
Public Equity Offering; (xiii) the redemption or repurchase of Existing Notes in
connection with an Asset Sale as provided for in the Existing Notes Indenture;
and (xiv) the purchase, redemption, defeasance or other acquisition or
retirement of Existing Warrants required by the terms of the Existing Warrant
Agreement.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.10 were computed, which calculations may
be based upon the Company's latest available quarterly financial statements.
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 or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
services) with, or for the benefit of, any of its Affiliates (each an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that are no less favorable
than those that might reasonably have been obtained in a comparable transaction
at such time on an arm's length basis from a Person that is not an Affiliate of
the Company or such Subsidiary. All Affiliate Transactions (and each series of
related Affiliate Transactions which are similar or part of a common plan)
involving aggregate payments or other property with a fair market value in
excess of $2,000,000 shall be approved by a majority of the disinterested
members of the Board of Directors of the Company, such approval to be evidenced
by a Board Resolution stating that such Board of Directors has determined that
such transaction complies with the foregoing provisions. If the Company or any
such Subsidiary enters into an Affiliate Transaction (or a series of related
Affiliate Transactions which are similar or part of a common plan) that involves
an aggregate fair market value of more than $5,000,000, the Company or such
Subsidiary as the case may be, shall, prior to the consummation thereof, obtain
a favorable opinion as to the fairness of such transaction or series of related
transactions to the Company from a financial point of view from an Independent
Financial Advisor and deliver such opinion to the Trustee.
(b) The restrictions set forth in clause (a) above shall not
apply to: (i) reasonable fees and compensation paid to, and indemnity provided
on behalf of, Officers, directors, employees or consultants of the Company or
any Subsidiary as determined in good faith by the Company's Board of Directors
or senior management; (ii) transactions exclusively between or among the Company
and any of its Wholly-Owned Subsidiaries or exclusively between or among such
Wholly-Owned Subsidiaries, provided such transactions are not otherwise
prohibited by this Indenture; and (iii) Restricted Payments not prohibited by
this Indenture.
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SECTION 4.12. Limitation on Incurrence of Additional
Indebtedness and Issuance of Preferred Stock.
The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty
or otherwise become directly or indirectly liable with respect to (collectively,
"incur") any Indebtedness (other than Permitted Indebtedness), and the Company
will not issue any Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of Preferred Stock; provided, however, that the
Company may incur Indebtedness or issue shares of Disqualified Stock, if (i) no
Default or Event of Default shall have occurred and be continuing or would occur
as a consequence thereof and (ii) the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least equal to 3.0:1, determined on a pro forma basis as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
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 encumbrances or restrictions on the ability of any
such Subsidiary to (i) pay dividends or make any other distributions to the
Company or any of its Subsidiaries (A) on such Subsidiary's Capital Stock or (B)
with respect to any other interest or participation in, or measured by, its
profits, or pay any Indebtedness owed to the Company or any of its Subsidiaries;
(ii) make loans or advances to the Company or any of its Subsidiaries; or (iii)
transfer any of its properties or assets to the Company or any of its
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) applicable law, (b) this Indenture and Notes, (c) customary
non-assignment provisions of any contract or any lease governing a leasehold
interest of any Subsidiary of the Company, (d) agreements existing on the Issue
Date to the extent and in the manner such agreements are in effect on the Issue
Date, or (e) an agreement governing Indebtedness incurred to refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
the immediately preceding clauses (b) or (d) above; provided, however, that the
provisions relating to such encumbrance or restriction contained in any such
Indebtedness are no less favorable to the Company in any material respect as
determined by the Board of Directors of the Company in their reasonable and good
faith judgment than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clauses (b) or (d).
SECTION 4.14. Limitation on Change of Control.
(a) Upon the occurrence of a Change of Control, the Company
will be required to notify the Trustee in writing thereof and to offer to
repurchase all or any part
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(equal to $1,000 of principal at maturity or an integral multiple thereof) of
each Holder's Notes pursuant to the offer described below (the "Change of
Control Offer") at a purchase price equal to 101% of the principal amount
thereof on the date of purchase, plus accrued interest thereon, if any, through
the date of purchase (the "Change of Control Payment").
(b) Within 40 days following the date on which the Change of
Control occurred, the Company shall mail a notice to each Holder, with a copy to
the Trustee, which notice shall govern the terms of the Change of Control Offer.
The notice to the Holders shall contain all instructions and materials necessary
to enable such Holders to tender Notes pursuant to the Change of Control Offer.
Such notice shall state: (1) that the Change of Control Offer is being made
pursuant to this Section 4.14 and that all Notes tendered and not withdrawn will
be accepted for payment; (2) the purchase price (including the amount of any
accrued interest) and the purchase date, which shall be no earlier than 30 days
nor later than 60 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 Note not
tendered will continue to accrue interest; (4) that, unless the Company defaults
in the payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest on and
after the Change of Control Payment Date; (5) that Holders electing to have any
Physical Notes purchased pursuant to a Change of Control Offer will be required
to surrender the Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; (6) that Holders will
be entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the second Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Notes delivered
for purchase, and a statement that such Holder is withdrawing his election to
have such Notes purchased; and (7) that Holders whose Physical Notes are being
purchased only in part will be issued new Physical Notes equal in principal
amount to the unpurchased portion of the Physical Notes surrendered; provided,
that each Physical Note purchased and each new Physical Note issued shall be in
a principal amount $1,000 or an integral multiple thereof. On the Business Day
immediately preceding the Change of Control Payment Date, the Trustee shall
notify the Company in writing of the Holders who have so elected to have their
Physical Notes purchased pursuant to the Change of Control Offer (and who have
not withdrawn such election pursuant to clause (5) above).
On or before the Change of Control Payment Date, the Company
shall, to the extent lawful, (i) accept for payment Notes 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 plus accrued
interest, if any, of all Notes or portions thereof so tendered and (iii) deliver
or cause to be delivered to the Trustee the Notes so accepted together with an
Officers' Certificate stating the amount of the Notes or portions thereof being
tendered to the Company. The Paying Agent shall promptly mail to the Holders of
the Notes so accepted payment in an amount equal to the purchase price for such
Notes plus accrued interest, if any, to the Change of Control Payment Date, and
the Trustee shall promptly authenticate and mail to such Holders new Notes equal
in principal amount to any
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unpurchased portion of the Notes surrendered, if any; provided, however, that
each such new Note shall be in a principal amount of $1,000 or an integral
multiple thereof. Any Notes not so accepted shall be promptly mailed by the
Company to the Holder thereof. For purposes of this Section 4.14, the Trustee
shall act as the Paying Agent.
Any amounts deposited with the Paying Agent and remaining
after the purchase of Notes pursuant to a Change of Control Offer shall be
returned by the Paying Agent to the Company.
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder,
in each case, to the extent such laws and regulations are applicable in
connection with the repurchase of Notes pursuant to a Change of Control Offer.
To the extent provisions of any securities laws or regulations conflict with
this Section 4.14 of this Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 4.14 by virtue thereof.
The Company will announce publicly the results of the Change
of Control Offer on as soon as practicable after the Change of Control Date.
Neither the Board of Directors of the Company nor the Trustee
may waive the provisions of this Section 4.14 relating to the Company's
obligation to make a Change of Control Offer under this Section 4.14.
SECTION 4.15. Limitation on Asset Sales.
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, consummate an 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 Company's Board of
Directors), (ii) at least 85% of the consideration received by the Company or
the Subsidiary, as the case may be, from such Asset Sale shall be in the form of
cash or Cash Equivalents and is received at the time of such disposition; and
(iii) upon the consummation of an Asset Sale, the Company either (A) shall
apply, or cause such Subsidiary to apply, the Net Cash Proceeds relating to such
Asset Sale within 180 days of such Asset Sale either (1) to repurchase or repay
any Indebtedness secured by the assets involved in such Asset Sale (including,
without limitation, the Notes and the Existing Notes to the extent required by
the Existing Indenture) together with a concomitant permanent reduction in the
amount of such Indebtedness (including a permanent reduction in the committed
amounts therefor in the case of any revolving credit facility so repaid), (2) to
make an investment in properties and assets that replace the properties and
assets that were the subject of such Asset Sale or in properties and assets that
will be used in the business of the Company and its Subsidiaries as existing on
the Issue Date or in businesses reasonably related thereto ("Replacement
Assets"), or (3) a combination of repayment and investment permitted by the
foregoing clauses (iii)(A)(1) and (iii)(A)(2) or (B) shall (1) within 150 days
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of such Asset Sale enter into a definitive written agreement committing it,
subject to no material conditions other than conditions customary in such
agreements, to make an investment in Replacement Assets within 270 days of such
Asset Sale and (2) apply, or cause such Subsidiary to apply, the Net Cash
Proceeds relating to such Asset Sale within 270 days of such Asset Sale to an
investment in Replacement Assets. On (i) the 181st day after an Asset Sale, or
(ii) such earlier date as the Board of Directors of the Company or of such
Subsidiary determines to apply the Net Cash Proceeds relating to such Asset Sale
as set forth in clauses (iii)(A)(1), (iii)(A)(2) and (iii)(A)(3) of the
immediately preceding sentence, or (iii) if a definitive written agreement
relating to an investment in Replacement Assets was entered into within 150 days
of such Asset Sale, on the 271st day after such Asset Sale or such earlier date
on which such definitive written agreement is for any reason terminated (each, a
"Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds
which has not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (iii)(A) or (iii)(B) of the immediately preceding sentence
(each a "Net Proceeds Offer Amount") shall be applied by the Company or such
Subsidiary to make an offer to purchase (the "Net Proceeds Offer"), on a date
(the "Net Proceeds Offer Payment Date") not less than 60 nor more than 90 days
following the applicable Net Proceeds Offer Trigger Date, from all Holders on a
pro rata basis that amount of Notes equal to the Net Proceeds Offer Amount at a
price equal to 100% of the aggregate principal amount of the Notes to be
purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; 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 (other than interest received with respect to any such non-cash
consideration), 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 this Section 4.15. The Company may defer the Net
Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount
equal to or in excess of $5,000,000 resulting from one or more Asset Sales (at
which time, the entire unutilized Net Proceeds Offer Amount, and not just the
amount in excess of $5,000,000, shall be applied as required pursuant to this
paragraph).
In the event of the transfer of substantially all (but not
all) of the property and assets of the Company and its Subsidiaries as an
entirety to a Person in a transaction permitted under Section 5.01, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and its Subsidiaries not so transferred for purposes of this
covenant, and shall comply with the provisions of this covenant with respect to
such deemed sale as if it were an Asset Sale. In addition, the fair market value
of such properties and assets of the Company or its Subsidiaries deemed to be
sold shall be deemed to be Net Cash Proceeds for purposes of this covenant.
(b) Subject to the deferral of the Net Proceeds Offer Trigger
Date contained in subsection (a) above, each notice of a Net Proceeds Offer
pursuant to this Section 4.15 shall be mailed or caused to be mailed, by first
class mail, by the Company within 55 days after the Net Proceeds Offer Trigger
Date to all Holders at their last registered addresses as of a date within 15
days of the mailing of such notice, with a copy to the Trustee. The notice shall
contain all instructions and materials necessary to enable such
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Holders to tender Notes pursuant to the Net Proceeds Offer and shall state the
following terms:
(1) that the Net Proceeds Offer is being made pursuant to
this Section 4.15 and that all Notes tendered and not withdrawn, in
whole or in part, in integral multiples of $1,000 will be accepted for
payment; provided, however, that if the aggregate principal amount of
Notes tendered in a Net Proceeds Offer plus accrued interest at the
expiration of such offer exceeds the aggregate amount of the Net
Proceeds Offer, the Company shall select the Notes to be purchased on
a pro rata basis (with such adjustments as may be deemed appropriate
by the Company so that only Notes in denominations of $1,000 or
multiples thereof shall be purchased);
(2) the purchase price (including the amount of any accrued
interest) and the purchase date (which shall be 20 Business Days from
the date of mailing of notice of such Net Proceeds Offer, or such
longer period as required by law) (the "Proceeds Purchase Date");
(3) that any Note not tendered will continue to accrue
interest on and after the Proceeds Purchase Date;
(4) that, unless the Company defaults in making payment
therefor, any Note accepted for payment pursuant to the Net Proceeds
offer shall cease to accrue interest on and after the Proceeds
Purchase Date;
(5) that Holders electing to have a Physical Note purchased
pursuant to a Net Proceeds Offer will be required to surrender the
Note, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third
Business Day prior to the Proceeds Purchase Date;
(6) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than five Business Days prior
to the Proceeds Purchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Notes the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have such
Note purchased; and
(7) that Holders whose Physical Notes are purchased only in
part will be issued new Physical Notes in a principal amount equal to
the unpurchased portion of the Physical Notes surrendered; provided
that each Physical Note purchased and each new Physical Note issued
shall be in principal amount of $1,000 or integral multiples thereof.
On the second Business Day immediately preceding the Proceeds
Purchase Date, the Trustee shall notify the Company in writing of the Holders
who have so elected to have their Physical Note purchased pursuant to such Net
Proceeds Offer (and who have not
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withdrawn such election, as provided above). On or before the Proceeds Purchase
Date, the Company shall (i) accept for payment Notes or portions thereof
tendered pursuant to the Net Proceeds Offer which are to be purchased in
accordance with item (b)(1) above, (ii) deposit with the Paying Agent U.S. Legal
Tender sufficient to pay the purchase price plus accrued interest, if any, of
all Notes to be purchased and (iii) deliver to the Trustee Notes so accepted
together with an Officers' Certificate stating the Notes or portions thereof
being purchased by the Company. The Paying Agent shall promptly mail to the
Holders so accepted payment in an amount equal to the purchase price for such
Notes plus accrued interest, if any, to the Proceeds Purchase Date. For purposes
of this Section 4.15, the Trustee shall act as the Paying Agent.
Any amounts deposited with the Paying Agent and remaining
after the purchase of Notes pursuant to a Net Proceeds Offer shall be returned
by the Paying Agent to the Company.
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder,
in each case, to the extent such laws and regulations are applicable in
connection with the repurchase of Notes pursuant to a Net Proceeds Offer. To the
extent that the provisions of any securities laws or regulations conflict with
this Section 4.15, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
this Section 4.15 by virtue thereof.
SECTION 4.16. Limitation on Issuances and Sales of Capital
Stock of Subsidiaries.
The Company will not cause or permit any of its Subsidiaries
to issue or sell any Capital 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 Company) to own or hold any Capital
Stock of any Subsidiary of the Company or any Lien or security interest therein;
provided, however, such covenant shall not prohibit the disposition (by sale,
merger or otherwise) of all of the Capital Stock of a Subsidiary of the Company;
provided any Net Cash Proceeds therefrom are applied in accordance with Section
4.15 of this Indenture.
SECTION 4.17. Limitation on Liens.
Other than Permitted Liens, the Company shall not, and shall
not cause or permit any of its Subsidiaries to, directly or indirectly, create,
incur, assume or permit or suffer to exist any Liens of any kind against or upon
any property or assets of the Company or any of its Subsidiaries whether owned
on the Issue Date or acquired after the Issue Date, or any income or profits
therefrom, or assign or otherwise convey any right to receive income or profits
therefrom.
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SECTION 4.18. Conduct of Business.
Neither the Company nor any of its Subsidiaries will engage
in any business other than the business of operating family entertainment
centers or any activity related or ancillary thereto.
SECTION 4.19. Payments For Consent.
Neither the Company nor any of the Company's Subsidiaries
(including, for this purpose only, Block Party and all Permitted Investment
Subsidiaries) shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder for,
or as inducement to any consent, waiver or amendment of any of the terms or
provisions of this Indenture or the Notes unless such consideration is offered
to be paid or agreed to be paid to all Holders of Notes then outstanding that
consent, waive or agree to amend any of such terms or provisions in the time
frame set forth in the solicitation documents relating to such consent, waiver
or agreement.
SECTION 4.20. Registration Rights Agreement.
The Company will comply with all of the terms and provisions
of the Registration Rights Agreement, including, without limitation, its
obligation to pay Additional Interest to the Holders, as set forth in Section 4
of therein (which provision is hereby incorporated in its entirety by reference
herein) and to notify the Trustee immediately of the occurrence of any
Registration Default (as defined in the Registration Rights Agreement)
thereunder.
SECTION 4.21. Warrant Agreement.
The Company will comply with all of the terms and provisions
of the Warrant Agreement and on or prior to the Series B Separability Date shall
notify the Trustee immediately of the occurrence of any default or event of
default thereunder.
SECTION 4.22. Impairment of Security Interest.
Subject to the New Intercreditor Agreements and the
Subordination Agreement, neither the Company nor any of its Subsidiaries will
take or omit to take any action which would adversely affect or impair the
Security Interests in favor of the Trustee, on behalf of itself and the Holders,
with respect to the Collateral, and neither the Company nor any of its
Subsidiaries shall grant to any Person, or permit any Person (other than the
Company) to have (other than to the Trustee on behalf of the Trustee and the
Holders) any interest whatsoever in the Collateral, the Subsidiary Collateral,
the Pledged Collateral or the Pledged Subsidiary Collateral. Neither the Company
nor any of its Subsidiaries will enter
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into any agreement that requires the proceeds received from any sale of
Collateral, Subsidiary Collateral, Pledged Collateral or Pledged Subsidiary
Collateral to be applied to repay, redeem, defease or otherwise acquire or
retire any Indebtedness of any Person, other than pursuant to this Indenture,
the Notes, the New Intercreditor Agreements, the Subordination Agreement, the
McDonald's Documents and the Collateral Agreements.
SECTION 4.23. Intercompany Indebtedness.
The Company shall evidence, or cause to be evidenced, any
Indebtedness of a Subsidiary of the Company to the Company or any Subsidiary of
the Company, if such Indebtedness of such Subsidiary exceeds $500,000 in
aggregate principal amount, by a written promissory note or other instrument
from such Subsidiary, in form and substance reasonably satisfactory to the
Trustee, which promissory note or other instrument shall be pledged to the
Trustee and the Holders pursuant to a note pledge agreement, in form and
substance reasonably satisfactory to the Trustee, and delivered with the
appropriate endorsement in blank to the Trustee. Any such Indebtedness shall be
subordinate to the Obligations of the Company and the Subsidiary Guarantors, and
the promissory note or other instrument evidencing such Indebtedness shall
contain language giving effect to such subordination, in form and substance
reasonably satisfactory to the Trustee.
SECTION 4.24. Key Man Life Insurance.
The Company shall, for so long as the Notes are outstanding,
maintain life insurance upon the life of Scott W. Bernstein, the Company's Chief
Executive Officer, and any successor chief executive officer of the Company or
other senior executive officer of the Company performing similar functions, with
the death benefit thereunder payable to the Company in an amount not less than
$10,000,000. The Company shall at all times retain all the incidents of
ownership of such insurance and shall not borrow upon or otherwise impair its
right to receive the proceeds of such insurance.
SECTION 4.25. Real Estate Mortgages and Filings.
On or prior to the date which is seven (7) days after the
Issue Date and at no cost or expense to the Trustee or the Holders:
(a) the Company shall utilize its best efforts to deliver to
the Trustee fully-executed counterparts of Mortgages in form and substance
reasonably acceptable to the Initial Purchaser and its counsel for all real
property owned in fee by the Company listed on Schedule 4.25(a) attached hereto
and made a part hereof; provided, however, that the Company cannot provide
assurances to the Holders that it will be able to provide security interests in
any real property on which McDonald's Corporation has a prior lien (individually
and collectively, the "Premises"); provided, further, that to the extent the
Trustee obtains a
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security interest in any such Premises, such security interests will be
subordinated to first mortgage liens in favor of McDonald's Corporation;
(b) in the event the Trustee obtains any such Mortgage, the
Trustee shall have received commitments for Mortgage Title Insurance Policies
from a company, and in form and substance reasonably acceptable to the Initial
Purchaser and its counsel, insuring the Liens of such Mortgages as valid and
enforceable Liens on the real estate collateral described in such Mortgages and
related to each of the covered Premises;
(c) in the event the Trustee obtains any such Mortgage, the
Company shall deliver to the Trustee, with respect to each of the covered
Premises, such other documents, instruments, filings, surveys, local counsel
opinions, certificates and agreements as the Trustee shall reasonably request;
and
(d) the Company shall use its best efforts to cooperate with
the Trustee and the Existing Notes Trustee to effect the priority of the
application of proceeds from the exercise of the Trustee's rights and remedies
under the Notes Intercreditor Agreement.
The Trustee and Collateral Agent shall be authorized to enter
into a Subordination Agreement with respect to any Premises designated in
writing by the Company.
SECTION 4.26. Leasehold Mortgages and Filings.
The Company and each of its Subsidiaries shall use
commercially reasonable efforts to deliver Mortgages, substantially in the form
of Exhibit N attached hereto, with respect to the Company's leasehold interests
in the premises (the "Leased Premises") occupied by the Company pursuant to
leases of new store properties entered into after the date of issuance of the
Existing Notes (collectively, the "Leases", and individually, a "Lease"). Prior
to the effective date of any Lease, the Company and such Subsidiaries shall
provide to the Trustee all of the items described in Section 4.25 and in
addition shall provide an agreement, substantially in the form of Exhibit O
attached hereto, and executed by the lessor of the Lease, whereby the lessor
consents to the Mortgage (and which shall be entered into by the Trustee, as
"Mortgagee" thereunder. The Company and such Subsidiaries shall perform all of
its obligations required hereunder at its sole cost and expense.
SECTION 4.27. Rating of Notes.
The Company shall cooperate with the Initial Purchaser at any
time or from time to time for a period of 18 months after the Issue Date to
obtain a rating for the Notes from at least one nationally recognized rating
agency and to keep a rating with respect to the Notes continuously in effect
through the Maturity Date.
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SECTION 4.28. Noteholder Designation of Directors.
From and after the Issue Date until the earlier of (i) the
Maturity Date or (ii) the date on which all principal and interest (including
any Additional Interest) on all of the outstanding Notes have been paid in full,
(a) the Company will take such action as shall be necessary in accordance with
applicable law and its certificate of incorporation and by-laws so that the
Board of Directors of the Company is comprised at all times of at least two
directors initially designated by the Initial Purchaser, and thereafter to be
replaced or redesignated by the Trustee or the Holders of not less than 20% of
the aggregate principal amount of Notes then outstanding (any such nominee being
a "Noteholder Representative"), (b) upon the occurrence of an Event of Default
and at the written request of the Trustee or the Holders of at least 25% of the
then outstanding Notes, the Company will take or cause to be taken such actions
as shall be necessary in accordance with applicable law and its certificate of
incorporation and by-laws, to reconstitute the Board of Directors of the Company
immediately following such Event of Default such that Noteholder Representative
constitute a majority of the members of the Board of Directors and (c) prior to
a Public Equity Offering, the Company will use its best efforts to cause, and
will cooperate with the Warrant Agent to cause, each Person (including holders
of Warrant Shares) who becomes a holder of more than 1% of the Company's Voting
Common Stock after the Issue Date to execute, as promptly as practicable after
the date on which such Person acquires such shares of Voting Common Stock, a
voting or similar agreement among certain stockholders of the Company, in
substantially the form attached hereto as Exhibit Q (the "Stockholders'
Agreement"), pursuant to which, among other things, such Person will agree to
vote its shares of Voting Common Stock in a manner so as to give effect to the
provisions set forth in clauses (a) and (b) of this covenant.
Prior to the Issue Date, the Company and the holders of not
less than 662/3% of the outstanding Voting Common Stock shall have taken all
action necessary to cause all such holders of Voting Common Stock as of the
Issue Date to execute the Stockholders' Agreement (provided that the Company
shall have used its best efforts to cause each holder of 1% or more of the
outstanding Voting Common Stock to execute the Stockholders' Agreement). Prior
to a Public Equity Offering, the Company shall take such actions as are
necessary to cause Persons who become holder of not less than 662/3% of the
outstanding Voting Common Stock to execute on or prior to the date on which such
Persons acquire shares of Voting Common Stock, counterparts of the Stockholders
Agreement (provided that the Company will use its best efforts to cause each
holder of 1% or more of the outstanding Voting Common Stock to execute the
Stockholders' Agreement).
SECTION 4.29. Appointment of Chief Operating Officer.
The Company, acting through its Board of Directors, shall,
within 30 days after the Issue Date, take all action necessary to appoint a
Chief Operating Officer or retain an independent specialist turnaround firm to
fill such function, in either case satisfactory to the Noteholder
Representatives.
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SECTION 4.30. Approval of Bankruptcy Filings.
The Company will not and will not permit any Significant
Subsidiary of the Company to (i) file a voluntary case or proceeding under any
applicable bankruptcy law with respect to the Company, (ii) consent to the
appointment of a custodian on the Company's behalf for substantially all of
either of their respective assets, (iii) consent to or acquiescence in the
institution of a bankruptcy or an insolvency proceeding against the Company or
any Significant Subsidiary of the Company, or (iv) make any general assignment
or permit any Significant Subsidiary to make any general assignment for the
benefit of creditors, unless any such action described in clauses (i) through
(iv) has been approved by a majority of the members of the Board of Directors of
the Company including the unanimous consent of the Noteholder Representatives.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets.
(a) The Company will not, in a single transaction or series
of related transactions, consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets to,
another corporation, Person or entity unless: (i) the Company is the surviving
corporation, or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made assumes all the obligations of the Company under the
Collateral Agreements, the Registration Rights Agreement, the Warrant Agreement,
the New Intercreditor Agreements and all Obligations of the Company under the
Notes and this Indenture, pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after such transaction
(including giving effect to any Indebtedness and Acquired Debt incurred or
expected to be incurred in connection with or in respect of such transaction and
to any assumption required by clause (ii) above) no Default or Event of Default
exists; (iv) the Company or any corporation formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease
conveyance or other disposition will have been made (A) will have Consolidated
Net Worth (immediately after the transaction but prior to any purchase
accounting adjustments resulting from the transaction) equal to or greater than
the Consolidated Net Worth of the Company immediately preceding the transaction
and (B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four quarter period, be permitted to incur at least $1.00 of additional
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Indebtedness pursuant to Section 4.12 of this Indenture and will have a Fixed
Charge Coverage Ratio, determined on a pro forma basis, greater than or equal to
the Fixed Charge Coverage Ratio of the Company immediately prior to the
transaction; and (v) the Company or the entity or Person formed by or surviving
any such consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease, conveyance
or other disposition and any supplemental indenture required in connection with
such transaction comply with the applicable provisions of this Indenture and
that all conditions precedent in this Indenture relating to such transaction
have been satisfied.
(b) For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
(c) Each Subsidiary Guarantor (other than any Subsidiary
Guarantor whose Subsidiary Guarantee is to be released in accordance with the
terms of such Subsidiary Guarantee and this Indenture in connection with any
transaction made in compliance with the provisions of Section 4.15) will not,
and the Company will not cause or permit any Subsidiary Guarantor to,
consolidate with or merge with or into any Person, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets,
unless: (i) the entity formed by or surviving any such consolidation or merger
(if other than the Subsidiary Guarantor), or to which such disposition shall
have been made, is a corporation organized and existing under the laws of the
United States, any state thereof or the District of Columbia; (ii) such entity
assumes by supplemental indenture all of the obligations of the Subsidiary
Guarantor on the Subsidiary Guarantee; (iii) immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing, and (iv) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a pro forma basis, the Company could
satisfy the provisions of clause (iv) of paragraph (a) of this Section 5.01;
provided, however, that any merger or consolidation of a Subsidiary Guarantor
with and into the Company (with the Company being the surviving entity) or
another Subsidiary Guarantor need only comply with clause (iv) of paragraph (a)
of this Section 5.01.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation, combination or merger or any transfer
of all or substantially all of the assets of the Company in accordance with the
foregoing, in which the Company is not the continuing corporation, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture and the Notes, the Collateral Agreements, the
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Registration Rights Agreement, the Warrant Agreement and the New Intercreditor
Agreements with the same effect as if such surviving entity had been named as
such, and thereafter (except in the case of a lease) the predecessor corporation
will be relieved of all further obligations and covenants hereunder and
thereunder.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" occurs if:
(a) (i) for any Interest Payment Date occurring on or prior
to August 2, 1999, the Company fails to pay interest on any Notes when
the same become due and payable, and (ii) for any Interest Payment
Date occurring after August 2, 1999, the Company fails to pay interest
on any Notes when the same becomes due and payable and the Default
continues for a period of 10 days;
(b) the Company fails to pay the principal (or premium, if
any) on any Notes, when such principal becomes due and payable, at
maturity, by acceleration, upon redemption or otherwise (including the
failure to make a payment to purchase Notes tendered pursuant to a
Change of Control Offer or a Net Proceeds Offer);
(c) the Company or any of its Subsidiaries (in each case, to
the extent a party to the Collateral Agreements) defaults in the
observance or performance of any other covenant, provision or
agreement contained in this Indenture, the Notes or any of the
Collateral Agreements (to the extent such default, directly or
indirectly, adversely affects (or with respect to any such Subsidiary,
materially adversely affects) the Security Interests in the Collateral
or the rights and benefits of the Holders under this Indenture or the
Notes), which default continues for a period of 30 days after the
Company receives written notice specifying the default (and demanding
that such default be remedied) from the Trustee or the Holders of at
least 25% of the outstanding principal amount of the Notes (except in
the case of a default under Section 5.01 of this Indenture, which
default will constitute an Event of Default with such notice
requirement but without such passage of time requirement);
(d) a default (after giving effect to any applicable grace
periods or any extension of any maturity date) under any mortgage,
indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness of the Company or
of any Subsidiary of the Company (or the payment of which is
guaranteed by the Company or any Subsidiary of the Company), whether
such Indebtedness now exists or is created after the Issue Date, if
(a) either (A) such default results from the failure to pay principal
of or interest on such Indebtedness or
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(B) as a result of such default the maturity of such Indebtedness may
be accelerated, and (b) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness with
respect to which a default (after the expiration of any applicable
grace period or any extension of the maturity date) has occurred, or
the maturity of which may be so accelerated, exceeds $2,000,000 in the
aggregate, and the default continues for a period of 10 days after the
Company has received written notice specifying the default from the
Trustee or the Holders of at least 25% of the outstanding principal
amount of the Notes;
(e) one or more judgments in an aggregate amount in excess of
$2,000,000 (other than any judgment as to which a reputable insurance
company has accepted full liability in writing) shall have been
rendered against the Company or any of its Subsidiaries and such
judgments remain undischarged, unpaid or unstayed for a period of 60
days after such judgment or judgments become final and non-appealable;
(f) the Company, any Subsidiary Guarantor or any Subsidiary
(A) commences a voluntary case or proceeding under any Bankruptcy Law
with respect to itself, (B) consents to the entry of a judgment,
decree or order for relief against it in an involuntary case or
proceeding under any Bankruptcy Law, (C) consents to the appointment
of a Custodian of it or for substantially all of its property or
assets, (D) consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it, (E) makes a general
assignment for the benefit of its creditors, (F) shall generally not
pay its debts when such debts become due or shall admit in writing its
inability to pay its debts generally or (G) takes any action to
authorize or effect any of the foregoing;
(g) a court of competent jurisdiction enters a judgment,
decree or order for relief in respect of the Company, any Subsidiary
Guarantor or any 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 Subsidiary Guarantor or any
Subsidiary, (B) appoint a Custodian of the Company, any Subsidiary
Guarantor or any 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 or a
period of 60 consecutive days; or
(h) any Subsidiary Guarantee for any reason ceases to be in
full force and effect or becomes or is declared to be null and void,
unenforceable or invalid or any Subsidiary Guarantor denies or
disaffirms its obligations under its Subsidiary Guarantee (other than
by reason of release of a Subsidiary Guarantor in accordance with the
terms of this Indenture).
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SECTION 6.02. Acceleration.
(a) If an Event of Default (other than an Event of Default
specified in Section 6.01(f) or (g) with respect to the Company or any of its
Significant Subsidiaries) occurs and is continuing and has not been waived
pursuant to Section 6.04, then the Trustee or the Holders of at least 25% in
principal amount of outstanding Notes may declare the principal of, premium, if
any, and accrued interest on all the Notes to be due and payable by notice in
writing to the Company and the Trustee specifying the respective Event of
Default and that it is a "notice of acceleration" (the "Acceleration Notice"),
and the same shall become immediately due and payable.
(b) If an Event of Default specified in Section 6.01(f) or
(g) with respect to the Company or any of its Significant Subsidiaries occurs
and is continuing, then all unpaid principal of, and premium, if any, and
accrued and unpaid interest on all of the outstanding Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
(c) At any time after a declaration of acceleration with
respect to the Notes in accordance with Section 6.02(a), the Holders of a
majority in principal amount of the Notes may, by written notice to the Trustee,
(i) waive any existing Default or Event of Default and its consequences, except
a continuing Default or Event of Default under Section 6.01(a) or (b) hereof,
and (ii) rescind and cancel such declaration of acceleration and its
consequences if (A) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction, and (B) all existing Events of
Default have been cured or waived (except any such Event of Default arising from
the nonpayment of principal or interest on the Notes that has become due solely
because of the acceleration).
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, premium, if any, or interest on the Notes or to enforce
the performance of any provision of the Notes, this Indenture or the Collateral
Agreements.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder in exercising any right or remedy
arising 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.
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SECTION 6.04. Waiver of Past Defaults.
Subject to Sections 2.09, 6.07 and 9.02, the Holders of a
majority in principal amount of the outstanding Notes by written notice to the
Trustee may waive an existing Default or Event of Default and its consequences,
except a continuing Default or Event of Default in the payment of principal of
or interest on any Note as specified in clauses (a) and (b) of Section 6.01.
When a Default or Event of Default is waived, it is cured and ceases.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in
principal amount of the outstanding Notes may direct in writing the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee, 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 (i) that the Trustee
reasonably believes conflicts with any law or this Indenture or the Notes, (ii)
that the Trustee determines may be unduly prejudicial to the rights of another
Holder or (iii) that may involve the Trustee in personal liability; provided,
further, however, that the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction or this Indenture.
SECTION 6.06. Limitation on Suits.
No Holder will have any right to institute any proceeding,
judicial or otherwise, or pursue any remedy under this Indenture or the Notes
unless:
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the outstanding Notes have made a written request to the Trustee to
institute proceedings in respect of such Event of Default in its own
name as Trustee under this Indenture;
(3) such Holder or Holders have offered to the Trustee
indemnity reasonably satisfactory to the Trustee against any costs,
losses, liabilities or expenses to be incurred in compliance with such
request;
(4) the Trustee, for 30 days after its receipt of such
notice, request and offer of indemnity, has failed to institute such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 30-day period by the Holders of
a majority in principal amount of the outstanding Notes.
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The foregoing limitations shall not apply to a suit
instituted by a Holder for the enforcement of the payment of principal and
premium, if any, or interest on such Note on or after the respective due dates
set forth in such Note (including upon acceleration thereof) or the institution
of any proceeding with respect to this Indenture or any remedy hereunder,
including without limitation, acceleration, by the Holders of a majority in
principal amount of outstanding Notes; provided that upon institution of any
proceeding or exercise of any remedy, such Holder provides the Trustee with
prompt notice thereof.
A Holder may not use this Indenture to prejudice the rights
of another Holder or to obtain a preference or priority over such other Holder.
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, premium, if any, and
interest on a Note, on or after the respective due dates expressed in such Note,
or to bring suit for the enforcement of any such payment on or after such
respective dates, is absolute and unconditional and shall not be impaired or
affected without the written 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 (a) or (b) 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 Notes for the whole amount of
principal of, premium, if any, 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 at the rate set
forth in Section 2.16 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, counsel, accountants and
experts) and the Holders allowed in any judicial proceedings relating to the
Company or Subsidiaries or any other obligor upon the Notes, 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 Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay
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to the Trustee any amount due to it for the reasonable compensation, expenses,
taxes, disbursements and advances of the Trustee, its agents 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 Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property 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 Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for
principal and interest, respectively; and
Fourth: to the Company or any other obligor on the Notes, 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 Holders 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, a suit by a Holder or Holders of more than 10%
in principal amount of the outstanding Notes, or a suit by a Holder or Holders
for the enforcement of the payment of the principal of, premium, if any, or
interest on the Notes, on or after the due dates expressed in the Notes.
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SECTION 6.12. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Note and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such case, the
Company, the Trustee and the Holders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
SECTION 6.13. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or wrongfully taken Notes in Section
2.07, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder to
exercise any right or remedy arising upon any Default or Event of Default shall
impair any such right or remedy or constitute a waiver of any such Default or
Event of Default or an acquiescence therein. Every right and remedy given by
this Article Six or by law to the Trustee or to the Holders may be exercised
from time to time, and as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
The duties and responsibilities of the Trustee shall be as
provided by the TIA and as set forth herein.
(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
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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 or her 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 against the Trustee;
and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture; provided, however, that the Trustee shall examine
the certificates and opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein
contained, 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; and
(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 Section 6.02, 6.04 or 6.05 of
this Indenture.
(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) 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 and Section 7.02 of this Indenture.
(f) The Trustee shall not be liable for interest on any money
or assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
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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 reasonably 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, or both, which shall conform to Sections 13.04 and 13.05 of this
Indenture. The Trustee shall not be liable for any action it takes or omits to
take in good faith in reliance on such Officers' Certificate or Opinion of
Counsel.
(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 unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts.
(d) The Trustee shall not be liable for any action that it
takes or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers under this Indenture.
(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 and to consult with the officers and representatives of the Company,
including the Company's accountants and attorneys.
(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 security or indemnity
reasonably satisfactory to the Trustee against the costs, expenses and
liabilities which may be incurred by it in compliance with such request, order
or direction.
(g) The Trustee shall not be required to give any bond or
surety in respect of the performance of its powers and duties hereunder.
(h) Any permissive right or power available to the Trustee
under this Indenture shall not be construed to be a mandatory duty or
obligation.
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SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may
become the owner or pledgee of Notes and may otherwise deal with the Company,
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 of this
Indenture, and the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Notes, and it shall not be accountable for the
Company's use of the proceeds from the Notes, and it shall not be responsible
for any statement of the Company in this Indenture or the Notes 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 the Company and
each Holder in the manner and to the extent provided in TIA Section 313(c)
notice of the Default or Event of Default within 45 days after such Default or
Event of Default occurs, unless such Default or Event of Default has been cured.
Except in the case of a Default or an Event of Default in payment of principal
of, or interest on, any Note, including an accelerated payment and the failure
to make payment on the Change of Control Payment Date pursuant to a Change of
Control Offer or on the Net Proceeds Offer Payment Date pursuant to a Net
Proceeds Offer, the Trustee may withhold the notice of a Default or an Event of
Default if and so long as its Board of Directors, the executive committee of its
Board of Directors or a committee of its directors and/or officers charged with
such responsibility in good faith determines that withholding the notice is in
the interest of the Holders.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after each November 1, beginning with November
1, 1998, the Trustee shall, to the extent that any of the events described in
Section 313(a) of the TIA occurred within the previous twelve months, but not
otherwise, mail to each Holder a brief report dated as of such date that
complies with Section 313(a) of the TIA. The Trustee also shall comply with
Sections 313(b) and (c) of the TIA.
A copy of each report at the time of its mailing to Holders
shall be mailed to the Company and filed with the SEC and each stock exchange or
market, if any, on which the Notes are listed or quoted.
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The Company shall promptly notify the Trustee if the Notes
become listed or quoted on any stock exchange or market and the Trustee shall
comply with Section 313(d) of the TIA.
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 reasonable
out-of-pocket expenses incurred or made by it in connection with the performance
of its duties under this Indenture, except any such expense as may arise from
its negligence, bad faith or willful misconduct. Such expenses shall include but
not be limited to the reasonable fees and expenses of the Trustee's agents and
counsel.
The Company shall indemnify each of the Trustee (or any
predecessor Trustee) and its agents, employees, stockholders and directors and
officers for, and hold them harmless against, any loss, liability, damage, claim
or expense (including reasonable fees and expenses of counsel), including taxes
(other than taxes based on the income of the Trustee) incurred by them except
for such actions to the extent caused by any negligence, bad faith or willful
misconduct on their part, arising out of or in connection with the
administration of this trust including the reasonable costs and expenses of
enforcing this Indenture against the Company (including this Section 7.07) and
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. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. At the
Trustee's sole discretion, the Company shall defend the claim and the Trustee
shall cooperate and may participate in the defense; provided that any settlement
of a claim shall be approved in writing by the Trustee. Alternatively, the
Trustee may at its option have separate counsel of its own choosing 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, which consent shall not be unreasonably withheld. 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 claim prior to the Notes 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 Notes.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(f) or (g) of this Indenture occurs,
such expenses and the
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compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
The obligations of the Company under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.
SECTION 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment, as provided in this Section 7.08.
The Trustee may resign by so notifying the Company in writing
at least 30 days prior to the date of the proposed resignation. The Holders of a
majority in principal amount of the outstanding Notes 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;
(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 aggregate
principal amount of the outstanding Notes 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. The Company and the successor Trustee shall mail notice of the
successor Trustee's succession to each Holder.
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
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
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If the Trustee is no longer eligible under or otherwise fails
to comply with Section 7.10, any Holder who satisfies the requirements of TIA
Section 310(b) may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
The Company shall give notice of any resignation and any
removal of the Trustee and each appointment of a successor Trustee to all
Holders. Each notice shall include the name of the successor Trustee and the
address of its corporate trust office.
Notwithstanding any resignation or replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07 of
this Indenture 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
Person the resulting, surviving or transferee Person without any further act
shall, if such resulting, surviving or transferee Person is otherwise eligible
hereunder, be the successor Trustee; provided, however, that such Person shall
be otherwise qualified and eligible under this Article Seven.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Sections 310(a)(1), (2) and (5). The Trustee (or, in the
case of a corporation included in a bank holding company system, the related
bank holding company) shall have combined capital and surplus of at least
$150,000,000 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 Section 310(a)(2). The Trustee shall
comply with TIA Section 310(b); provided, however, that there shall be excluded
from the operation of TIA Section 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 Section 310(b)(1) are met. The provisions of TIA
Section 310 shall apply to the Company and its Subsidiaries, as obligor of the
Notes.
SECTION 7.11. Preferential Collection of Claims Against
Company.
The Trustee shall comply with TIA Section 311(a), excluding
any creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein. The provisions of TIA Section 311(a) shall apply to the
Company and its Subsidiaries, as obligor on the Notes.
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ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. Legal Defeasance and Covenant Defeasance.
(a) The Company may, at its option and at any time, elect to
have either paragraph (b) or paragraph (c) below be applied to the outstanding
Notes upon compliance with the applicable conditions set forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the
option applicable to this paragraph (b), the Company and the Subsidiary
Guarantors shall be deemed to have been released and discharged from their
respective obligations with respect to the outstanding Notes on the date the
applicable conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Notes, which shall thereafter be deemed to be "outstanding"
only for the purposes of the Sections and matters under this Indenture referred
to in (i) and (ii) below, and to have satisfied all its other obligations under
such Notes and this Indenture insofar as such Notes are concerned, except for
the following which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of outstanding Notes to receive solely from
the trust fund described in paragraph (d) below and as more fully set forth in
such paragraph, payments in respect of the principal, premium, if any, and
interest on such Notes when such payments are due and (ii) obligations listed in
Section 8.03, subject to compliance with this Section 8.01. The Company may
exercise its option under this paragraph (b) notwithstanding the prior exercise
of its option under paragraph (c) below with respect to the Notes.
(c) Upon the Company's exercise under paragraph (a) of the
option applicable to this paragraph (c), the Company and the Subsidiary
Guarantors shall be released and discharged from their respective obligations
under any covenant contained in Article Five, Sections 4.05 and 4.08, and
Sections 4.10 through 4.19 with respect to the outstanding Notes on and after
the date the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Notes shall thereafter be deemed to be not "outstanding"
for the purpose of any direction, waiver, consent or declaration or act of
Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "outstanding" for all other purposes hereunder.
For this purpose, such Covenant Defeasance means that, with respect to the
outstanding Notes, the Company and any Subsidiary Guarantor may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01(c), but, except as specified above, the remainder of this
Indenture and such Notes shall be unaffected thereby. In addition, upon the
Company's exercise under
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paragraph (a) hereof of the option applicable to this paragraph (c), subject to
the satisfaction of the conditions set forth in Section 8.03 hereof, Sections
6.01(d), 6.01(e) and 6.01(h) shall not constitute Events of Default.
(d) The following shall be the conditions to application of
either paragraph (b) or paragraph (c) above to the outstanding Notes:
(1) The Company shall have irrevocably deposited in trust
with the Trustee, pursuant to an irrevocable trust and security
agreement in form and substance reasonably satisfactory to the
Trustee, U.S. Legal Tender or U.S. Government Obligations or a
combination thereof in such amounts and at such times as are
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on the outstanding Notes to maturity or redemption;
provided, however, that the Trustee (or other qualifying trustee)
shall have received an irrevocable written order from the Company
instructing the Trustee (or other qualifying trustee) to apply such
U.S. Legal Tender or the proceeds of such U.S. Government Obligations
to said payments with respect to the Notes to maturity or redemption;
(2) No Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default
from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit (other than a
Default or Event of Default resulting from the incurrence of
Indebtedness, all or a portion of which will be used to defease the
Notes concurrently with such incurrence);
(3) Such deposit and the defeasance contemplated hereby will
not result in a Default under, or a breach or violation of, this
Indenture or any other material instrument or agreement to which the
Company or any of its Subsidiaries is a party or by which it or their
property or assets is bound;
(4) (i) In the event the Company elects paragraph (b) hereof,
the Company shall deliver to the Trustee an Opinion of Counsel in the
United States, in form and substance reasonably satisfactory to the
Trustee, to the effect that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or
(B) since the Issue Date, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall state that, Holders 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 or (ii) in the event the
Company elects paragraph (c) hereof, the Company shall deliver to the
Trustee an Opinion of Counsel in the United States, in form and
substance reasonably satisfactory to the Trustee, to the effect that
Holders 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
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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;
(5) The Company shall have delivered to the Trustee an
Officers' Certificate, stating that the deposit under clause (1) was
not made by the Company with the intent of preferring the Holders over
any other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Company
or others;
(6) The Company shall have delivered to the Trustee an
Opinion of Counsel, reasonably satisfactory to the Trustee, to the
effect that, (A) the trust funds will not be subject to the rights of
holders of Indebtedness of the Company other than the Notes and as
otherwise permitted herein and (B) assuming no intervening bankruptcy
of the Company between the date of deposit and the 91st day following
the deposit and that no Holder is an insider of the Company, after the
91st day following the deposit, the trust funds will not be subject to
any applicable bankruptcy, insolvency, reorganization or similar law
affecting creditors' rights generally; and
(7) 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 such counsel may rely, as to matters of fact, on
Officers' Certificates of the Company.
In the event all or any portion of the Notes are to be
redeemed through such irrevocable trust, the Company must make arrangements
reasonably 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.
SECTION 8.02. Satisfaction and Discharge.
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 Notes theretofore authenticated and delivered (other
than Notes which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 2.07 and Notes for whose
payment money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or all such Notes not theretofore delivered to the
Trustee for cancellation have become due and payable, and the Company
has irrevocably deposited or caused to be deposited with the Trustee
as trust funds in trust solely for that purpose an amount of money
sufficient to pay and discharge the entire Indebtedness on the Notes
not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest;
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(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company;
(3) the Company has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of the Notes
at maturity or redemption, as the case may be; and
(4) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, stating that all conditions
precedent specified herein relating to the satisfaction and discharge
of this Indenture have been complied with; provided, however, that
such counsel may rely, as to matters of fact, on Officers'
Certificates of the Company.
SECTION 8.03. Survival of Certain Obligations.
Notwithstanding the satisfaction and discharge of this
Indenture and of the Notes 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, 2.10, 2.13, 2.14, 2.16, 4.01, 4.02, 4.09, 4.20, 4.21, 4.22,
4.24, 6.07, Article Seven, 8.05, 8.06, 8.07, 11.02 and 11.04 of this Indenture
shall survive until the Notes are no longer outstanding, and thereafter the
obligations of the Company and the Trustee under Sections 7.07, 7.08, 8.05, 8.06
and 8.07 of this Indenture 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 of this Indenture 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 Monies.
The Trustee or Paying Agent 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 of this Indenture. The Trustee shall apply
the deposited U.S. Legal Tender or the U.S. Government Obligations, together
with earnings thereon, through the Paying Agent, 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 Notes.
Anything
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in this Article Eight to the contrary notwithstanding, the Trustee shall deliver
or pay to the Company from time to time upon the Company's request any U.S.
Legal Tender or U.S. Government Obligations held by it as provided in Section
8.01(d) hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed or assessed against the U.S. Legal Tender or
U.S. Government Obligations deposited pursuant to Section 8.01 or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of outstanding Notes.
SECTION 8.06. Repayment to the Company; Unclaimed Money.
Subject to Sections 7.07, 8.01 and 8.02 of this Indenture,
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 at any
time. The Trustee and the Paying Agent will pay to the Company upon receipt by
the Trustee or the Paying Agent, as the case may be, of an Officers'
Certificate, any money held by it for the payment of principal or interest that
remains unclaimed for two years after payment to the Holders is required;
provided, however, that the Trustee and the Paying Agent before being required
to make any payment may, but need not, at the expense of the Company cause to be
published once in a newspaper of general circulation in the City of New York or
mail to each Holder entitled to such money notice that such money remains
unclaimed and that after a date specified therein, which shall be at least 30
days from the date of such publication or mailing, any unclaimed balance of such
money then remaining will be repaid to the Company. After payment to the
Company, Holders entitled to money must look solely to the Company for payment
as general creditors unless an applicable abandoned property law designated
another Person, and all liability of the Trustee or Paying Agent with respect to
such money shall thereupon cease.
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 of this Indenture 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 Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.01 or 8.02 of this Indenture 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 of this
Indenture; provided, however, that if the Company has made any payment of
interest on or principal of
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any Notes because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money or U.S. Government Obligations held by the Trustee or Paying
Agent.
ARTICLE 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 Notes without
notice to or consent of any Holder:
(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 provide for the assumption of the Company's
obligations to Holders in the case of a merger, consolidation or
similar transaction and otherwise to comply with Article Five;
(3) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(4) to comply with any requirements of the SEC in order to
effect or maintain the qualification of this Indenture and the
Collateral Agreements under the TIA;
(5) to make any change that would provide any additional
benefit or rights to the Holders or that does not adversely affect the
legal rights hereunder of any Holder; or
(6) to provide for issuance of the Exchange Notes, which will
have terms substantially identical in all material respects to the
Initial Notes (except that the transfer restrictions contained in the
Initial Notes will be modified or eliminated, as appropriate), and
which will be treated together with any outstanding Initial Notes, as
a single issue of securities;
provided that the Company has delivered to the Trustee an Opinion of Counsel and
an Officers' Certificate 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 of this Indenture, 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 principal
amount of the outstanding Notes, may amend or supplement this Indenture or the
Notes and may waive compliance by the Company with any provision of this
Indenture or the Notes. Notwithstanding the foregoing, no amendment, supplement
or waiver, including a waiver pursuant to Section 6.04 of this Indenture, shall,
without the consent of each Holder of each Note affected thereby:
(1) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver of any provision of this
Indenture or the Notes;
(2) reduce the rate of or change or have the effect of
changing the time for payment of interest, including default interest,
on any Notes;
(3) reduce the principal of, or the premium on, or change or
have the effect of changing the fixed maturity of any Notes, or alter
the provisions with respect to the redemption of the Notes, or alter
the provisions with respect to repurchases or redemptions of the Notes
with Net Cash Proceeds from Asset Sales or upon a Change of Control;
(4) make any Notes payable in money other than that stated in
the Notes;
(5) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on any Note (other than a
Default in the payment of an amount due as a result of an
acceleration, where such acceleration is rescinded pursuant hereto);
(6) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders to
receive payments of principal of or interest on the Notes;
(7) waive a redemption payment with respect to any Note; or
(8) modify or change any provision of this Indenture
affecting the ranking of the Notes in a manner which adversely affects
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
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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.
Every amendment, waiver or supplement of this Indenture or
the Notes 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 Note or portion of a Note that evidences the same
Indebtedness as the consenting Holder's Note, even if notation of the consent is
not made on any Note. Subject to the following paragraph, any such Holder or
subsequent Holder may revoke the consent as to such Holder's Note or portion of
such Note 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 Notes have consented (and not theretofore
revoked such consent) to the amendment, supplement or waiver. An amendment,
supplement or waiver becomes effective upon receipt by the Trustee of such
Officers' Certificate and evidence of consent by the Holders of the requisite
percentage in principal amount of outstanding Notes.
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, unless consents from Holders of the requisite percentage in
principal amount of outstanding Notes required hereunder for the effectiveness
of such consents shall have also been given and not revoked within such 90-day
period.
After an amendment, supplement or waiver becomes effective,
it shall bind every Holder, 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 who has consented to it and every subsequent
Holder of a Note or portion of a Note that evidences the same Indebtedness as
the consenting Holder's Note; provided, however, that any such waiver shall not
impair or affect the right of any Holder to receive payment of principal,
premium, if any, and interest on a Note, on or after the respective due dates
expressed in such Note, or to bring suit for the enforcement of any such payment
on or after such respective dates without the consent of such Holder.
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SECTION 9.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a
Note, the Trustee may require the Holder of the Note to deliver the Note to the
Trustee. The Trustee at the written direction of the Company may place an
appropriate notation on the Note about the changed terms and return it to the
Holder, and the Trustee may place an appropriate notation on any Note thereafter
authenticated. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Note shall issue and the Trustee shall authenticate
a new Note that reflects the changed terms. Failure to make the appropriate
notation, or issue a new Note, shall not affect the validity and effect of such
amendment, supplement or waiver. Any such notation or exchange shall be made at
the sole cost and expense of the Company.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided, however, 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; provided, that the legal counsel delivering such Opinion of Counsel
may rely as to matters of fact on one or more Officers' Certificates of the
Company. Such Opinion of Counsel shall not be an expense of the Trustee or the
Holders.
ARTICLE TEN
SECURITY
SECTION 10.01. Grant of Security Interest.
To secure the due and punctual payment of the principal of,
premium, if any, and interest on the Notes when and as the same shall be due and
payable, whether on an Interest Payment Date, at maturity, by acceleration,
purchase, repurchase, redemption or otherwise, and interest on the overdue
principal of, premium, if any, and interest (to the extent permitted by law), if
any, on the Notes and the performance of all other Obligations of the Company to
the Holders or the Trustee under this Indenture and the Notes, the Company
hereby covenants to cause the Collateral Agreements to be executed and delivered
concurrently with this Indenture. Subject to the Existing Notes Indenture and
the New Intercreditor Agreements, the Collateral Agreements shall grant to the
Collateral Agent Security Interests in the Collateral and shall be deemed hereby
incorporated by reference herein to the same extent and as fully as if set forth
in their entirety at this place, and
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reference is made hereby to each Collateral Agreement for a more complete
description of the terms and provisions thereof, subject to the McDonald's
Senior Liens.
Each Holder, by its acceptance of a Note, consents and agrees
to the terms of each Collateral Agreement, as the same may be in effect or may
be amended from time to time in accordance with its terms, and authorizes and
directs the Trustee and the Collateral Agent to enter into the Collateral
Agreements and to perform its obligations and exercise its rights thereunder in
accordance therewith. The Company shall, and shall cause each of its
Subsidiaries to, do or cause to be done all such actions and things as may be
necessary or proper, or as may be required by the provisions of the Collateral
Agreements, to assure and confirm to the Trustee and the Collateral Agent the
Security Interests in the Collateral contemplated hereby and by the Collateral
Agreements, as from time to time constituted, so as to render the same available
for the security and benefit of this Indenture and of the Notes secured hereby,
according to the interest and purpose herein and therein expressed. The Company
shall, and shall cause each of its Subsidiaries to, take, upon request of the
Trustee or the Collateral Agent, any and all actions required to cause the
Collateral Agreements to create and maintain, as security for the Obligations
contained in this Indenture and the Notes, valid and enforceable, perfected
(except as expressly provided herein, therein or in the Existing Notes
Indenture, in the New Intercreditor Agreements or in the Existing Notes
Intercreditor Agreement) Security Interests in and on all the Collateral, in
favor of the Collateral Agent, superior to and prior to the rights of all third
Persons, and subject to no other Liens, in each case, except as expressly
provided herein, therein, in the Existing Notes Indenture, in the New
Intercreditor Agreements, in the Existing Notes Intercreditor Agreement, in the
Subordination Agreement or in the McDonald's Documents.
SECTION 10.02. Execution of Intercreditor Agreement.
Subject to the provisions of Article Twelve and other
applicable provisions of this Indenture, the Company is permitted to enter into
an Eligible Credit Facility at any time on or after the Issue Date; provided
that (i) entering into the Eligible Credit Facility is not prohibited by Section
4.12 and (ii) the Liens upon any property or assets of the Company securing
Indebtedness under the Eligible Credit Facility are Permitted Liens, in each
case, as evidenced to the Trustee in an Officers' Certificate delivered to the
Trustee concurrently with the entering into an Eligible Credit Facility. As a
condition precedent to the Company's ability on or after the Issue Date to enter
into an Eligible Credit Facility, the Company and any Lenders party thereto
shall execute and deliver to the Trustee an Eligible Facility Intercreditor
Agreement, substantially in the form of Exhibit G attached hereto, providing,
among other things, that (i) such Lenders' security interest in certain of the
assets of the Company shall be senior to the Collateral Agent's security
interest in such assets, (ii) during any insolvency proceedings, the Lenders and
the Collateral Agent will coordinate their efforts to give effect to the
relative priority of their security interests in such properties and assets, and
(iii) following an Event of Default, all decisions with respect to such
properties and assets, including the time and method of any disposition thereof,
will be made in accordance with the terms of such Eligible Facility
Intercreditor Agreement, in each case, subject to the
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terms and provisions of this Indenture, the Collateral Agreements, the New
Intercreditor Agreements and the Existing Intercreditor Agreement.
SECTION 10.03. Recording and Opinions.
(a) The Company shall take or cause to be taken all action
required to perfect, maintain, preserve and protect the Security Interests in
the Collateral and the Escrow Funds and the Pledged Securities in the Escrowed
Interest Account granted by the Collateral Agreements, including, without
limitation, (i) the filing of financing statements, continuation statements,
collateral assignments and any instruments of further assurance, in such manner
and in such places as may be required by law to preserve and protect fully the
rights of the Holders, the Trustee and the Collateral Agent under this Indenture
and the Collateral Agreements to all property comprising the Collateral, and
(ii) the delivery of the certificates evidencing the securities pledged under
the Pledge Agreement, the Subsidiary Pledge Agreements and the Escrow Agreement,
duly endorsed in blank. The Company shall from time to time promptly pay all
financing and continuation statement recording and/or filing fees, charges and
taxes relating to this Indenture, the Collateral Agreements, the Intercreditor
Agreement and any amendments hereto or thereto and any other instruments of
further assurance required pursuant hereto or thereto.
(b) The Company shall furnish to the Trustee and the
Collateral Agent (if other than the Trustee), on the Closing Date, at such time
as required by ss. 314(b) of the TIA, and promptly after the execution and
delivery of any other instrument of further assurance or amendment granting,
perfecting, protecting, preserving or making effective a security interest
pursuant to any Collateral Agreement, an Opinion of Counsel either (i) stating
that, in the opinion of such counsel, this Indenture and the Collateral
Agreements, financing statements and fixture filings then executed and
delivered, as applicable, and all other instruments of further assurance or
amendment then executed and delivered have been properly recorded, registered
and filed, and all certificates evidencing Pledged Securities pledged to the
Trustee and the Holders under the Escrow Agreement and the securities pledged to
the Trustee and the Holders under the Pledge Agreement and the Subsidiary Pledge
Agreements have been delivered and duly endorsed in blank, to the extent
necessary to perfect the Security Interests created by this Indenture and the
Collateral Agreements and reciting the details of such action or referring to
prior Opinions of Counsel in which such details are given, and stating that as
to such Collateral Agreements and such other instruments, such recording,
registering, filing and delivery are the only recordings, registerings, filings
and deliveries necessary to perfect such security interest and that no
re-recordings, re-registerings, re-filings or re-deliveries are necessary to
maintain such perfection, and further stating that all financing statements and
continuation statements have been executed and filed, and all such certificates
have been delivered, that are necessary fully to preserve and protect the rights
of and perfect such security interests of the Holders, the Trustee and the
Collateral Agent hereunder and under the Collateral Agreements or (ii) stating
that, in the Opinion of such Counsel, no such action is necessary to perfect any
Security Interest created under this Indenture, the Notes or any of the
Collateral Agreements as intended by this Indenture, the Notes and such
Collateral Agreements.
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(c) Annually, within 30 days after January 1 and beginning
with the year 1999, the Company shall furnish to the Trustee and the Collateral
Agent (if other than the Trustee), an Opinion of Counsel, dated as of such date,
either (i) stating that: (A) in the opinion of such counsel, action has been
taken with respect to the registering, recording, filing, re-recording,
re-registering and refiling of this Indenture, and all supplemental indentures,
financing statements, continuation statements and other documents, and delivery
of all certificates, as are then necessary to perfect or continue the perfection
of the Security Interests created by the Collateral Agreements and reciting the
details of such action or referring to prior Opinions of Counsel in which such
details are given; and (B) based on relevant laws as in effect on the date of
such Opinion of Counsel, all financing statements, continuation statements and
other documents have been executed and filed that are necessary as of such date
and during the succeeding 24 months fully to maintain, perfect or continue the
perfection of such Security Interests under the Collateral Agreements with
respect to the Collateral and to maintain, preserve, and protect the rights of
the Holders and the Trustee hereunder and under the Collateral Agreements or
(ii) stating that, in the opinion of such counsel, no such action is then
necessary to perfect or continue the perfection of such Security Interests.
SECTION 10.04. Release of Collateral.
(a) Subject to the New Intercreditor Agreements, neither the
Collateral Agent nor the Trustee, in its capacity as Collateral Agent under the
Collateral Agreements, shall at any time release Collateral from the Security
Interests created by this Indenture and the Collateral Agreements unless such
release is in accordance with the provisions of this Indenture, the New
Intercreditor Agreements and the applicable Collateral Agreements.
(b) Subject to the New Intercreditor Agreements, at any time
when a Default or an Event of Default shall have occurred and be continuing, no
release of Collateral pursuant to the provisions of this Indenture and the
Collateral Agreements shall be effective as against the Holders.
(c) The release of any Collateral from the terms of the
Collateral Agreements shall not be deemed to impair the security under this
Indenture in contravention of the provisions hereof if and to the extent the
Collateral is released pursuant to this Indenture and the Collateral Agreements
or pursuant to the New Intercreditor Agreements. To the extent applicable, the
Company shall cause TIA Section 314(d) relating to the release of property from
the Security Interests created by this Indenture and the Collateral Agreements
to be complied with. Any certificate or opinion required by TIA 314(d) may be
made by an Officer of the Company, except in cases where TIA Section 314(d)
requires that such certificate or opinion be made by an independent Person,
which Person shall be an independent engineer, appraiser or other expert
selected or approved by the Trustee in the exercise of reasonable care. A Person
is "independent" if such Person (a) is in fact independent, (b) does not have
any direct financial interest or any material indirect financial interest in the
Company or in any Affiliate of the Company and (c) is not an officer, employee,
promoter, underwriter, trustee, partner or director or person performing similar
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functions to any of the foregoing for the Company. The Trustee shall be entitled
to receive and rely upon a certificate provided by any such Person confirming
that such Person is independent within the foregoing definition.
SECTION 10.05. Specified Releases of Collateral.
(a) The Company shall be entitled to obtain a full release of
items of Collateral (the "Released Interests") from the Security Interests
created by this Indenture, the Notes and the Collateral Agreements upon
compliance with the conditions precedent set forth in Sections 4.15, 8.01 and
8.02 of this Indenture, the applicable Collateral Agreements and to the extent
applicable, the New Intercreditor Agreements. So long as no Default or Event of
Default exists, upon the request of the Company and the furnishing of each of
the items required by Section 10.05(b), the Collateral Agent upon the direction
of the Trustee (or the Trustee if acting as Collateral Agent) shall forthwith
take all necessary action (at the request of and the expense of the Company,
without recourse or warranty) to release and reconvey to the Company all of the
Released Interests, and shall deliver such Released Interests in its possession
to the Company and its applicable Subsidiary Guarantors.
(b) So long as no Default or Event of Default exists, the
Company shall be entitled to obtain a release of, and the Collateral Agent and
the Trustee shall release, the Released Interests upon compliance with the
condition precedent that the Company shall have satisfied all applicable
conditions precedent to any such release set forth in this Indenture, the
applicable Collateral Agreements and to the extent applicable, the New
Intercreditor Agreements and shall have delivered to the Trustee and the
Collateral Agent the following, as applicable; provided, however, that any
release pursuant to the Escrow Agreement shall be made in accordance with
Section 10.10 hereof and the terms and provisions of the Escrow Agreement:
(i) in connection with release of Collateral
resulting from an Asset Sale under Section 4.15, notice from the
Company requesting the release of Released Interests: (A) describing
the proposed Released Interests; (B) specifying the value of such
Released Interests on a date within 60 days of such notice (the
"Valuation Date"); (C) stating that the release of such Released
Interests will not be expected to interfere with the Collateral
Agent's ability to realize the value of the remaining Collateral and
will not impair the maintenance and operation of the remaining
Collateral; and (D) certifying that such Asset Sale complies with the
terms and conditions of this Indenture and the applicable Collateral
Agreements with respect thereto;
(ii) in connection with release of Collateral
resulting from an Asset Sale under Section 4.15, an Officers'
Certificate of the Company stating that (A) such Asset Sale covers
only the Released Interests and complies with the terms and conditions
of this Indenture with respect to Asset Sales; (B) all Net Cash
Proceeds from the sale of any of the Released Interests will be
applied pursuant to the provisions of this Indenture in respect of
Asset Sales; (C) there is no Default or Event
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of Default in effect or continuing on the date thereof, the Valuation
Date or the date of such Asset Sale; (D) the release of the Collateral
will not result in a Default or Event of Default under this Indenture;
and (E) all conditions precedent in this Indenture relating to the
release in question have been or will be complied with;
(iii) in connection with release of Collateral
resulting from an Asset Sale under Section 4.15, the Net Cash Proceeds
and other non-cash consideration from the Asset Sale required to be
delivered to the Collateral Agent pursuant to this Indenture;
(iv) to the extent required by the TIA, an Officers'
Certificate of the Company and an Opinion of Counsel certifying that
all conditions precedent to the release of the Released Interests have
been met and that such release complies with the terms and conditions
of this Indenture, the applicable Collateral Agreements and to the
extent applicable, the New Intercreditor Agreements; and
(v) all applicable certificates, opinions and other
documentation required by the TIA or this Indenture, if any.
Upon compliance by the Company with the conditions precedent
set forth above, the Trustee shall cause to be released and reconveyed to the
Company, the Released Interests.
Notwithstanding anything to the contrary in this Article Ten,
nothing herein shall prevent, impede, compromise or limit in any manner
whatsoever, the full release of the McDonald's Collateral pursuant to the terms
of the McDonald's Documents, the Subordination Agreement and any Mortgages
securing the Company's obligations to McDonald's under the McDonald's Documents.
SECTION 10.06. Form and Sufficiency of Release.
In the event that the Company has sold, exchanged, or
otherwise disposed of or proposes to sell, exchange or otherwise dispose of any
portion of the Collateral that may be sold, exchanged or otherwise disposed of
by the Company, and the Company requests the Trustee or the Collateral Agent to
furnish a written disclaimer, release or quit-claim of any interest in such
property under this Indenture and the Collateral Agreements, the Collateral
Agent and the Trustee, in its capacity as Collateral Agent under the Collateral
Agreements, shall execute, acknowledge and deliver to the Company (in proper
form) such an instrument promptly after satisfaction of the conditions set forth
herein for delivery of any such release. Notwithstanding the preceding sentence,
all purchasers and grantees of any property or rights purporting to be released
herefrom shall be entitled to rely upon any release executed by the Trustee
hereunder as sufficient for the purpose of this Indenture and as constituting a
good and valid release of the property therein described from the Lien of this
Indenture or of the Collateral Agreements.
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SECTION 10.07. Purchaser Protected.
No purchaser or grantee of any property or rights purporting
to be released herefrom shall be bound to ascertain the authority of the Trustee
or the Collateral Agent to execute the release or to inquire as to the existence
of any conditions herein prescribed for the exercise of such authority; nor
shall any purchaser or grantee of any property or rights permitted by this
Indenture to be sold or otherwise disposed of by the Company be under any
obligation to ascertain or inquire into the authority of the Company to make
such sale or other disposition.
SECTION 10.08. Authorization of Actions To Be Taken by the
Trustee Under the Collateral Agreements.
Subject to the provisions of the applicable Collateral
Agreements, the Subordination Agreement and the New Intercreditor Agreements,
(a) the Trustee and the Collateral Agent may, in their sole discretion and
without the consent of the Holders, take all actions they deem necessary or
appropriate in order to (i) enforce any of the terms of the Collateral
Agreements and (ii) collect and receive any and all amounts payable in respect
of the Obligations of the Company hereunder, and (b) the Trustee and the
Collateral Agent shall have power to institute and to maintain such suits and
proceedings as they may deem expedient to prevent any impairment of the
Collateral by any act that may be unlawful or in violation of the Collateral
Agreements or this Indenture, and suits and proceedings as the Trustee and the
Collateral Agent may deem expedient to preserve or protect their interests and
the interests of the Holders in the Collateral (including the power to institute
and maintain suits or proceedings to restrain the enforcement of or compliance
with any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security interest thereunder or
be prejudicial to the interests of the Holders, the Trustee or the Collateral
Agent).
SECTION 10.09. Authorization of Receipt of Funds by the
Trustee Under the Collateral Agreements.
The Trustee is authorized to receive any funds for the
benefit of the Holders distributed under the Collateral Agreements, and to make
further distributions of such funds to the Holders in accordance with the
provisions of Section 6.10 and the other provisions of this Indenture.
SECTION 10.10. Escrowed Interest Account.
(a) On the Issue Date, the Company shall execute and deliver
the Escrow Agreement and comply with the terms and provisions thereof,
including, without limitation, depositing or causing to be deposited the Escrow
Funds in the Escrowed Interest Account or
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any related account pursuant to the terms of the Escrow Agreement. The Trustee
shall establish and maintain the Escrowed Interest Account in accordance with
the terms and provisions of this Indenture and the Escrow Agreement, and the
Trustee shall hold the Escrow Funds and Pledged Securities for the equal and
ratable benefit of the Holders without preference, priority or distinction of
any thereof over any other by reason of difference in time of issuance, sale or
otherwise, as security for the Company's obligations to (i) provide for payment
in full of the scheduled interest payments due on the Notes through and
including August 2, 1999 and (ii) secure repayment of the principal, premium, if
any, and interest on the Notes in the event that the Notes become due and
payable prior to the payment in full of all scheduled interest payments due and
payable under this Indenture and the Notes through and including August 2, 1999.
(b) The Trustee shall have sole dominion and control over the
Escrowed Interest Account and the funds and securities from time to time on
deposit therein, and such funds and securities may be withdrawn or transferred
from the Escrowed Interest Account only in accordance with the provisions of
this Indenture and the Escrow Agreement. Subject to certain limitations set
forth in the Escrow Agreement, the Company may direct the Trustee to release
from the Escrowed Interest Account certain Escrow Funds or Pledged Securities
upon an optional redemption of the Notes with the net proceeds of a Primary
Offering. Additionally, after disbursing each of the scheduled interest payments
on the Notes through and including August 2, 1999 and compliance with the
provisions of Section 10.10(e), any remaining Escrow Funds and Pledged
Securities will be released and disbursed from the Escrowed Interest Account and
paid to the Company to such accounts as may be designated by the Company in
written instructions delivered to the Trustee.
(c) The Escrow Funds shall be invested by the Trustee in
Pledged Securities, pursuant to specific, written directions of the Company, as
soon as practicable after the Issue Date. Interest and other earnings on the
Pledged Securities will be added to the Escrowed Interest Account and will
secure the repayment of the principal, premium, if any, and interest on the
Notes.
(d) Each Holder, by its acceptance of a Note, consents and
agrees to the terms of the Escrow Agreement (including, without limitation, the
provisions providing for foreclosure and release of the Pledged Securities and
other assets held in connection therewith) as the same may be in effect or may
be amended from time to time in accordance with its terms, and authorizes and
directs the Trustee to enter into the Escrow Agreement and to perform its
respective obligations and exercise its respective rights thereunder in
accordance therewith. The Company shall take, or shall cause to be taken, any
and all actions as may be necessary or proper, or as may be required hereunder
or under the Escrow Agreement (and any action requested by the Trustee) to cause
the Escrow Agreement, subject to the provisions therein and of this Indenture,
(A) to create and maintain, as security for certain of the Obligations of the
Company under this Indenture and the Notes, valid and enforceable first priority
Liens in and on the Escrowed Interest Account, the Escrow Funds and the Pledged
Securities, in favor of the Trustee, superior to and prior to the rights of
third Persons and subject to no other Liens, and (B) to assure and confirm to
the Trustee such Liens in the Escrowed Interest Account, the Escrow Funds and
the Pledged Securities so as
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to render the same available for the security and benefit of this Indenture and
of the Notes secured hereby, according to the intent and purposes herein
expressed.
(e) The Trustee shall release from the Escrowed Interest
Account any Escrow Funds or Pledged Securities held in the Escrowed Interest
Account upon the delivery by the Company to the Trustee of the following:
(i) a notice from the Company requesting the release
of such Escrow Funds or Pledged Securities and certifying
that release of such Escrow Funds or Pledged Securities
complies with the terms and conditions of this Indenture and
the Escrow Agreement with respect thereto;
(ii) an Officers' Certificate of the Company stating
that (A) there is no Default or Event of Default in effect or
continuing on the date thereof, (B) the release of such
Escrow Funds or Pledged Securities will not result in a
Default or Event of Default under this Indenture, (C) all
payments contemplated by and under the Escrow Agreement,
including, without limitation, each of the scheduled interest
payments to be made hereunder and in accordance with the
Notes through and including August 2, 1999 (except in the
case of an optional redemption of the Notes with the net
proceeds of a Primary Offering), have been paid in full
without any claim, setoff, or defense, and (D) all conditions
precedent in this Indenture and the Escrow Agreement relating
to the release of the Escrow Funds or Pledged Securities in
question have been complied with; and
(iii) all other documentation required by the TIA
and this Indenture, if any.
The release of any Escrow Funds or Pledged Securities from
the Escrowed Interest Account pursuant to the Escrow Agreement will not be
deemed to impair the security under this Indenture in contravention of the
provisions hereof if and to the extent the Escrow Funds or Pledged Securities
are released pursuant to this Indenture, including, without limitation, this
Article Ten, the Escrow Agreement and the other Collateral Agreements.
(f) The Trustee, in its sole discretion and without the
consent of the Holders, may, and at the request of the Holders of at least 25%
in aggregate principal amount of Notes then outstanding shall, on behalf of the
Holders, take all actions it deems necessary or appropriate in order to (i)
enforce any of the terms of the Escrow Agreement and (ii) collect and receive
any and all amounts payable in respect of the obligations of the Company
thereunder (subject, in each case, to Article Seven hereof). The Trustee shall
have power to institute and to maintain such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders in the Escrowed Interest Account, the Escrow Funds and
the Pledged Securities (including power to institute and maintain suits or
proceedings to restrain the enforcement of or compliance with any legislative or
other governmental enactment, rule or order that may be unconstitutional or
otherwise invalid if the enforcement of, or compliance with, such enactment,
rule or order
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would impair the security interests thereunder or be prejudicial to the
interests of the Holders or of the Trustee).
ARTICLE ELEVEN
GUARANTEE
SECTION 11.01. Unconditional Guarantee.
(a) In consideration of the promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, each of the Subsidiary Guarantors hereby, jointly and
severally, irrevocably and unconditionally guarantees and agrees to be liable on
a senior secured basis to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective of
the validity and enforceability of this Indenture, the Notes or the Obligations
of the Company or any other Subsidiary Guarantor under this Indenture or the
Notes, that: (a) the principal of, premium, if any, and interest on the Notes
(and any Additional Interest payable thereon) shall be duly and punctually paid
in full when due, whether at maturity, upon redemption (whether upon a Change of
Control or pursuant to a Net Proceeds Offer or otherwise), by acceleration or
otherwise, and interest on the overdue principal and (to the extent permitted by
law) interest, if any, on the Notes and all other Obligations of the Company or
the Subsidiary Guarantors to the Holders or the Trustee hereunder or thereunder
(including amounts due the Trustee under Section 7.07 hereof), shall be promptly
paid in full or performed, all in accordance with the terms hereof and thereof;
and (b) in case of any extension of time of payment or renewal of any Notes or
any of such other Obligations of the Company, the same shall be promptly paid in
full when due or performed in accordance with the terms of extension or renewal,
whether at maturity, upon redemption, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed, or failing performance of any
other Obligation of the Company to the Holders or the Trustee under this
Indenture or under the Notes, for whatever reason, each Subsidiary Guarantor
shall be obligated to pay, or to perform or cause the performance of, the same
immediately. An Event of Default under this Indenture or the Notes shall
constitute an event of default under each such Subsidiary Guarantee, and shall
entitle the Holders or Trustee to accelerate the Obligations of the Subsidiary
Guarantors under the Subsidiary Guarantees in the same manner and to the same
extent as the Obligations of the Company hereunder or under the Notes.
(b) Each of the Subsidiary Guarantors hereby agrees that its
Obligations under its Subsidiary Guarantee shall be unconditional, irrespective
of the validity, regularity or enforceability of the Notes or this Indenture,
the absence of any action to enforce the same, any waiver or consent by any
Holder of the Notes with respect to any provisions thereof, any release of any
other Subsidiary Guarantor, the recovery of any judgment against the Company,
any action to enforce the same, whether or not a Subsidiary Guarantee is affixed
to any particular Note, or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. Each of the
Subsidiary Guarantors
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hereby waives the benefit of 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, protest, notice and
all demands whatsoever and covenants that its Subsidiary Guarantee shall not be
discharged except by complete performance of the Obligations contained in the
Notes, this Indenture and its Subsidiary Guarantee. Each Subsidiary Guarantee
shall be a guarantee of payment and not of collection. If any Holder or the
Trustee is required by any court or otherwise to return to the Company or to any
Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar
official acting in relation to the Company or such Subsidiary Guarantor, any
amount paid by the Company or such Subsidiary Guarantor to the Trustee or such
Holder, the Subsidiary Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Subsidiary Guarantor shall further
agree that, as between it, on the one hand, and the Holders and the Trustee, on
the other hand, (a) subject to this Article Eleven, the maturity of the
Obligations guaranteed may be accelerated as provided in Article Six hereof for
the purposes of its Subsidiary Guarantee, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the Obligations
guaranteed thereby, and (b) in the event of any acceleration of such Obligations
as provided in Article Six hereof, such Obligations (whether or not due and
payable) shall forthwith become due and payable jointly and severally by each
Subsidiary Guarantor for the purpose of its Subsidiary Guarantee.
(c) The Obligations of each Subsidiary Guarantor hereunder
are secured by and under the respective Subsidiary Security Agreements executed
and delivered in connection herewith, pursuant to which each Subsidiary
Guarantor has granted, and each future Subsidiary that becomes a Subsidiary
Guarantor shall grant, a first priority perfected security interest in and lien
on the assets and properties of each such Subsidiary Guarantor. The Company
agrees to cause each Person that shall become a Subsidiary (other than Block
Party or any Limited Investment Subsidiary) after the date of this Indenture to
become a Subsidiary Guarantor and execute and deliver a supplement to this
Indenture, pursuant to which such Person will guarantee the Obligations of the
Company on the same terms and conditions as contained in this Article Eleven.
SECTION 11.02 Limitations on Subsidiary Guarantees.
The Obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee will be limited to the maximum amount which, after giving
effect to all other contingent and fixed liabilities of such Subsidiary
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Subsidiary Guarantor in respect of the Obligations of
such Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its
contribution Obligations under this Indenture, will result in the Obligations of
such Subsidiary Guarantor under the applicable Subsidiary Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law.
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SECTION 11.03. Evidence of Execution and Delivery of
Subsidiary Guarantee.
(a) To further evidence each Subsidiary Guarantee referred to
in Section 11.01 hereby, each Subsidiary Guarantor shall agree that a notation
of such Subsidiary Guarantee, substantially in the form of Exhibit J herein,
shall be endorsed on each Note authenticated and delivered by the Trustee. Each
such endorsement shall be executed on behalf of each Subsidiary Guarantor by
either manual or facsimile signature of two Officers of each Subsidiary
Guarantor, each of whom, in each case, shall have been duly authorized to so
execute by all requisite corporate action. The validity and enforceability of
any Subsidiary Guarantee shall not be affected by the fact that it is not
affixed to any particular Note.
(b) Each of the Subsidiary Guarantors hereby agrees that its
Subsidiary Guarantee set forth in Section 11.01 hereby shall remain in full
force and effect notwithstanding any failure to so endorse on each Note a
notation of such Subsidiary Guarantee.
(c) If an Officer of a Subsidiary Guarantor whose signature
is on a Subsidiary Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which such Subsidiary Guarantee is endorsed or at any
time thereafter, such Subsidiary Guarantor's Subsidiary Guarantee of such Note
shall be valid nevertheless.
(d) The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any
Subsidiary Guarantee set forth in this Indenture on behalf of each Subsidiary
Guarantor.
SECTION 11.04. Release of a Subsidiary Guarantor.
(a) If no Default or Event of Default exists or would exist
under this Indenture upon the sale or disposition of all of the Capital Stock of
a Subsidiary Guarantor by the Company or a Subsidiary of the Company in a
transaction constituting an Asset Sale, the Net Cash Proceeds of which are
applied in accordance with Section 4.15, or upon the consolidation or merger of
a Subsidiary Guarantor with or into any Person in compliance with Article Five
(in each case, other than to the Company or an Affiliate of the Company or a
Subsidiary), such Subsidiary Guarantor and each Subsidiary of such Subsidiary
Guarantor that is also a Subsidiary Guarantor shall be deemed released from all
Obligations under this Article Eleven and its Subsidiary Guarantee without any
further action required on the part of the Trustee or any Holder; provided,
however, that each Subsidiary Guarantor is sold or disposed of in accordance
with this Indenture and, provided, further, that any such release shall occur
only to the extent that all Obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee, and under any Subsidiary Security Agreement shall also
terminate or be released upon such sale or transfer. Any Subsidiary Guarantor
not so released or the entity surviving such Subsidiary Guarantor, as
applicable, shall remain or be liable under its Subsidiary Guarantee and any
Subsidiary Security Agreement as provided in this Indenture.
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(b) The Trustee shall deliver an appropriate instrument
evidencing the release of a Subsidiary Guarantor upon receipt of a request by
the Company or such Subsidiary Guarantor accompanied by an Officers' Certificate
and an Opinion of Counsel certifying as to the compliance with this Section
11.04, provided the legal counsel delivering such Opinion of Counsel may rely as
to matters of fact on one or more Officers' Certificates of the Company.
(c) The Trustee shall execute any documents reasonably
requested by the Company or a Subsidiary Guarantor in order to evidence the
release of such Subsidiary Guarantor from its obligations under its Subsidiary
Guarantee, whether or not endorsed on the Notes, any Subsidiary Security
Agreement and under this Article Eleven.
Except as set forth in Articles Four and Five of this
Indenture and this Section 11.04, nothing contained in this Indenture or in any
of the Notes shall prevent any consolidation or merger of a Subsidiary Guarantor
with or into the Company or another Subsidiary Guarantor or shall prevent any
sale or conveyance of the property of a Subsidiary Guarantor as an entirety or
substantially as an entirety to the Company or another Subsidiary Guarantor.
SECTION 11.05. Waiver of Subrogation.
Until this Indenture is discharged and all of the Notes are
discharged and paid in full, each Subsidiary Guarantor shall irrevocably waive
and agree not to exercise any claim or other rights which it may hereafter
acquire against the Company that arise from the existence, payment, performance
or enforcement of the Obligations of the Company under the Notes or this
Indenture and such Subsidiary Guarantor's Obligations under its Subsidiary
Guarantee, Subsidiary Security Agreement and this Indenture, in any such
instance, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, and any right to
participate in any 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 Subsidiary Guarantor in
violation of the preceding sentence and any amounts owing to the Trustee or the
Holders under the Notes, this Indenture, or any other document or instrument
delivered under or in connection with such agreements or instruments, shall not
have been paid in full, such amount shall have been deemed to have been paid to
such Subsidiary Guarantor for the benefit of, and held in trust for the benefit
of, the Trustee or the Holders and shall forthwith be paid to the Trustee for
the benefit of itself or such Holders to be credited against and applied to the
Obligations of the Company, whether matured or unmatured, in accordance with the
terms of this Indenture. Each Subsidiary Guarantor hereby 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
11.05 is knowingly made in contemplation of such benefits.
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SECTION 11.06. Immediate Payment.
Each Subsidiary Guarantor shall agree to make immediate
payment to the Trustee on behalf of the Holders of all Obligations of the
Company and such Subsidiary Guarantor owing or payable to the respective Holders
upon receipt of a demand for payment therefor by the Trustee to such Subsidiary
Guarantor in writing. Each of the Subsidiary Guarantors agrees that neither the
Trustee nor the Holders need attempt to collect any amounts guaranteed hereunder
from the Company, any other Subsidiary Guarantor or any other Person or to
realize upon any Collateral, but may require any one of the Subsidiary
Guarantors to make immediate payment of all of such guaranteed amounts to the
Holders when due, whether by maturity, acceleration, redemption or otherwise, or
at any time thereafter.
SECTION 11.07. No Set-Off.
Each payment to be made by a Subsidiary Guarantor hereunder
in respect of the Obligations under its Subsidiary Guarantee shall be payable in
the currency or currencies in which such Obligations are denominated, and shall
be made without set-off, counterclaim, reduction or diminution of any kind or
nature.
SECTION 11.08. Obligations Absolute.
The Obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee shall be absolute and unconditional and any monies or
amounts expressed to be owing or payable by each Subsidiary Guarantor which may
not be recoverable from such Subsidiary Guarantor on the basis of a Subsidiary
Guarantee shall be recoverable from such Subsidiary Guarantor as a primary
obligor and principal debtor in respect thereof.
SECTION 11.09. Obligations Continuing.
The Obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee shall be continuing and shall remain in full force and
effect until all the Obligations hereunder have been paid and satisfied in full.
Each Subsidiary Guarantor hereby agrees with the Trustee that it will from time
to time deliver to the Trustee suitable acknowledgments of this continued
liability hereunder and under any other instrument or instruments in such form
as counsel to the Trustee may advise and as will prevent any action brought
against it in respect of any default hereunder being barred by any statute of
limitations now or hereafter in force and, in the event of the failure of a
Subsidiary Guarantor so to do, it shall irrevocable appoint the Trustee, the
attorney and agent of such Subsidiary Guarantor to make, execute and deliver
such written acknowledgment or acknowledgments or other instruments as may from
time to time become necessary or advisable, in the judgment of the Trustee on
the advice of counsel, to fully maintain and keep in force the liability of such
Subsidiary Guarantor under its Subsidiary Guarantee.
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SECTION 11.10. Obligations Not Reduced.
The Obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee shall not be satisfied, reduced or discharged solely by the
payment of such principal, premium, if any, interest, fees and other monies or
amounts as may at any time prior to discharge of this Indenture pursuant to
Article Eight be or become owing or payable under or by virtue of or otherwise
in connection with the Notes of this Indenture.
SECTION 11.11. Obligations Reinstated.
The Obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee shall continue to be effective or shall be reinstated, as
the case may be, if at any time any payment which would otherwise have reduced
such Obligations of any Subsidiary Guarantor (whether such payment shall have
been made by or on behalf of the Company or by or on behalf of a Subsidiary
Guarantor) is rescinded or reclaimed from any of the Holders upon the
insolvency, bankruptcy, liquidation or reorganization of the Company or any
Subsidiary Guarantor or otherwise, all as though such payment had not been made.
If demand for, or acceleration of the time for, payment by the Company is stayed
upon the insolvency, bankruptcy, liquidation or reorganization of the Company,
all such Indebtedness otherwise subject to demand for payment or acceleration
shall nonetheless be payable by each Subsidiary Guarantor as provided herein.
SECTION 11.12. Obligations Not Affected.
The Obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee shall not be affected, impaired or diminished in any way by
any act, omission, matter or thing whatsoever, occurring before, upon or after
any demand for payment (and whether or not known or consented to by any
Subsidiary Guarantor or any of the Holders) which, but for this provision, might
constitute a whole or partial defense to a claim against any Subsidiary
Guarantor under its Subsidiary Guarantee or might operate to release or
otherwise exonerate any Subsidiary Guarantor from any of its Obligations or
otherwise affect such Obligations, whether occasioned by default of any of the
Holders or otherwise, including, without limitation:
(a) any limitation of status or power, disability, incapacity
or other circumstance relating to the Company or any other Person, including any
insolvency, bankruptcy, liquidation, reorganization, readjustment, composition,
dissolution, winding-up or other proceeding involving or affecting either the
Company or any other Person;
(b) any irregularity, defect, unenforceability or invalidity
in respect of any Indebtedness or other Obligation of the Company or any other
Person under this Indenture, the Notes or any other document or instrument;
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(c) any failure of the Company, whether or not without fault
on its part, to perform or comply with any of the provisions of this Indenture
or the Notes, or to give notice thereof to a Subsidiary Guarantor;
(d) the taking or enforcing or exercising or the refusal or
neglect to take or enforce or exercise any right or remedy from or against the
Company or any other Person or their respective assets or the release or
discharge of any such right or remedy;
(e) the granting of time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the Company
or any other Person;
(f) any change in the time, manner or place of payment of, or
in any other term of, any of the Notes, or any other amendment, variation,
supplement, replacement or waiver of, or any consent to departure from, any of
the Notes or this Indenture, including, without limitation, any increase or
decrease in the principal amount of or premium, if any, or interest on any of
the Notes;
(g) any change in the ownership, control, name, objects,
businesses, assets, capital structure or constitution of the Company or a
Subsidiary Guarantor;
(h) any merger or amalgamation of the Company or a Subsidiary
Guarantor with any Person or Persons other than the Company;
(i) the occurrence of any change in the laws, rules,
regulations or ordinances of any jurisdiction by any present or future action of
any governmental authority or court amending, varying, reducing or otherwise
affect, any of the Obligations of the Company under this Indenture or the Notes
or the Obligations of a Subsidiary Guarantor under its Subsidiary Guarantee; and
(j) any other circumstance, including release of the
Subsidiary Guarantor pursuant to Section 11.04 hereof (other than by complete,
irrevocable payment) that might otherwise constitute a legal or equitable
discharge or defense of the Company under this Indenture or the Notes or of a
Subsidiary Guarantor in respect of its Subsidiary Guarantee.
SECTION 11.13. Waiver.
Without in any way limiting the provisions of Section 11.01
hereof, each Subsidiary Guarantor hereby waives notice of acceptance hereof,
notice of any liability of any Subsidiary Guarantor under its Subsidiary
Guarantee, notice or proof of reliance by the Holders upon the Obligations of
any Subsidiary Guarantor under its Subsidiary Guarantee, and diligence,
presentment, demand for payment on the Company, protest, notice of dishonor or
non-payment of any of the Company's Obligations under this Indenture or the
Notes, or other notice or formalities to the Company or any Subsidiary Guarantor
of any kind whatsoever.
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SECTION 11.14. No Obligation To Take Action Against the
Company.
Neither the Trustee nor any other Person shall have any
obligation to enforce or exhaust any rights or remedies or to take any other
steps under any security for the Obligations of the Company under this Indenture
or the Notes, or against the Company or any other Person or any assets or
properties of the Company or any other Person before the Trustee is entitled to
demand payment and performance by any or all Subsidiary Guarantors of their
liabilities and obligations under any Subsidiary Guarantees or under this
Indenture.
SECTION 11.15. Dealing with the Company and Others.
The Holders or the Trustee, without releasing, discharging,
limiting or otherwise affecting in whole or in part the Obligations of any
Subsidiary Guarantor and without the consent of or notice to any Subsidiary
Guarantor, may:
(a) grant time, renewals, extensions, compromises,
concessions, waivers, releases and discharges to the Company or any other
Person;
(b) take or abstain from taking security or Collateral from
the Company or from perfecting security interests in the Collateral;
(c) release, discharge, compromise, realize, enforce or
otherwise deal with or do any act or thing in respect of (with or without
consideration) any and all collateral, mortgages or other security, including,
without limitation, the Collateral, given by the Company or any third party with
respect to the Obligations of the Company under, or matters contemplated by,
this Indenture or the Notes;
(d) accept compromises or arrangements from the Company;
(e) apply all monies at any time received from the Company or
in respect of the Collateral upon such part of the Obligations of the Company
under this Indenture or the Notes as the Holders may see fit or change any such
application in whole or in part from time to time as the Holders may see fit;
and
(f) otherwise deal with, or waive or modify their right to
deal with, the Company and all other Persons and any Collateral as the Holders
or the Trustee may see fit.
SECTION 11.16. Default and Enforcement.
If any Subsidiary Guarantor fails to comply with Section
11.06 hereof, the Trustee may proceed in its name as trustee hereunder in the
enforcement of the Subsidiary Guarantee and its Subsidiary Security Agreement of
any such Subsidiary Guarantor and such Subsidiary Guarantor's Obligations
thereunder and hereunder by any remedy provided by
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law, whether by legal proceedings or otherwise, and to recover from such
Subsidiary Guarantor the Company's Obligations under this Indenture and the
Notes.
SECTION 11.17. Certain Bankruptcy Events.
Each Subsidiary Guarantor hereby covenants and agrees, to the
fullest extent that it may do so under applicable law, that in the event of the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company, such Subsidiary Guarantor shall not file (or join in any filing of), or
otherwise seek to participate in the filing of, any motion or request seeking to
stay or to prohibit (even temporarily) execution on the Subsidiary Guarantee and
hereby waives and agrees not to take the benefit of any such stay of execution,
whether under Section 362 or 105 of the United States Bankruptcy Code or
otherwise.
SECTION 11.18. Amendment, Etc.
No amendment, modification or waiver of any provision of this
Indenture relating to any Subsidiary Guarantor or consent to any departure by
any Subsidiary Guarantor or any other Persons from any such provision will in
any event be effective unless it is signed by such Subsidiary Guarantor and the
Trustee.
SECTION 11.19. Acknowledgment.
Each Subsidiary Guarantor hereby acknowledges communication
of the terms of this Indenture and the Notes and consents to and approves of the
same.
SECTION 11.20. Costs and Expenses.
Each Subsidiary Guarantor shall pay on demand by the Trustee
any and all costs, fees and expenses (including, without limitation, legal fees)
incurred by the Trustee, its agents, advisors and counsel or any of the Holders
in enforcing any of their rights under any Subsidiary Guarantee or Subsidiary
Security Agreement.
SECTION 11.21. No Merger or Waiver; Cumulative Remedies.
No Subsidiary Guarantee shall operate by way of merger of any
of the obligations of a Subsidiary Guarantor under any other agreement,
including, without limitation, this Indenture. No failure to exercise and no
delay in exercising, on the part of the Trustee or the Holders, any right,
remedy, power or privilege under this Indenture or the Notes, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege under this Indenture or the Notes preclude any other or
further
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exercise thereof or the exercise of any other right, remedy power or privilege.
The rights, remedies, powers and privileges in each Subsidiary Guarantee and
under this Indenture, the Notes and any other document or instrument between a
Subsidiary Guarantor and/or the Company and the Trustee are cumulative and not
exclusive of any rights, remedies, powers and privilege provided by law.
SECTION 11.22. Survival of Obligations.
Without prejudice to the survival of any of the other
obligations of each Subsidiary Guarantor, the obligations of each Subsidiary
Guarantor under Section 11.01 hereof shall survive the payment in full of the
Company's Obligations under this Indenture and the Notes and shall be
enforceable against such Subsidiary Guarantor without regard to and without
giving effect to any defense, right of offset or counterclaim available to or
which may be asserted by the Company or any Subsidiary Guarantor.
SECTION 11.23. Subsidiary Guarantee in Addition to Other
Obligations.
The obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee and this Indenture are in addition to and not in
substitution for any other obligations to the Trustee or to any of the Holders
in relation to this Indenture or the Notes and any guarantees or security at any
time held by or for the benefit of any of them.
SECTION 11.24. Severability.
Any provision of this Article Eleven which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any jurisdiction.
SECTION 11.25. Successors and Assigns.
Each Subsidiary Guarantee shall be binding upon and inure to
the benefit of each Subsidiary Guarantor and the Trustee and the other Holders
and their respective successors and permitted assigns, except that no Subsidiary
Guarantor may assign any of its obligations hereunder or thereunder.
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ARTICLE TWELVE
AGREEMENT TO SUBORDINATE SECURITY INTEREST
SECTION 12.01. Subordination of Security Interest.
The Company agrees, and each Holder by its acceptance thereof
likewise agrees, that the Trustee, on behalf of each Holder, may enter into an
Eligible Credit Facility Intercreditor Agreement with the Company and any Lender
in connection with an Eligible Credit Facility pursuant to which, among other
things, such Lender shall be granted a first priority security interest in
certain assets of the Company to the extent of the Indebtedness outstanding
under the Eligible Credit Facility; provided, however, that (i) entering into
the Eligible Credit Facility at the time the Eligible Credit Facility
Intercreditor Agreement is entered into is not prohibited by Section 4.12 and
(ii) the Liens upon any Collateral securing Indebtedness under the Eligible
Credit Facility are Permitted Liens, both as evidenced to the Trustee in an
Officers' Certificate delivered to the Trustee concurrently with the execution
and delivery of the Eligible Credit Facility Intercreditor Agreement.
Notwithstanding the foregoing, the grant of a Lien on such assets pursuant to
the terms of an Eligible Credit Facility and the Eligible Credit Facility
Intercreditor Agreement shall not, other than as specifically set forth in the
Eligible Credit Facility Intercreditor Agreement, adversely affect in any manner
whatsoever the Security Interests created by this Indenture, the Notes and the
Collateral Agreements.
SECTION 12.02. Authorization of Trustee and Collateral Agent.
Each Holder by his acceptance thereof authorizes and
expressly directs the Trustee and the Collateral Agent on its behalf to take
such action as may be necessary or appropriate to effectuate on or after the
Issue Date the subordination provided in this Article Twelve and appoints the
Trustee and the Collateral Agent his attorney-in-fact for such purpose.
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. 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 provision required to be included by the TIA shall
control; provided, however, that this Section 13.01 shall not of itself require
that this Indenture or the Trustee be qualified under the TIA or constitute any
admission or acknowledgement by any party hereto that any such qualification
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is required prior to the time this Indenture and the Trustee are required by the
TIA to be so qualified.
SECTION 13.02. 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:
Discovery Zone, Inc.
565 Taxter Road, 5th Floor
Elmsford, New York 10523
Attn: Chief Executive Officer
Telephone Number: (914) 345-4500
Telecopy Number: (914) 345-4527
with a copy to attn: General Counsel
Telecopy Number: (914) 345-4516
if to the Trustee:
Firstar Bank of Minnesota, N.A.
101 East 5th Street
St. Paul, Minnesota 55101
Attn: Corporate Trust
Telephone Number: (651) 229-2600
Telecopy Number: (651) 229-6415
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 Holder shall be
mailed to such Holder by first class mail or other equivalent means at such
Holder's address as it appears on the registration books of the Registrar and
shall be sufficiently given to such Holder if so mailed within the time
prescribed.
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<PAGE>
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 13.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the Notes.
The Company, the Trustee, the Registrar and any other Person shall have the
protection of TIA Section 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company or any
Subsidiary Guarantor to the Trustee to take any action under this Indenture, the
Company shall furnish to the Trustee upon request:
(1) an Officers' Certificate, in form and substance
reasonably satisfactory to the Trustee, stating that, in the opinion
of the signers, all conditions precedent to be performed by the
Company and any Subsidiary Guarantor, 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 to be performed by the
Company and any Subsidiary Guarantor, if any, provided for in this
Indenture relating to the proposed action have been complied with
(which counsel, as to factual matters, may rely on an Officers'
Certificate).
SECTION 13.05. 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 4.06, shall include:
(1) a statement that each Person signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is reasonably necessary to
enable him to express an
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<PAGE>
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;
provided, however, that with respect to matters of fact, an Opinion of
Counsel may rely on an Officers' Certificate or certificates of public
officials.
SECTION 13.06. 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 Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 13.07. 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, Boston, Massachusetts or Fort Lauderdale, Florida 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 13.08. Governing Law; Jurisdiction; Submission to
Venue.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH OF THE
PARTIES HERETO AGREES TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE
COMPETENT COURTS OF THE STATE OF NEW YORK SITTING IN THE CITY OF NEW YORK OR THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE NOTES. EACH OF
THE COMPANY AND THE SUBSIDIARY GUARANTORS HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID
COURTS. EACH OF THE COMPANY AND THE SUBSIDIARY GUARANTORS IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY
AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
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LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE COMPANY AND THE
SUBSIDIARY GUARANTORS IRREVOCABLY CONSENTS TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AND THE
GUARANTORS AT THE ADDRESS SET FORTH HEREIN, SUCH SERVICE TO BECOME EFFECTIVE 30
DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT ANY RIGHT OF ANY HOLDER TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY OR THE SUBSIDIARY
GUARANTORS IN ANY OTHER JURISDICTION.
SECTION 13.09. No Adverse Interpretation of other Agreements.
This Indenture may not be used to interpret another
indenture, loan or debt agreement of the Company or those of any of its
Subsidiaries. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 13.10. No Recourse Against Others.
No past, present or future director, officer, employee,
incorporator or stockholder of the Company or any Subsidiary Guarantor, as such,
shall have any liability for any Obligations of the Company or any Subsidiary
Guarantor under the Notes or this Indenture, any Subsidiary Guarantee, the
Registration Rights Agreement or the Collateral Agreements or for any claim
based on, in respect of, or by reason of such obligations or their creations.
Each Holder by accepting a Note waives and releases all such liability. Such
waiver and release are part of the consideration for the issuance of the Notes.
SECTION 13.11. Successors.
All agreements of the Company and any Subsidiary Guarantor in
this Indenture and the Notes and under any Subsidiary Guarantee, as the case may
be, shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successors.
SECTION 13.12. 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 13.13. Severability.
In case any one or more of the provisions in this Indenture
or in the Notes 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 the validity, legality and enforceability 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.
SECTION 13.14. Independence of Covenants.
All covenants and agreements in this Indenture and the Notes
shall be given independent effect so that if any particular action or condition
is not permitted by any of such covenants, the fact that it would be permitted
by an exception to, or otherwise be within the limitations of, another covenant
shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or condition exists.
SECTION 13.15 Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms and provisions hereof.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the date first written above.
DISCOVERY ZONE, INC.
By: /s/ Scott W. Bernstein
------------------------------
Name: Scott W. Bernstein
Title: President and Chief
Executive Officer
Attest: /s/ Robert G. Rooney
-------------------------------------
Name: Robert G. Rooney
Title: Senior Vice President and
Chief Financial and
Administrative Officer
FIRSTAR BANK OF MINNESOTA, N.A.
as Trustee
By: /s/ Frank P. Leslie, III
------------------------------
Name: Frank P. Leslie, III
Title: Vice President
SUBSIDIARY GUARANTORS
---------------------
DISCOVERY ZONE (CANADA)
LIMITED
By: /s/ Scott W. Bernstein
------------------------------
Name: Scott W. Bernstein
Title: President
Attest: /s/ Robert G. Rooney
-------------------------------------
Name: Robert G. Rooney
Title: Vice President
<PAGE>
DISCOVERY ZONE (PUERTO RICO),
INC.
By: /s/ Scott W. Bernstein
------------------------------
Name: Scott W. Bernstein
Title: President
Attest: /s/ Robert G. Rooney
-------------------------------------
Name: Robert G. Rooney
Title: Vice President
DISCOVERY ZONE LICENSING, INC.
By: /s/ Scott W. Bernstein
------------------------------
Name: Scott W. Bernstein
Title: President
Attest: /s/ Robert G. Rooney
-------------------------------------
Name: Robert G. Rooney
Title: Vice President
<PAGE>
EXHIBIT A
---------
FORM OF NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION.
THE HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH NOTE PRIOR TO THE DATE WHICH IS TWO YEARS AFTER
THE LATER OF THE ORIGINAL ISSUE DATE OF THIS NOTE AND THE LAST DATE ON WHICH
DISCOVERY ZONE, INC. ("THE COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE
OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE)(THE "RESALE RESTRICTION
TERMINATION DATE"), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, 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, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) or (7) OF RULE 501
UNDER THE SECURITIES ACT THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT, OR FOR
THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S, OR TRANSFER AGENT'S, AS APPLICABLE,
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR
(F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, AN
ASSIGNMENT IN THE FORM APPEARING ON THE OTHER SIDE OF THIS NOTE IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE OR TRANSFER AGENT. THIS LEGEND SHALL
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<PAGE>
BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION
DATE.
THIS NOTE IS SUBJECT TO A REGISTRATION RIGHTS AGREEMENT, DATED AS OF
JULY 17, 1998, BETWEEN THE COMPANY AND JEFFERIES & COMPANY, INC., A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
THE NOTES EVIDENCED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS PART
OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1000 PRINCIPAL AMOUNT OF 13
1/2% SENIOR COLLATERALIZED NOTES DUE 2002 OF THE COMPANY, SEVENTEEN DETACHABLE
WARRANTS ("SERIES A WARRANTS") EACH INITIALLY ENTITLING THE HOLDER THEREOF TO
PURCHASE 1,769.36825 SHARES OF THE COMPANY'S COMMON STOCK, PAR VALUE $.00017 PER
SHARE ("COMMON STOCK") OR 1,769.36825 SHARES OF THE COMPANY'S NON-VOTING COMMON
STOCK, PAR VALUE $.00017 PER SHARE ("NON-VOTING COMMON STOCK") AND SEVENTEEN
DETACHABLE REDEEMABLE WARRANTS ("SERIES B WARRANTS") EACH INITIALLY ENTITLING
THE HOLDER THEREOF TO PURCHASE 780.6036397 SHARES OF THE COMPANY'S COMMON STOCK
OR 780.6036397 SHARES OF THE COMPANY'S NON-VOTING COMMON STOCK. PRIOR TO THE
CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (i) THE DATE ON WHICH AN
EXCHANGE OFFER IS COMMENCED OR A SHELF REGISTRATION STATEMENT BECOMES EFFECTIVE
WITH RESPECT TO THE NOTES OR (ii) SUCH EARLIER DATE AS THE INITIAL PURCHASER MAY
DESIGNATE, THE NOTES EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR
EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER
WITH THE SERIES A WARRANTS AND THE SERIES B WARRANTS.(1) PRIOR TO THE CLOSE OF
BUSINESS ON DECEMBER 31, 1999, THE NOTES EVIDENCED BY THIS CERTIFICATE MAY NOT
BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED
ONLY TOGETHER WITH THE SERIES B WARRANTS.(2)
- ---------------
(1) To be included on Notes issued prior to the Series A Separability Date.
(2) To be included on Notes issued prior to the Series B Separability Date.
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<PAGE>
CUSIP No.:
DISCOVERY ZONE, INC.
13 1/2% SENIOR COLLATERALIZED NOTE DUE 2002
No. $
Discovery Zone, Inc., 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 May 1, 2002.
Interest Payment Dates: August 1, November 1, February 1
and May 1
Record Dates: July 15, October 15, January 15
and April 15
Reference is made to the further provisions of this Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers its corporate
seal to be affixed hereto or imprinted hereon.
Discovery Zone, Inc.
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
Dated: _____________, 199__
Certificate of Authentication
This is one of the 13 1/2% Senior Collateralized Notes due
2002 referred to in the within-mentioned Indenture.
Firstar Bank of Minnesota, N.A.
as Trustee
Dated: ______________, 199__ By:
------------------------------
Name:
Title:
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<PAGE>
{REVERSE OF NOTE}
DISCOVERY ZONE, INC.
13 1/2% Senior Collateralized Note due 2002
1. Interest. Discovery Zone, Inc., a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at the rate per annum shown above. The Company will pay interest quarterly in
arrears on each August 1, November 1, February 1 and May 1 (each an "Interest
Payment Date"), commencing August 1, 1998. Interest on the Notes will accrue
from the most recent date on which interest has been paid on this Note or, if no
interest has been paid, from July 17, 1998. 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
Notes to the Persons who are the registered Holders as of the close of business
on the Record Date immediately preceding the applicable Interest Payment Date
even if the Notes are cancelled on registration of transfer or registration of
exchange after such Record Date. Holders must surrender Notes 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"). The Notes will be
payable both as to principal and to interest at the office or agency of the
Company, or, at the option of the Company, payment of interest may be made by
its check payable in such U.S. Legal Tender and mailed to the Holders at their
respective registered addresses as set forth in the register of Holders. If the
Company defaults in a payment of interest on the Notes, it shall pay the
defaulted interest plus any interest payable on the defaulted interest in
accordance with Section 2.16 of the Indenture.
3. Paying Agent and Registrar. Until otherwise designated by
the Company, the Registrar and Paying Agent for the Notes shall be Firstar Bank
of Minnesota, N.A., the trustee (the "Trustee") under the Indenture (as defined
below), having an address as 101 East 5th Street, St. Paul, Minnesota 55101,
Attention: Corporate Trust. In addition, until otherwise designated by the
Company, the Company's office or agency maintained in the Borough of Manhattan,
in the City of New York at which the Notes may be presented for payment or for
transfer or exchange will be the office of the agent of Firstar Bank of
Minnesota, N.A. The Company may change any Paying Agent, Registrar or
co-Registrar without notice to the Holders.
4. Indenture. The Company issued the Notes under an
Indenture, dated as of July 17, 1998 (the "Indenture"), among the Company, the
Subsidiary Guarantors and the Trustee. Capitalized terms herein are used as
defined in the Indenture unless otherwise defined herein. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (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
A-4
<PAGE>
Notes are subject to all such terms, and Holders are referred to the Indenture
and the TIA for a statement of them. The Notes are senior secured obligations of
the Company limited in aggregate principal amount to $20,000,000. Payment on the
Notes is guaranteed on a senior basis, jointly and severally, by the Subsidiary
Guarantors pursuant to Article Eleven of the Indenture. Each Holder, by
accepting a Note, agrees to be bound by all of the terms and provisions of the
Indenture, as the same may be amended from time to time.
5. Redemption.
(a) Optional Redemption. Except as described in paragraph (b)
of this Section 5, the Notes are not redeemable at the Company's option, at any
time prior to August 1, 1999. Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less than
15 nor more than 60 days' notice, at the following redemption prices (expressed
as percentages of principal amount at maturity) if redeemed during the
twelve-month period commencing on August 1, of the years set forth below through
but not including the Maturity Date, plus, in each case, accrued and unpaid
interest thereon to the applicable date of redemption:
Year Percentage
---- ----------
1999 113.000%
2000 108.667%
2001 104.333%
(b) Optional Redemption Upon Primary Offering.
Notwithstanding paragraph (a) of this Section 5, at any time, the Company may,
at its option, use the net cash proceeds of a Primary Offering to redeem up to
100% of the original principal amount of the Notes at a redemption price equal
to 100% of the principal amount thereof outstanding on the redemption date, plus
accrued and unpaid interest thereon, if any, to the date of redemption; provided
that such redemption shall occur within 30 days of the date of the closing of
such Primary Offering.
6. Notice of Redemption. Notice of redemption will be mailed
by first class mail at least 15 days but not more than 60 days before the
redemption date to each Holder, at each of such Holder's registered address,
whose Notes are to be redeemed. If fewer than all of the Notes are to be
redeemed at any time, selection of Notes for redemption will be made by the
Trustee in compliance with the requirements of the national securities exchange,
if any, on which the Notes are listed, or, if the Notes are not so listed, on a
pro rata basis, by lot or by such method as the Trustee deems to be fair and
appropriate; provided that Notes of $1,000 or less may not be redeemed in part.
Except as set forth in the Indenture, if monies for the
redemption of the Notes 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 plus accrued interest, if any,
the Notes called for redemption will cease to bear interest from and after such
redemption date, and the only remaining right of the Holders of such
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<PAGE>
Notes will be to receive payment of the redemption price plus accrued interest,
if any, as of the redemption date upon surrender to the Paying Agent of the
Notes redeemed.
7. Offers to Purchase. Sections 4.14 and 4.15 of the
Indenture provide that, after certain Asset Sales and upon the occurrence of a
Change of Control, and subject to further limitations contained therein, the
Company will make an offer to purchase certain amounts of the Notes in
accordance with the procedures set forth in the Indenture.
8. Registration Rights. Pursuant to the Registration Rights
Agreement updated as of the date of the Indenture among the Company and the
Holders of the Initial Notes, the Company will be obligated to consummate an
exchange offer pursuant to which the Holder of this Note shall have the right to
exchange this Note for the Company's 13 1/2% Senior Collateralized Notes due
2002, Series B (the "Exchange Notes"), which have been registered under the
Securities Act, in like principal amount and having terms identical in all
material respects as the Initial Notes. The Holders of the Initial Notes 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.
9. Denominations; Transfer; Exchange. The Notes 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 of
Notes in accordance with the Indenture. The Registrar or co-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. Subject
to certain provisions in the Indenture, the Registrar or co-Registrar need not
register the transfer of or exchange of any Notes or portions thereof selected
for redemption. Also the Registrar or co-Registrar need not register the
transfer or exchange of any Note during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of notes and
ending at the close of business on the day of such mailing.
10. Persons Deemed Owners. The registered Holder of a Note
shall be treated as the owner of such Note for all purposes.
11. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years (or such sooner period as may be
required by applicable abandoned property laws), the Trustee and the Paying
Agent will pay the money back to the Company. After that, all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
12. 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 Notes 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 Notes (including certain covenants, but excluding its
obligation to pay the principal of and interest on the Notes).
A-6
<PAGE>
13. Amendment; Supplement; Waiver. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented by the
Company, the Trustee and with the written consent of the Holders of at least a
majority in aggregate principal amount of the Notes then outstanding, and,
subject to Section 6.07 of the Indenture, noncompliance with any provision of
the Indenture or this Note may be waived with the written consent of the Holders
of a majority in aggregate principal amount of the Notes then outstanding.
Without the consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Notes to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's obligations
to Holders in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the Holders or that does not
adversely affect the legal right under the Indenture of any such Holder, or to
comply with the requirements of the U.S. Securities and Exchange Commission (the
"SEC") in order to effect or maintain the qualification of the Indenture under
the TIA. As provided in the Indenture, there shall be no amendment, supplement
or waiver without the consent of each Holder of each Note affected thereby with
respect to the circumstances enumerated in Section 9.02 therein.
14. 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, issue or sell its Capital Stock,
enter into transactions with Affiliates, cause to be effective restrictions
affecting Subsidiaries' abilities to pay certain dividends or make certain
loans, merge or consolidate with any other Person, sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets or
adopt a plan of liquidation. Such limitations are subject to a number of
important qualifications and exceptions. The Company must annually report to the
Trustee on compliance with such limitations.
15. Successors. When a successor assumes, in accordance with
the Indenture, all the Obligations of its predecessor under the Notes and the
Indenture, the predecessor will be released from those Obligations.
16. 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 Notes then outstanding may declare all the Notes to be due and payable
in the manner, at the time and with the effect provided in the Indenture.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee is not obligated to exercise any of the rights or powers
vested in it by the Indenture or the Notes and at the order or direction of any
Holders, unless it has received indemnity reasonably satisfactory to it. Subject
to certain limitations set forth in the Indenture, Holders of a majority in
aggregate principal amount of the Notes then outstanding may direct the Trustee
in its exercise of any trust or power. The Trustee may withhold from Holders
notice of any continuing Default or Event of Default (except in the case of a
Default or Event of Default in payment of principal or interest or a failure to
comply with Article Five of the Indenture) if it determines that withholding
notice is in their interest.
A-7
<PAGE>
17. Trustee Dealings with Company. The Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or
their respective Affiliates, as such, with the same rights it would have as if
it were not the Trustee.
18. No Recourse Against Others. No past, present or future
director, officer, employee, incorporator or stockholder of the Company or any
Subsidiary Guarantor, as such, shall have any liability for any Obligations of
the Company or any Subsidiary Guarantor under the Notes or the Indenture, the
Collateral Agreements, any Subsidiary Guarantee, the Registration Rights
Agreement or the New Intercreditor Agreements or for any claim based on, in
respect of, or by reason of such obligations or their creations. Each Holder by
accepting a Note waives and releases all such liability. Such waiver and release
are part of the consideration for the issuance of the Notes.
19. Authentication. This Note shall not be valid until the
Trustee or Authenticating Agent manually signs the certificate of authentication
on this Note.
20. Governing Law. The laws of the State of New York shall
govern this Note and the Indenture.
21. Abbreviations and Defined Terms. Customary abbreviations
may be used in the name of a Holder or an assignee, such as: TEN COM (=
tenants-in-common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants-in-common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP Numbers. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes as a convenience to the Holders.
No representation is made as to the accuracy of such numbers as printed on the
Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture.
Requests may be made to: Discovery Zone, Inc., 565 Taxter
Road, 5th Floor, Elmsford, New York 10523, Attn: Chief Financial Officer.
A-8
<PAGE>
FORM OF ASSIGNMENT
If you, the Holder, want to assign this Note, fill in the
form below and have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and social security or
tax ID number of assignee)
and irrevocably appoint ,
-------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Date: Signed:
------------------ -------------------------------------------
(Sign exactly as your name appears on the
other side of this Note. This signature
must be guaranteed by the signatory's
bank or broker.)
Signature Guarantee:
--------------------------
A-9
<PAGE>
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of the declaration by the SEC
of the effectiveness of a registration statement under the Securities Act of
1933, as amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) July 17, 2000, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that this Note is being transferred:
(Check One)
(1) ___ to the Company or a subsidiary thereof; or
(2) ___ pursuant to and in compliance with Rule 144A under
the Securities Act; or
(3) ___ to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act) that has furnished to the
Trustee a signed letter containing certain
representations and agreements (the form of which
letter can be obtained from the Trustee); or
(4) ___ outside the United states to a "foreign person" in
compliance with Rule 904 of Regulation S under the
Securities Act; or
(5) ___ pursuant to the exemption from registration
provided by Rule 144 under the Securities Act; or
(6) ___ pursuant to an effective registration statement
under the Securities Act; or
(7) ___ pursuant to another available exemption from the
registration requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered Holder thereof; provided that if box (3), (4), (5) or (7) is checked,
the Company or the Trustee may require, prior to registering any such transfer
of the Notes, in its sole discretion, such legal opinions, certifications
(including an investment letter in the case of box (3) or (4)) and other
information as the Trustee or the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
A-10
<PAGE>
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.15 of the Indenture shall have been satisfied.
Dated: Signed:
----------------- -------------------------------------------
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:
------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration requirements of the Securities Act provided by Rule 144A
thereunder.
Dated:
------------------- ------------------------------
Executive Officer
Name:
-----------------------
Title:
-----------------------
A-11
<PAGE>
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.14 or Section 4.15 of the Indenture, check the
appropriate box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased
by the Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state
the amount you elect to have purchased:
$________________________
Dated: __________________ Signature: _______________________
Tax Identification No. ___________
Signature Guarantee:
---------------------------------------------------------
NOTICE: The signature on this assignment must correspond with the name as it
appears upon the face of the within Note in every particular without alteration
or enlargement or any change whatsoever and be acknowledged as genuine by the
endorser's bank or broker.
A-12
<PAGE>
EXHIBIT B
---------
FORM OF NOTE
THE NOTES EVIDENCED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS PART
OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1000 PRINCIPAL AMOUNT OF 13
1/2% SENIOR COLLATERALIZED NOTES DUE 2002 OF THE COMPANY, SEVENTEEN DETACHABLE
WARRANTS ("SERIES A WARRANTS") EACH INITIALLY ENTITLING THE HOLDER THEREOF TO
PURCHASE 1,769.36825 SHARES OF THE COMPANY'S COMMON STOCK, PAR VALUE $.00017 PER
SHARE ("COMMON STOCK") OR 1,769.36825 SHARES OF THE COMPANY'S NON-VOTING COMMON
STOCK, PAR VALUE $.00017 PER SHARE ("NON-VOTING COMMON STOCK") AND SEVENTEEN
DETACHABLE REDEEMABLE WARRANTS ("SERIES B WARRANTS") EACH INITIALLY ENTITLING
THE HOLDER THEREOF TO PURCHASE 780.6036397 SHARES OF THE COMPANY'S COMMON STOCK
OR 780.6036397 SHARES OF THE COMPANY'S NON-VOTING COMMON STOCK. PRIOR TO THE
CLOSE OF BUSINESS ON DECEMBER 31, 1999, THE NOTES EVIDENCED BY THIS CERTIFICATE
MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR
EXCHANGED ONLY TOGETHER WITH THE SERIES B WARRANTS.3
- --------
3 To be included on Exchange Notes issued prior to the Series B Separability
Date.
B-1
<PAGE>
CUSIP No.:
DISCOVERY ZONE, INC.
13 1/2% SENIOR COLLATERALIZED NOTE DUE 2002, SERIES B
No. $
Discovery Zone, Inc., 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 May 1, 2002.
Interest Payment Dates: August 1, November 1, February 1
and May 1
Record Dates: July 15, October 15, January 15
and April 15
Reference is made to the further provisions of this Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers its corporate
seal to be affixed hereto or imprinted hereon.
Discovery Zone, Inc.
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
Dated: _____________, 199__
Certificate of Authentication
This is one of the 13 1/2% Senior Collateralized Notes due
2002, Series B referred to in the within-mentioned Indenture.
Firstar Bank of Minnesota, N.A.
as Trustee
Dated: ______________, 199__ By:
------------------------------
Name:
Title:
B-2
<PAGE>
{REVERSE OF NOTE}
DISCOVERY ZONE, INC.
13 1/2% Senior Collateralized Note due 2002, Series B
1. Interest. Discovery Zone, Inc., a Delaware corporation
(the"Company"), promises to pay interest on the principal amount of this Note at
the rate per annum shown above. The Company will pay interest quarterly in
arrears on each August 1, November 1, February 1 and May 1 (each an "Interest
Payment Date"), commencing August 1, 1998. Interest on the Notes will accrue
from the most recent date on which interest has been paid on this Note or, if no
interest has been paid, from July 17, 1998. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
2. Method of Payment. On each Interest Payment Date the
Company shall pay interest on the Notes to the Persons who are the registered
Holders as of the close of business on the Record Date immediately preceding the
applicable Interest Payment Date even if the Notes are cancelled on registration
of transfer or registration of exchange after such Record Date. Holders must
surrender Notes 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"). The Notes will be payable both as to principal and to interest at the
office or agency of the Company, or, at the option of the Company, payment of
interest may be made by its check payable in such U.S. Legal Tender and mailed
to the Holders at their respective registered addresses as set forth in the
register of Holders. If the Company defaults in a payment of interest on the
Notes, it shall pay the defaulted interest plus any interest payable on the
defaulted interest in accordance with Section 2.16 of the Indenture.
3. Paying Agent and Registrar. Until otherwise designated by
the Company, the Registrar and Paying Agent for the Notes shall be Firstar Bank
of Minnesota, N.A., the trustee (the "Trustee") under the Indenture (as defined
below), having an address as 101 East 5th Street, St. Paul, Minnesota 55101,
Attention: Corporate Trust. In addition, until otherwise designated by the
Company, the Company's office or agency maintained in the Borough of Manhattan,
in the City of New York at which the Notes may be presented for payment or for
transfer or exchange will be the office of the agent of Firstar Bank of
Minnesota, N.A. The Company may change any Paying Agent, Registrar or
co-Registrar without notice to the Holders.
4. Indenture. The Company issued the Notes under an
Indenture, dated as of July 17, 1998 (the "Indenture"), among the Company, the
Subsidiary Guarantors and the Trustee. Capitalized terms herein are used as
defined in the Indenture unless otherwise defined herein. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (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
B-3
<PAGE>
Notes are subject to all such terms, and Holders are referred to the Indenture
and the TIA for a statement of them. The Notes are senior secured obligations of
the Company limited in aggregate principal amount to $20,000,000. Payment on the
Notes is guaranteed on a senior basis, jointly and severally, by the Subsidiary
Guarantors, pursuant to Section Eleven of the Indenture. Each Holder, by
accepting a Note, agrees to be bound by all of the terms and provisions of the
Indenture, as the same may be amended from time to time.
5. Redemption.
(a) Optional Redemption. Except as described in paragraph (b)
of this Section 5, the Notes are not redeemable at the Company's option, at any
time prior to August 1, 1999. Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less than
15 nor more than 60 days' notice, at the following redemption prices (expressed
as percentages of principal amount at maturity) if redeemed during the
twelve-month period commencing on August 1 of the years set forth below through
but not including the Maturity Date, plus, in each case, accrued and unpaid
interest thereon to the applicable date of redemption:
Year Percentage
---- ----------
1999 113.000%
2000 108.667%
2001 104.333%
(b) Optional Redemption Upon Primary Offering.
Notwithstanding paragraph (a) of this Section 5, at any time, the Company may,
at its option, use the net cash proceeds of a Primary Offering to redeem up to
100% of the original principal amount of the Notes at a redemption price equal
to 100% of the principal amount thereof outstanding on the redemption date, plus
accrued and unpaid interest thereon, if any, to the date of redemption; provided
that such redemption shall occur within 30 days of the date of the Closing of
such Primary Offering.
6. Notice of Redemption. Notice of redemption will be mailed
by first class mail at least 15 days but nor more than 60 days before the
redemption date to each Holder, at each of such Holder's registered address,
whose Notes are to be redeemed. If fewer than all of the Notes are to be
redeemed, at any time, selection of Notes for redemption will be made by the
Trustee in compliance with the requirements of the national securities exchange,
if any, on which the Notes are listed, or, if the Notes are not so listed, on a
pro rata basis, by lot or by such method as the Trustee deems to be fair and
appropriate; provided that Notes of $1,000 or less may not be redeemed in part.
Except as set forth in the Indenture, if monies for the
redemption of the Notes 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 plus accrued interest, if any,
the Notes called for redemption will cease to bear interest from and after such
redemption date, and the only remaining right of the Holders of such
B-4
<PAGE>
Notes will be to receive payment of the redemption price plus accrued interest,
if any, as of the redemption date upon surrender to the Paying Agent of the
Notes redeemed.
7. Offers to Purchase. Sections 4.14 and 4.15 of the
Indenture provide that, after certain Asset Sales and upon the occurrence of a
Change of Control, and subject to further limitations contained therein, the
Company will make an offer to purchase certain amounts of the Notes in
accordance with the procedures set forth in the Indenture.
8. Denominations; Transfer; Exchange. The Notes 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 of
Notes in accordance with the Indenture. The Registrar or co-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. Subject
to certain provisions in the Indenture, the Registrar or co-Registrar need not
register the transfer of or exchange of any Notes or portions thereof selected
for redemption. Also, the Registrar or co-Registrar need not register the
transfer or exchange of any Note during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of notes and
ending at the close of business on the day of such mailing.
9. Persons Deemed Owners. The registered Holder of a Note
shall be treated as the owner of such Note for all purposes.
10. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years (or such sooner period as may be
imposed by applicable abandoned property laws), the Trustee and the Paying Agent
will pay the money back to the Company. After that, all liability of the Trustee
and such Paying Agent with respect to such money shall cease.
11. 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 Notes 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 Notes (including certain covenants, but excluding its
obligation to pay the principal of and interest on the Notes).
12. Amendment: Supplement; Waiver. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented by the
Company, the Trustee and with the written consent of the Holders of at least a
majority in aggregate principal amount of the Notes then outstanding, and,
subject to Section 6.07 of the Indenture, noncompliance with any provision of
the Indenture or this Note may be waived with the written consent of the Holders
of a majority in aggregate principal amount of the Notes then outstanding.
Without the consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Notes to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's obligations
to Holders in the case of a merger or
B-5
<PAGE>
consolidation, to make any change that would provide any additional rights or
benefits to the Holders or that does not adversely affect the legal right under
the Indenture of any such Holder, or to comply with the requirements of the U.S.
Securities and Exchange Commission (the "SEC") in order to effect or maintain
the qualification of the Indenture under the TIA. As provided in the Indenture,
there shall be no amendment, supplement or waiver without the consent of each
Holder of each Note affected thereby with respect to the circumstances
enumerated in Section 9.02 therein.
13. 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, issue or sell its Capital Stock,
enter into transactions with Affiliates, cause to be effective restrictions
affecting Subsidiaries' abilities to pay certain dividends or to make certain
loans, merge or consolidate with any other Person, sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets or
adopt a plan of liquidation. Such limitations are subject to a number of
important qualifications and exceptions. The Company must annually report to the
Trustee on compliance with such limitations.
14. Successors. When a successor assumes, in accordance with
the Indenture, all the Obligations of its predecessor under the Notes and the
Indenture, the predecessor will be released from those Obligations.
15. 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 Notes then outstanding may declare all the Notes to be due and payable
in the manner, at the time and with the effect provided in the Indenture.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee is not obligated to exercise any of the rights or powers
vested in it by the Indenture or the Notes and at the order or direction of any
Holders, unless it has received indemnity reasonably satisfactory to it. Subject
to certain limitations set forth in the Indenture, Holders of a majority in
aggregate principal amount of the Notes then outstanding may direct the Trustee
in its exercise of any trust or power. The Trustee may withhold from Holders
notice of any continuing Default or Event of Default (except in the case of a
Default or Event of Default in payment of principal or interest or a failure to
comply with Article Five of the Indenture) if it determines that withholding
notice is in their interest.
16. Trustee Dealings with Company. The Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or
their respective Affiliates, as such, with the same rights it would have as if
it were not the Trustee.
17. No Recourse Against Others. No past, present or future
director, officer, employee, incorporator or stockholder of the Company or any
Subsidiary Guarantor, as such, shall have any liability for any Obligations of
the Company or any Subsidiary Guarantor under the Notes or the Indenture, the
Collateral Agreements, any Subsidiary Guarantee, the Registration Rights
Agreement, the Warrant Agreement or the New
B-6
<PAGE>
Intercreditor Agreements, or for any claim based on, in respect of, or by reason
of such obligations or their creation. Each Holder by accepting a Note waives
and releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Notes.
18. Authentication. This Note shall not be valid until the
Trustee or Authenticating Agent manually signs the certificate of authentication
on this Note.
19. Governing Law. The Laws of the State of New York shall
govern this Note and the Indenture.
20. Abbreviations and Defined Terms. Customary abbreviations
may be used in the name of a Holder or an assignee, such as: TEN COM (=
tenants-in-common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants-in-common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
21. CUSIP Numbers. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes as a convenience to the Holders.
No representation is made as to the accuracy of such numbers as printed on the
Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture.
Requests may be made to: Discovery Zone, Inc., 565 Taxter
Road, 5th Floor, Elmsford, New York 10523, Attn: Chief Financial Officer.
B-7
<PAGE>
FORM OF ASSIGNMENT
If you, the Holder, want to assign this Note, fill in the
form below and have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and social security or
tax ID number of assignee)
and irrevocably appoint ,
-------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Date: Signed:
-------------------------------------------
(Sign exactly as your name appears on the
other side of this Note. This signature
must be guaranteed by the signatory's
bank or broker.)
Signature Guarantee:
--------------------------
B-8
<PAGE>
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of the declaration by the SEC
of the effectiveness of a registration statement under the Securities Act of
1933, as amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) July 17, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that this Note is being transferred:
(Check One)
(1) ___ to the Company or a subsidiary thereof; or
(2) ___ pursuant to and in compliance with Rule 144A under
the Securities Act; or
(3) ___ to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act) that has furnished to the
Trustee a signed letter containing certain
representations and agreements (the form of which
letter can be obtained from the Trustee); or
(4) ___ outside the United states to a "foreign person" in
compliance with Rule 904 of Regulation S under the
Securities Act; or
(5) ___ pursuant to the exemption from registration
provided by Rule 144 under the Securities Act; or
(6) ___ pursuant to an effective registration statement
under the Securities Act; or
(7) ___ pursuant to another available exemption from the
registration requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered Holder thereof; provided that if box (3), (4), (5) or (7) is checked,
the Company or the Trustee may require, prior to registering any such transfer
of the Notes, in its sole discretion, such legal opinions, certifications
(including an investment letter in the case of box (3) or (4)) and other
information as the Trustee or the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
B-9
<PAGE>
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.15 of the Indenture shall have been satisfied.
Dated: Signed:
----------------- -------------------------------------
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:
------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration requirements of the Securities Act provided by Rule 144A
thereunder.
Dated:
----------------- ------------------------------
Executive Officer
Name:
-----------------------
Title:
-----------------------
B-10
<PAGE>
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.14 or Section 4.15 of the Indenture, check the
appropriate box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased
by the Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state
the amount you elect to have purchased:
$________________________
Dated: __________________ Signature: _______________________
Tax Identification No. ___________
Signature Guarantee:
------------------------------------------------------------
NOTICE: The signature on this assignment must correspond with the name as it
appears upon the face of the within Note in every particular without alteration
or enlargement or any change whatsoever and be acknowledged as genuine by the
endorser's bank or broker.
B-11
<PAGE>
EXHIBIT C
---------
FORM OF LEGEND FOR GLOBAL NOTES
Any Global Note 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 NOTE IS A GLOBAL NOTE 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 NOTE IS NOT EXCHANGEABLE FOR NOTES 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 NOTE
(OTHER THAN A TRANSFER OF THIS NOTE 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) 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 THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS MAY BE 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 CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS TO NON-QIB ACCREDITED INVESTORS
----------, ----
Firstar Bank of Minnesota, N.A.
101 East 5th Street
St. Paul, Minnesota 55101
Attention: Corporate Trust
Re: Discovery Zone, Inc. (the "Company")
13 1/2% Senior Collateralized Notes
due 2002 (the "Notes")
------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of $____________
aggregate principal amount of the Notes, we confirm that:
1. We have received a copy of the Offering Circular (the
"Offering Circular"), dated July 9, 1998, relating to the Notes and such other
information as we have deemed necessary in order to make our investment
decision. We acknowledge that we have read and agreed to the matters stated in
the section entitled "Notice to Investors" of the Offering Circular.
2. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture dated
as of July 17, 1998 relating to the Notes (the "Indenture"), and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes
except in compliance with such restrictions and conditions and the U.S.
Securities Act of 1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Notes have
not been registered under the Securities Act, and that the Notes may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. Persons except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell or otherwise transfer any Notes prior to the date
which is two years after the later of the date of (x) original issue of the Note
D-1
<PAGE>
and (y) the last date on which the Note is owned by the Company or an affiliate
of the Company, we will do so only (i) to the Company, (ii) pursuant to a
registration statement which has been declared effective under the Securities
Act, (iii) for so long as the Notes are eligible for resale pursuant to Rule
144A, to a person it reasonably believes is a Qualified Institutional Buyer
("QIB") (within the meaning of Rule 144A) that purchases for its own account or
for the account of a QIB to whom notice is given that the transfer is being made
in reliance on Rule 144A, (iv) inside the United States to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company, a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Notes, substantially in the form
of this letter, (v) pursuant to offers and sales to non-U.S. persons that occur
outside of the United States in compliance with Rule 904 of Regulation S under
the Securities Act or (vi) pursuant to any other available exemption from the
registration requirements of the Securities Act, and we further agree to provide
to any person purchasing any of the Notes from us a notice advising such
purchaser that resales of the Notes are restricted as stated herein.
4. We are not acquiring the Notes for or on behalf of, and
will not transfer the Notes to, any pension or welfare plan (as defined in
Section 3 of the Employee Retirement Income Security Act of 1974) except as
permitted in the section entitled "Notice to Investors" of the Offering
Circular.
5. We understand that, on any proposed resale of any Notes,
we will be required to furnish to you and the Company such certifications, legal
opinions and other information as you and the Company reasonably may require to
confirm that the proposed sale complies with the foregoing restrictions. We
further understand that the Notes purchased by us will bear a legend to the
foregoing effect.
6. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and each of the accounts for which we are acting are and is able to bear the
economic risk of our or its entire investment, as the case may be, for an
indefinite period.
7. We are acquiring the Notes purchased by us for our own
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion, for investment purposes and not with a view to, or for offer or sale
in connection with, any distribution in violation of the Securities Act.
You, the Company and your and their respective counsel are
entitled to rely upon this letter and are irrevocably authorized to produce this
letter or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby, and
we agree to notify you promptly if any of our representations or warranties
herein cease to be accurate and complete.
D-2
<PAGE>
This letter shall be governed by, and construed in accordance
with, the laws of the State of New York.
Very truly yours,
[Name of Transferee]
By:
------------------------------
Authorized Signature
D-3
<PAGE>
EXHIBIT E
---------
FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S
----------, ----
Firstar Bank of Minnesota, N.A.
101 East 5th Street
St. Paul, Minnesota 55101
Attention: Corporate Trust
Re: Discovery Zone, Inc. (the "Company")
13 1/2% Senior Collateralized Notes
due 2002 (the "Notes")
------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____________
aggregate principal amount of the Notes, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S promulgated under the
U.S. Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the
United States;
(2) either: (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United States; or
(b) the transaction was executed in, on or through the facilities of a
designated off-shore securities market and neither we nor any person acting on
our behalf had knowledge that the transaction had been pre-arranged with a buyer
in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
E-1
<PAGE>
(5) we have advised the transferee of the transfer
restrictions applicable to the Notes.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By:
------------------------------
Authorized Signature
E-2
<PAGE>
EXHIBIT J
---------
FORM OF NOTATION ON NOTE RELATING TO SUBSIDIARY GUARANTEE
For value received, _________________, [a _______________
corporation,] hereby unconditionally guarantees to the Holder of the Note upon
which this Subsidiary Guarantee is endorsed: (a) the due and punctual payment of
the principal of, premium, if any, and interest on the Note, whether at maturity
acceleration, redemption or otherwise, (b) the due and punctual payment of
interest on the overdue principal of, premium, if any, and interest on the Note,
if any, to the extent lawful, (c) 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 the Indenture, and (d) in case of any extension of time
of payment or renewal of any Note or any of 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, whether at stated maturity, by acceleration or
otherwise. Capitalized terms used herein have the meanings assigned to them in
the Indenture unless otherwise indicated.
This Subsidiary Guarantee shall be binding upon each Subsidiary
Guarantor and its successors and assigns and shall inure to the benefit of the
successors and assigns of the Trustee and the Holder and, in the event of any
transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and conditions
hereof and in the Indenture.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Note upon which this
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized signatories.
[ ]
By:
--------------------------------
Name:
Title:
Attest: _____________________
J-1
<PAGE>
EXHIBIT K
---------
FORM OF TRADEMARK ASSIGNMENT
K-1
<PAGE>
EXHIBIT L
---------
FORM OF SUBSIDIARY PLEDGE AGREEMENT
L-1
<PAGE>
EXHIBIT M
---------
FORM OF SUBSIDIARY SECURITY AGREEMENT
M-1
<PAGE>
EXHIBIT N
---------
FORM OF LEASEHOLD MORTGAGE
N-1
<PAGE>
EXHIBIT O
---------
FORM OF LESSOR'S CONSENT TO LEASEHOLD MORTGAGE
LESSOR CONSENT
THIS LESSOR CONSENT (this "Agreement"), dated as of the ____
day of _____________, _____, by and among ________________________ ("Lessor"),
__________________________ ("Lessee"), and [the Collateral Agent, on behalf of
the Noteholders] ("Mortgagee").
WHEREAS, Lessor is the holder of Lessor's interest and Lessee
is the holder of Lessee's interest, respectively, in, to and under the leases
and amendments thereof (the "Lease") described on Schedule "A" annexed hereto
and made a part hereof, which Lease cover the premises described therein and on
Schedule "B" annexed hereto and made a part hereof (the "Premises"), Lessee's
estate and interest in the Lease being hereinafter referred to as the "Leasehold
Interest"; and
WHEREAS, Mortgagee and Lessee have entered into an Indenture
dated as of ____________ pursuant to which certain notes of the Lessee were
issued to the Noteholders, and were to be secured by, among other things, a lien
upon the interest of Lessee under the Lease and upon further condition, among
others, that Lessor and Lessee enter into this Agreement.
NOW, THEREFORE, for good and valuable consideration, Lessor
and Lessee hereby modify and amend the Lease by incorporating the following as a
Rider thereto:
1. Lessee shall have the right, without Lessor's consent, to
mortgage its interest in the Lease to Mortgagee by a "Leasehold Mortgage" (as
hereinafter defined).
2. If Lessee shall mortgage its Leasehold Interest, then
until the same shall be satisfied of record, Lessor agrees that it shall not,
without the prior written consent of Mortgagee:
(a) amend or modify the Lease;
(b) consent to, acquiesce in or accept the termination of
the Lease or surrender of all or part of the Premises except pursuant to the
exercise by Lessee of an option to purchase or right of first refusal consented
to by Mortgagee;
(c) consent to the assignment or other transfer of all or
part of Lessee's Leasehold Interest;
O-1
<PAGE>
(d) consent to any further encumbrance of Lessee's
Leasehold Interest;
(e) create or permit any further encumbrance of Lessor's
interest in the real property described in Schedule "A".
3. If Lessee shall mortgage its Leasehold Interest, and if
Mortgagee shall send to Lessor notice of its making a Leasehold Mortgage, then
until the same shall be satisfied of record: (a) Mortgagee shall have and be
subrogated to any and all rights of Lessee with respect to the curing of any
default under the Lease; (b) Lessor shall give to Mortgagee, simultaneously with
the serving of the same on Lessee, a copy of each notice or demand ("Notice")
which it gives to Lessee, including all Notices of default by Lessee (which
shall specify the default), each Notice to be sent to the address designated by
Mortgagee, by registered or certified mail, return receipt requested, and the
same shall be effective upon receipt by such addressee; (c) Mortgagee shall have
the right, but not the obligation, to perform any covenant or agreement under
the Lease to be performed by Lessee (including the exercise of renewal or
purchase options, if any), and Lessor shall accept such performance by Mortgagee
as though the same had been performed by Lessee; (d) Mortgagee shall have the
right (but not the obligation) to cure any default by Lessee in the payment of
rent and all other charges provided for in the Lease and Lessor shall accept
such performance by Mortgagee as though the same had been performed by Lessee;
and (e) Lessee may assign its Leasehold Interest to Mortgagee (or its assignee,
designee or nominee) without Lessor's consent. Any notice or demand given by
Lessor in derogation hereof shall be deemed of no effect.
4. In addition to the right to cure defaults granted to
Mortgagee in the preceding paragraph, Lessor agrees that it will take no action
to effect a termination of the term of the Lease by reason of any default
without first giving Mortgagee reasonable time within which either (a) to cure
each default if such default can be cured without obtaining possession of the
Premises, or (b) to obtain possession of the Premises by Mortgagee (including
possession by a receiver) and thereafter to cure such default, if the default be
one which can be cured with the exercise of reasonable diligence by Mortgagee
upon so obtaining possession, or (c) to institute foreclosure proceedings and to
complete such foreclosure, or otherwise to acquire Lessee's interest under the
Lease with diligence and without unreasonable delay, in the case of a default
which cannot be cured with the exercise of reasonable diligence by Mortgagee
after obtaining possession of the Premises. Mortgagee shall not be required to
continue such foreclosure proceedings or proceedings to acquire Lessee's
interest under the Lease if the default shall be cured by Lessee, and Lessor
shall accept such cure by Lessee even if effected after the time provided to
Lessor under the Lease for effecting such cure.
5. (a) In the event of the termination of the Lease prior to
its stated expiration date, or the date of the expiration of any renewal option
in the event a renewal option shall have been exercised prior to the date of
such termination, Lessor agrees that it will give Mortgagee notice of such
termination, will waive its right to accelerate any payments due to it upon a
default under the Lease, and will enter into a new lease for the Premises with
Mortgagee or, at Mortgagee's option, with an assignee, designee or nominee
O-2
<PAGE>
of Mortgagee for the remainder of the term of the Lease, effective as of the
date of such termination, upon the same covenants, agreements, rights, terms,
options, provisions and limitations contained in the Lease except for
requirements which are no longer applicable or have already been performed,
provided i) Mortgagee or its assignee, designee or nominee makes written request
upon Lessor for such new lease within thirty (30) days after the giving of such
notice of termination and such written request is accompanied by payment to
Lessor of all amounts then due to Lessor of which Lessor shall have given
Mortgagee notice (provided, however, that Lessee shall not be required to make
any payments under any provisions of the Lease), ii) Mortgagee or its assignee,
designee or nominee pays or causes to be paid to Lessor at the time of the
execution and delivery of such new lease any and all additional sums which would
at the time of the execution and delivery thereof be due under the Lease but for
such termination, and pays or causes to be paid any and all expenses including
reasonable counsel fees, court costs and costs and disbursements incurred by
Lessor in connection with any such termination and in connection with the
execution and delivery of such new lease, less the net income from the Premises
collected by Lessor subsequent to the date of the termination of the Lease and
prior to the execution and delivery of such new lease. The provisions contained
herein shall survive the termination of the Lease.
(b) Lessee covenants and agrees that there shall be no
merger of the Lease, or of the Leasehold Interest, or of any interest in any
building, building service equipment or other improvement now or hereafter
constituting a portion of the Premises, with the fee estate of the owner or
owners of the land and other property described in the Lease or with a superior
leasehold estate, by reason of the fact that the Lease or the Leasehold Interest
or any interest in any such building, equipment of other improvements, may be
held by or for the account of any person or persons who shall be the owner or
owners of such fee estate or superior leasehold estate in said land and other
property, unless and until all persons at the time having an interest in the fee
estate or superior leasehold estate in said land and premises and all persons,
including Mortgagee, at the time having an interest in the Lease, Leasehold
Interest, buildings, equipment and improvements, shall join in a written
instrument effecting such merger and shall duly record the same.
6. With respect to the rights granted to Lessee to assign or
otherwise transfer its interest under the Lease, the granting of the Leasehold
Mortgage to Mortgagee shall not cause Mortgagee to be deemed an assignee or
transferee of the Lease or of the leasehold estate thereby created so as to
require it, as such, to assume the performance of any of the terms, covenants or
conditions on the part of Lessee to be performed thereunder, but the purchaser
at any sale of the Lease and of the leasehold estate thereby created in any
proceedings for the foreclosure of the Leasehold Mortgage, or the assignee or
transferee of the Lease and of the leasehold estate thereby created under any
instrument of assignment or transfer in lieu of the foreclosure of the Leasehold
Mortgage, or the assignee or transferee of the Lease and of the leasehold estate
thereby created pursuant to any other right granted to Mortgagee under the
Leasehold Mortgage, shall be deemed to be an assignee or transferee within the
meaning of the Lease and shall be deemed to have assumed the performance of all
of the terms, covenants and conditions on the part of Lessee to be performed
thereunder from and after the date of such purchase and assignment.
O-3
<PAGE>
7. If Mortgagee or any purchaser at a foreclosure sale shall
acquire Lessee's Leasehold Interest, and cure all defaults of Lessee which
affect the Premises and are susceptible of being cured (other than requirements
of the Lease which are no longer applicable or have already been performed),
then (a) said party shall be entitled to exercise any options or rights
contained in the Lease, (b) such other defaults which are not susceptible of
being cured by Mortgagee or by such purchaser no longer shall be defaults
thereunder, and (c) notwithstanding any provision in the Lease to the contrary,
Mortgagee or such purchaser or any of their designees or nominees shall have the
further right to assign the Leasehold Interest without Lessor's consent.
8. Lessor hereby agrees that any and all liens, distraints
and other rights against Lessee's inventory, equipment, machinery, personal
property and trade fixtures located at the Premises which Lessor has or may have
under applicable law or agreement for the payment of rent and other sums due
pursuant to the Lease or otherwise are fully subordinate to Mortgagee's now
existing and hereafter arising security interests and liens in such property
which secure Lessee's obligations and indebtedness to Mortgagee.
9. As used herein, the term "Leasehold Mortgage" shall be
deemed to mean that certain recorded mortgage lien on the Leasehold Interest by
Mortgagee and any modification of any of the terms thereof, including, without
limitation, any supplement, modification, extension, renewal or refinancing of
the indebtedness secured thereby or any additional advance secured by the
Leasehold Mortgage or any additional Leasehold Mortgage given to secure the
same.
10. Notwithstanding any provision in the Lease to the
contrary, in the event of any casualty to or condemnation of the Premises or any
portion thereof, Mortgagee shall be entitled to receive insurance proceeds
and/or condemnation awards otherwise payable to Lessee and shall have the right
(but not the obligation except as provided in the next sentence) to restore the
Premises. In addition, if Mortgagee (by reason of its acquiring Lessee's
Leasehold Interest) shall be obligated under the Lease to restore the Premises
in such event, then such obligation shall be limited to the amount of such
proceeds or award.
11. Lessor represents that Lessor (i) is the owner of record
of the Premises and (ii) has the necessary power and authority to execute this
Lease Amendment and has obtained all the consents or approvals of any party
necessary to effectuate the terms of this Lease Amendment.
12. Except as herein set forth, the Lease shall remain in
full force and effect.
13. The rights accorded to Mortgagee hereunder shall bind and
inure to the benefit of its successors, assignees, nominees and designees.
O-4
<PAGE>
14. Lessor and Lessee each represent and warrant to
Mortgagee, its successors and/or assigns, that:
(a) The Lease i) sets forth the entire agreement between
Lessor and Lessee with respect to the Premises, ii) is in full force and effect,
and iii) has not been amended or modified except for the amendment and
modifications, if any, described in Schedule "A" attached hereto.
(b) There are no defaults under the Lease and no event has
occurred which, with the giving of notice, lapse of time, or both, would
constitute a default under the Lease, or if any such default or state of fact
exists the same is hereby waived.
(c) All rent payable under the Lease has been paid through
- --------------.
15. Lessor hereby confirms that this Agreement constitutes
notice from Mortgagee that Mortgagee is the holder of a Leasehold Mortgage. Any
notice or communication necessary or desirable to be sent under the Lease or
this Agreement to Mortgagee shall be sent by registered or certified mail,
postage prepaid, return receipt requested to ______________________________ or
such other addresses and to such other persons as Mortgagee may designate from
time to time by written notice to Lessor.
16. Any notice or communication necessary or desirable to be
sent under the Lease to Lessor and Lessee shall be sent in accordance with the
terms of the Lease to the following addresses:
(a) If to Lessor:
_____________________________
_____________________________
_____________________________
_____________________________
(b) If to Lessee:
_____________________________
_____________________________
_____________________________
_____________________________
17. In the event of any conflict or inconsistency between the
terms of the Lease and this Agreement, the terms of this Agreement shall govern
and be binding.
O-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Lessor Consent as of the day and year first above written.
WITNESS/ATTEST LESSOR
By:______________________ By:___________________________
Name:_________________________
Title:________________________
LESSEE
_________________________ By:___________________________
Name:_________________________
Title:________________________
MORTGAGEE
_________________________ By:___________________________
Name:_________________________
Title:________________________
[ACKNOWLEDGEMENTS]
O-6
<PAGE>
SCHEDULE "A"
DESCRIPTION OF THE LEASE
O-7
<PAGE>
SCHEDULE "B"
DESCRIPTION OF THE PREMISES
O-8
<PAGE>
EXHIBIT P
---------
FORM OF SUBORDINATION AGREEMENT
P-1
<PAGE>
SCHEDULE 4.25(a)
----------------
REAL PROPERTIES OWNED IN FEE BY THE COMPANY
<PAGE>
DISCOVERY ZONE, INC.
$20,000,000 13 1/2% SENIOR COLLATERALIZED NOTES DUE 2002
SERIES A WARRANTS TO PURCHASE 601,585,205 SHARES OF COMMON STOCK
OR
601,585,205 SHARES OF NON-VOTING COMMON STOCK
SERIES B REDEEMABLE WARRANTS TO PURCHASE 265,405,238 SHARES
OF COMMON STOCK OR 265,405,238 SHARES OF NON-VOTING COMMON STOCK
REGISTRATION RIGHTS AGREEMENT
July 17, 1998
JEFFERIES & COMPANY, INC.
11100 Santa Monica Boulevard
10th Floor
Los Angeles, CA 90025
Ladies and Gentlemen:
DISCOVERY ZONE, INC., a Delaware corporation (the "Company" or
the "Issuer"), is issuing and selling to Jefferies & Company, Inc. (the "Initial
Purchaser"), upon the terms set forth in the Purchase Agreement, dated July 9,
1998 between the Company and the Initial Purchaser (the "Purchase Agreement"),
20,000 units (each, a "Unit" and collectively, the "Units"), each Unit
consisting of one $1,000 principal amount of the Company's 13 1/2% Senior
Collateralized Notes due 2002 (each, a "Note," collectively, the "Notes"),
seventeen detachable warrants (each, a "Series A Warrant," and collectively, the
"Series A Warrants"), each to purchase 1,769.36825 shares of common stock, par
value $.00017 per share, of the Company (the "Voting Common Stock") or, subject
to the conditions set forth in the Warrant Agreement (as defined herein),
1,769.36825 shares of non-voting common stock, par value $.00017 per share, of
the Company ("Non-Voting Common Stock") and one detachable redeemable warrant
(each, a "Series B Warrant" and collectively, the "Series B Warrants"), each to
purchase 780.6036 shares of the Company's Common Stock or, subject to the
conditions set forth in the Warrant Agreement, 780.6036 shares of the Company's
Non-Voting Common Stock. As an inducement to the Initial Purchaser to enter in
to the Purchase Agreement, the Company agrees with the Initial Purchaser, for
the benefit of the Holders (as defined below) of the Securities (as
<PAGE>
defined below) (including, without limitation, the Initial Purchaser), as
follows:
1. Definitions
-----------
Capitalized terms that are used herein without definition and are
defined in the Purchase Agreement shall have the respective meanings ascribed to
them in the Purchase Agreement. As used in this Agreement, the following terms
shall have the following meanings:
Additional Interest: See Section 4(a).
Advice: See last paragraph of Section 6.
Agreement: This Registration Rights Agreement dated as of the Closing
Date, between the Company, and the Initial Purchaser.
Applicable Period: See Section 2(e).
Business Day: A day that is not a Saturday, a Sunday or a day on which
banking institutions in the city of New York are authorized or required by law
or executive order to be closed.
Closing Date: July 17, 1998.
Collateral Agreements: The Pledge Agreement, Escrow Agreement, Security
Agreement, Trademark Assignment Subsidiary Pledge Agreement, Pledge Possession
Agreement, Mortgage and Subsidiary Security Agreements.
Common Stock: See the first introductory paragraph to this Agreement.
Company: See the first introductory paragraph to this Agreement.
Day: Unless otherwise expressly provided, a calendar day.
Effectiveness Date: The 180th day after the Closing Date.
Effectiveness Period: See Section 3(a)
Escrow Agreement: The Escrow Agreement referred to in the Indenture.
Event Date: See Section 4(b)
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Exchange Note: 13 1/2% Senior Collateralized Notes due 2002, Series B,
of the Issuer, including the guarantees endorsed
- 2 -
<PAGE>
thereon, identical in all material respects to the Notes, except for references
to series and restrictive legends.
Exchange Offer: See Section 2(a).
Exchange Registration Statement: See Section 2(a).
Filing Date: The 120th day after the Closing Date.
Holder: Any registered holder of Registrable Notes.
Indemnified Party: See Section 8(c).
Indemnifying Party: See Section 8(c).
Indenture: The Indenture, dated as of the Closing Date, among the
Company, the existing Subsidiary Guarantors and Firstar Bank of Minnesota, as
trustee, pursuant to which the Notes are being issued, as amended or
supplemented from time to time in accordance with the terms hereof.
Initial Purchaser: See the first introductory paragraph to this
Agreement.
Initial Shelf Registration: See Section 3(a).
Inspectors: See Section 6(o).
Issuer: See the first introductory paragraph to this Agreement.
Mortgage: The Mortgage referred to in the Indenture.
NASD: National Association of Securities Dealers, Inc.
Non-Voting Common Stock: See the first introductory paragraph to this
Agreement.
Notes: See the first introductory paragraph to this Agreement.
Notes Prospectus: The prospectus included in any Notes Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Notes covered by such Notes Registration Statement,
and all other amendments and supplements to such prospectus, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such prospectus.
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Notes Registration Statement: Any registration statement of the Issuer
filed with the SEC under the Securities Act, (including, but not limited to, the
Exchange Registration Statement, the Shelf Registration and any subsequent Shelf
Registration) that covers any of the Registrable Notes pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
Participating Broker-Dealer: See Section 2(e).
Person: An individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated association,
union, business association, firm, government or agency or political subdivision
thereof, or other legal entity.
Piggy-Back Registration: See Section 11(b).
Pledge Agreement: The Pledge Agreement referred to in the Indenture.
Pledge Possession Agreement: The Pledge Possession Agreement referred
to in the Indenture.
Private Exchange: See Section 2(f).
Private Exchange Notes: See Section 2(f).
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Securities covered by such Registration
Statement, and all other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
Purchase Agreement: See the first introductory paragraph to this
Agreement.
Records: See Section 6(o).
Registrable Notes: (i) Notes, (ii) Private Exchange Notes and (iii) any
Exchange Notes received in the Exchange Offer, in each case, that may not be
sold without restriction under federal or state securities laws.
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Registrable Warrant Shares: Any of (i) the Warrant Shares (whether or
not the related Warrants have been exercised) and (ii) any other securities
issued or issuable with respect to any Warrant Shares by way of stock dividends
or stock splits or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any particular
Registrable Warrant Shares, such securities shall cease to be Registrable
Warrant Shares when (i) a Warrants Registration Statement with respect to the
offering of such securities by the Holder thereof shall have been declared
effective under the Securities Act and such securities shall have been disposed
of by such Holder pursuant to such Warrants Registration Statement, (ii) such
securities are eligible for sale to the public pursuant to Rule 144(k) (or any
similar provision then in force, but not Rule 144A) or are all otherwise
eligible for sale under Rule 144 by such Holder in the current calendar quarter,
or (iii) such securities shall have been otherwise transferred by such Holder
and new certificates for such securities not bearing a legend restricting
further transfer shall have been delivered by the Company or its transfer agent
and subsequent disposition of such securities shall not require registration or
qualification under the Securities Act or any similar state law then in force.
Registration Statement: Any Notes Registration Statement or Warrant
Shares Registration Statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule
may be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer or such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule
may be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities: The Notes, the Private Exchange Notes, the Exchange Notes,
the Warrants and the Warrant Shares.
Security Agreement: The Security Agreement referred to in the
Indenture.
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Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations of the SEC promulgated thereunder.
Selling Holder: A Holder who is selling Registrable Warrant Shares in
accordance with Section 11 hereof.
Shelf Notice: See Section 2(j).
Shelf Registration: See Section 3(b).
Subsequent Shelf Registration: See Section 3(b).
Subsidiary Guarantor: Each subsidiary of the Issuer that guarantees the
obligations of the Issuer under the Notes and Indenture.
Subsidiary Pledge Agreement: The Subsidiary Pledge Agreement referred
to in the Indenture.
Subsidiary Security Agreements: The Subsidiary Security Agreements
referred to in the Indenture.
TIA: The Trust Indenture Act of 1939, as amended.
Trademark Assignment: The Trademark Assignment referred to in the
Indenture.
Trustee: The trustee under the Indenture and, if existent, the trustee
under any indenture governing the Exchange Notes and Private Exchange Notes (if
any).
Underwritten registration or underwritten offering: A registration in
which securities of the Issuer are sold to an underwriter for reoffering to the
public.
Units: See the first introductory paragraph to this Agreement.
Voting Common Stock: See the first introductory paragraph to this
Agreement.
Warrant Agreement: The Warrant Agreement referred to in the Indenture.
Warrant Shares Registration Expenses: All expenses incident to the
Company's performance of or compliance with Section 11 of this Agreement,
including, without limitation, all SEC and stock exchange or NASD registration
and filing fees and expenses, fees and expenses of compliance with securities or
blue sky laws (including, without limitation, reasonable fees and disbursements
of counsel for any underwriters in connection with blue sky qualifications of
the Registrable Warrants), preparing, printing, filing, duplicating and
distributing a Warrants Registration Statement and the related Prospectus, the
cost of printing stock
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certificates, the cost and charges of any transfer agent, rating agency fees,
printing expenses, messenger, telephone and delivery expenses, fees and
disbursements of any counsel for the Company and all independent certified
public accountants, the fees and disbursements of underwriters customarily paid
by issuers or sellers of securities (but not including any underwriting
discounts or commissions or transfer taxes, if any, attributable to the sale of
Registrable Warrant Shares by Selling Holders), fees and expenses of one counsel
for the Selling Holders and other reasonable out-of-pocket expenses of the
Selling Holders.
Warrant: Individually, a Series A Warrant or a Series B Warrant.
Warrants: Collectively, the Series A Warrants and the Series B
Warrants.
Warrants Prospectus: The prospectus included in any Warrant Shares
Registration Statement (including, without limitation, any prospectus subject to
completion and a prospectus that includes any information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Warrants covered by such Warrant
Shares Registration Statement, and all other amendments and supplements to such
prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such prospectus.
Warrant Shares: The shares of Common Stock issuable upon exercise of
the Warrants.
Warrant Shares Registration Filing Date: A date on or before the date
occurring 90 days after the effectiveness date of a registration statement filed
with the SEC in connection with an initial public offering of the Common Stock,
provided, however, that, upon the written request of the managing underwriter of
such initial public offering such date may be extended to the date 180 days
following the effectiveness date of such initial public offering.
Warrant Shares Registration Statement: See Section 11(a).
2. Exchange Offer
--------------
(a) The Issuer shall (and shall cause any existing Subsidiary
Guarantor to) (i) prepare and file with the SEC promptly after the date hereof,
but in no event later than the Filing Date, a registration statement (the
"Exchange Registration Statement") on an appropriate form under the Securities
Act with respect to an offer (the "Exchange Offer") to the Holders of
Registrable Notes to issue and deliver to such Holders, in
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exchange for the Notes, a like aggregate principal amount of Exchange Notes,
(ii) use their best efforts to cause the Exchange Registration Statement to
become effective as promptly as practicable after the filing thereof, but in no
event later than the Effectiveness Date, (iii) keep the Exchange Registration
Statement effective until the consummation of the Exchange Offer in accordance
with its terms and (iv) unless the Exchange Offer would not be permitted by a
policy of the SEC, commence the Exchange Offer and use their best efforts to
issue on or prior to 30 Business Days after the date on which the Exchange
Registration Statement is declared effective, Exchange Notes in exchange for all
Notes tendered prior thereto in the Exchange Offer. The Exchange Offer shall not
be subject to any conditions, other than that the Exchange Offer does not
violate applicable law or any applicable interpretation of the staff of the SEC.
(b) The Exchange Notes shall be issued under, and entitled to
the benefits of, (i) the Indenture or a trust indenture that is identical to the
Indenture (other than such changes as are necessary to comply with any
requirements of the SEC to effect or maintain the qualifications thereof under
the TIA), (ii) the Security Agreement or a security agreement that is identical
to the Security Agreement and (iii) the Escrow Agreement or an agreement that is
identical to the Escrow Agreement.
(c) Interest on each Exchange Note and Private Exchange Note
will accrue from the last interest payment due date on which interest was paid
on the Notes surrendered in exchange therefor or, if no interest have been paid
on the Notes, from the date of original issue of the Notes. Each Exchange Note
and Private Exchange Note shall bear interest at the rate set forth thereon;
provided, that interest with respect to the period prior to the issuance thereof
shall accrue at the rate or rates borne by the Notes from time to time during
such period.
(d) The Issuer may require each Holder who participates in the
Exchange Offer to represent (i) that any Exchange Notes received by it will be
acquired in the ordinary course of its business, (ii) that at the time of the
commencement of the Exchange Offer such Holder has not entered into any
arrangement or understanding with any Person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes in violation of
the provisions of the Securities Act, (iii) that if such Holder is an affiliate
of the Issuer within the meaning of the Securities Act, that it will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable to it, (iv) if such Holder is not a broker-dealer, that it
is not engaged in, and does not intend to engage in, the distribution of the
Notes and (v) if such Holder is a Participating Broker-Dealer, that it will
deliver a Prospectus in connection with any resale of the Exchange Notes.
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<PAGE>
(e) The Issuer shall include within the Notes Prospectus
contained in the Exchange Registration Statement a Section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchaser, which shall
contain a summary statement of the positions taken or policies made by the staff
of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange
Offer for its own account in exchange for Notes that were acquired by it as a
result of market-making or other trading activity (a "Participating Broker-
Dealer"), whether such positions or policies have been publicly disseminated by
the staff of the SEC or such positions or policies, in the judgment of the
Initial Purchaser, represent the prevailing views of the staff of the SEC. Such
"Plan of Distribution" Section shall also allow, to the extent permitted by
applicable policies and regulations of the SEC, the use of the Notes Prospectus
by all Persons subject to the prospectus delivery requirements of the Securities
Act, including, to the extent so permitted, all Participating Broker Dealers,
and include a statement describing the manner in which Participating
Broker-Dealers may resell the Exchange Notes. The Issuer shall use its best
efforts to keep the Exchange Registration Statement effective and to amend and
supplement the Notes Prospectus contained therein, in order to permit such Notes
Prospectus to be lawfully delivered by all Persons subject to the prospectus
delivery requirements of the Securities Act for such period of time as such
Persons must comply with such requirements in order to resell the Exchange Notes
(the "Applicable Period").
(f) If, upon consummation of the Exchange Offer, the Initial
Purchaser holds any Notes acquired by it and having the status of an unsold
allotment in the initial distribution, the Company (upon the written request
from such Initial Purchaser) shall, simultaneously with the delivery of the
Exchange Notes in the Exchange Offer, issue and deliver to the Initial
Purchaser, in exchange (the "Private Exchange") for the Notes held by the
Initial Purchaser, a like principal amount of debt securities of the Company,
guaranteed by any then existing Subsidiary Guarantors and secured by the same
collateral as the Exchange Notes, that are identical in all material respects to
the Exchange Notes except for the existence of restrictions on transfer thereof
under the Securities Act and securities laws of the several states of the U.S.
(the "Private Exchange Notes") (and which are issued pursuant to the same
indenture as the Exchange Notes).
(g) In connection with the Exchange Offer, the Issuer shall:
(1) mail to each Holder a copy of the Notes
Prospectus forming part of the Exchange Registration Statement,
together with an appropriate letter of transmittal (as an exhibit
thereto) and related documents;
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(2) utilize the services of a depository for the
Exchange Offer with an address in the Borough of Manhattan, the City of
New York, which may be the Trustee or an affiliate thereof;
(3) permit Holders to withdraw tendered Registrable
Notes at any time prior to the close of business, New York time, on the
last Business Day on which the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with
all applicable laws.
(h) As soon as practicable after the close of the Exchange
Offer or the Private Exchange, as the case may be, the Issuer shall:
(1) accept for exchange all Notes validly tendered
pursuant to the Exchange Offer or the Private Exchange, as the case may
be, and not validly withdrawn;
(2) deliver to the Trustee for cancellation all
Registrable Notes so accepted for exchange; and
(3) cause the Trustee to authenticate and deliver
promptly to each Holder tendering such Notes, Exchange Notes or Private
Exchange Notes, as the case may be, equal in principal amount to the
Notes, Exchange Notes or Private Exchange Notes, as the case may be, of
such Holder so accepted for exchange.
(i) The Exchange Notes and the Private Exchange Notes may be
issued under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture, which in either event will provide that the Exchange
Notes will not be subject to the transfer restrictions set forth in the
Indenture and that the Exchange Notes, the Private Exchange Notes and the Notes,
if any, will be deemed one class of security (subject to the provisions of the
Indenture) and entitled to participate in all the security granted by the
Company pursuant to the Collateral Agreements and in any Subsidiary Guarantee as
such terms are defined in the Indenture) on an equal and ratable basis.
(j) If, (i) prior to the consummation of the Exchange Offer,
either the Issuer or the Holders of a majority in aggregate principal amount of
the outstanding Registrable Notes determines in its or their reasonable judgment
that (A) the Exchange Notes would not, upon receipt, be tradable by the Holders
thereof without restriction under the Securities Act, the Exchange Act or
applicable Blue Sky or state securities laws or (B) the interests of the Holders
under this Agreement, taken as a whole, would be materially adversely affected
by the consummation of the Exchange Offer, (ii) applicable interpretations of
the
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staff of the SEC would not permit the consummation of the Exchange Offer prior
to the Effectiveness Date, (iii) the Exchange Offer is not consummated within
180 days of the Closing Date for any reason, (iv) any holder of Private Exchange
Notes so requests in writing to the Issuer within 120 days after the
consummation of the Exchange Offer or (v) in the case of any Holder not
permitted to participate in the Exchange Offer or any Holder that participates
in the Exchange Offer but does not receive Exchange Notes on the date of the
exchange that may be sold without restriction under state and federal securities
laws (other than due solely to the status of such Holder as an affiliate of the
Issuer within the meaning of the Securities Act) and so notifies the Company
within six months of consummation of the Exchange Offer, then the Issuer (and
any then existing Subsidiary Guarantor) shall promptly deliver to the Holders
and the Trustee written notice thereof (the "Shelf Notice") and shall file an
Initial Shelf Registration pursuant to Section 3.
(k) No registration effected under this Section 2, and no
failure to effect a registration under this Section 2, shall relieve the Company
of its obligations to effect a registration upon the request of Holders of
Registrable Warrant Shares pursuant to Section 11 hereof.
3. Shelf Registration
------------------
If a Shelf Notice is delivered pursuant to Section 2(j), then
this Section 3 shall apply to all Registrable Notes. Otherwise, upon
consummation of the Exchange Offer in accordance with Section 2, the provisions
of Section 3 shall apply solely with respect to (i) Notes held by any Holder
thereof not permitted to participate in the Exchange Offer and (ii) Exchange
Notes that are not freely tradeable as contemplated by Section 2(j)(v) hereof,
provided in each case that the relevant Holder has duly notified the Issuer
within six months of the Exchange Offer as required by Section 2(j)(v).
(a) Initial Shelf Registration. The Issuer shall as promptly
as practicable file (and shall cause any then existing Subsidiary Guarantor to
file) with the SEC a Notes Registration Statement for an offering to be made on
a continuous basis pursuant to Rule 415 covering all of the Registrable Notes
(the "Initial Shelf Registration"). If the Issuer (and any then existing
Subsidiary Guarantor) has not yet filed an Exchange Registration Statement, the
Issuer shall file (and shall cause any then existing Subsidiary Guarantor to
file) with the SEC the Initial Shelf Registration on or prior to the Filing Date
and shall use its best efforts to cause such Initial Shelf Registration to be
declared effective under the Securities Act on or prior to the Effectiveness
Date. Otherwise, the Issuer shall use its best efforts to file (and shall cause
any then existing Subsidiary Guarantor to file) with the SEC the Initial Shelf
Registration within 20 days of the delivery of the Shelf Notice and shall use
its best efforts to cause such Shelf Registration
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to be declared effective under the Securities Act as promptly as practicable
thereafter. The Initial Shelf Registration shall be on Form S-1 or another
appropriate form permitting registration of such Registrable Notes for resale by
Holders in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Issuer and Subsidiary
Guarantors shall not permit any securities other than the Registrable Notes to
be included in any Shelf Registration. No Holder of Registerable Notes shall be
entitled to include any of its Registrable Notes in any Shelf Registration
pursuant to this Agreement unless such Holder furnishes to the Issuer and the
Trustee in writing, within 30 days after receipt of a request therefor, such
information as the Issuer and the Trustee after conferring with counsel with
regard to information relating to Holders that would be required by the SEC to
be included in such Shelf Registration or Prospectus included therein, may
reasonably request for inclusion in any Shelf Registration or Prospectus
included therein. The Issuer shall use its best efforts to keep the Initial
Shelf Registration continuously effective under the Securities Act until the
date which is 36 months from the Closing Date (the "Effectiveness Period"), or
such shorter period ending when (i) all Registrable Notes covered by the Initial
Shelf Registration have been sold in the manner set forth and as contemplated in
the Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering
all of the Registrable Notes has been declared effective under the Securities
Act.
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale of all of the securities registered thereunder), the Issuer shall use its
best efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within 5 Business Days of such
cessation of effectiveness amend such Shelf Registration in a manner to obtain
the withdrawal of the order suspending the effectiveness thereof, or file (and
cause any then existing Subsidiary Guarantor to file) an additional "shelf"
Notes Registration Statement pursuant to Rule 415 covering all of the
Registrable Notes (a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, the Issuer shall use its best efforts to cause the
Subsequent Shelf Registration to be declared effective as soon as practicable
after such filing and to keep such Subsequent Shelf Registration continuously
effective for a period equal to the number of days in the Effectiveness Period
less the aggregate number of days during which the Initial Shelf Registration or
any Subsequent Shelf Registrations was previously continuously effective. As
used herein the term "Shelf Registration" means the Initial Shelf Registration
and any Subsequent Shelf Registrations
(c) Supplements and Amendments. The Issuer shall promptly
supplement and amend any Shelf Registration if required by the rules,
regulations or instructions applicable to the
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<PAGE>
registration form used for such Shelf Registration, if required by the
Securities Act, or if reasonably requested by the Holders of a majority in
aggregate principal amount of the Registrable Notes covered by such Shelf
Registration or by any underwriter of such Registrable Notes.
(d) No registration effected under this Section 3, and no
failure to effect a registration under this Section 3, shall relieve the Company
of its obligations to effect a registration upon the request of Holders of
Registrable Warrant Shares pursuant to Section 11 hereof.
4. Additional Interest
(a) The Issuer acknowledges and agrees that the Holders of
Registrable Notes will suffer damages if the Issuer fails to fulfill its
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Issuer agrees to pay, as liquidated damages, cash interest on the Notes
("Additional Interest") under the circumstances and to the extent set forth
below (each of which shall be given independent effect):
(i) if neither the Exchange Registration Statement nor the
Initial Shelf Registration has been filed on or prior to the Filing
Date, then commencing on the day after the Filing Date, Additional
Interest shall accrue on the Notes over and above any stated interest
at a rate of 0.25% per annum of the principal amount of such Notes for
the first 90 days commencing on the Filing Date, such Additional
Interest rate increasing by an additional 0.25% per annum at the
beginning of each subsequent 90-day period;
(ii) if neither the Exchange Registration Statement nor the
Initial Shelf Registration is declared effective on or prior to the
Effectiveness Date, then commencing on the Effectiveness Date,
Additional Interest shall accrue on the Notes over and above any stated
interest at a rate of 0.25% per annum of the principal amount of such
Notes for the first 90 days immediately following the Filing Date, such
Additional Interest rate increasing by an additional 0.25% per annum at
the beginning of each subsequent 90-day period;
(iii) if (A) the Issuer (and any then existing Subsidiary
Guarantor) has not exchanged Exchange Notes for all Notes validly
tendered in accordance with the terms of the Exchange Offer on or prior
to the 210th day after the date hereof, (B) if applicable, a Shelf
Registration has been declared effective and such Shelf Registration
ceases to be effective at any time during the Effectiveness Period and
is not declared effective again within 5 Business Days, (C) pending the
announcement of a material corporate transaction, the Issuer issues a
written notice pursuant to
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Section 6(e)(v) or (vi) that a Shelf Registration Statement or Exchange
Registration Statement is unusable and the aggregate number of days in
any 365-day period for which all such notices issued or required to be
issued, have been, or were required to be, in effect exceeds 120 days
in the aggregate or 30 days consecutively, in the case of a Shelf
Registration Statement, or 15 days in the aggregate in the case of an
Exchange Registration Statement, then Additional Interest shall accrue
on the Notes over and above any stated interest at a rate of 0.25% per
annum of the principal amount of such Notes for the first 90 days
commencing on the (x) 210th day after the date hereof, in the case of
(A) above, (y) the day such Shelf Registration ceases to be effective
without being declared effective again within 5 Business Days in the
case of (B) above, or (z) the day the Exchange Registration Statement
or Shelf Registration ceased to be usable in case of clause (C) above,
such Additional Interest rate increasing by an additional 0.25% per
annum at the beginning of each such subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not exceed
at any one time in the aggregate 1.00% per annum; and provided further, that (1)
upon the filing of the Exchange Registration Statement or Initial Shelf
Registration (in the case of (i) above), (2) upon the effectiveness of the
Exchange Registration Statement or Initial Shelf Registration (in the case of
(ii) above), or (3) upon the exchange of Exchange Notes for all Notes tendered
(in the case of (iii)(A) above), or upon the effectiveness of a Shelf
Registration which had ceased to remain effective (in the case of (iii)(B)
above), Additional Interest on the Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
(b) The Issuer shall notify the Trustee within two Business
Days after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). Any amounts of
Additional Interest due pursuant to clause (a)(i), (a)(ii) or (a)(iii) of this
Section 4 will be payable semi-annually, on the dates and in the manner provided
in the Indenture and whether or not any cash interest would then be payable on
such date, commencing with the first such semi-annual date occurring after any
such Additional Interest commences to accrue. The amount of Additional Interest
will be determined by multiplying the applicable Additional Interest rate by the
principal amount of the Notes, multiplied by a fraction, the numerator of which
is the number of days such Additional Interest rate was applicable during such
semi-annual period (determined on the basis of a 360-day year comprised of
twelve 30-day months and, in the case of a partial month, the actual number of
days elapsed), and the denominator of which is 360.
5. Hold-Back Agreements
--------------------
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The Issuer agrees that it will not effect any public or
private sale or distribution (including a sale pursuant to Regulation D under
the Securities Act) of any securities the same as or similar to those covered by
a Registration Statement filed pursuant to Section 2 or 3 hereof, or any
securities convertible into or exchangeable or exercisable for such securities,
during the 10 days prior to, and during the 90-day period beginning on, (A) the
effective date of any Registration Statement filed pursuant to Sections 2 and 3
hereof unless the Holders of a majority in the aggregate principal amount of the
Registrable Notes to be included in such Registration Statement consent or (B)
the commencement of an underwritten public distribution of Registrable Warrant
Shares, if the managing underwriter thereof so requests.
6. Notes Registration Procedures
-----------------------------
In connection with the filing of any Notes Registration
Statement pursuant to Section 2 or 3 hereof, the Issuer shall effect such
registrations to permit the sale of such securities covered thereby in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto and in connection with any Notes Registration Statement filed
by the Issuer hereunder, the Issuer shall:
(a) Prepare and file with the SEC as soon as practicable after
the date hereof but in any event on or prior to the Filing Date, the Exchange
Registration Statement or if the Exchange Registration Statement is not filed
because of the circumstances contemplated by Section 2(j)(ii), a Shelf
Registration as prescribed by Section 3, and use its best efforts to cause each
such Notes Registration Statement to become effective and remain effective as
provided herein; provided that, if (1) a Shelf Registration is filed pursuant to
Section 3, or (2) a Notes Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, before filing any Notes Registration
Statement or Notes Prospectus or any amendments or supplements thereto the
Issuer shall, if requested, furnish to and afford the Holders of the Registrable
Notes to be registered pursuant to such Shelf Registration Statement, or each
Participating Broker-Dealer and to their counsel and the managing underwriters,
if any, a reasonable opportunity to review copies of all such documents
(including copies of any documents to be incorporated by reference therein and
all exhibits thereto) proposed to be filed (in each case at least five business
days prior to such filing). The Issuer shall not file any such Notes
Registration Statement or Notes Prospectus or any amendments or supplements
thereto if the holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Notes Registration Statement, or any such
Participating Broker-Dealer, as the case may be,
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<PAGE>
their counsel, or the managing underwriters, if any, shall reasonably object.
(b) Provide an indenture trustee for the Registrable Notes,
the Exchange Notes or the Private Exchange Notes, as the case may be, and cause
the Indenture (or other indenture relating to the Registrable Notes) to be
qualified under the TIA not later than the effective date of the first
Registration Statement; and in connection therewith, to effect such changes to
such indenture as may be required for such indenture to be so qualified in
accordance with the terms of the TIA; and execute, and use its best efforts to
cause such trustee to execute, all documents as may be required to effect such
changes, and all other forms and documents required to be filed with the SEC to
enable such indenture to be so qualified in a timely manner.
(c) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration or Exchange Registration
Statement, as the case may be, as may be necessary to keep such Notes
Registration Statement continuously effective for the Effectiveness Period or
the Applicable Period, as the case may be; cause the related Notes Prospectus to
be supplemented by any Prospectus supplement required by applicable law, and as
so supplemented to be filed pursuant to Rule 424 (or any similar provisions then
in force) promulgated under the Securities Act; and comply with the provisions
of the Securities Act and the Exchange Act applicable to it with respect to the
disposition of all securities covered by such Notes Registration Statement as so
amended or in such Notes Prospectus as so supplemented and with respect to the
subsequent resale of any securities being sold by a Participating Broker-Dealer
covered by any such Prospectus. The Issuer shall not, during the Applicable
Period take any action that would result in selling Holders of the Registrable
Notes covered by a Notes Registration Statement or Participating Broker-Dealers
seeking to sell Exchange Notes not being able to sell such Registrable Notes or
such Exchange Notes during that period.
(d) Furnish to such selling Holders and Participating
Broker-Dealers who so request in writing (i) upon the Company's receipt, a copy
of the order of the SEC declaring such Registration Statement and any
post-effective amendment thereto effective and (ii) such reasonable number of
copies of such Registration Statement and of each amendment and supplement
thereto (in each case including any documents incorporated therein by reference
and all exhibits), (iii) such reasonable number of copies of the Prospectus
included in such Registration Statement (including each preliminary Prospectus),
and such reasonable number of copies of the final Prospectus as filed by the
Company pursuant to Rule 424(b) under the Securities Act, in conformity with the
requirements of the Securities Act, and (iv) such other documents, (including
any amendments required to be filed pursuant to clause (c) of this Section), as
any such Person may reasonably request. The Company hereby consents to the use
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of the Prospectus by each of the selling Holders of Registrable Notes or each
such Participating Broker-Dealer, as the case may be, and the underwriters or
agents, if any, and dealers (if any), in connection with the offering and sale
of the Registrable Notes covered by, or the sale by Participating Broker-Dealers
of the Exchange Notes pursuant to, such Prospectus and any amendment thereto.
(e) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Notes Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the Securities Act
by any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, notify in writing the selling Holders of Registrable Notes,
or each such Participating Broker-Dealer, as the case may be, their counsel and
the managing underwriters, if any, promptly (but in any event within two
Business Days) (i) when a Notes Prospectus or any Notes Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Notes
Registration Statement or any post-effective amendment, when the same has become
effective (including in such notice a written statement that any Holder may,
upon request, obtain, without charge, one conformed copy of such Notes
Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be incorporated by
reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Notes Registration Statement or of any order
preventing or suspending the use of any Notes Prospectus or the initiation of
any proceedings for that purpose, (iii) if at any time when a Prospectus is
required by the Securities Act to be delivered in connection with sales of the
Registrable Notes the representations and warranties of the Issuer contained in
any agreement (including any underwriting agreement) contemplated by Section
6(n) hereof cease to be true and correct, (iv) of the receipt by the Issuer of
any notification with respect to the suspension of the qualification or
exemption from qualification of a Notes Registration Statement or any of the
Registrable Notes or the Exchange Notes to be sold by any Participating Broker-
Dealer for offer or sale in any jurisdiction, or the initiation or threatening
of any proceeding for such purpose, (v) of the happening of any event, the
existence of any condition of any information becoming known that makes any
statement made in such Notes Registration Statement or related Notes Prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes in, or
amendments or supplements to, such Notes Registration Statement, Notes
Prospectus or documents so that, in the case of the Notes Registration Statement
and the Notes Prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (vi) of any reasonable determination
by the
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Company that a post-effective amendment to a Notes Registration Statement would
be appropriate.
(f) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Notes Registration Statement or of any order
preventing or suspending the use of a Notes Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable Notes
or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in
any jurisdiction, and, if any such order is issued, to use its best efforts to
obtain the withdrawal of any such order at the earliest possible date.
(g) If (A) a Shelf Registration is filed pursuant to Section 3
or (B) a Notes Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period or (C) requested by the managing underwriters, if any, or the
Holders of a majority in aggregate principal amount of the Registrable Notes
being sold in connection with an underwritten offering, (i) promptly incorporate
in a prospectus supplement or post-effective amendment such information or
revisions to information therein relating to such underwriters or selling
Holders as the managing underwriters, if any, or such Holders or their counsel
reasonably request to be included or made therein and (ii) make all required
filings of such prospectus supplement or such post-effective amendment as soon
as practicable after the Issuer has received notification of the matters to be
incorporated in such prospectus supplements or post-effective amendment.
(h) Prior to any public offering of Registrable Notes or any
delivery of a Notes Prospectus contained in the Exchange Registration Statement
by any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its best efforts to register or qualify, and to cooperate
with the selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, the underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable Notes or
Exchange Notes, as the case may be, for offer and sale under the securities or
Blue Sky laws of such jurisdictions within the United States as any selling
Holder, Participating Broker-Dealer, or any managing underwriter or
underwriters, if any, reasonably request in writing; provided that where
Exchange Notes held by Participating Broker-Dealers or Registrable Notes are
offered other than through an underwritten offering, the Issuer agrees to cause
its counsel to perform Blue Sky investigations and file any registrations and
qualifications required to be filed pursuant to this Section 6(h); keep each
such registration or qualification (or exemption therefrom) effective during the
period such Notes Registration Statement is required to be kept effective and do
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any and all other acts or things reasonable necessary or advisable to enable the
disposition in such jurisdictions of the Exchange Notes held by Participating
Broker-Dealers or the Registrable Notes covered by the applicable Registration
Statement; provided that neither the Issuer nor any existing Subsidiary
Guarantor shall be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or (C) subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction where it is not then so subject.
(i) If (A) a Shelf Registration is filed pursuant to Section 3
or (B) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 is requested to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, cooperate with the selling Holders of Registrable Notes and
the managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Notes to be
sold, which certificates shall not bear any restrictive legends and shall be in
a form eligible for deposit with The Depository Trust Company; and enable such
Registrable Notes to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or Holders may reasonably
request.
(j) use its best efforts to cause the Registrable Notes
covered by any Notes Registration Statement to be registered with or approved by
such governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriter, if any, to consummate the
disposition of such Registrable Notes, except as may be required solely as a
consequence of the nature of such selling Holder's business, in which case the
Issuer will cooperate in all reasonable respects with the filing of such Notes
Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Notes Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the Securities Act
by any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, upon the occurrence of any event contemplated by paragraph
6(e)(v) or 6(e)(vi) hereof, as promptly as practicable prepare and file with the
SEC, at the expense of the Issuer, a supplement or post-effective amendment to
the Notes Registration Statement or a supplement to the related Notes Prospectus
or any document incorporated or deemed to be incorporated therein by reference,
or file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Notes being sold thereunder or to the purchasers
of the Exchange Notes to whom such Notes Prospectus will be
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<PAGE>
delivered by a Participating Broker-Dealer, such Notes Prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(l) Use its best efforts to cause the Registrable Notes
covered by a Notes Registration Statement to be rated with the appropriate
rating agencies, if so requested by the Holders of a majority in aggregate
principal amount of Registrable Notes covered by such Notes Registration
Statement or the managing underwriter or underwriters, if any.
(m) Prior to the initial issuance of the Exchange Notes, (i)
provide the Trustee with one or more certificates for the Registrable Notes in a
form eligible for deposit with The Depository Trust Company and (ii) provide a
CUSIP number for the Exchange Notes.
(n) If a Shelf Registration is filed pursuant to Section 3,
enter into such agreements (including an underwriting agreement in form, scope
and substance as is customary in underwritten offerings of debt securities
similar to the Notes, as may be appropriate in the circumstances) and take all
such other actions in connection therewith (including those reasonably requested
by the managing underwriters, if any, or the Holders of a majority in aggregate
principal amount of the Registrable Notes being sold) in order to expedite or
facilitate the registration or the disposition of such Registrable Notes, and in
such connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an Underwritten registration, (i) make such
representations and warranties to the Holders and the underwriters, if any, with
respect to the business of the Company and its subsidiaries, and the
Registration Statement, Prospectus and documents, if any, incorporated or deemed
to be incorporated by reference therein, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings of debt securities similar to the Notes, as may be appropriate in the
circumstances, and confirm the same if and when reasonably required; (ii) obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to the
managing underwriters, if any, and the Holders of a majority in aggregate
principal amount of the Registrable Notes being sold), addressed to each selling
Holder and each of the underwriters, if any, covering the matters customarily
covered in opinions of counsel to the Issuer requested in underwritten offerings
of debt securities similar to the Notes, as may be appropriate in the
circumstances; (iii) obtain "cold comfort" letters and updates thereof (which
letters and updates (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters) from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public
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<PAGE>
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data are, or are required
to be, included in the Registration Statement), addressed to each of the
underwriters and each selling Holder, such letters to be in customary form and
covering mattes of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings of debt securities similar to the Notes,
as may be appropriate in the circumstances, and such other matters as reasonably
requested by underwriters; and (iv) deliver such documents and certificates as
may be reasonably requested by the Holders of a majority in principal amount of
the Registrable Notes being sold and the managing underwriters, if any, to
evidence the continued validity of the representations and warranties of the
Company and its subsidiaries made pursuant to clause (i) above and to evidence
compliance with any conditions contained in the underwriting agreement or other
similar agreement entered into by the Company.
(o) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Notes Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the Securities Act
by any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, make available for inspection by any selling Holder of such
Registrable Notes being sold, or each such Participating Broker-Dealer, as the
case may be, any underwriter participating in any such disposition of
Registrable Notes, if any, and any attorney, accountant or other agent retained
by any such selling Holder or each such Participating Broker-Dealer, as the case
may be, or underwriter (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and other records
and pertinent corporate documents of the Issuer and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise any applicable due diligence responsibilities, and cause the officers,
directors and employees of the Issuer and its subsidiaries to supply all
information reasonably requested by any such Inspector in connection with such
Notes Registration Statement. Such Records shall be kept confidential by each
Inspector and shall not be disclosed by the Inspector unless (i) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
such Notes Registration Statement, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction,
(iii) the information in such Records is public or has been made generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Inspector or (iv) disclosure of such information is, in the
opinion of counsel for any Inspector, necessary or advisable in connection with
any action, claim, suit or proceeding, directly or indirectly, involving or
potentially involving such Inspector and arising out of, based upon, related to,
or involving this agreement, or any transaction contemplated hereby or arising
hereunder. Each selling Holder of such Registrable Notes and each such
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<PAGE>
Participating Broker-Dealer will be required to agree that information obtained
by it as a result of such inspections shall be deemed confidential and shall not
be used by it as the basis for any market transactions in the securities of the
Issuer unless and until such is made generally available to the public. Each
selling Holder of such Registrable Notes and each such Participating
Broker-Dealer will be required to further agree that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction, give
notice to the Issuer and, to the extent practicable, use its best efforts to
allow the Issuer, at its expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential at their expense.
(p) Comply with all applicable rules and regulations of the
SEC and make generally available to the security holders of the Company earnings
statements satisfying the provisions of section 11(a) of the Securities Act and
Rules 158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 days after the end of any 12-month period (or 90 days after the
end of any 12-month period if such period is a fiscal year) (i) commencing at
the end of any fiscal quarter in which Registrable Notes are sold to
underwriters in a firm commitment or best efforts underwritten offering and (ii)
if not sold to underwriters in such an offering, commencing on the first day of
the first fiscal quarter of the Company after the effective date of a Notes
Registration Statement, which statements shall cover said 12-month periods.
(q) Upon consummation of an Exchange Offer or Private
Exchange, obtain an opinion of counsel to the Company (in form, scope and
substance reasonably satisfactory to the Purchaser), addressed to the Trustee
for the benefit of all Holders participating in the Exchange Offer or Private
Exchange, as the case may be, to the effect that (i) the Company and the
existing Subsidiary Guarantors have duly authorized, executed and delivered the
Exchange Notes or the Private Exchange Notes, as the case may be, and the
Indenture, (ii) the Exchange Notes or the Private Exchange Notes, as the case
may be, and the Indenture constitute legal, valid and binding obligations of the
Company and the existing Subsidiary Guarantors, enforceable against the Company
and the existing Subsidiary Guarantors in accordance with their respective
terms, except as such enforcement may be subject to customary exceptions and
(iii) all obligations of the Company and the existing Subsidiary Guarantors
under the Exchange Notes or the Private Exchange Notes, as the case may be, and
the Indenture are secured by Liens on the assets securing the obligations of the
Company under the Notes, Indenture and Collateral Agreements.
(r) If the Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by the Holders to the
Issuers (or to such other Person as directed by the Issuer) in exchange for the
Exchange Notes of the Private
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<PAGE>
Exchange Notes, as the case may be, the Issuer shall mark, or caused to be
marked, on such Registrable Notes that such Registrable Notes are being
cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as
the case may be; provided that in no event shall such Registrable Notes be
marked as paid or otherwise satisfied.
(s) Cooperate with each seller of Registrable Notes covered by
any Notes Registration Statement and each underwriter, if any, participating in
the disposition of such Registrable Notes and their respective counsel in
connection with any filings required to be made with the NASD.
(t) Use its best efforts to take all other steps reasonably
necessary to effect the registration of the Registrable Notes covered by a Notes
Registration Statement
contemplated hereby.
The Issuer may require each seller of Registrable Notes or
Participating Broker-Dealer as to which any registration is being effected to
furnish to the Issuer such information regarding such seller or Participating
Broker-Dealer and the distribution of such Registrable Notes as the Issuer may,
from time to time, reasonably request. The Issuer may exclude from such
registration the Registrable Notes of any seller who fails to furnish such
information within a reasonable time (which time in no event shall exceed 60
days) after receiving such request.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, that, upon
receipt of any notice from the Issuer of the happening of any event of the kind
described in Section 6(e)(ii), 6(e)(iv), 6(e)(v), or 6(e)(vi), such Holder will
forthwith discontinue disposition of such Registrable Notes covered by a Notes
Registration Statement and such Participating Broker-Dealer will forthwith
discontinue disposition of such Exchange Notes pursuant to any Notes Prospectus
and, in each case, forthwith discontinue dissemination of such Prospectus until
such Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Notes Prospectus contemplated by Section 6(k), or until
it is advised in writing (the "Advice") by the Issuer that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto and, if so directed by the Issuer, such Holder or
Participating Broker-Dealer, as the case may be, will deliver to the Issuer all
copies, other than permanent file copies, then in such Holder's or Participating
Broker-Dealer's possession, of the Notes Prospectus covering such Registrable
Notes current at the time of the receipt of such notice. In the event the Issuer
shall give any such notice, the Applicable Period shall be extended by the
number of days during such periods from and including the date of the giving of
such notice to and including the date when each Participating Broker-
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<PAGE>
Dealer shall have received (x) the copies of the supplemented or amended Notes
Prospectus contemplated by Section 6(k) or (y) the Advice.
7. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuer (other than Warrant Shares
Registration Expenses which are covered by Section 11) shall be borne by the
Issuer, whether or not the Exchange Offer or a Shelf Registration is filed or
becomes effective, including, without limitation, (i) all registration and
filing fees, including, without limitation, (A) fees with respect to filings
required to be made with the NASD in connection with any underwritten offering
and (B) fees and expenses of compliance with state securities or Blue Sky laws
as provided in Section 6(h) hereof, (ii) printing expenses, including, without
limitation, expenses of printing Prospectuses if the printing of Prospectuses is
requested by the managing underwriter or underwriters, if any, or by the Holders
of a majority in aggregate principal amount of the Registrable Notes included in
any Notes Registration Statement or by any Participating Broker-Dealer during
the Applicable Period, as the case may be, (iii) messenger, telephone and
delivery expenses incurred in connection with the performance of its obligations
hereunder, (iv) fees and disbursements of counsel for the Issuer, (v) fees and
disbursements of all independent certified public accountants referred to in
Section 6(n)(iii) (including, without limitation, the expenses of any special
audit and "cold comfort" letters required by or incident to such performance),
(vi) rating agency fees, (vii) Securities Act liability insurance, if the Issuer
desires such insurance, (viii) fees and expenses of all other Persons retained
by the Issuers, (ix) internal expenses of the Issuer (including, without
limitation, all salaries and expenses of officers and employees of the Issuer
performing legal or accounting duties), (x) the expense of any annual audit,
(xi) the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange and (ii) the expenses
relating to printing, word processing and distributing all Registration
Statements, underwriting agreements, securities sales agreements, indentures and
any other documents necessary in order to comply with this Agreement.
(b) The Company shall reimburse the Holders for the reasonable
fees and disbursements of not more than one counsel (in addition to appropriate
local counsel) chosen by the Holders of a majority in aggregate principal amount
of the Registrable Notes to be included in any Registration Statement. The
Company shall pay all documentary, stamp, transfers or other transactional taxes
attributable to the issuance or delivery of the Exchange Notes or Private
Exchange Notes in exchange for the Notes; provided that the Company shall not be
required to pay taxes payable in respect of any transfer involved in the
issuance or delivery of any Exchange Note or Private Exchange Note in a
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name other than that of the Holder of the Note in respect of which such Exchange
Note or Private Exchange Note is being issued.
8. Indemnification
---------------
(a) Indemnification by the Company. The Company shall (and
shall cause each Subsidiary Guarantor, jointly and severally, to) without
limitation as to time, indemnify and hold harmless each Holder of Registrable
Notes, Exchange Notes, Private Exchange Notes or Registrable Warrant Shares and
each Participating Broker-Dealer selling Exchange Notes during the Applicable
Period, each Person, if any, who controls each such Holder (within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) and
the officers, directors and partners of each such Holder, Participating
Broker-Dealer and controlling person, to the fullest extent lawful, from and
against any and all losses, claims, damages, liabilities, costs (including,
without limitation, reasonable costs of preparation and reasonable attorneys'
fees as provided in this Section 8) and expenses (including, without limitation,
reasonable costs and expenses incurred in connection with investigating,
preparing, pursuing or defending against any of the foregoing)(collectively,
"Losses"), as incurred, directly or indirectly caused by, related to, based
upon, arising out of or in connection with any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or form of prospectus, or in any amendment or supplement thereto, or in any
preliminary prospectus, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except insofar as such Losses are solely based upon information
relating to such Holder or Participating Broker-Dealer and furnished in writing
to the Company (or reviewed and approved in writing) by such Holder or
Participating Broker-Dealer or its counsel expressly for use therein; provided,
however, that the Company will not be liable to any Indemnified Party under this
Section 8 to the extent Losses were solely caused by an untrue statement or
omission or alleged untrue statement or omission that was contained or made in
any preliminary prospectus and corrected in the Prospectus or any amendment or
supplement thereto if (i) the Prospectus does not contain any other untrue
statement or omission or alleged untrue statement or omission of a material fact
that was the subject matter of the related proceeding, (ii) any such Losses
resulted from an action, claim or suit by any Person who purchased Registrable
Warrant Shares, Registrable Notes or Exchange Notes which are the subject
thereof from such Indemnified Party and (iii) it is established in the related
proceeding that such Indemnified Party failed to deliver or provide a copy of
the Prospectus (as amended or supplemented) to such Person with or prior to the
confirmation of the sale of such Registrable Warrant Shares, Registrable Notes
or Exchange Notes sold to such Person if required by applicable law, unless such
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<PAGE>
failure to deliver or provide a copy of the Prospectus (as amended or
supplemented) was a result of noncompliance by the Issuer with Section 6 of this
Agreement. The Company shall also indemnify underwriters, selling brokers,
dealer managers and similar securities industry professionals participating in
the distribution, their officers, directors, agents and employees and each
Person who controls such Persons (within the meaning of Section 5 of the
Securities Act or Section 20(a) of the Exchange Act) to the same extent as
provided above with respect to the indemnification of the Holders or the
Participating Broker-Dealer.
(b) Indemnification by Holder. In connection with any
Registration Statement, Prospectus or form of prospectus, any amendment or
supplement thereto, or any preliminary prospectus in which a Holder is
participating, such Holder shall furnish to the Company in writing such
information as the Company reasonably requests for use in connection with any
Registration Statement, Prospectus or form of prospectus, any amendment or
supplement thereto, or any preliminary prospectus and shall, without limitation
as to time, indemnify and hold harmless the Company, its directors and each
Person, if any, who controls the Company (within the meaning of Section 15 of
the Securities Act and Section 20(a) of the Exchange Act), and the directors,
officers, and partners of such controlling persons, to the fullest extent
lawful, from and against all Losses arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or form of prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading to the extent, but only to the extent, that such losses are
finally judicially determined by a court of competent jurisdiction in a final,
unappealable order to have resulted solely from an untrue statement or alleged
untrue statement of a material fact or omission or alleged omission of a
material fact contained in or omitted from any information so furnished in
writing by such Holder to the Company expressly for use therein. Notwithstanding
the foregoing, in no event shall the liability of any selling Holder be greater
in amount than the dollar amount of the proceeds (net of payment of all
expenses) received by such Holder upon the sale of the Registrable Notes or
Registrable Warrant Shares giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify the party
or parties from which such indemnity is sought (the "Indemnifying Parties") in
writing; provided, that the failure to so notify the Indemnifying Parties shall
not relieve the Indemnifying Parties from any obligation or liability except to
the extent (but only to the
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<PAGE>
extent) that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal) that the Indemnifying Parties
have been prejudiced materially by such failure.
The Indemnifying Party shall have the right, exercisable by
giving written notice to an Indemnified Party, within 20 business days after
receipt of written notice from such Indemnified Party of such Proceeding, to
assume, at its expense, the defense of any such Proceeding, provided, that an
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or parties
unless: (1) the Indemnifying Party has agreed to pay such fees and expenses; or
(2) the Indemnifying Party shall have failed promptly to assume the defense of
such Proceeding or shall have failed to employ counsel reasonably satisfactory
to such Indemnified Party; or (3) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified Party and the
Indemnifying Party or any of its affiliates or controlling persons, and such
Indemnified Party shall have been advised by counsel that there may be one or
more defenses available to such Indemnified Party that are in addition to, or in
conflict with, those defenses available to the Indemnifying Party or such
affiliate or controlling person (in which case, if such Indemnified Party
notifies the Indemnifying Parties in writing that it elects to employ separate
counsel at the expense of the Indemnifying Parties, the Indemnifying Parties
shall not have the right to assume the defense and the reasonable fees and
expenses of such counsel shall be at the expense of the Indemnifying Party; it
being understood, however, that, the Indemnifying Party shall not, in connection
with any one such Proceeding or separate but substantially similar or related
Proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses or more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for such Indemnified Party).
No Indemnifying Party shall be liable for any settlement of
any such Proceeding effected without its written consent, which shall not be
unreasonably withheld, but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such Proceeding, each Indemnifying Party
jointly and severally agrees, subject to the exceptions and limitations set
forth above, to indemnify and hold harmless each Indemnified Party from and
against any and all Losses by reason of such settlement or judgment. The
Indemnifying Party shall not consent to the entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to each Indemnified Party of a release, in form and
substance reasonably satisfactory to the Indemnified Party, from all liability
in respect of such Proceeding for which such Indemnified Party would be entitled
to indemnification
- 27 -
<PAGE>
hereunder (whether or not any Indemnified Party is a party thereto).
(d) Contribution. If the indemnification provided for in this
Section 8 is unavailable to an Indemnified Party or is insufficient to hold such
Indemnified Party harmless for any Losses in respect of which this Section 8
would otherwise apply by its terms (other than by reason of exceptions provided
in this Section 8), then each applicable Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall have a joint and several obligation
to contribute to the amount paid or payable by such Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party, on the one hand, and such Indemnified
Party, on the other hand, in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party, on the one hand,
and Indemnified Party, on the other hand, shall be determined by reference to,
among other things, whether any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent any such statement or omission. The amount paid or payable by
an Indemnified Party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
Proceeding, to the extent such party would have been indemnified for such fees
or expenses if the indemnification provided for in Section 8(a) or 8(b) was
available to such party.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation or by other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8(d), a selling Holder shall not
be required to contribute, in the aggregate, any amount in excess of such
Holder's Maximum Contribution Amount. A selling Holder's "Maximum Contribution
Amount" shall equal the excess of (i) the aggregate proceeds received by such
Holder pursuant to the sale of such Registrable Notes, Exchange Notes or
Registrable Warrant Shares over (ii) the aggregate amount of damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section 8 are in addition to any liability that the Indemnifying Parties may
have to the Indemnified Parties.
- 28 -
<PAGE>
9. Rules 144 and 144A
------------------
The Company covenants that it shall (a) file the reports
required to be filed by it (if so required) under the Securities Act and the
Exchange Act in a timely manner and, if at any time the Company is not required
to file such reports, it will, upon the request of any Holder of Registrable
Notes, make publicly available other information necessary to permit sales
pursuant to Rule 144 and 144A and (b) take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Notes without registration under the Securities Act
pursuant to the exemptions provided by Rule 144 and Rule 144A. Upon the request
of any Holder, the Company shall deliver to such Holder a written statement as
to whether it has complied with such information and requirements.
10. Underwritten Registrations of Registrable Notes
-----------------------------------------------
If any of the Registrable Notes covered by any Shelf
Registration is to be sold in an underwritten offering, the investment banker or
investment bankers and manager or managers that will manage the offering will be
selected by the Holders of a majority in aggregate principal amount of such
Registrable Notes included in such offering; provided, however, that such
investment banker or investment bankers and manager or managers must be
reasonably acceptable to the Issuer.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
11. Registration of Registrable Warrant Shares
------------------------------------------
(a) Shelf Registration of Registrable Warrant Shares. The
Company shall, on or prior to the Warrant Shares Registration Filing Date, (i)
file a registration statement covering resales of the Warrant Shares (the
"Warrant Shares Registration Statement"), (ii) use its best efforts to cause the
Warrant Shares Registration Statement to be declared effective under the
Securities Act and (iii) use its best efforts to keep effective the Warrant
Shares Registration Statement until the earlier of the tenth anniversary of the
Closing Date or such time as all of the Warrants have been exercised. The
Company shall, in the event that a Warrant Shares Registration Statement is
filed, provide to each Holder copies of the Prospectus that is a part of the
Warrant Shares Registration Statement, notify each such Holder when the Warrant
Shares Registration Statement has become effective and take such other actions
as are required to permit
- 29 -
<PAGE>
unrestricted resales of the Warrant Shares. The Company shall require a Holder
that sells Warrant Shares pursuant to the Warrant Shares Registration Statement
to be named as a selling securityholder in the related prospectus and to deliver
a prospectus to purchasers, and any such Holder shall be bound by the provisions
of this Agreement that are applicable to such Holder (including certain
indemnification rights and obligations). Each Holder of the Warrant Shares shall
deliver information to be used in connection with the Warrant Shares
Registration Statement and provide comments on the Warrant Shares Registration
Statement within the time periods set forth in this Agreement in order to have
its Warrant Shares included in the Warrant Shares Registration Statement.
(b) Piggy-Back Registration of Registrable Warrant Shares. If
at any time after the Closing Date the Company proposes to file a registration
statement under the Securities Act with respect to an offering by the Company
for its own account or for the account of any holders of its Common Stock (other
than (i) a registration statement on Form S-4 or S-8 (or any substitute form
that may be adopted by the SEC), (ii) a registration statement filed in
connection with an exchange offer or offering of securities solely to the
Company's existing security holders or (iii) any Notes Registration Statement),
then the Company shall give written notice of such proposed filing to the
Holders of Registrable Warrant Shares as soon as practicable (but in no event
fewer than 20 days before the anticipated filing date), and such notice shall
offer such Holders the opportunity to register such number of Registrable
Warrant Shares as each Holder may request in writing within 20 days after
receipt of such written notice from the Company (which request shall specify the
Registrable Warrant Shares intended to be disposed of by such Selling Holder and
the intended method of distribution thereof) (a "Piggy-Back Registration"). The
Company shall use its best efforts to keep such Piggy-Back Registration
continuously effective under the Securities Act until at least the earlier of a)
an aggregate of 180 days after the effective date thereof or b) the consummation
of the distribution by the Holders of all of the Registrable Warrant Shares
covered thereby. The Company shall use its best efforts to cause the managing
underwriter or underwriters, if any, of such proposed offering to permit the
Registrable Warrant Shares requested to be included in a PiggyBack Registration
to be included on the same terms and conditions as any similar securities of the
Company or any other security holder included therein and to permit the sale or
other disposition of such Registrable Warrant Shares in accordance with the
intended method of distribution thereof. Any Selling Holder shall have the right
to withdraw its request for inclusion of its Registrable Warrant Shares in any
Registration Statement pursuant to this Section 11 by giving written notice to
the Company of its request to withdraw at any time prior to the filing of such
Registration Statement with the SEC. The Company will pay all Warrant Shares
Registration Expenses in connection with each registration of Registrable
Warrant Shares requested pursuant to
- 30 -
<PAGE>
this Section 11, and each Holder of Registrable Warrant Shares shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Warrant Shares pursuant to
a Piggy-Back Registration effected pursuant to this Section 11.
No registration effected under this Section 11, and no failure
to effect a registration under this Section 11, shall relieve the Company of its
obligations to effect a registration upon the request of Holders of Registrable
Notes pursuant to Sections 2 and 3 hereof, and no failure to effect a
registration under this Section 11 and to complete the sale of securities
registered thereunder in connection therewith shall relieve the Company of any
other obligation under this Agreement.
(c) Priority in Piggy-Back Registration. In a registration
pursuant to this Section 11 involving an underwritten offering, if the managing
underwriter or underwriters of such underwritten offering have informed, in
writing, the Company and the Selling Holders requesting inclusion in such
offering that in such underwriter's or underwriter's opinion the total number of
securities which the Company, the Selling Holders and any other Persons desiring
to participate in such registration intend to include in such offering is such
as to adversely affect the success of such offering, including the price at
which such securities can be sold, then the Company will be required to include
in such registration only the amount of securities which it is so advised should
be included in such registration. In such event: (x) in cases initially
involving the registration for sale of securities for the Company's own account,
securities shall be registered in such offering in the following order of
priority: ((i) first, the securities which the Company proposes to register,
((ii) second, provided that no securities proposed to be registered by the
Company have been excluded from such registration, the securities that have been
requested to be included in such registration by the Selling Holders, and ((iii)
third, provided that no securities sought to be included by the Selling Holders
have been excluded from such registration, the securities of other Persons
entitled to exercise "piggy-back" registration rights pursuant to contractual
commitments of the Company (pro rata based on the amount of securities sought to
be registered by such Persons); and (y) in cases not initially involving the
registration for sale of securities for the Company's own account, securities
shall be registered in such offering in the following order of priority: (i)
first, the securities of any Person whose exercise of a "demand" registration
right pursuant to a contractual commitment of the Company is the basis for the
registration, (ii) second, provided that no securities of any Person whose
exercise of a "demand" registration right pursuant to a contractual commitment
of the Company is the basis for such registration have been excluded from such
registration, the securities requested to be included in such registration by
the Selling Holders pursuant to this Agreement, (iii) third, provided that no
securities sought
- 31 -
<PAGE>
to be included by the Selling Holders or such Persons have been excluded from
such registration, securities of other Persons entitled to exercise "piggy-back"
registration rights pursuant to contractual commitments of the Company (pro rata
based on the amount of securities sought be registered by such Persons) and (iv)
fourth, provided that no securities sought to be included by other Persons
entitled to exercise "piggy-back" registration rights pursuant to such
contractual commitments have been excluded from such registration, any
securities which the Company proposes to register.
(d) Suspension of Sales, etc. Subject to the next sentence of
this paragraph, the Company shall be entitled to postpone, for a reasonable
period of time, the effectiveness of, or suspend the rights of any Selling
Holders to make sales pursuant to any Warrant Shares Registration Statement
otherwise required to be prepared, filed and kept effective by it under this
Section 11; provided, however, that the duration of such postponement or
suspension may not exceed the earlier to occur of (A) 15 days after the
cessation of the circumstances described in the next sentence of this paragraph
on which such postponement or suspension is based or (B) 120 days after the date
of the determination of the Board of Directors referred to in the next sentence.
Such postponement or suspension may only be effected if the Board of Directors
of the Company determines in good faith that the effectiveness of, or sales
pursuant to, such Warrant Shares Registration Statement would materially impede,
delay or interfere with any significant financing, offer or sale of securities,
acquisition, corporate reorganization or other significant transaction involving
the Company or any of its affiliates or require disclosure of material
information which the Company has a bona fide business purpose for preserving as
confidential. If the Company shall so postpone the effectiveness of, or suspend
the rights of any Selling Holders to make sales pursuant to, a Warrant Shares
Registration Statement, it shall, as promptly as possible, notify any Selling
Holders of such determination, and the Selling Holders shall (y) have the right,
in the case of a postponement of the effectiveness of a Warrant Shares
Registration Statement, upon the affirmative vote of Selling Holders of not less
than a majority of the Registrable Warrant Shares to be included in such Warrant
Shares Registration Statement, to withdraw the request for registration by
giving written notice to the Company within 10 days after receipt of such notice
or (z) in the case of a suspension of the right to make sales, receive an
extension of the registration period referred to in Section 11(a) hereof equal
to the number of days of the suspension.
(e) Exclusion of Registrable Warrant Shares. The Company shall
not be required by this Section 11 to include Registrable Warrant Shares in a
Piggy-Back Registration if (i) in the written opinion of outside counsel to the
Company, addressed to the Holders of Registrable Warrant Shares and delivered to
them, the Holders of such Registrable Warrant Shares seeking
- 32 -
<PAGE>
registration would be free to sell all such Registrable Warrant Shares within
the current calendar quarter without registration under Rule 144, which opinion
may be based in part upon the representation by the Holders of such Registrable
Warrant Shares seeking registration, which representation shall not be
unreasonably withheld, that each such Holder is not an affiliate of the Company
within the meaning of the Securities Act, and (ii) all requirements under the
Securities Act for effecting such sales are satisfied at such time.
(f) Obligations of Selling Holders. The Company's obligations
under this Section 11 shall be subject to the obligations of the Selling
Holders, which the Selling Holders acknowledge, to furnish all information and
materials and to take any and all actions as may be required under applicable
requirements of the SEC and to obtain any acceleration of the effective date of
a Warrant Shares Registration Statement.
(g) No Special Audit. The Company shall not be obligated to
cause any special audit to be undertaken in connection with any Piggy-Back
Registration unless such audit is requested by the underwriters with respect to
such Piggy-Back Registration.
12. Miscellaneous
-------------
(a) No Inconsistent Agreements. The Issuer has not entered, as
of the date hereof, and the Issuer shall not enter, after the date of this
Agreement, into any agreement with respect to any of its securities that is
inconsistent with the rights granted to the Holders of Securities in this
Agreement or otherwise conflicts with the provisions hereof. The Issuer has not
entered and will not enter into any agreement with respect to any of its
securities which will grant to any Person piggy-back rights with respect to a
Notes Registration Statement or a Warrant Shares Registration Statement.
(b) Adjustments Affecting Registrable Warrant Shares or
Registrable Notes. The Company shall not, directly or indirectly, take any
action with respect to the Registrable Warrant Shares or Registrable Notes as a
class that would adversely affect the ability of the Holders to include such
Registrable Warrant Shares or Registrable Notes in a registration undertaken
pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of (A) in circumstances that would adversely affect any
Holders of Registrable Warrant Shares or Registrable Notes, the Holders of a
majority of the Registrable Warrant Shares (treating as outstanding for this
purpose Warrant Shares issuable on exercise of unexercised Warrants) or the
Holders of not less than a
- 33 -
<PAGE>
majority in aggregate principal amount of the then outstanding Registrable
Notes, as the case may be, and (B) in circumstances that would adversely affect
Participating Broker-Dealers, the Participating Broker-Dealers holding not less
than a majority in aggregate principal amount of the Exchange Notes held by all
Participating Broker-Dealers; provided, however, that Section 8 and this Section
12(c) may not be amended, modified or supplemented without the prior written
consent of each Holder and each Participating Broker-Dealer (including any
Person who was a Participating Broker-Dealer Holder of Registrable Warrant
Shares or Registrable Notes or Exchange Notes, as the case may be, disposed of
pursuant to any Registration Statement). Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable Notes whose
securities are being tendered pursuant to the Exchange Offer or sold pursuant to
a Notes Registration Statement and that does not directly or indirectly affect,
impair, limit or compromise the rights of other Holders of Registrable Notes may
be given by Holders of at least a majority in aggregate principal amount of the
Registrable Notes being tendered or being sold by such Holders pursuant to such
Notes Registration Statement.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or telecopier:
(1) if to a Holder of Securities or to any
Participating Broker-Dealer, at the most current address of such Holder
or Participating Broker-Dealer, as the case may be, set forth on the
records of the registrar of the Warrants or the Notes, with a copy in
like manner to the Initial Purchaser as follows:
JEFFERIES & COMPANY, INC.
11100 Santa Monica Boulevard
10th Floor
Los Angeles, California 90025
Facsimile No.: (310) 575-5166
Attention: Andrew Whittaker
(2) if to the Initial Purchaser, at the address
specified in Section 12(d)(1);
(3) if to the Issuer, as follows:
Discovery Zone, Inc.
565 Taxter Road, 5th Floor
Elmsford, New York 10523
Facsimile No.: (914) 345-4527
Attention: Chief Executive Officer
with a copy to:
- 34 -
<PAGE>
Attention: General Counsel
Facsimile No: (914) 345-4516
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the United States mail, postage prepaid, if
mailed, one business day after being deposited in the United States mail,
postage prepaid, if mailed, one business day after being timely delivered to a
next-day air courier guaranteeing overnight delivery, and when receipt is
acknowledged by the addressee, if telecopied.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee
under the Indenture at the address specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto, including, without limitation and without the need for an express
assignment, subsequent Holders of Securities.
(f) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID
COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY
TO DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE COMPANY
IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS SAID
- 35 -
<PAGE>
ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE COMPANY IN ANY OTHER JURISDICTION.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(j) Securities Held by the Issuer or Its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Securities is
required hereunder, Securities held by the Issuer or its affiliates (as such
term is defined in Rule 405 under the Securities Act) shall not be counted in
determining whether such comment or approval was given by the Holders of such
required percentage.
(k) Third Party Beneficiaries. Holders and Participating
Broker-Dealers are intended third party beneficiaries of this Agreement and this
Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the
Purchase Agreement, the Indenture, the Notes, the Warrants, the Warrant
Agreement and the Collateral Agreements, is intended by the parties as a final
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein and any and all
prior oral or written agreements, representations, or warranties, contracts,
understanding, correspondence, conversations and memoranda between the Initial
Purchaser on the one hand and the Issuer on the other, or between or among any
agents, representatives, parents, subsidiaries, affiliates, predecessors in
interest or successors in interest with respect to the subject matter hereof and
thereof are merged herein and replaced hereby.
- 36 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
DISCOVERY ZONE, INC.
By: /s/ Scott W. Bernstein
--------------------------------
Name: Scott W. Bernstein
Title: Chief Executive Officer
and President
ACCEPTED AND AGREED TO:
JEFFERIES & COMPANY, INC.
By: /s/ Andrew Booth
----------------------------------
Name: Andrew Booth
Title: Senior Vice President
================================================================================
DISCOVERY ZONE, INC.
----------------------
WARRANT AGREEMENT
----------------------
Dated as of July 17, 1998
Warrants to Purchase
Shares of Common Stock Par Value $.00017 Per Share
Relating to the
Series A Preferred Units
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
<S> <C> <C>
SECTION 1.1. Issuance of Warrants.................................................-1-
SECTION 1.2. Form of Warrant Certificates.........................................-2-
SECTION 1.3. Execution of Warrant Certificates....................................-2-
SECTION 1.4. Appointment of Warrant Agent.........................................-2-
SECTION 1.5. Authentications and Delivery.........................................-3-
SECTION 1.6. Temporary Warrant Certificates.......................................-3-
SECTION 1.7. Separation of Warrants and Series A Preferred Stock. ...............-4-
SECTION 1.8. Registrar and Warrant Register.......................................-4-
SECTION 1.9. Registration of Transfers and Exchanges..............................-4-
SECTION 1.10. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates..-12-
SECTION 1.11. Offices for Exercise, etc...........................................-13-
ARTICLE II
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE
SECTION 2.1. Duration of Warrants................................................-13-
SECTION 2.2. Exercise, Exercise Price, Settlement and Delivery...................-13-
SECTION 2.3. Cancellation of Warrant Certificates................................-16-
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.1. Enforcement of Rights...............................................-16-
SECTION 3.2. Tag-Along Rights....................................................-17-
SECTION 3.3. Exchange Rights of Holders..........................................-19-
SECTION 3.4. Repurchase Right....................................................-19-
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
<S> <C> <C>
SECTION 4.1. Payment of Taxes....................................................-21-
SECTION 4.2. Notice of Expiration Date...........................................-22-
SECTION 4.3. Reservation of Common Stock.........................................-22-
SECTION 4.4. Warrant Shares to be Duly Authorized and Issued, Fully Paid
and Nonassessable...................................................-22-
SECTION 4.5. Reports.............................................................-22-
SECTION 4.6. Private Placement Numbers...........................................-23-
SECTION 4.7. Right of Action.....................................................-23-
SECTION 4.8. Survival............................................................-23-
ARTICLE V
ADJUSTMENTS
SECTION 5.1. Adjustment of Exercise Price and Number of Warrant
Shares Issuable.....................................................-23-
SECTION 5.2. Fractional Interest.................................................-31-
SECTION 5.3. When Adjustment Not Required........................................-31-
SECTION 5.4. Treasury Stock......................................................-32-
SECTION 5.5. Notices to Warrant Agent and Holders................................-32-
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.1. Warrant Agent.......................................................-33-
SECTION 6.2. Conditions of Warrant Agent's Obligations...........................-33-
SECTION 6.3. Resignation and Appointment of Successor............................-37-
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Defined Terms.......................................................-38-
SECTION 7.2. Amendment...........................................................-41-
SECTION 7.3. Notices and Demands to the Company and Warrant Agent................-42-
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 7.4. Address for Notices to the Company and for Transmission
of Documents........................................................-42-
SECTION 7.5. Notices to Holders..................................................-43-
SECTION 7.6. Applicable Law......................................................-43-
SECTION 7.7. Obtaining of Governmental Approvals.................................-43-
SECTION 7.8. Persons Having Rights Under Agreement...............................-43-
SECTION 7.9. Headings............................................................-43-
SECTION 7.10. Counterparts........................................................-43-
SECTION 7.11. Inspection of Warrant Agreement.....................................-44-
SECTION 7.12. Successors..........................................................-44-
EXHIBITS
EXHIBIT A FORM OF WARRANT CERTIFICATE.........................................A-1
EXHIBIT B CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS.............................B-1
EXHIBIT C TRANSFEREE LETTER OF REPRESENTATION.................................C-1
</TABLE>
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WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Warrant Agreement"), dated as of July
17, 1998 is executed and delivered by Discovery Zone, Inc., a Delaware
corporation (together with any successor thereto, the "Company") and Firstar
Bank of Minnesota, N.A., as warrant agent (together with any successor warrant
agent, the "Warrant Agent"), for the benefit of the holders (the "Holders") from
time to time of the Warrant Certificates (as hereinafter defined).
WHEREAS, the Company has entered into a purchase agreement dated
as of July 13, 1998 (the "Series A Preferred Unit Purchase Agreement") with
Birch Acquisition L.L.C. and Birch Holdings L.L.C. (collectively, "Birch") and
Wafra Acquisition Fund 6, L.P. ("WAF-6") and Wafra Fund Management Ltd. ("WFML")
and, together with WAF-6, the "Purchasers"), pursuant to which the Company has
agreed, among other things, to sell to WAF-6 and WFML 40 units each
(collectively, the "Series A Preferred Units"), each consisting of (i) 1,000
shares of 14 1/2 % Series A Senior Cumulative Preferred Stock, par value $.01
per share, liquidation preference $25.00 per share (the "Series A Preferred
Stock") of the Company and (ii) one detachable warrant (each a "Warrant" and,
collectively, the " Warrants" and the certificates evidencing the Warrants being
hereinafter referred to as the "Warrant Certificates") to initially purchase
2,131,667.4631 shares of the Company's Class A Voting Common Stock, $.00017 par
value per share (the "Common Stock") at an initial exercise price of $.00017 per
share, subject to adjustment in accordance with the terms hereof.
WHEREAS, the Warrants shall be separately transferable from the
Series A Preferred Stock on and after the Separation Date (as hereinafter
defined); and
NOW, THEREFORE, in consideration of the purchase of the Series A
Preferred Units by each Purchaser and for other valuable consideration, the
adequacy and receipt of which is hereby acknowledged, and for the purpose of
defining the respective rights and obligations of the Company, the Warrant Agent
and the Holders, the parties hereto agree as follows:
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.1. Issuance of Warrants. Each Warrant Certificate
shall, when countersigned by the Warrant Agent, evidence the number of Warrants
specified therein, and each Warrant evidenced thereby shall represent the right,
subject to the provisions contained herein and therein, to purchase from the
Company (and the Company shall issue and sell to such Holder) 2,131,667.4631
fully paid and non-assessable shares of Common Stock (the shares of Common Stock
purchasable upon exercise of a Warrant being hereinafter referred to as the
"Warrant Shares" and, where appropriate, such term shall also mean the other
securities or
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property purchasable and deliverable upon exercise of a Warrant as provided in
Article V) at the price specified herein and therein, in each case subject to
adjustment as provided herein and therein.
SECTION 1.2. Form of Warrant Certificates. The Warrant
Certificates will initially be issued either in global form (the "Global
Warrants") or in registered form as definitive Warrant certificates (the
"Definitive Warrants"). The Warrant Certificates evidencing the Global Warrants
or the Definitive Warrants to be delivered pursuant to this Warrant Agreement
shall be substantially in the form set forth in Exhibit A attached hereto, dated
the date on which countersigned. Such Global Warrants shall represent such of
the outstanding Warrants as shall be specified therein and each shall provide
that it shall represent the aggregate amount of outstanding Warrants from time
to time endorsed thereon and that the aggregate amount of outstanding Warrants
represented thereby may from time to time be reduced or increased, as
appropriate. Any endorsement of a Global Warrant to reflect the amount of any
increase or decrease in the amount of outstanding Warrants represented thereby
shall be made by the Warrant Agent and Depositary (as defined) in accordance
with instructions given by the Holder thereof. The Depository Trust Company
("DTC"), a New York corporation, shall act as the depository with respect to the
Global Warrants (the "Depositary") until a successor shall be appointed by the
Company. Upon written request, a Holder may receive from the Warrant Agent
Definitive Warrants as set forth in Section 1.9 hereof.
SECTION 1.3. Execution of Warrant Certificates. The Warrant
Certificates shall be executed on behalf of the Company by its President or any
Vice President and attested to by its Secretary or Assistant Secretary. Such
signatures may be the manual or facsimile signatures of the present or any
future such officers. Typographical and other minor errors or defects in any
such reproduction of any such signature shall not affect the validity or
enforceability of any Warrant Certificate that has been duly countersigned and
delivered by the Warrant Agent.
In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be such officer before the Warrant
Certificate so signed shall be countersigned and delivered by the Warrant Agent
or disposed of by the Company, such Warrant Certificate nevertheless may be
countersigned and delivered or disposed of as though the person who signed such
Warrant Certificate had not ceased to be such officer of the Company; and any
Warrant Certificate may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Warrant Certificate, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Warrant Agreement any such person was not such an officer.
SECTION 1.4. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the terms and conditions set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
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SECTION 1.5. Authentications and Delivery. Subject to the
immediately following paragraph of this Section 1.5, Warrant Certificates shall
be authenticated by manual signature and dated the date of authentication by the
Warrant Agent and shall not be valid for any purpose unless so authenticated and
dated. The Warrant Certificates shall be numbered and shall be registered in the
Warrant Register (as defined in Section 1.8 hereof).
Upon the receipt by the Warrant Agent of a written order of the
Company, which order shall be signed by its President or any Vice President and
attested to by its Secretary or Assistant Secretary and shall specify the amount
of Warrants to be authenticated, whether the Warrants are to be Global Warrants
or Definitive Warrants, the date of such Warrants and such other information as
the Warrant Agent may reasonably request, without any further action by the
Company, the Warrant Agent is authorized, upon receipt from the Company at any
time and from time to time of the Warrant Certificates, duly executed as
provided in Section 1.3 hereof, to authenticate the Warrant Certificates and
deliver them. Such authentication shall be by a duly authorized signatory of the
Warrant Agent (although it shall not be necessary for the same signatory to sign
all Warrant Certificates).
In case any authorized signatory of the Warrant Agent who shall
have authenticated any of the Warrant Certificates shall cease to be such
authorized signatory before the Warrant Certificate shall be disposed of by the
Company, such Warrant Certificate nevertheless may be delivered or disposed of
as though the person who authenticated such Warrant Certificate had not ceased
to be such authorized signatory of the Warrant Agent; and any Warrant
Certificate may be authenticated on behalf of the Warrant Agent by such persons
as, at the actual time of authentication of such Warrant Certificates, shall be
the duly authorized signatories of the Warrant Agent, although at the time of
the execution and delivery of this Warrant Agreement any such person is not an
authorized signatory.
The Warrant Agent's authentication on all Warrant Certificates
shall be in substantially the form set forth in Exhibit A hereto.
SECTION 1.6. Temporary Warrant Certificates. Pending the
preparation of the definitive Warrant Certificates, the Company may execute, and
the Warrant Agent shall authenticate and deliver, temporary Warrant
Certificates, which are printed, lithographed, typewritten or otherwise
produced, substantially of the tenor of the definitive Warrant Certificates in
lieu of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Warrant
Certificates may determine, as evidenced by their execution of such Warrant
Certificates.
If temporary Warrant Certificates are issued, the Company will
cause definitive Warrant Certificates to be prepared without unreasonable delay.
After the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates at any office or agency
maintained by the Company for the purpose pursuant to Section 1.11 hereof.
Subject
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to the provisions of Section 4.1 hereof, such exchange shall be without charge
to the Holder. Upon surrender for cancellation of any one or more temporary
Warrant Certificates, the Company shall execute, and the Warrant Agent shall
authenticate and deliver in exchange therefor, one or more definitive Warrant
Certificates representing in the aggregate a like number of Warrants. Until so
exchanged, the Holder of a temporary Warrant Certificate shall in all respects
be entitled to the same benefits under this Warrant Agreement as a Holder of a
definitive Warrant Certificate.
SECTION 1.7. Separation of Warrants and Series A Preferred Stock.
The Warrants will be separately transferable from the Series A Preferred Stock
on July 17, 1998 (the "Separation Date").
SECTION 1.8. Registrar and Warrant Register. The Company will
keep, at the office or agency maintained by the Company for such purpose, a
register or registers in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of, and registration
of transfer and exchange of, Warrants as provided in this Article. Each Person
designated by the Company from time to time as a Person authorized to register
the transfer and exchange of the Warrants is hereinafter called, individually
and collectively, the "Registrar". Initially, Firstar Bank of Minnesota, N.A.
shall act as Registrar. Upon written notice to the Warrant Agent and any acting
Registrar, the Company may appoint a successor Registrar for such purposes.
The Company will at all times designate one Person (who may be
the Company and who need not be a Registrar) to act as repository of a master
list of names and addresses of the Holders (the "Warrant Register"). The Company
will act as such repository unless and until some other Person is, by written
notice from the Company to the Warrant Agent and the Registrar, designated by
the Company to act as such. The Company shall cause each Registrar to furnish to
such repository, on a current basis, such information as to all registrations of
transfer and exchanges effected by such Registrar, as may be necessary to enable
such repository to maintain the Warrant Register on as current a basis as is
practicable.
SECTION 1.9. Registration of Transfers and Exchanges.
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(a) Transfer and Exchange of Definitive Warrants. When Definitive
Warrants are presented to the Warrant Agent with a request:
(i) to register the transfer of the Definitive Warrants;
or
(ii) to exchange such Definitive Warrants for an equal
number of Definitive Warrants, the Warrant Agent shall register
the transfer or make the exchange as requested if the
requirements under this Warrant Agreement as set forth in this
Section 1.9 for such transactions are met; provided, however,
that the
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Definitive Warrants presented or surrendered for registration of
transfer or exchange:
(x) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the
Company and the Warrant Agent, duly executed by the
Holder thereof or by its attorney, duly authorized
in writing and
(y) in the case of Warrants the offer and sale of which
has not been registered under the Securities Act,
and are presented for transfer or exchange prior to
(x) the date which is two years after the later of
the date of original issue (the "Issue Date") and
the last date on which the Company or any affiliate
of the Company was the owner of such Warrant, or
any predecessor thereto and (y) such later date, if
any, as may be required by any subsequent change in
applicable law (the "Resale Restriction Termination
Date"), such Warrants shall be accompanied, in the
sole discretion of the Company, by the following
additional information and documents, as
applicable:
(A) if such Warrant is being delivered to the
Warrant Agent by a Holder for
registration in the name of such Holder,
without transfer, a certification from
such Holder to that effect (in
substantially the form of Exhibit B
hereto); or
(B) if such Warrant is being transferred to a
qualified institutional buyer (as defined
in Rule 144A under the Securities Act) in
accordance with Rule 144A under the
Securities Act or pursuant to an
exemption from registration in accordance
with Rule 144 or Regulation S under the
Securities Act, a certification to that
effect (in substantially the form of
Exhibit B hereto); or
(C) if such Warrant is being transferred to
an institutional "accredited investor"
within the meaning of subparagraph
(a)(1), (a)(2), (a)(3) or (a)(7) of Rule
501 under the Securities Act, delivery of
a certification to that effect (in
substantially the form of Exhibit B
hereto) and a letter of representation
from the transferee in substantially the
form of Exhibit C hereto and an opinion
of counsel reasonably acceptable to the
Company to
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the effect that such transfer is in
compliance with the Securities Act; or
(D) if such Warrant is being transferred in
reliance on another exemption from the
registration requirements of the
Securities Act, a certification to that
effect (in substantially the form of
Exhibit B hereto) and an opinion of
counsel reasonably acceptable to the
Company to the effect that such transfer
is in compliance with the Securities Act.
(b) Restrictions on Transfer of a Definitive Warrant for a
Beneficial Interest in a Global Warrant. A Definitive Warrant may not be
transferred for a beneficial interest in a Global Warrant except upon
satisfaction of the requirements set forth below. Upon receipt by the Warrant
Agent of a Definitive Warrant, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Warrant Agent, together
with:
(i) certification, substantially in the form of Exhibit B
hereto, that such Definitive Warrant is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the
Securities Act; and
(ii) written instructions directing the Warrant Agent to
make, or to direct the Depositary to make, an endorsement on the
Global Warrant to reflect an increase in the aggregate amount of
the Warrants represented by the Global Warrant;
then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct
the Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Warrants represented by the Global Warrant to be increased accordingly. If no
Global Warrant is then outstanding, the Company shall issue and the Warrant
Agent shall authenticate a new Global Warrant in the appropriate amount.
(c) Transfer and Exchange of Global Warrants. The transfer and
exchange of Global Warrants or beneficial interests therein shall be effected
through the Depositary, in accordance with this Section 1.9 and the procedures
of the Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global Warrant for a
Definitive Warrant.
(i) Any Person having a beneficial interest in a Global
Warrant may upon request transfer such beneficial interest for a
Definitive Warrant. Upon receipt by the Warrant Agent of written
instructions or such other form of instructions as is customary
for the Depositary from the Depositary or its nominee on behalf
of any Person having a beneficial interest in a Global Warrant
and upon receipt by the Warrant Agent of a written order or such
other form of instructions as is customary for the Depositary or
the Person designated by the Depositary as
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having such a beneficial interest containing registration
instructions and, in the case of any such transfer or exchange
prior to the Resale Restriction Termination Date, the following
additional information and documents:
(A) if such beneficial interest is being
transferred to the Person designated by the
Depositary as being the beneficial owner, a
certificate from such Person to that effect
(in substantially the form of Exhibit B
hereto); or
(B) if such beneficial interest is being
transferred to a qualified institutional
buyer (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A
under the Securities Act or pursuant to an
exemption from registration in accordance
with Rule 144 or Regulation S under the
Securities Act, a certification to that
effect from the transferee or transferor (in
substantially the form of Exhibit B hereto);
or
(C) if such beneficial interest is being
transferred to an institutional "accredited
investor" within the meaning of subparagraph
(a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501
under the Securities Act, delivery of a
certification to that effect (in
substantially the form of Exhibit B hereto),
a letter of representation from the
transferee in substantially the form of
Exhibit C hereto and an opinion of counsel
reasonably acceptable to the Company to the
effect that such transfer is in compliance
with the Securities Act; or
(D) if such beneficial interest is being
transferred in reliance on another exemption
from the registration requirements of the
Securities Act, a certification to that
effect (in substantially the form of Exhibit
B hereto) and an opinion of counsel
reasonably acceptable to the Company to the
effect that such transfer is in compliance
with the Securities Act,
then the aggregate amount of the Global Warrant will be
reduced by the Depositary or its custodian and, following
such reduction, the Company will execute and, upon receipt
of an authentication order in the form of an Officers'
Certificate (as hereinafter defined), the Warrant Agent
will authenticate and deliver to the transferee a
Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a
beneficial interest in a Global Warrant pursuant to Section
1.8(d) shall be registered in such names and in
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such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or
otherwise, shall instruct the Warrant Agent in writing. The
Warrant Agent shall deliver such Definitive Warrant to the
Persons in whose names such Warrants are so registered.
(e) Restrictions on Transfer and Exchange of Global Warrants.
Notwithstanding any other provisions of this Warrant Agreement (other than the
provisions set forth in Section 1.9(f)), a Global Warrant may not be transferred
as a whole except by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any such nominee to a successor Depositary or a nominee
of such successor Depositary.
(f) Authentication of Definitive Warrants in Absence of
Depositary. If at any time:
(i) the Depositary for the Warrants notifies the Company
that the Depositary is unwilling or unable to continue as
Depositary for the Global Warrant and a successor Depositary for
the Global Warrant is not appointed by the Company within 90 days
after delivery of such notice or
(ii) the Company, at its sole discretion, notifies the
Warrant Agent in writing that it elects to cause the issuance of
Definitive Warrants under this Warrant Agreement,
then the Company will execute, and the Warrant Agent, upon receipt of an
officers' certificate signed by two duly authorized officers of the Company (one
of whom must be the principal executive officer, principal financial officer or
principal accounting officer) (an "Officers' Certificate") requesting the
authentication and delivery of Definitive Warrants, will authenticate and
deliver Definitive Warrants, in an aggregate number equal to the aggregate
number of warrants represented by the Global Warrant, in exchange for such
Global Warrant.
(g) Legends.
(i) Except to the extent permitted by paragraph (ii) of
this Section 1.9(g), each Warrant Certificate evidencing the
Global Warrants and the Definitive Warrants (and all Warrants
issued in exchange therefor or substitution thereof) shall bear a
legend substantially to the following effect:
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS. NEITHER THIS WARRANT CERTIFICATE NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR
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OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE, BY ITS
ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE PRIOR TO THE DATE WHICH IS TWO YEARS
AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF THE WARRANTS REPRESENTED BY THIS
WARRANT CERTIFICATE AND THE LAST DATE ON WHICH DISCOVERY ZONE, INC. ("THE
COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE (OR ANY PREDECESSOR OF SUCH WARRANTS OR
WARRANT CERTIFICATE) (THE "RESALE RESTRICTION TERMINATION DATE"), ONLY (A) TO
THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE WARRANTS REPRESENTED
BY THIS WARRANT CERTIFICATE ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, 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, (D) PURSUANT TO OFFERS AND
SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7)
OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE WARRANTS REPRESENTED
BY THIS WARRANT CERTIFICATE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE WARRANT AGENT'S, AS APPLICABLE, RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION REASONABLY
SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, AN ASSIGNMENT
IN THE FORM APPEARING ON THE OTHER SIDE OF THIS WARRANT CERTIFICATE IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE WARRANT AGENT. THIS LEGEND SHALL BE
REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION
DATE.
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THIS SECURITY IS SUBJECT TO A SERIES A PREFERRED UNIT PURCHASE AGREEMENT DATED
AS OF JULY 13, 1998 AMONG THE COMPANY, BIRCH ACQUISITION L.L.C., BIRCH HOLDINGS
L.L.C. WAFRA ACQUISITION FUND 6, L.P. AND WAFRA FUND MANAGEMENT LTD., A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
Each Warrant Certificate issued prior to the date on which all
principal of and interest on the Company's 13 1/2 % Senior Collateralized Notes
due 2002 (the "Notes") have been paid in full, shall also bear the following
legend on the face thereof:
PRIOR TO THE DATE ON WHICH THE STOCKHOLDER'S AGREEMENT (AS DEFINED BELOW) IS
TERMINATED, THE WARRANTS EVIDENCED BY THIS CERTIFICATE MAY NOT BE EXERCISED FOR
SHARES OF THE COMPANY'S COMMON STOCK, PAR VALUE $.00017 PER SHARE ("COMMON
STOCK") UNLESS THE HOLDER THEREOF HAS EXECUTED A COUNTERPART OF THE
STOCKHOLDERS' AGREEMENT DATED AS OF JULY 17, 1998, AS AMENDED FROM TIME TO TIME,
BY AND AMONG THE COMPANY, FIRSTAR BANK OF MINNESOTA, N.A., AS TRUSTEE WITH
RESPECT TO THE COMPANY'S 13 1/2% SENIOR COLLATERALIZED NOTES DUE 2002, AND
CERTAIN HOLDERS OF THE COMPANY'S COMMON STOCK, A COPY OF WHICH AGREEMENT IS ON
FILE AT THE OFFICES OF THE COMPANY. ANY PURPORTED EXERCISE OF THE WARRANTS
REPRESENTED BY THIS CERTIFICATE WITHOUT COMPLIANCE WITH THE ABOVE REQUIREMENTS
SHALL BE VOID.
To the extent a Warrant Certificate evidences a Global Warrant,
such Warrant Certificate shall also bear the legend with respect thereto
substantially in the form set forth on Exhibit A hereto.
(ii) Upon any sale or transfer of a Warrant pursuant to
Rule 144 under the Securities Act in accordance with this Section
1.9 or an effective registration statement under the Securities
Act;
(A) in the case of any Warrant that is a
Definitive Warrant, the Warrant Agent shall
permit the Holder thereof to exchange such
Warrant for a Definitive Warrant that does
not bear the legend set forth above and
rescind any related restriction on the
transfer of such Warrant; and
(B) any such Warrant represented by a Global
Warrant shall not be subject to the
provisions set forth in (i) above (such
sales or transfers being subject only to the
provisions of Section 1.9(c) hereof);
provided, however, that with respect to any
request for an exchange of a Warrant that is
represented by a Global Warrant for a
Definitive Warrant that does not
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bear the legend set forth above, which
request is made in reliance upon Rule 144
under the Securities Act, the Holder thereof
shall certify in writing to the Warrant
Agent that such request is being made
pursuant to Rule 144 under the Securities
Act (such certification to be substantially
in the form of Exhibit B hereto).
(h) Cancellation and/or Adjustment of a Global Warrant. At such
time as all beneficial interests in a Global Warrant have either been exchanged
for Definitive Warrants, redeemed, repurchased or canceled, such Global Warrant
shall be returned to or retained and canceled by the Warrant Agent. At any time
prior to such cancellation, if any beneficial interest in a Global Warrant is
exchanged for Definitive Warrants, redeemed, repurchased or canceled, the number
of Warrants represented by such Global Warrant shall be reduced and an
endorsement shall be made on such Global Warrant by the Warrant Agent or the
Depositary to reflect such reduction.
(i) Obligations with Respect to Transfers and Exchanges of
Definitive Warrants.
(i) To permit registrations of transfers and exchanges,
the Company shall execute, at the Warrant Agent's request, and
the Warrant Agent shall authenticate Definitive Warrants and
Global Warrants.
(ii) All Definitive Warrants and Global Warrants issued
upon any registration of transfer or exchange of Definitive
Warrants or Global Warrants shall be the valid obligations of the
Company, entitled to the same benefits under this Warrant
Agreement as the Definitive Warrants or Global Warrants
surrendered upon the registration of transfer or exchange.
(iii) Prior to due presentment for registration of
transfer of any Warrant, the Warrant Agent and the Company may
deem and treat the Person in whose name any Warrant is registered
as the absolute owner of such Warrant, and neither the Warrant
Agent nor the Company shall be affected by notice to the
contrary.
(j) Payment of Taxes. The Company or the Warrant Agent may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any exchange or transfer pursuant
to this Section 1.9.
(k) Other Limitations. Without limiting any other provisions set
forth herein regarding transfers of Warrants, if a Holder is a Regulated Entity
(as defined below), such Holder may transfer Warrants only under the following
circumstances: (i) in a widely distributed public offering; (ii) in a transfer
pursuant to Rule 144 under the Securities Act of 1933, as amended, or any
similar rule then in force; (iii) in a transfer constituting two percent or less
(or such greater amount determined in accordance with clause (vii) below) of the
outstanding shares of the
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Common Stock (assuming that any outstanding shares of the Company's Class B
Non-Voting Common Stock par value $.00017 per share (the "Non-Voting Common
Stock"), and all outstanding shares of the Company's Series A Convertible
Preferred Stock (the "Convertible Preferred Stock") were converted into shares
of Common Stock); (iv) in a transfer to a Person if such Person already owns or
has negotiated to purchase at least a majority of the outstanding shares of
Common Stock (assuming all outstanding shares of the Company's Non-Voting Common
Stock and Convertible Preferred Stock were converted into shares of Common
Stock); (v) in a transfer to the Company; (vi) in a transfer to an affiliate of
such Holder or to any other Regulated Entity; or (vii) in any method of transfer
determined by the Regulated Entity to be permissible under the Bank Holding
Company Act of 1956, as amended (the "BHC Act") and any other applicable banking
regulations. "Regulated Entity" means (i) any entity that is a "bank holding
company" (as defined in Section 2(a) of the BHC Act) or any non-bank subsidiary
of such an entity and (ii) any entity, that pursuant to Section 8(a) of the
International Banking Act of 1978, as amended, is subject to the provisions of
the BHC Act or any non-bank subsidiary of such an entity.
SECTION 1.10. Lost, Stolen, Destroyed, Defaced or Mutilated
Warrant Certificates. Upon receipt by the Company and the Warrant Agent (or any
agent of the Company or the Warrant Agent, if requested by the Company) of
evidence satisfactory to them of the loss, theft, destruction, defacement, or
mutilation of any Warrant Certificate and of indemnity reasonably satisfactory
to them and, in the case of mutilation or defacement, upon surrender thereof to
the Warrant Agent for cancellation, then, in the absence of notice to the
Company or the Warrant Agent that such Warrant Certificate has been acquired by
a bona fide purchaser or holder in due course, the Company shall execute, and an
authorized signatory of the Warrant Agent shall manually authenticate and
deliver, in exchange for or in lieu of the lost, stolen, destroyed, defaced or
mutilated Warrant Certificate, a new Warrant Certificate representing a like
number of Warrants, bearing a number or other distinguishing symbol not
contemporaneously outstanding. Upon the issuance of any new Warrant Certificate
under this Section 1.10, the Company may require the payment from the Holder of
such Warrant Certificate of a sum sufficient to cover any tax, stamp tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Warrant Agent and the
Registrar) in connection therewith. Every substitute Warrant Certificate
executed and delivered pursuant to this Section 1.10 in lieu of any lost, stolen
or destroyed Warrant Certificate shall constitute an additional contractual
obligation of the Company, whether or not the lost, stolen or destroyed Warrant
Certificate shall be at any time enforceable by anyone, and shall be entitled to
the benefits of (but shall be subject to all the limitations of rights set forth
in) this Warrant Agreement equally and proportionately with any and all other
Warrant Certificates duly executed and delivered hereunder. The provisions of
this Section 1.10 are exclusive with respect to the replacement of lost, stolen,
destroyed, defaced or mutilated Warrant Certificates and shall preclude (to the
extent lawful) any and all other rights or remedies notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the
replacement of lost, stolen, destroyed, defaced or mutilated Warrant
Certificates.
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The Warrant Agent is hereby authorized to authenticate and
deliver the new Warrant Certificates required pursuant to the provisions of this
Section 1.10.
SECTION 1.11. Offices for Exercise, etc. So long as any of the
Warrants remain outstanding, the Company will designate and maintain in the
continental United States: (a) an office or agency where the Warrant
Certificates may be presented for exercise, (b) an office or agency where the
Warrant Certificates may be presented for registration of transfer and for
exchange (including the exchange of temporary Warrant Certificates for
definitive Warrant Certificates pursuant to Section 1.6 hereof), and (c) an
office or agency where notices and demands to or upon the Company in respect of
the Warrants or of this Warrant Agreement may be served. The Company may from
time to time change or rescind such designation, as it may deem desirable or
expedient. The Company will give to the Warrant Agent written notice of the
location of any such office or agency and of any change of location thereof. The
Company hereby designates the corporate trust office of the Warrant Agent in New
York, New York (the "Warrant Agent Office"), as the initial agency maintained
for each such purpose.
ARTICLE II
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE
SECTION 2.1. Duration of Warrants. Subject to the terms and
conditions established herein, the Warrants shall expire at 5:00 p.m., New York
City time on August 1, 2007 (the "Expiration Date"). Each Warrant may be
exercised on any Business Day (as hereinafter defined) on or after the
Exercisability Date (as hereinafter defined) and on or prior to the Expiration
Date.
Any Warrant not exercised before the close of business on the
Expiration Date relating to such Warrant shall become void, and all rights of
the Holder under the Warrant Certificate evidencing such Warrant and under this
Warrant Agreement shall cease.
SECTION 2.2. Exercise, Exercise Price, Settlement and
Delivery.
(a) Subject to the provisions of this Warrant Agreement, each
Warrant Holder shall have the right to purchase from the Company on or after the
Separation Date (the "Exercisability Date") and on or prior to the Expiration
Date, up to 2,131,667.4631 fully paid and non-assessable Warrant Shares per each
Warrant such Holder owns, subject to adjustment in accordance with Article V
hereof, at the initial purchase price of $.00017 for each Warrant Share
purchased, subject to adjustment in accordance with Article V hereof (the
"Exercise Price").
(b) Warrants may be exercised, in whole or in part, on or after
the Exercisability Date by (i) surrendering at any Warrant Agent office the
Warrant Certificate evidencing such Warrants with the form of election to
purchase Warrant Shares set forth on the
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reverse side of the Warrant Certificate (the "Election to Exercise") duly
completed and signed by the registered Holder or Holders thereof or by the duly
appointed legal representative thereof or by a duly authorized attorney, (ii)
paying in full the Exercise Price for each such Warrant Share purchased and any
other amounts required to be paid pursuant to Section 4.1 hereof and (iii) if
such Warrant is being exercised prior to the date on which the Stockholders'
Agreement (as defined below) is terminated, executing a counterpart of the
Stockholders' Agreement by and among the Company, the Trustee and certain
holders of the Company's Common Stock and Non-Voting Common Stock in
substantially the form attached hereto as Exhibit D (the "Stockholders'
Agreement").
(c) Simultaneously with the exercise of each Warrant, payment in
full of the Exercise Price shall be made (i) in cash or by certified or official
bank check payable to the order of the Company, delivered to the office or
agency where the Warrant Certificate is being surrendered; or (ii) by delivery
of Warrant Certificates pursuant to Section 2.2(d); or (iii) by the surrender to
the Company for cancellation of shares of Series A Preferred Stock with an
aggregate liquidation preference together with accumulated and unpaid dividends
thereon (whether or not declared) equal to the aggregate Exercise Price for all
Warrant Shares issuable upon exercise of such Warrant. Subject to the provisions
of this Warrant Agreement, the rights represented by the Warrants shall be
exercisable at the election of the Holders thereof either in full at any time or
from time to time in part.
(d) In the event that any Holder of Warrant Certificates delivers
such Warrant Certificates to the Company and indicates on the Election to
Exercise that such Holder intends to exercise all, or any portion of, the
Warrants represented by such Warrant Certificate to satisfy its obligation to
pay the Exercise Price in respect thereof by virtue of the provisions of this
Section 2.2(d), such Holder shall become entitled to receive, instead of the
number of Warrant Shares such Holder would have received had the Exercise Price
been paid in cash pursuant to Section 2.2(c), a number of Warrant Shares in
respect of the exercises of such Warrants equal to the product of:
(A) the number of Warrant Shares issuable upon such
exercise of such Warrant Certificates (or, if only a portion of
such Warrant Certificates are being exercised, issuable upon the
exercise of such portion) multiplied by
(B) the quotient of:
(i) the difference of:
(X) the per share Fair Market Value of the
Common Stock at the time of such exercise; minus
(Y) the Exercise Price at the time of such
exercise; divided by
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(ii) the per share Fair Market Value of the Common
Stock at the time of such exercise.
For purposes of Rule 144 and Rule 144A under the Securities Act, the
Company and the Warrant Agent, on behalf of the Holders, hereby agree that the
exercise of any Warrants in accordance with this Section 2.2(d) shall be deemed
to be a conversion of such Warrants, pursuant to the terms of this Warrant
Agreement and the Warrants, into Warrant Shares.
(e) Upon such surrender of a Warrant Certificate and payment and
collection of the Exercise Price at any Warrant Agent Office, such Warrant
Certificate and payment shall be promptly delivered to the Warrant Agent. The
"Exercise Date" for a Warrant shall be the date when all of the items referred
to in the first sentence of paragraphs (b) and (c) of this Section 2.2 are
received by the Warrant Agent at or prior to 2:00 p.m., New York City time, on a
Business Day and the exercise of the Warrants will be effective as of such
Exercise Date. If any items referred to in the first sentence of paragraphs (b)
and (c) of this Section 2.2 are received after 2:00 p.m., New York City time, on
a Business Day, the exercise of the Warrants to which such item relates will be
effective on the next succeeding Business Day. Notwithstanding the foregoing, in
the case of an exercise of Warrants on the Expiration Date, if all of the items
referred to in the first sentence of paragraphs (b) and (c) of this Section 2.2
are received by the Warrant Agent at or prior to 5:00 p.m., New York City time,
on such Expiration Date, the exercise of the Warrants to which such items relate
will be effective on the Expiration Date.
(f) Upon the exercise of a Warrant in accordance with the terms
hereof, the receipt of a Warrant Certificate and payment of the Exercise Price,
the Warrant Agent shall: (i) cause an amount equal to the Exercise Price,
whether in cash, Warrant Certificates or shares of Series A Preferred Stock, to
be delivered or paid to the Company by crediting the same to the account
designated by the Company in writing to the Warrant Agent for that purpose; (ii)
in the case of a payment of the Exercise Price in cash, advise the Company
immediately by telephone of the amount so deposited to the Company's account and
promptly confirm such telephonic advice in writing; (iii) in the case of a
payment of the Exercise Price in Warrant Certificates or shares of Series A
Preferred Stock, advise the Company immediately by telephone of the number of
Warrant Certificates or the aggregate liquidation preference and accumulated and
unpaid dividends thereon (whether or not declared) of shares of Series A
Preferred Stock to be surrendered and promptly confirm such telephone advice in
writing; and (iv) as soon as practicable, advise the Company in writing of the
number of Warrants exercised in accordance with the terms and conditions of this
Warrant Agreement and the Warrant Certificates, the instructions of each
exercising Holder with respect to delivery of the Warrant Shares to which such
Holder is entitled upon such exercise, and such other information as the Company
shall reasonably request.
(g) Subject to Section 5.2 hereof, as soon as practicable after
the exercise of any Warrant or Warrants in accordance with the terms hereof, the
Company shall issue or cause to be issued to or upon the written order of the
registered Holder evidencing such exercised
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Warrant or Warrants, a certificate or certificates evidencing the Warrant Shares
to which such Holder is entitled, in fully registered form, registered in such
name or names as may be directed by such Holder pursuant to the Election to
Exercise, as set forth on the reverse of the Warrant Certificate. The Warrant
Agent shall have no obligation to ascertain the number of Warrant Shares to be
issued with respect to the exercised Warrant or Warrants. Such certificate or
certificates evidencing the Warrant Shares shall be deemed to have been issued
and any Persons who are designated to be named therein shall be deemed to have
become the Holder of record of such Warrant Shares as of the close of business
on the Exercise Date. After such exercise of any Warrant or Warrants, the
Company shall also issue or cause to be issued to or upon the written order of
the registered Holder of such Warrant Certificate, a new Warrant Certificate,
countersigned by the Warrant Agent pursuant to the Company's written
instruction, evidencing the number of Warrants, if any, remaining unexercised
(unless such Warrants shall have expired).
SECTION 2.3. Cancellation of Warrant Certificates. In the event
the Company shall purchase or otherwise acquire Warrants, the Warrant
Certificates evidencing such Warrants may thereupon be delivered to the Warrant
Agent, and if so delivered, shall be canceled by it and retired. The Warrant
Agent shall cancel all Warrant Certificates properly surrendered for exchange,
substitution, transfer or exercise. The Warrant Agent shall deliver all shares
of Series A Preferred Stock properly surrendered for exercise to the Company for
cancellation. The Warrant Agent shall destroy canceled Warrant Certificates held
by it and deliver a certificate of destruction to the Company. The Warrant Agent
shall account promptly to the Company with respect to Warrants exercised and
concurrently pay to the Company all money received, and deliver to the Company
all shares of Series A Preferred Stock received, by the Warrant Agent for the
purchase of Warrant Shares through the exercise of such Warrants.
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.1. Enforcement of Rights.
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(a) Notwithstanding any of the other provisions of this Warrant
Agreement, any Holder of Warrant Certificates or holder of Warrant Shares,
without the consent of the Warrant Agent, may, in and for its own behalf,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, its right to exercise the Warrant or Warrants
evidenced by its Warrant Certificate as provided in such Warrant Certificate and
in this Warrant Agreement.
(b) Neither the Warrants nor any Warrant Certificate shall
entitle the Holders thereof to any of the rights of a holder of Common Stock,
including, without limitation, as applicable, the right to vote or to receive
any dividends or other payments or to consent or to
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receive notice as stockholders in respect of the meetings of stockholders or for
the election of directors of the Company or to share in the assets of the
Company in the event of the liquidation, dissolution or winding up of the
Company's affairs or any other matter, or any rights whatsoever as stockholders
of the Company.
SECTION 3.2. Tag-Along Rights. From and after the Issue Date
until the later of (A) the date of completion of a Public Equity Offering and
(B) the date on which the Common Stock is listed for trading on a national
securities exchange or is authorized for trading on any tier of the NASDAQ
National Market System (the "Tag-Along Period"), with respect to any proposed
sale, exchange, transfer or other disposition (collectively, a "Proposed
Transfer") of shares of Common Stock or Non-Voting Common Stock by Birch
Holdings L.L.C., Birch Acquisition L.L.C. or any of their Related Parties (any
such Persons being hereinafter referred to as a "Transferor") to a Person, other
than an Affiliate of Birch Holdings L.L.C. or Birch Acquisition L.L.C. (such
other Person being hereafter referred to as the "proposed purchaser"), each
Holder and each holder of Warrant Shares (individually, a "Tag Along Investor"
and, collectively, the "Tag-Along Investors") shall have the right (the
"Tag-Along Right") to require the Transferor, prior to consummation of the
Proposed Transfer, to include in the Proposed Transfer, on the same terms and at
the same price, up to the number of whole Warrant Shares owned by each such
Tag-Along Investor, or Warrants owned by each such Tag-Along Investor which are
exercisable for up to the number of whole Warrant Shares (provided that any Tag-
Along Investor electing to require the proposed Transferor to include Warrants
in such Proposed Transfer shall pay to the Transferor the aggregate Exercise
Price with respect to all such Warrants) equalling the sum of:
(i) the number derived by multiplying the total number of
shares of Common Stock and Non-Voting Common Stock the Transferor
proposes to transfer by a fraction, the numerator of which is the
total number of Warrant Shares owned by such Tag-Along Investor,
or which could then be acquired upon exercise of Warrants, by
such Tag-Along Investor, and the denominator of which is the sum
of (A) the total number of shares of Common Stock and Non-Voting
Common Stock owned by the Transferor, plus (B) the total number
of shares of Warrant Shares which are then outstanding, or which
could then be acquired upon exercise of Warrants, owned by all
Tag-Along Investors who delivered Tag-Along Notices (as defined
in Section 3.2(b) herein); and
(ii) any additional Warrant Shares, if any, such Tag-Along
Investor shall be entitled to transfer if any other Tag-Along
Investor has not elected to exercise its Tag-Along Right
hereunder (as determined pursuant to Section 3.2(c)).
At all times during the Tag-Along Period, each of Birch
Acquisition L.L.C., Birch Holdings, L.L.C. and their respective Related Parties
and their respective successors (collectively, the "Birch Parties") will hold
their respective shares of Common
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Stock and Non-Voting Common Stock subject to the Tag-Along Rights described
herein, and their respective shares of Common Stock and Non-Voting Common Stock
will bear a legend indicating that they are subject to the Tag-Along Rights
described herein.
(a) Notice of Proposed Transfer. The Transferor and the Company
shall, not less than 20 nor more than 30 days prior to each Proposed Transfer,
notify, or cause to be notified, the Warrant Agent, each Holder and each holder
of Warrant Shares in writing (the "Sale Notice") of each such Proposed Transfer.
Such Sale Notice shall set forth: (i) the name of the Transferor and the number
of shares of Common Stock and Non-Voting Common Stock proposed to be
transferred, (ii) the proposed amount and form of consideration of any type and
character and terms and conditions of payment offered by such proposed purchaser
to the proposed Transferor or any of its affiliates and (iii) that the proposed
purchaser has been informed of the Tag-Along Right provided for in this Section
3.2 and has agreed to purchase shares of Common Stock and Non-Voting Common
Stock (and Warrant Shares) in accordance with the terms hereof.
(b) Exercise of Tag-Along Right. The Tag-Along Right may be
exercised by any Tag-Along Investor by delivery of a written notice (the
"Tag-Along Notice") to the Transferor along with delivery of a copy of the
written notice to the Warrant Agent within 10 days following receipt by the
Warrant Agent of the Sale Notice. The Tag-Along Notice shall state the amount of
shares of Warrant Shares that such Tag-Along Investor proposes to include in
such transfer to the proposed purchaser (as determined in this Section 3.2),
plus the amount of additional Warrant Shares, if any, that such Tag-Along
Investor would be willing to sell to the proposed purchaser in the event that
any of the other Tag-Along Investors elect not to exercise their Tag-Along
Rights in whole or in part.
(c) Additional Warrant Shares. The maximum amount of additional
Warrant Shares that each such Tag-Along Investor shall be entitled to sell, and
the proposed Transferor shall be required to include in the Proposed Transfer,
shall be determined by multiplying the total number of Warrant Shares, or
Warrant Shares which could be acquired upon exercise of Warrants, that Tag-Along
Investors could have elected to sell to the proposed purchaser but elected not
to so sell (as indicated in the Tag-Along Notices), by a fraction, the numerator
of which is the total number of Warrant Shares, or Warrant Shares which could be
acquired upon exercise of Warrants, owned by such Tag-Along Investors electing
to sell additional Warrant Shares and the denominator of which is the total
number of Warrant Shares, or Warrant Shares which could be acquired upon
exercise of Warrants, owned by all Tag-Along Investors who delivered Tag-Along
Notices.
(d) Limitations on Right of Transferor to Sell Common Stock and
Non-Voting Common Stock. In the event that the proposed purchaser does not
purchase Warrant Shares from the Tag-Along Investors on the same terms and
conditions as specified in the Sale Notice, then the Transferor shall not be
permitted to sell any shares of Common Stock or Non-Voting Common Stock to the
proposed purchaser in the Proposed Transfer. If no Tag-Along Notice is received
during the 10-day period referred to above (or if such Tag-Along Notices do not
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cover all the shares of Common Stock and Non-Voting Common Stock proposed to be
transferred), the Transferor shall have the right, for a 45-day period after the
expiration of the 10-day period referred to above, to transfer the shares of
Common Stock and Non-Voting Common Stock specified in the Sale Notice (or the
remaining shares of Common Stock and Non-Voting Common Stock) on terms and
conditions no more favorable than those stated in the Tag-Along Notice and
without regard to the Tag-Along Rights described in this Section 3.2.
(e) Payment and Transfer of Warrant Shares. Any Warrant Shares
purchased from Tag-Along Investors hereunder shall be paid for in cash, at the
same price per share of Common Stock and Non-Voting Common Stock and upon the
same terms and conditions as such proposed transfer by the Transferor, it being
agreed, however, that (i) such terms and conditions do not include the making of
any representations and warranties, indemnities or other agreements other than
representations and warranties with respect to title of the Warrant Shares being
sold and authority to sell such Warrant Shares and indemnities related thereto,
(ii) no Tag-Along Investor shall, pursuant to any representation, warranty,
agreement or indemnity made in connection with a Proposed Transfer, be liable in
an amount to exceed the net proceeds received by such Tag-Along Investor in the
Proposed Transfer (without interest thereon) and (iii) no Tag- Along Investor
shall, in connection with any Proposed Transfer, have any liability in respect
of any representation, warranty, agreement or indemnity made by any other
Tag-Along Investor in connection with a Proposed Transfer. All payments to be
made to the Tag-Along Investors shall be made to the Warrant Agent on behalf of
the Tag-Along Investors as directed in writing by the Warrant Agent.
Notwithstanding any provision to the contrary in this Section 3.2, no Tag-Along
Investor shall be required to surrender or deliver Warrant Shares (or Warrant
Certificates representing Warrant Shares) to any Person (including, without
limitation, the proposed purchaser) as a condition precedent to exercise of a
Tag-Along Right hereunder; provided, however, that any such Tag-Along Investor
electing to exercise any Tag-Along Right hereunder shall, promptly after
consummation of a Proposed Transfer of Warrant Shares in accordance with this
Section 3.2(e), exercise all Warrants with respect to which a Tag-Along Right
has been exercised and request that Warrant Certificates (representing Warrant
Shares acquired upon exercise of such Warrants) be issued to such Tag-Along
Investor in accordance with the provisions of Article II hereof.
(f) Acknowledgment by Warrant Agent and the Company. The Company
agrees not to effect any transfer of shares of Common Stock or Non-Voting Common
Stock by any of the Birch Parties until the Company has received evidence
reasonably satisfactory to it and the Warrant Agent that the terms and
provisions of this Section 3.2 with respect to the exercise of any Tag-Along
Right, if applicable to such transfer, have been complied with in all respects.
SECTION 3.3. Exchange Rights of Holders. If either Birch Holdings
L.L.C., Birch Acquisition L.L.C. or any of their respective Related Parties that
are engaged primarily in the business of investing in equity securities of the
Company shall consummate a public or private offering of shares of Common Stock
or Non-Voting Common Stock or any security whether or not immediately
convertible, exchangeable or exercisable into Common Stock
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or Non-Voting Common Stock, the Holders and the Holders shall have the right to
convert the Warrants or Warrant Shares into such number of shares of common
stock of Birch Holdings L.L.C., Birch Acquisition L.L.C. or such other entity,
as the case may be, as have an equivalent Fair Market Value to the Fair Market
Value of the number of Warrant Shares outstanding or issuable upon the exercise
of outstanding Warrants as of the date of such offering, as determined by an
Independent Financial Advisor.
SECTION 3.4. Repurchase Right.
----------------
(a) If (A) the Company, in a single transaction or series of
related transactions, (i) sells, assigns, transfers, leases, conveys or
otherwise disposes of all or substantially all of the assets of the Company to
any Person; (ii) consolidates or merges with or into another Person and the
Company is not the surviving entity; or (iii) consolidates or merges with or
into another Person and the Company is the surviving entity (a "Forward Merger")
and (w) the shareholders of the Company immediately preceding such Forward
Merger will not continue to own at least a majority of the outstanding shares of
capital stock of the Company on a fully diluted basis following the consummation
of such Forward Merger, (x) as a direct or indirect result of such Forward
Merger, a Change of Control (as defined in the Indenture) shall have occurred,
(y) the net worth of the Company following the consummation of such Forward
Merger shall not at least equal the net worth of the Company immediately
preceding such Forward Merger, or (z) immediately following the consummation of
such Forward Merger, the Company would not be permitted to incur any additional
Indebtedness (as defined in the Indenture) pursuant to Section 4.12 of the
Indenture, and (B) the consideration payable in respect of any event described
in the immediately preceding clause (i), (ii) or (iii) does not consist solely
of cash (any such event, hereinafter, a "Repurchase Event"), then the Company
shall offer to repurchase (a "Repurchase Offer"), in accordance with the
procedures set forth in this Section 3.4, all Warrants at the per share Fair
Market Value of the Common Stock issuable upon exercise thereof, less the
Exercise Price (the "Repurchase Price"). The Company shall, subject to the
provisions described in this Section 3.4, be required to purchase all Warrants
properly tendered pursuant to a Repurchase Offer and not withdrawn.
Notwithstanding the foregoing, the provisions of this Section 3.4(a) shall not
apply in the event of an internal reorganization involving only the Company and
its wholly-owned subsidiaries pursuant to which the Company is the surviving
entity.
(b) The Repurchase Offer shall remain open for at least 20
Business Days and until the close of business on the fifth Business Day prior to
the Repurchase Date (as hereinafter defined).
(c) Not later than the 30th day following the occurrence of the
Repurchase Event, the Company shall mail to the Warrant Agent and to each Holder
a notice (the "Repurchase Notice") stating, among other things:
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(1) that a Repurchase Event has occurred and that such
Holder has the right to require the Company to repurchase such holder's
Warrants, or portion thereof, at the Repurchase Price;
(2) any information regarding such Repurchase Event
required to be furnished under applicable federal and state securities
laws, rules and regulations;
(3) a purchase date (the "Repurchase Date"), which shall
be on a Business Day and no earlier than 30 days nor later than 60 days
after the occurrence of a Repurchase Event;
(4) that any Warrant, or portion thereof, not tendered or
accepted for payment shall be subject to appropriate adjustment as
required by Section 5 of this Warrant Agreement, and continue in full
force and effect in accordance with this Warrant Agreement; and
(5) the instructions a Holder must follow in order to have
Warrants repurchased in accordance with this Section 3.4.
No failure of the Company to give the foregoing notice shall
limit any right to any Holder right to exercise a repurchase right hereunder.
(d) To exercise the repurchase right, the Holder must deliver, on
or before the fifth calendar day prior to the Repurchase Date, written notice of
the Company (or an agent designated by the Company for such purpose) of the
exercise of such repurchase right, together with the Warrant Certificates with
respect to which the right is being exercised, duly endorsed for transfer;
provided, however, that with respect to Warrants held of record by DTC, the
Company or its designated agent may accept as tendered for repurchase pursuant
to this Section 3.4 Warrants tendered by means of a book entry in accordance
with the normal procedures of DTC.
(e) On the Repurchase Date, the Company shall (i) accept for
payment Warrants or portions thereof tendered pursuant to the Repurchase Notice,
(ii) if the Company appoints a depository or Paying Agent, deposit with such
depository or Paying Agent money sufficient to pay the Repurchase Price of all
Warrants or portions thereof so tendered and (iii) deliver to the Warrant Agent
Warrants so accepted together with an Officers' Certificate stating the Warrants
or portions thereof tendered to the Company. DTC, the Company or the Paying
Agent, as the case may be, shall promptly mail to the Holders whose Warrants are
so accepted payment in an amount equal to the Repurchase Price, and the Warrant
Agent shall promptly authenticate and mail to Holders of Definitive Warrants new
Definitive Warrants equal in principal amount to any unpurchased portion of the
Definitive Warrant surrendered. The Company will publicly announce the results
of the Repurchase Offer on or as soon as practicable after the Repurchase Date.
For purposes of this Section 3.4, the Warrant Agent shall act as the Paying
Agent.
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(f) The Company, to the extent applicable and if required by law,
will comply with the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and any other federal and state securities laws, rules and regulations
that may then be applicable to any offer by the Company to purchase the Warrants
pursuant to the provisions of this Section 3.4.
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.1. Payment of Taxes. The Company will pay all
documentary stamp taxes attributable to the initial issuance of Warrants and of
the Warrant Shares upon the exercise of Warrants and all documentary stamp taxes
attributable to the separation of the Warrants from the Series A Preferred Stock
on the Separation Date; provided, however, that the Company shall not be
required to pay any tax or other governmental charge which may be payable in
respect of any transfer involved in the issue of any Warrant Certificates or any
certificates for Warrant Shares in a name other than the registered Holder
surrendered upon the exercise of a Warrant. In any such case, the Company shall
not be required to issue or deliver such Warrant Certificate or certificate for
Warrant Shares unless or until the Person or Persons requesting issuance thereof
shall have paid to the Company the amount of such tax or other governmental
charge or shall have established to the satisfaction of the Company that such
tax or other governmental charge has been paid or an exemption is available
therefrom.
SECTION 4.2. Notice of Expiration Date. The Company will give
notice of the Expiration Date to all Holders of the then outstanding Warrants,
not less than 90 and not more than 120 days prior to the Expiration Date.
SECTION 4.3. Reservation of Common Stock. The Company covenants
and agrees that it will at all times cause to be reserved and kept available out
of its authorized and unissued shares of Common Stock such number of shares of
Common Stock as will be sufficient to permit the exercise in full of all
Warrants issued hereunder and all other rights, warrants or options exercisable
into, and the conversion of all securities convertible into, Common Stock and
Non-Voting Common Stock.
SECTION 4.4. Warrant Shares to be Duly Authorized and Issued,
Fully Paid and Nonassessable. The Company covenants and agrees that it will take
all such action as may be necessary to ensure that all Warrant Shares delivered
upon the exercise in full of any Warrants, at the time of delivery of the
certificates representing such shares, shall be duly and validly authorized and
issued and fully paid and nonassessable, free of any preemptive rights in favor
of any Person in respect of such issuance and free of any security interest,
lien or other encumbrance of any kind or nature created by, arising out of
actions of, the Company, any subsidiary or any affiliate of the Company.
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SECTION 4.5. Reports.
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(a) For so long as any Warrants are outstanding, the Company
shall deliver to the Warrant Agent and mail to each Holder, within 15 days after
the filing of the same with the Securities and Exchange Commission ("SEC"),
copies of its quarterly and annual reports and of the information, documents and
other reports, if any, which the Company is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act.
(b) For so long as any Warrants are outstanding, if at any time
the Company is not subject to the requirements of such Section 13 or 15(d) of
the Exchange Act, the Company shall file with the SEC, to the extent permitted,
and distribute to the Warrant Agent and to each Holder copies of the quarterly
and annual financial information that would have been required to be contained
in a filing with the SEC on Forms 10-Q and 10-K and all current reports that
would be required to be filed with the SEC on Form 8-K had the Company been
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act. All such financial information shall include consolidated financial
statements (including footnotes) prepared in accordance with generally accepted
accounting principles. Such annual financial information shall also include an
opinion thereon expressed by an independent accounting firm of established
national reputation. All such consolidated financial statements shall be
accompanied by a "Management's Discussion and Analysis of Financial Condition
and Results of Operation." The financial and other information to be distributed
to Holders shall be filed with the Warrant Agent and mailed to the Holders at
their respective addresses appearing in the Warrant Register maintained by the
Warrant Agent, within 120 days after the end of the Company's fiscal year and
within 60 days after the end of each of the first three quarters of each such
fiscal year. In addition, for so long as any Warrants are outstanding, the
Company shall furnish to the Holders and to securities analysts and to
prospective purchasers upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act for so long as
the Company is required for an offer or sale of the Warrants under Rule 144A.
From and after the date of effectiveness of any registration statement filed
with the SEC with respect to the Warrants, the Company will file with the SEC
such Forms 10-Q and 10-K and any other information required to be filed by it.
SECTION 4.6. Private Placement Numbers. The Company covenants and
agrees to obtain, and thereafter maintain, a private placement number in respect
of the Warrants and a private placement number or CUSIP number, as appropriate,
in respect of the Warrant Shares from the CUSIP Service Bureau of Standard &
Poor's, a division of McGraw-Hill, Inc.
SECTION 4.7. Right of Action. All rights of action in respect of
the Warrants are vested in the respective registered Holders of the Warrant
Certificates, and any registered Holder of any Warrant Certificate, without the
consent of the Holder of any other Warrant Certificate, may, on its own behalf
and for its own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of, its right to exercise the Warrants evidenced by such Warrant Certificate in
the manner provided in such Warrant Certificate and in this Warrant Agreement.
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SECTION 4.8. Survival. The agreements of the Company contained in
Section 4.1 and Section 4.7 shall survive the exercise of and the expiration of
the Warrants.
ARTICLE V
ADJUSTMENTS
SECTION 5.1. Adjustment of Exercise Price and Number of Warrant
Shares Issuable. The Exercise Price and the number and kind of Warrant Shares
purchasable upon the exercise of each Warrant shall be subject to adjustment
from time to time as follows:
(a) Stock Dividends, Subdivisions and Combinations. In case the
Company shall hereafter (A) pay a dividend in shares of Common Stock or
Non-Voting Common Stock or make a distribution in shares of Common Stock or
Non-Voting Common Stock, (B) reclassify by subdivision its outstanding shares of
Common Stock or Non-Voting Common Stock into a greater number of shares or (C)
reclassify by combination its outstanding shares of Common Stock or Non-Voting
Common Stock into a smaller number of shares, (i) the number of Warrant Shares
purchasable upon exercise of each Warrant immediately prior thereto shall be
adjusted so that the Holder of any Warrant Certificate thereafter exercised
shall be entitled to receive the number of Warrant Shares which such Holder
would have owned immediately following such action had such Warrant been
exercised immediately prior thereto, and (ii) the Exercise Price shall be
adjusted by multiplying such Exercise Price immediately prior to such adjustment
by a fraction, the numerator of which shall be the number of Warrant Shares
purchasable upon the exercise of each Warrant immediately prior to such
adjustment, and the denominator of which shall be the number of Warrant Shares
purchasable immediately thereafter. An adjustment made pursuant to this Section
5.1(a) shall become effective immediately after the record date, in the case of
a dividend, and shall become effective immediately after the effective date, in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this Section 5.1(a), the Holder of any Warrant
Certificate thereafter exercised shall become entitled to receive shares of two
or more classes of capital stock of the Company, the Board of Directors of the
Company shall determine, in its reasonable discretion, the allocation of the
adjusted Exercise Price between or among shares of such classes of capital
stock.
(b) Reclassification, Combinations, Mergers, etc. Subject to
Section 3.4, if (A) any capital reorganization, reclassification or change of
outstanding shares of Common Stock or Non-Voting Common Stock (other than as set
forth in Section 5.1(a) and other than a change in par value, or from par value
to no par value, or from no par value to par value; provided that the Company
shall not increase the par value of the Common Stock to exceed the Exercise
Price), or (B) in case of any consolidation or merger of the Company with or
into another corporation or other entity (other than a merger in which the
Company is the continuing corporation and which does not result in any
reclassification or change of the then outstanding shares of Common Stock or
Non-Voting Common Stock or other capital stock of the Company (other than a
change in par
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value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination)) or (C) in case of any sale or
conveyance to another corporation or other entity of all or substantially all of
the assets of the Company shall be effected in such a way that the holders of
Common Stock or Non-Voting Common Stock shall be entitled to receive shares of
common stock, other securities or assets (whether such stock, other securities
or assets are issued or distributed by the Company or another Person) with
respect to or in exchange for Common Stock or Non-Voting Common Stock, then, as
a condition of such reclassification, reorganization, change, consolidation,
merger, sale or conveyance, the Company or such a successor or purchasing
corporation or other entity, as the case may be, shall forthwith make lawful and
adequate provision whereby the Holder of such Warrant Certificate then
outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of shares of stock and other securities and assets
receivable upon such reclassification, reorganization, change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
or Non-Voting Common Stock that such holders would have been entitled to receive
upon exercise of such Warrant had such Warrant been exercised immediately before
such reclassification, reorganization, change, consolidation, merger, sale or
conveyance that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article V.
For purposes of this Section 5.1(b), "shares of stock and other
securities and property" receivable upon a reclassification, change,
consolidation, merger, sale or conveyance shall include stock of any successor
or acquiring corporation of any class which is not subject to redemption and
shall also include any evidence of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event, including any warrants or other rights to subscribe for or
purchase any such stock. If the issuer of securities deliverable upon exercise
of Warrants under the supplemental warrant agreement is an affiliate of the
formed, surviving or transferee corporation or other entity, such issuer shall
join in the supplemental warrant agreement.
In case of any such reclassification, reorganization, merger,
consolidation or dispositions of assets, the successor or acquiring corporation
or other entity shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant Agreement
to be performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of Directors
of the Company) in order to provide for adjustments of Warrant Shares into which
each Warrant is exercisable, which shall be as nearly equivalent as practicable
to the adjustments provided for in this Article V.
(c) Issuances of Common Stock, Non-Voting Common Stock or Rights.
In the event that the Company shall, at any time or from time to time after the
date hereof, issue, sell distribute or otherwise grant (in any such case, a
"Distribution") shares of Common Stock, Non-Voting Common Stock or Rights,
whether or not such Rights are immediately exercisable,
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convertible or exchangeable, at a Consideration Per Share lower than the per
share Fair Market Value of the Common Stock or the Non-Voting Common Stock on
the date of such issuance or sale, or if the Company shall amend any of the
provisions of any Rights, including, without limitation, a change in the
purchase, conversion, exchange or exercise price per share of Common Stock or
Non-Voting Common Stock, as the case may be, of any such Right, or the Aggregate
Consideration Receivable applicable to any such Right (other than under or by
reason of provisions designed to protect against dilution upon an event which
results in an adjustment pursuant to this Article V which is no less favorable
to the Holder than such adjustment is to the holder of such Rights), then,
immediately after the date of such issuance or sale,
(A) the number of Warrant Shares purchasable upon exercise
of each Warrant shall be increased so that the Holders thereafter will
be entitled to receive the number of Warrant Shares determined by
multiplying:
(i) the number of shares of Common Stock or such Holders
would have been entitled to receive immediately before the date
of such issuance or sale had such Holders exercised their
Warrants immediately prior thereto; by
(ii) a fraction, the numerator of which shall be the sum
of: (X) the number of shares of Common Stock and Non-Voting
Common Stock outstanding on such date plus (Y) the number of
additional shares of Common Stock and Non-Voting Common Stock
offered for subscription or purchase (or into which the Rights so
offered are initially convertible or exchangeable or exercisable,
as the case may be), and the denominator of which shall be the
sum of: (X) the number of shares of Common Stock and Non-Voting
Common Stock outstanding on such date plus (Y) the number of
shares of Common Stock or Non-Voting Common Stock that the
Aggregate Consideration Receivable would purchase at such per
share Fair Market Value of the Common Stock on the date of such
issuance or sale, and
(B) the Exercise Price in effect immediately after such
Distribution shall be adjusted by multiplying the Exercise Price in
effect immediately prior to such Distribution by the quotient of:
(i) the sum of: (A) the number of shares of Common Stock
and Non-Voting Common Stock outstanding immediately prior to such
Distribution; plus (B) the quotient of: (X) the Aggregate
Consideration Receivable; divided by (Y) the per share Fair
Market Value of the Common Stock or Non-Voting Common Stock; in
each case immediately prior to such Distribution; divided by
(ii) the sum of: (A) the number of shares of Common Stock
and Non-Voting Common Stock outstanding immediately prior to such
Distribution; plus (B) the number of shares of Common Stock and
Non-Voting Common Stock so issued or sold (or initially issuable
pursuant to any Rights).
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No adjustment shall be made pursuant to subparagraph (A) above
which would decrease the number of shares of Common Stock purchasable upon
exercise of a Warrant. No adjustment shall be made pursuant to subparagraph (B)
above which would increase the Exercise Price of a Warrant.
For purposes of the foregoing calculation, the total maximum
number of shares of Common Stock and/or Non-Voting Common Stock issuable upon
exercise, conversion or exchange, as applicable, of all Rights shall be deemed
to have been issued as of the date of such Distribution and thereafter shall be
deemed to be outstanding and the Company shall be deemed to have received as
consideration therefor the Aggregate Consideration Receivable applicable thereto
after giving effect to such exercise, conversion or exchange. Except as provided
in Section 5.1(g), no additional adjustments of the Exercise Price shall be made
upon the actual exercise, exchange or conversion, as applicable, of such Rights.
(d) Dividends and Distributions. In the event the Company shall,
at any time or from time to time after the date hereof, make or pay any dividend
of, or distribute to holders of Common Stock or Non-Voting Common Stock (in any
such case, a "Dividend"), shares of capital stock, any of its property or
assets, including, without limitation, cash, evidences of its indebtedness,
Rights or other securities (in each case, other than dividends payable in Common
Stock or Non-Voting Common Stock) (collectively, "Dividend Securities"), then,
in each such case, the Company shall reserve shares or other units of such
Dividend Securities for distribution to the Holders upon exercise of their
Warrants so that, in addition to the Warrant Shares issuable upon exercise
thereof, such Holders will receive upon such exercise the amount and kind of
such Dividend Securities that such Holders would have received if the Holders
had, immediately prior to the record date for the distribution of the Dividend
Securities, exercised the Warrants.
(e) Self-Tenders. If, at any time or from time to time after the
date hereof, the Company or any subsidiary of the Company shall repurchase, by
self-tender offer or otherwise, any shares of Common Stock or Non-Voting Common
Stock of the Company or any Right at a weighted average purchase price in excess
of the per share Fair Market Value of the Common Stock or Non-Voting Common
Stock, then on the Business Day immediately prior to the earliest of (i) the
date of such repurchase, (ii) the commencement of an offer to repurchase or
(iii) the public announcement of either (such date being referred to as the
"Determination Date"), the Company shall (x) offer to repurchase the Warrant
Shares on the same terms and conditions on which it has offered to repurchase
the shares of Common Stock or Non-Voting Common Stock that were the subject of
the self-tender or (y) offer to repurchase the Warrants on the same terms and
conditions on which it has offered to repurchase the rights that were the
subject of the self-tender.
(f) Fair Market Value of Consideration Received. Notwithstanding
any provision to the contrary herein, for purposes of this Article V, if any
Rights shall be issued in connection with the issuance and sale of other
securities of the Company, together comprising one integral transaction in which
no specific consideration is allocated to such Rights by the parties thereto,
such Rights shall be deemed to have been issued without consideration, provided,
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however, that if any such Rights have an exercise price (to the extent
applicable) equal to or greater than the per share Fair Market Value of the
Common Stock or Non-Voting Common Stock on the date of issuance of such Rights,
then such Rights shall be deemed to have been issued for consideration equal to
such exercise price.
(g) Deferral of Certain Adjustments. No adjustment to the
Exercise Price (including the related adjustment to the number of Warrant Shares
purchasable upon the exercise of each Warrant) shall be required hereunder
unless such adjustment, together with other adjustments carried forward as
provided below, would result in an increase or decrease of at least one percent
(1%) of the Exercise Price; provided, however, that any adjustments which by
reason of this 5.1(g) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. No adjustment need be made for
a change in the par value of the Common Stock or Non-Voting Common Stock;
provided, however, the Company shall not increase the par value of the Common
Stock or Non-Voting Common Stock to exceed the Exercise Price. All calculations
under this Section 5.1 shall be made to the nearest 1/1,000 of one cent or to
the nearest 1/1,000th of a Warrant Share, as the case may be.
(h) Other Adjustments. In the event that at any time, as a result
of an adjustment made pursuant to this Article V, Holders shall become entitled
to receive any securities of the Company other than shares of Common Stock or
Non-Voting Common Stock, thereafter the number of such other securities so
receivable upon exercise of each Warrant and the Exercise Price applicable to
such exercise shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares and the Exercise Price contained in this Article V, and all
other relevant provisions of this Article V that are applicable to shares of
Common Stock or Non-Voting Common Stock shall be applicable to such other
securities. In case at any time or from time to time the Company shall take any
action in respect of its outstanding shares of Common Stock or Non-Voting Common
Stock, other than any action described in this Article V, or any event occurs as
to which the provisions of this Article V are not strictly applicable, then the
number of Warrant Shares for which each Warrant is exercisable shall be adjusted
in such manner as may be equitable in the circumstances and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares
and the Exercise Price contained in this Article V and as shall be reasonably
necessary, in the good faith opinion of the Board of Directors of the Company,
to protect the exercise rights of the Holders, but in no event shall any such
adjustment have the effect of adversely affecting the Holders. If the Company
shall at any time or from time to time issue, sell or distribute any shares of
capital stock (other than Common Stock or Non-Voting Common Stock), any
evidences of indebtedness, any property or assets, Rights or other securities,
then, in each such case, such issuance, sale or distribution shall be deemed to
be of, or in respect of, Common Stock and Non-Voting Common Stock for purposes
of this Article V.
(i) Statement of Warrant Certificates. Irrespective of any
adjustment in the number or kind of Warrant Shares issuable upon the exercise of
each Warrant or the Exercise Price, Warrant Certificates theretofore or
thereafter issued shall continue to express the same
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number and kind of Warrant Shares and Exercise Price as are stated in the
Warrant Certificates initially issuable pursuant to this Warrant Agreement.
(j) Increased Warrant Shares or Reduced Exercise Price. From time
to time, the Company may, for a period of not less than 20 Business Days, in its
discretion, upon written notice to the Warrant Agent, increase the number of
Warrant Shares purchasable upon the exercise of each Warrant, without making any
adjustment to the Exercise Price, or reduce the Exercise Price, without making
any adjustment to the number of Warrant Shares purchasable upon the exercise of
each Warrant; provided that in the event the Company elects to make any such
adjustments, the Company shall make the same or proportional adjustment, as the
case may be, with respect to all outstanding Warrants.
(k) No Adjustments for Certain Incentive Compensation, Issuance
of Warrant Shares or Issuance of Shares Pursuant to Existing Warrants.
Notwithstanding any other provision hereof, it is expressly understood that the
Warrants shall not be adjusted with respect to (a) Common Stock, Non-Voting
Common Stock or Rights, in any case, that may be issued to any of the Company's
officers or employees pursuant to the stock option plans or similar plans of the
Company, including, without limitation, the Discovery Zone, Inc. 1997 Stock
Incentive Plan (collectively, the "Plans"), to the extent that shares of Common
Stock, Non-Voting Common Stock or other securities issued or granted under such
Plans are issued or granted at a price, or with an exercise price, that is no
less than the per share Fair Market Value of the Common Stock or Non-Voting
Common Stock at the date of grant or issuance and such grant or issuance,
together with all previous grants and issuances under all such Plans, represent
not more than 10% of the fully diluted Common Stock and Non-Voting Common Stock
at the time of such grant or issuance, (b) the conversion or exchange (other
than pursuant to a reclassification), in any case on a share-for-share basis, of
Common Stock for Non-Voting Common Stock, (c) the issuance of any Warrant Shares
or (d) exercise of the Existing Warrants.
(l) No Impairment. The Company will not, by amendment of its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, liquidation, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Company, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 5.1 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holders against impairment.
(m) Further Equitable Adjustments. If, after one or more
adjustments to the Exercise Price pursuant to this Section 5.1, the Exercise
Price cannot be reduced further without falling below the greater of (i) the par
value of the Common Stock and the Non-Voting Common Stock or (ii) the lowest
positive exercise price legally permissible for warrants to acquire shares of
common stock, the Company shall make further adjustments to compensate the
Holders, consistent with the foregoing principles, as the Board of Directors of
the Company, acting in
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good faith, deems necessary, including an increase in the number of Warrant
Shares issuable upon exercise of outstanding Warrants and/or a cash payment to
the Holders.
(n) Other Adjustments.
(i) Adjustments shall be made pursuant to this Section 5.1
successively whenever any of the events referred to in Section 5.1(a)
through Section 5.1(e), inclusive, and Section 5.1(p) shall occur.
(ii) If any Warrant shall be exercised subsequent to the
record date for any of the events referred to in this Section 5.1, but
prior to the effective date thereof, appropriate adjustments shall be
made immediately after such effective date so that the Holder of such
Warrant on such record date shall have received, in the aggregate, the
kind and number of shares of Common Stock, Non-Voting Common Stock or
other securities or property or assets that it would have owned or been
entitled to receive on such effective date had such Warrant been
exercised prior to such record date.
(iii) Shares of Common Stock and Non-Voting Common Stock
owned by or held for the account of the Company shall not, for purposes
of the adjustments set forth in this Section 5.1 be deemed outstanding.
(o) Expiration of Rights. Upon the expiration of any Rights
referred to in this Section 5.1, without the exercise, exchange or conversion,
as applicable, thereof, the Exercise Price and the number of Warrant Shares
shall, upon such expiration, be readjusted and shall thereafter be such Exercise
Price and such number of Warrant Shares as would have been had such Exercise
Price and such number of Warrant Shares been originally adjusted (or had the
original adjustment not been required, as the case may be) as if:
(i) the only shares of Common Stock and Non-Voting Common
Stock so issued were the shares of Common Stock and Non-Voting Common
Stock, if any, actually issued or sold upon the exercise of such Rights;
and
(ii) such shares of Common Stock and Non-Voting Common
Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the aggregate
consideration, if any, actually received by the Company for the
issuance, sale or grant of all such Rights, whether or not exercised;
provided, however, that no such readjustment shall have the effect of
increasing the Exercise Price by an amount in excess of the amount of
the reduction initially made in respect of the issuance, sale, or grant
of such Rights.
(p) Adjustments in Connection with Plan Distributions. If, at any
time after July 22, 1997, and for so long as Warrants shall continue to be
outstanding, the Company shall have issued shares of Common Stock, Non-Voting
Common Stock or Rights to holders of
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Disputed Claims (as such term is defined in the Company's Third Amended Plan of
Reorganization, dated March 11, 1997 (the "Reorganization Plan")) in settlement
of such claims in an aggregate amount at any time outstanding greater than
4,444,444 (which amount represents the sum of (x) all of the issued and
outstanding Common Stock and Non-Voting Common Stock on July 22, 1997 in an
aggregate amount of 4,000,000 issued to holders of certain claims against the
Company in accordance with the Reorganization Plan and (y) 444,444 shares of
Common Stock reserved for issuance upon exercise of the Ten Year Warrants (as
defined under the Reorganization Plan) (an "Excess Plan Distribution"), then, on
the date of any such Excess Plan Distribution, the number of Warrant Shares
issuable upon exercise of all Warrants shall be increased such that each Holder
thereof would receive upon such exercise on the date of any such Excess Plan
Distribution such number of Warrant Shares as shall be necessary to cause such
Holder's percentage interest in the Common Stock or Non-Voting Common Stock on a
fully diluted basis (except issuances of shares of Common Stock upon exercise of
options granted under the Company's 1997 Stock Incentive Plan (the "Plan"))
immediately after such Excess Payment Distribution to equal such Holder's
percentage interest in Common Stock or Non-Voting Common Stock on a fully
diluted basis (except issuances of shares of Common Stock upon exercise of
options granted under the Plan) immediately prior to such Excess Plan
Distribution. Notwithstanding the foregoing, if after July 22, 1997 the Company
shall, in connection with the resolution of Disputed Claims, have issued shares
of Common Stock or Non-Voting Common Stock in an aggregate amount less than
4,444,444, the balance of any such shares of Common Stock or Non-Voting Common
Stock may be distributed by the Company without requiring any adjustment
pursuant to this Section 5.1(p). The adjustments required by this Section 5.1(p)
shall not limit or otherwise adversely affect the rights of the Holders under
any other adjustments required by this Article V.
SECTION 5.2. Fractional Interest. The Company shall not be
required to issue fractional shares of Common Stock or Non-Voting Common Stock
on the exercise of Warrants. If more than one Warrant shall be presented for
exercise in full at the same time by the same Holder, the number of full shares
of Common Stock or Non-Voting Common Stock which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number of shares of
Common Stock or Non-Voting Common Stock acquirable on exercise of the Warrants
so presented. If any fraction of a share of Common Stock or Non-Voting Common
Stock would, except for the provisions of this Section 5.2, be issuable on the
exercise of any Warrant, the Company shall either (i) pay an amount in cash
calculated by the Company to equal the per share Fair Market Value of the Common
Stock or Non-Voting Common Stock multiplied by such fraction of a share of
Common Stock or Non-Voting Common Stock computed to the nearest whole cent or
(ii) aggregate all such fractional shares of Common Stock and Non-Voting Common
Stock into a whole number of shares and sell such aggregated fractional shares
on behalf of the Holders entitled thereto in a public or private sale and
distribute, on a pro rata basis, the net cash proceeds therefrom to such
Holders. While the Company will use its best efforts to secure the best
available sale price for such aggregated fractional shares, such price shall not
necessarily be the highest price obtainable for such shares. By their
acceptances of the Warrant Certificates, Holders expressly waive any and all
rights to receive any fraction of a share of
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Common Stock or Non-Voting Common Stock or a stock certificate or scrip
representing a fraction of a share of Common Stock or Non-Voting Common Stock.
SECTION 5.3. When Adjustment Not Required. If the Company shall
take a record of the holders of its Common Stock or Non-Voting Common Stock for
the purpose of entitling them to receive a dividend or distribution or
subscription or purchase rights and shall, thereafter and before the
distribution to stockholders thereof, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record and any such
adjustment previously made in respect thereof shall be rescinded and annulled.
SECTION 5.4. Treasury Stock. The sale or other disposition of any
issued shares of Common Stock or Non-Voting Common Stock owned or held by or for
the account of the Company shall be deemed an issuance thereof and, except for a
voluntary tender or exchange offer made by the Company or any subsidiary of the
Company subject to Section 13(e) of the Exchange Act, a repurchase thereof and
designation of such shares as treasury stock shall not be deemed to be a
redemption thereof for the purposes of this Warrant Agreement.
SECTION 5.5. Notices to Warrant Agent and Holders. Whenever the
number of Warrant Shares is adjusted or the Exercise Price in respect thereof is
adjusted, as herein provided, the Company shall promptly or, if notice of such
adjustment is required to be given to DTC, at least five (5) days prior to the
date on which notice of such adjustment is given to DTC, give to each Holder
notice of such adjustment or adjustments and shall promptly deliver to each
Holder and the Warrant Agent an Officer's Certificate (confirmed by a
certificate from the Company's independent certified public accountants) setting
forth: (i) the number of Warrant Shares issuable upon the exercise of each
Warrant and the Purchase Price of such shares after such adjustment; (ii) a
brief statement of the facts requiring such adjustment; and (iii) the
computation by which such adjustment was made.
So long as any Warrant is outstanding, within ninety (90) days of
the end of each fiscal year of the Company, the Company shall deliver to each
Holder an Officer's Certificate setting forth: (i) the number of Warrant Shares
issuable upon the exercise of each Warrant and the Exercise Price of such shares
as of the end of such fiscal year; (ii) a brief statement of the facts requiring
each adjustment, if any, required to be made in such fiscal year; and (iii) the
computation by which each such adjustment was made.
In the event that the Holders of at least 25% of the outstanding
Warrants shall challenge any of the calculations set forth in such notice within
20 Business Days after the Company's delivery thereof, the Company shall retain
an Independent Financial Advisor to prepare and execute a certificate verifying
that no adjustment is required. The Company shall promptly cause a signed copy
of any certificate prepared pursuant to this Section 5.5 to be delivered to each
Holder. The Company shall keep at the Warrant Agent Office copies of all such
certificates and cause the same to be available for inspection at said office
during normal business
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hours upon reasonable notice by any Holder or any prospective purchaser of a
Warrant designated by a Holder thereof.
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.1. Warrant Agent. At no time when the Company may be
acting as its own Warrant Agent shall any of its obligations to the Holders be
in any respect reduced as a result thereof. The Warrant Agent shall have the
powers and authority specifically granted to and conferred upon it in the
Warrant Certificates and this Warrant Agreement and such further powers and
authority to act on behalf of the Company as the Company may hereafter grant to
or confer upon it and it shall accept in writing. All of the terms and
provisions with respect to such powers and authority contained in the Warrant
Certificates are subject to and governed by the terms and provisions hereof.
SECTION 6.2. Conditions of Warrant Agent's Obligations. The
Warrant Agent accepts its obligations herein set forth upon the terms and
conditions hereof and in the Warrant Certificates, including the following, to
all of which the Company agrees and to all of which the rights hereunder of the
Holders from time to time of the Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation to be
agreed upon with the Company in writing for all services rendered by it and the
Company agrees promptly to pay such compensation and to reimburse the Warrant
Agent for its reasonable out-of-pocket expenses (including reasonable fees and
expenses of counsel) incurred without gross negligence, bad faith or willful
misconduct on its part in connection with the services rendered by it hereunder.
The Company also agrees to indemnify the Warrant Agent, each predecessor Warrant
Agent, and their respective directors, officers, affiliates, agents and
employees for, and to hold it and its directors, officers, affiliates, agents
and employees harmless against, any loss, liability or expense of any nature
whatsoever (including, without limitation, fees and expenses of counsel)
incurred without gross negligence, bad faith or willful misconduct on the part
of the Warrant Agent or predecessor Warrant Agent, arising out of or in
connection with its acting as such Warrant Agent hereunder and its exercise or
failure to exercise of its rights and performance of its obligations hereunder.
The obligations of the Company under this Section 6.2 shall survive the exercise
and the expiration of the Warrant Certificates and the resignation and removal
of the Warrant Agent.
(b) In acting under this Warrant Agreement and in connection with
the Warrant Certificates, the Warrant Agent is acting solely as agent of the
Company and does not
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assume any obligation or relationship of agency or trust for or with any of the
owners or Holders of the Warrant Certificates.
(c) The Warrant Agent may consult with counsel and any advice or
written opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with such advice or opinion.
(d) The Warrant Agent shall be fully protected and shall incur no
liability for or in respect of any action taken or omitted to be taken or thing
suffered by it in reliance upon any Warrant Certificate, notice, direction,
consent, certificate, affidavit, opinion of counsel, instruction, statement or
other paper or document reasonably believed by it to be genuine and to have been
presented or signed by the proper parties.
(e) The Warrant Agent and its Related Parties may become the
owners of, or acquire any interest in, Warrant Certificates, shares or other
obligations of the Company with the same rights that it or they would have it if
were not the Warrant Agent hereunder and, to the extent permitted by applicable
law, it or they may engage or be interested in any financial or other
transaction with the Company and may act on, or as depositary, trustee or agent
for, any committee or body of holders of shares or other obligations of the
Company as freely as if it were not the Warrant Agent hereunder. Nothing in this
Warrant Agreement shall be deemed to prevent the Warrant Agent or such Related
Parties from acting in any other capacity for the Company.
(f) The Warrant Agent shall not be under any liability for
interest on, and shall not be required to invest, any money at any time received
by it pursuant to any of the provisions of this Warrant Agreement or of the
Warrant Certificates.
(g) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Warrant Agreement (or any term or provision
hereof) or the execution and delivery hereof or in respect of the validity or
execution of any Warrant Certificate (except its authentication thereof).
(h) The recitals and other statements contained herein and in the
Warrant Certificates (except as to the Warrant Agent's authentication thereon)
shall be taken as the statements of the Company, and the Warrant Agent assumes
no responsibility for the correctness of such recitals or other statements. The
Warrant Agent does not make any representation as to the validity or sufficiency
of this Warrant Agreement or the Warrant Certificates; provided, however, that
the Warrant Agent shall not be relieved of its duty to authenticate the Warrant
Certificates as authorized by this Warrant Agreement. The Warrant Agent shall
not be accountable for the use or application by the Company of the proceeds of
the exercise of any Warrant.
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(i) Before the Warrant Agent acts or refrain from acting with
respect to any matter contemplated by this Warrant Agreement, it may require:
(A) an Officers' Certificate stating that, in the opinion
of the signers, all conditions precedent, if any, provided for in
this Warrant Agreement relating to the proposed action have been
complied with; and
(B) if reasonably necessary in the sole judgment of the
Warrant Agent, an opinion of counsel for the Company stating
that, in the opinion of such counsel, all such conditions
precedent have been complied with.
Each Officers' Certificate or, if requested, an opinion of
counsel (with respect to which such counsel may rely, as to matters of fact, on
a certificate or certificates of Officers of the Company) with respect to
compliance with a condition or covenant provided for in this Warrant Agreement
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 or
she has made such examination or investigation as is necessary to enable
him or her 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
such Person, such condition or covenant has been complied with.
(j) The Warrant Agent shall be obligated to perform such duties
as are herein and in the Warrant Certificates specifically set forth and no
implied duties or obligations shall be read into this Warrant Agreement or the
Warrant Certificates against the Warrant Agent. The Warrant Agent shall not be
accountable or under any duty or responsibility for the use by the Company of
any of the Warrant Certificates authenticated by the Warrant Agent and delivered
by it to the Company pursuant to this Warrant Agreement. The Warrant Agent shall
have no duty or responsibility in case of any default by the Company in the
performance of its covenants or agreements contained in the Warrant Certificates
or in the case of the receipt of any written demand from a Holder with respect
to such default, including, without limiting the generality of the foregoing,
any duty or responsibility to initiate or attempt to initiate any proceedings at
law or otherwise or, except as provided in Section 7.2 hereof, to make any
demand upon the Company. The Warrant Agent shall not be obligated to perform any
duty to the extent prohibited by law.
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(k) Unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from the Company
made or given under any provision of this Warrant Agreement shall be sufficient
if signed by its President or, Vice President and attested by its Treasurer,
Controller, Secretary or any Assistant Secretary.
(l) The Warrant Agent shall have no responsibility in respect of
any adjustment pursuant to Article V hereof.
(m) The Company agrees that it will perform, execute, acknowledge
and deliver, or cause to be performed, executed, acknowledged and delivered, all
such further and other acts, instruments and assurances as may reasonably be
required by the Warrant Agent for the carrying out or performing by the Warrant
Agent of the provisions of this Warrant Agreement.
(n) The Warrant Agent is hereby authorized and directed to accept
written instructions with respect to the performance of its duties hereunder
from any one of the President, the Treasurer, the Controller, any Vice President
or the Secretary of the Company or any other officer or official of the Company
reasonably believed to be authorized to give such instructions and to apply to
such officers or officials for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions with respect to any matter
arising in connection with the Warrant Agent's duties and obligations arising
under this Warrant Agreement. Such application by the Warrant Agent for written
instructions from the Company may, at the option of the Warrant Agent, set forth
in writing any action proposed to be taken or omitted by the Warrant Agent with
respect to its duties or obligations under this Warrant Agreement and the date
on or after which such action shall be taken, and the Warrant Agent shall not be
liable for any action taken or omitted to be taken in accordance with a proposal
included in any such application on or after the date specified therein (which
date shall be not less than 10 Business Days after the Company receives such
application unless the Company consents to a shorter period), provided that (i)
such application includes a statement to the effect that it is being made
pursuant to this Section 6.2(n) and that unless objected to prior to such date
specified in the application, the Warrant Agent will not be liable for any such
action or omission to the extent set forth in such application and (ii) prior to
taking or omitting any such action, the Warrant Agent has not received written
instructions objecting to such proposed action or omission.
(o) Whenever in the performance of its duties under this Warrant
Agreement the Warrant Agent shall deem it necessary or desirable that any fact
or matter be proved or established by the Company prior to taking or suffering
any action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the President, the
Treasurer, the Controller, any Vice President or the Secretary of the Company or
any other officer or official of the Company reasonably believed by the Warrant
Agent to be authorized to give such instructions and delivered to the Warrant
Agent and such certificate shall grant full
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authorization to the Warrant Agent for any action taken or suffered in good
faith by it under the provisions of this Warrant Agreement in reliance upon such
certificate.
(p) The Warrant Agent shall not be required to risk or
expend its own
funds in the performance of its obligations and duties hereunder.
SECTION 6.3. Resignation and Appointment of Successor.
----------------------------------------
(a) The Company agrees, for the benefit of the Holders, that
there shall at all times be a Warrant Agent hereunder.
(b) The Warrant Agent may at any time resign as Warrant Agent by
giving written notice to the Company of such intention on its part, specifying
the date on which its desired resignation shall become effective, provided that
such date shall be at least 30 days after the date on which such notice is given
unless the Company agrees to accept less notice. Upon receiving such notice of
resignation, or in the event the Company shall determine not to continue to act
as its own Warrant Agent, the Company shall promptly appoint a successor Warrant
Agent, qualified as provided in Section 6.3(d) hereof, by written instrument in
duplicate signed on behalf of the Company, one copy of which shall be delivered
to the resigning Warrant Agent and one copy to the successor Warrant Agent. As
provided in Section 6.3(d) hereof, such resignation shall become effective upon
the earlier of (x) the acceptance of the appointment by the successor Warrant
Agent or (y) 30 days after receipt by the Company of notice of such resignation.
The Company may, at any time and for any reason, and shall, upon any event set
forth in the next succeeding sentence, remove the Warrant Agent and appoint a
successor Warrant Agent by written instrument in duplicate, specifying such
removal and the date on which it is intended to become effective, signed on
behalf of the Company, one copy of which shall be delivered to the Warrant Agent
being removed and one copy to the successor Warrant Agent. The Warrant Agent
shall be removed as aforesaid if it shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or a receiver of the Warrant Agent or of
its property shall be appointed, or any public officer shall take charge or
control of it or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation. Any removal of the Warrant Agent and any
appointment of a successor Warrant Agent shall become effective upon acceptance
of appointment by the successor Warrant Agent as provided in Section 6.3(d). As
soon as practicable after appointment of the successor Warrant Agent, the
Company shall cause written notice of the change in the Warrant Agent to be
given to each of the registered Holders in the manner provided for in Section
7.4 hereof.
(c) Upon resignation or removal of the Warrant Agent, if the
Company shall fail to appoint a successor Warrant Agent within a period of 30
days after receipt of such notice of resignation or removal, then the Holder or
the Warrant Agent may apply to a court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Pending appointment of a
successor to the Warrant Agent, either by the Company or by such a court, the
duties of the Warrant Agent shall be carried out by the Company.
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(d) Any successor Warrant Agent, whether appointed by the Company
or by a court, shall be a bank or trust company in good standing, incorporated
under the laws of the United States of America or any State thereof and having,
at the time of its appointment, a combined capital surplus of at least $150
million. Such successor Warrant Agent shall execute and deliver to its
predecessor and to the Company an instrument accepting such appointment
hereunder and all the provisions of this Warrant Agreement, and thereupon such
successor Warrant Agent, without any further act, deed or conveyance, shall
become vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Warrant Agent
hereunder, and such predecessor shall thereupon become obligated to (i) transfer
and deliver, and such successor Warrant Agent shall be entitled to receive, all
securities, records or other property on deposit with or held by such
predecessor as Warrant Agent hereunder and (ii) upon payment of the amounts then
due it pursuant to Section 6.2(a) hereof, pay over, and such successor Warrant
Agent shall be entitled to receive, all money deposited with or held by any
predecessor Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent
hereunder may be merged or converted, or any corporation or bank with which the
Warrant Agent may be consolidated, or any corporation or bank resulting from any
merger, conversion or consolidation to which the Warrant Agent shall be a party,
or any corporation or bank to which the Warrant Agent shall sell or otherwise
transfer all or substantially all of its corporate trust business or assets,
shall be the successor to the Warrant Agent under this Warrant Agreement
(provided that such corporation or bank shall be qualified as aforesaid) without
the execution or filing of any document or any further act on the part of any of
the parties hereto.
(f) No Warrant Agent under this Warrant Agreement shall be
personally liable for any action or omission of any successor Warrant Agent or
of the Company.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Defined Terms. Unless otherwise defined in this
Warrant Agreement, the capitalized terms set forth below and used in this
Warrant Agreement shall have the meanings given to such terms below:
"Aggregate Consideration Receivable" means, in the case of a
sale, issuance or other distribution of shares of Common Stock or Non-Voting
Common Stock, the aggregate amount paid to the Company in connection therewith
and, in the case of an issuance, sale or other distribution of Rights, or any
amendment thereto, the sum of: (a) the aggregate amount paid to the Company for
such Rights; plus (b) the aggregate consideration or premium stated in such
Rights to be payable for the shares of Common Stock or Non-Voting Common Stock
covered thereby, in each case, without deduction for any fees, expenses or
underwriters discounts;
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provided further that if all or any portion of the aggregate amount paid to the
Company for such Rights was not paid in cash, the amount of such consideration
other than cash received by the Company shall be deemed to be the then Fair
Market Value of such consideration.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday and
Friday on which (i) banks in New York City or the city in which the principal
corporate trust office of the Warrant Agent is located, (ii) the principal
national securities exchange or market, if any, on which the Common Stock, the
Non-Voting Common Stock or the Warrants are listed or admitted to trading, in
each case, are not obligated by law or executive order to be closed.
"Capital Stock" means, with respect to any person, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock and any and all warrants, options and rights with
respect thereto, including, without limitation, each class of common stock and
preferred stock, partnership interests and other indicia of ownership of such
person.
"Closing Prices" means, per share of Common Stock, Non-Voting
Common Stock or any other security, on any date specified herein:
(i) the last sale price, regular way, on such date or, if no
such sale takes place on such date, the average of the
closing bid and asked prices on such date, in each case as
officially reported on the principal national securities
exchange on which the Common Stock, Non-Voting Common
Stock or other security is then listed or admitted to
trading; and
(ii) if the Common Stock, Non-Voting Common Stock or other
security is not then listed or admitted to trading on any
national securities exchange, but is designated as a
national market system security by the National
Association of Securities Dealers, Inc. ("NASD"), the last
trading price of the Common Stock, Non-Voting Common Stock
or such other security on such date, or if there shall
have been no trading on such date or if the Common Stock,
Non-Voting Common Stock or such other security is not so
designated, the average of the reported closing bid and
asked prices on such date as shown by the National
Association of Securities Dealers Annotated Quotation
System ("NASDAQ").
"Consideration Per Share" means, with respect to shares of Common
Stock, Non-Voting Common Stock or Rights, the quotient of: (a) the Aggregate
Consideration Receivable in respect of such shares of Common Stock, Non-Voting
Common Stock or such Rights, divided by (b) the total number of such shares of
Common Stock or Non-Voting Common Stock or, in the case of Rights, the total
number of shares of Common Stock or Non-Voting Common Stock into which such
Rights are exercisable or convertible.
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"Convertible Preferred Stock" means the Series A Convertible
Preferred Stock of the Company issued by the Company in connection with the
issuance of the Existing Notes and the Existing Warrants.
"Disqualified Capital Stock" means any 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
redeemable at the option of the holder thereof, in whole or in part, on or prior
to May 1, 2002.
"Existing Warrants" means the warrants to purchase the Company's
Common Stock initially issued on July 22, 1997 in connection with the Company's
issuance of the Existing Notes.
"Fair Market Value" means, per share of Common Stock, Non-Voting
Common Stock or any other security, as of any date of determination, the
arithmetic mean of the daily Closing Prices for the 30 consecutive trading days
before such date of determination; provided, however, that if the Common Stock,
Non-Voting Common Stock or such other security is then neither listed or
admitted to trading on any national securities exchange, designated as a
national market system security by the NASD or quoted by NASDAQ, then "Fair
Market Value" means the fair market value of one share of Common Stock,
Non-Voting Common Stock or such other security as determined by an Independent
Financial Advisor as of the date of determination. Any such valuation by an
Independent Financial Advisor shall be based on a sale of the Company, and such
valuation shall not be discounted based on a lack of liquidity or voting rights,
with respect to any such shares, or based on a lack of control of the Company or
by the minority position of the holders of any such shares. For all purposes of
this Agreement, the Fair Market Value of the Non-Voting Common Stock will be
deemed to be the same as the Fair Market Value of the Common Stock.
"Independent Financial Advisor" means Jefferies & Company, Inc.
or any of its successors. If and only to the extent Jefferies & Company, Inc. or
any such successor shall resign from acting as such, such other firm of
independent certified public accountants, an investment banking or appraisal
firm (which firm shall own no equity interest of, and shall not be an affiliate,
subsidiary or Related Party of the Company) of recognized national standing to
be retained by the Company and acceptable to Jefferies & Company, Inc. and the
Warrant Agent.
"Notes" means the Company's 13% Senior Collateralized Notes due
2002.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
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"Public Equity Offering" means an offering of Qualified Capital
Stock of the Company pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (other than a registration statement on Form
S-8 or otherwise relating to equity securities under any employee benefit plans)
which results in net proceeds to the Company of at least $20 million.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Offering" means an offering of Qualified Capital Stock
of the Company which results in net proceeds to the Company of at least $20
million, all or a portion of which are used to redeem 100% of the Notes and such
redemption occurs within 30 days of the date of the closing of such offering.
"Related Party" means, with respect to any Person: (A) any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person, (B) any spouse or immediate family
member of such Person or (C) a trust, corporation, partnership or other entity,
the beneficiaries, stockholders, partners, owners or Persons holding a 50% or
more controlling interest of which consist of such Person and/or such other
Persons or entities referred to in the immediately preceding clause (A). A
Person shall be deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such other Person, whether through the ownership of
voting securities, by contract or otherwise.
"Right" means and includes:
(a) any warrant (including, without limitation, any
Warrant) or any option (including, without limitation, employee stock
options) to acquire directly or indirectly Common Stock or Non-Voting
Common Stock;
(b) any right issued to holders of the Common Stock, or
any class thereof, permitting the holders thereof to subscribe directly
or indirectly for shares of additional Common Stock or Non-Voting Common
Stock (pursuant to a rights offering or otherwise);
(c) any right to acquire Common Stock or Non-Voting Common
Stock pursuant to the provisions of any security convertible directly or
indirectly or exchangeable directly or indirectly into Common Stock or
Non-Voting Common Stock; and
(d) any similar right permitting the holder thereof
directly or indirectly to subscribe for or purchase shares of Common
Stock or Non-Voting Common Stock.
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"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
SECTION 7.2. Amendment. This Warrant Agreement and the terms of
the Warrants may be amended by the Company and the Warrant Agent, without the
consent of any Holder, (i) for the purpose of curing any ambiguity, (ii) for
curing, correcting or supplementing any defective or inconsistent provision
contained herein or therein or (iii) in any other manner which the Company may
reasonably deem necessary or desirable, which in each of clauses (i), (ii) and
(iii) shall not adversely affect in any respect the interests of any of the
Holders.
The Company and the Warrant Agent may modify this Warrant
Agreement and the terms of the Warrants with the consent of not less than a
majority in number of the then outstanding Warrants representing a majority of
the Warrant Shares then issuable upon the exercise of all then outstanding
Warrants (excluding Warrants held by the Company or by any subsidiary of the
Company) for the purpose of adding any provision to or changing in any manner or
eliminating any of the provisions of this Warrant Agreement or modifying in any
manner the rights of the Holders; provided, however, that no such modification
that increases the Exercise Price, reduces the number of Warrant Shares
purchaseable upon the exercise of Warrants, reduces the period of time during
which the Warrants are exercisable hereunder, otherwise adversely affects the
exercise rights of the Holders, reduces the percentage required for
modification, or effects any change to this Section 7.2, may be made with
respect to an outstanding Warrant without the consent of the Holder of such
Warrant.
Any modification or amendment made in accordance with this
Warrant Agreement will be conclusive and binding on all present and future
Holders whether or not they have consented to such modification or amendment or
waiver and whether or not notation of such modification or amendment is made
upon such Warrant Certificates. Any instrument given by or on behalf of any
Holder in connection with any consent to any modification or amendment will be
conclusive and binding on all subsequent Holders.
SECTION 7.3. Notices and Demands to the Company and Warrant
Agent. If the Warrant Agent shall receive any notice or demand addressed to the
Company by the Holder of a Warrant Certificate pursuant to the provisions hereof
or of the Warrant Certificates, the Warrant Agent shall promptly forward such
notice or demand to the Company.
SECTION 7.4. Address for Notices to the Company and for
Transmission of Documents. All notices hereunder to the Company and the Warrant
Agent shall be deemed to have been given when sent by certified or registered
mail, postage prepaid, or by telecopy, confirmed by first class mail, postage
prepaid, addressed as follows:
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To the Company:
Discovery Zone, Inc.
565 Taxter Road, 5th Floor
Elmsford, New York 10523
Telecopy: (914) 345-4500
Telephone: (914) 345-4516
Attention: Chief Executive Officer
To the Warrant Agent:
Firstar Bank of Minnesota, N.A.
101 East 5th Street
St. Paul, Minnesota 55101
Telecopy: (651) 229-6415
Telephone: (651) 229-2600
Attention: Frank P. Leslie, III
SECTION 7.5. Notices to Holders. Notices to Holders shall be
mailed to such Holders at the addresses of such Holders as they appear in the
Warrant Register. Any such notice shall be sufficiently given if sent by
first-class mail, postage prepaid.
SECTION 7.6. Applicable Law. THE VALIDITY, INTERPRETATION
AND PERFORMANCE OF THIS WARRANT AGREEMENT AND EACH WARRANT
ISSUED HEREUNDER AND OF THE RESPECTIVE TERMS AND PROVISIONS THEREOF
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.7. Obtaining of Governmental Approvals. The Company
will from time to time take all action required to be taken by it which may be
necessary to obtain and keep effective any and all permits, consents and
approvals of governmental agencies and authorities and securities laws filings
under United States Federal and State laws, and the rules and regulations of all
stock exchanges or markets on which the Warrants may be listed, which may be or
become requisite in connection with the issuance, sale, transfer, and delivery
of the Warrant Certificates, the exercise of the Warrants or the issuance, sale,
transfer and delivery of the Warrant Shares, it being understood, however, that
the only contractual registration rights of the Holders are those set forth in
the Series A Preferred Unit Purchase Agreement.
SECTION 7.8. Persons Having Rights Under Agreement. Nothing in
this Warrant Agreement expressed or implied and nothing that may be inferred
from any of the provisions hereof is intended, or shall be construed, to confer
upon, or give to, any Person other than the Company, the Warrant Agent, the
Holders from time to time of the Warrant Certificates, Birch Acquisition L.L.C.
and Birch Holdings L.L.C. any right, remedy or claim under or by reason of this
Warrant Agreement or of any covenant, condition, stipulation, promise or
agreement hereof and all covenants, conditions, stipulations, promises and
agreements in this Warrant Agreement contained shall be for the sole and
exclusive benefit of the Company, Birch Acquisition L.L.C., Birch
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Holdings L.L.C. and the Warrant Agent and their successors, and of the Holders
from time to time of the Warrant Certificates.
SECTION 7.9. Headings. The descriptive headings of the several
Articles and Sections of this Warrant Agreement are inserted for convenience of
reference only and shall not control or affect the meaning or construction of
any of the provisions hereof.
SECTION 7.10. Counterparts. This Warrant Agreement may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original; but such Counterparts shall together constitute but
one and the same instrument.
SECTION 7.11. Inspection of Warrant Agreement. A copy of this
Warrant Agreement shall be available at all reasonable times at the Warrant
Agent Office, for inspection by the Holder of any Warrant Certificate. The
Warrant Agent may require such Holder to submit his Warrant Certificate for
inspection by it.
SECTION 7.12. Successors. All the covenants and provisions of
this Warrant Agreement by or for the benefit of the Company or the Warrant Agent
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
* * * * *
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IN WITNESS WHEREOF, this Warrant Agreement has been duly executed
by the Company and the Warrant Agent as of the day and year first above written.
DISCOVERY ZONE, INC.
By: /s/ Scott W. Bernstein
---------------------------------
Name: Scott W. Bernstein
Title: President & CEO
FIRSTAR BANK OF MINNESOTA, N.A.
as Warrant Agent
By: /s/ Frank P. Leslie III
---------------------------------
Name: Frank P. Leslie III
Title: Vice President
ACKNOWLEDGED AND AGREED TO:
- ---------------------------
BIRCH HOLDINGS L.L.C.
By: /s/ Greg S. Feldman
--------------------------------------
Name: Greg S. Feldman
Title: Member
BIRCH ACQUISITION L.L.C.
By: /s/ Greg S. Feldman
--------------------------------------
Name: Greg S. Feldman
Title: Member
<PAGE>
EXHIBIT A
{FORM OF WARRANT CERTIFICATE}
{FACE}
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR WARRANTS IN
CERTIFICATED FORM, THIS WARRANT MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR 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.1
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAWS. NEITHER THIS WARRANT CERTIFICATE NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE, BY
ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE PRIOR TO THE DATE WHICH IS TWO YEARS
AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF THE WARRANTS REPRESENTED BY THIS
WARRANT CERTIFICATE AND THE LAST DATE ON WHICH DISCOVERY ZONE, INC. ("THE
COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE (OR ANY PREDECESSOR OF SUCH WARRANTS OR
WARRANT CERTIFICATE) (THE "RESALE
- --------------------
1 This paragraph is to be included only if the Warrant Certificate is in global
form.
A-1
<PAGE>
RESTRICTION TERMINATION DATE"), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, 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, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE FOR ITS
OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR,"
FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE WARRANT AGENT'S, AS
APPLICABLE, RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE
(D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION REASONABLY SATISFACTORY TO EACH OF THEM, AND IN EACH OF
THE FOREGOING CASES, AN ASSIGNMENT IN THE FORM APPEARING ON THE OTHER SIDE OF
THIS WARRANT CERTIFICATE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
WARRANT AGENT. THIS LEGEND SHALL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER
THE RESALE RESTRICTION TERMINATION DATE.
THIS SECURITY IS SUBJECT TO A SERIES A PREFERRED UNIT PURCHASE AGREEMENT
DATED AS OF JULY 13, 1998 BETWEEN THE COMPANY, BIRCH ACQUISITION L.L.C., BIRCH
HOLDINGS L.L.C. WAFRA ACQUISITION FUND 6 L.P. AND WAFRA FUND MANAGEMENT LTD, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
PRIOR TO THE DATE ON WHICH THE STOCKHOLDERS' AGREEMENT (AS DEFINED BELOW
IS TERMINATED), THE WARRANTS EVIDENCED BY THIS CERTIFICATE MAY NOT BE EXERCISED
FOR SHARES OF THE COMPANY'S COMMON STOCK, PAR VALUE $.00017 PER SHARE ("COMMON
STOCK") UNLESS THE HOLDER THEREOF HAS EXECUTED A COUNTERPART
A-2
<PAGE>
OF THE STOCKHOLDERS' AGREEMENT DATED AS OF JULY 17, 1998, AS AMENDED FROM TIME
TO TIME, BY AND AMONG THE COMPANY, FIRSTAR BANK OF MINNESOTA, N.A., AS TRUSTEE
WITH RESPECT TO THE COMPANY'S 13 1/2% SENIOR COLLATERALIZED NOTES DUE 2002, AND
CERTAIN HOLDERS OF THE COMPANY'S COMMON STOCK, A COPY OF WHICH AGREEMENT IS ON
FILE AT THE OFFICES OF THE COMPANY, ANY PURPORTED EXERCISE OF THE WARRANTS
REPRESENTED BY THIS CERTIFICATE WITHOUT COMPLIANCE WITH THE ABOVE REQUIREMENTS
SHALL BE VOID.
A-3
<PAGE>
CUSIP NUMBER: ____________
No. [ ] [ ] Warrants
WARRANT CERTIFICATE
DISCOVERY ZONE, INC.
This Warrant Certificate certifies that [ ], or its registered assigns,
is the registered holder of [ ] Warrants (the "Warrants") to purchase, subject
to the conditions set forth in the Warrant Agreement, shares of Class A Voting
Common Stock, par value $0.00017 per share (the "Common Stock"), of Discovery
Zone, Inc., a Delaware corporation (the "Company"). Each Warrant entitles the
holder to purchase from the Company at any time on or after the Exercisability
Date (as defined in the Warrant Agreement) and until 5:00 p.m., New York City
time, on August 1, 2007 (the "Expiration Date"), 2,131,667.4631 fully paid and
non-assessable shares of Common Stock (as such number may be adjusted from time
to time, the "Warrant Shares", which may also include any other securities or
property issuable upon exercise of a Warrant, such adjustment and inclusion each
as provided in the Warrant Agreement) at the initial exercise price (the
"Exercise Price") of $0.00017 per Warrant Share upon surrender of this Warrant
Certificate and payment of the Exercise Price at any office or agency maintained
for that purpose by the Company (the "Warrant Agent Office"), subject to the
conditions set forth herein and in the Warrant Agreement.
The Exercise Price shall be payable either (i) in cash or by certified
or official bank check in the lawful currency of the United States of America
which as of the time of payment is legal tender for payment of public or private
debts, (ii) by the surrender of Warrant Certificates in accordance with the
terms of the Warrant Agreement, or (iii) by the surrender of the Company's
14 1/2% Series A Senior Cumulative Preferred Stock (the "Series A Preferred
Stock") in accordance with the terms of the Warrant Agreement. Until otherwise
designated by the Company, the initial Warrant Agent Office will be the office
of Firstar Bank of Minnesota, N.A., having a principal office at 101 East 5th
Street, St. Paul, Minnesota 55101. The number of Warrant Shares issuable upon
exercise of the Warrants is subject to adjustment upon the occurrence of certain
events set forth in the Warrant Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York City time,
on August 1, 2007 shall thereafter be void.
Reference is hereby made to the further provisions on the reverse
hereof, which provisions shall for all purposes have the same effect as though
fully set forth at this place.
All capitalized terms used in this Warrant Certificate and not otherwise
defined herein shall have the meanings ascribed thereto in the Warrant
Agreement.
A-4
<PAGE>
This Warrant Certificate shall not be valid unless authenticated by the
Warrant Agent, as such term is used in the Warrant Agreement. Initially, the
Company shall act as its own Warrant Agent.
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK.
A-5
<PAGE>
WITNESS the corporate seal of the Company and the signatures of its duly
authorized officers.
Dated: _______________
DISCOVERY ZONE, INC.
By: ______________________________
Name:
Title:
Attest:
- ------------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Warrants
referred to in the within-
mentioned Warrant Agreement:
FIRSTAR BANK OF MINNESOTA, N.A.
as Warrant Agent
By: ______________________________
Name:
Title:
A-6
<PAGE>
{FORM OF WARRANT CERTIFICATE}
{REVERSE}
DISCOVERY ZONE, INC.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants, each of which represents the right to purchase at
any time on or after the date hereof and until 5:00 p.m., New York City time, on
August 1, 2007, 2,131,667.4631 Warrant Shares, subject to adjustment as set
forth in the Warrant Agreement (as defined). The Warrants are issued pursuant to
a Warrant Agreement dated as of July 17, 1998 (the "Warrant Agreement"), duly
executed and delivered by the Company for the benefit of the holders from time
to time of the Warrant Certificates, and subject to the terms and provisions of
a purchase agreement, dated as of July 13, 1998, among Birch Acquisition L.L.C.,
Birch Holdings L.L.C. Wafra Acquisition Fund 6, L.P. and Wafra Fund Management
Ltd. and the Company (the "Series A Preferred Unit Purchase Agreement"), which
Warrant Agreement and Series A Preferred Unit Purchase Agreement are hereby
incorporated by reference in and made a part of this instrument and are hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrant Certificates. Warrants may be exercised by (i)
surrendering at any Warrant Agent Office this Warrant Certificate with the form
of Election to Exercise set forth hereon duly completed and executed and (ii)
paying in full the Warrant Exercise Price for each such Warrant exercised and
any other amounts required to be paid pursuant to the Warrant Agreement, and
(iii) prior to the date on which the Stockholders' Agreement (as defined in the
Warrant Agreement) is terminated, executing a counterpart of the Stockholders'
Agreement.
If all of the items referred to in the last sentence of the preceding
paragraph are received by the Warrant Agent at or prior to 2:00 p.m., New York
City time, on a Business Day, the exercise of the Warrant to which such items
relate will be effective on such Business Day. If any items referred to in the
last sentence of the preceding paragraph are received after 2:00 p.m., New York
City time, on a Business Day, the exercise of the Warrants to which such item
relates will be deemed to be effective on the next succeeding Business Day.
Notwithstanding the foregoing, in the case of an exercise of Warrants on the
Expiration Date, if all of the items referred to in the last sentence of the
preceding paragraph are received by the Warrant Agent at or prior to 5:00 p.m.,
New York City time, on such Expiration Date, the exercise of the Warrants to
which such items relate will be effective on the Expiration Date.
Subject to the terms of the Warrant Agreement, as soon as practicable
after the exercise of any Warrant or Warrants, the Company shall issue or cause
to be issued to or upon the written order of the registered holder of this
Warrant Certificate, a certificate or certificates evidencing the Warrant Share
or Warrant Shares to which such holder is entitled, in fully registered form,
A-7
<PAGE>
registered in such name or names as may be directed by such holder pursuant to
the Election to Exercise, as set forth on the reverse of this Warrant
Certificate. Such certificate or certificates evidencing the Warrant Share or
Warrant Shares shall be deemed to have been issued and any Persons who are
designated to be named therein shall be deemed to have become the holder of
record of such Warrant Share or Warrant Shares as of the close of business on
the date upon which the exercise of this Warrant was deemed to be effective as
provided in the preceding paragraph.
The Company will not be required to issue fractional shares of Common
Stock upon exercise of the Warrants or distribute Warrant Certificates that
evidence fractional shares of Common Stock. In lieu of fractional shares of
Common Stock, there shall be paid to the registered Holder of this Warrant
Certificate at the time such Warrant Certificate is exercised an amount in cash
equal to the same fraction of the Fair Market Value per share of Common Stock as
determined in accordance with the Warrant Agreement.
Warrant Certificates, when surrendered at any Warrant Agent Office by
the holder thereof in person or by legal representative or attorney duly
authorized in writing, may be exchanged for a new Warrant Certificate or new
Warrant Certificates evidencing in the aggregate a like number of Warrants, in
the manner and subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
Upon due presentment for registration of transfer of this Warrant
Certificate at any office or agency maintained by the Company or the Warrant
Agent for that purpose, a new Warrant Certificate evidencing in the aggregate a
like number of Warrants shall be issued to the transferee in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone) for the
purpose of any exercise hereof and for all other purposes, and neither the
Company nor the Warrant Agent shall be affected by any notice to the contrary.
All capitalized terms used in this Warrant Certificate and not otherwise
defined herein have the meanings given to such terms in the Warrant Agreement.
A-8
<PAGE>
ELECTION TO EXERCISE
To be executed upon exercise of Warrants on the Exercise Date
The undersigned hereby irrevocably elects to exercise ______ of the
Warrants represented by this Warrant Certificate and purchase the whole number
of shares of Common issuable upon the exercise of such Warrants and herewith
tenders payment for such Warrant Shares:*
(i) |_| in the amount of $_____________ in cash or by certified or official
bank check; and/or
(ii) |_| in Warrant Certificates,
(iii) |_| in shares of 14 1/2% of Series A Senior Preferred Stock.
in each case, pursuant to Section 2.2 of the Warrant Agreement.
The undersigned requests that a certificate representing shares of Common
Stock; be registered in the name of ___________________, whose address is
____________________, and that such certificate be delivered to
_____________________, whose address is ____________________. Any cash payments
to be paid in lieu of a fractional Warrant Share should be made to
____________________, whose address is ____________________, and the check
representing payment thereof should be delivered to ____________________, whose
address is _____________________.
Name of holder of Warrant Certificate:
(Please Print)
Tax Identification or
Social Security Number:
Signature:
Note: The above signature must correspond
with the name as written upon the face of
this Warrant Certificate in every
particular, without alteration or
enlargement or any change whatever.
Dated:
----------------,--
- -----------------------
* Indicate, as applicable, the form of consideration being provided.
A-9
<PAGE>
ASSIGNMENT
For value received, ____________________ hereby sells, assigns and
transfers unto ____________________ the within Warrant Certificate, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ____________________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated:
----------------,---
Signature:
--------------------------------------------------------
Note: The above signature must correspond with the
name as written upon the face of this Warrant
Certificate in every particular, without alteration
or enlargement or any change whatever.
SCHEDULE OF EXCHANGES OF DEFINITIVE WARRANTS**
The following exchanges of a part of this Global Warrant for Definitive Warrants
have been made:
<TABLE>
<CAPTION>
Amount of Amount of Number of
Decrease in Increase in Warrants of This
Number of Number of Global Warrant Signature of Authorized
Date of Warrants of Warrants of Following Such Signatory of Warrant
Exchange This Global This Global Decrease (or Agent or Depository
Warrant Warrant Increase)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- -------------------
** This is to be included only if the Warrant Certificate is in global form.
A-10
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants") of Discovery Zone, Inc.
This Warrant Certificate relates to _____ Warrants held in *_____ book-entry or
*_____ certificated form by ____________________ (the "Transferor").
The Transferor:*
/_/ has requested the Warrant Agent by written order to deliver in exchange
for its beneficial interest in the Global Warrant held by the Depositary a
Warrant or Warrants in definitive, registered form of authorized denominations
and an aggregate number equal to its beneficial interest in such Global Warrant
(or the portion thereof indicated above) or
/_/ has requested the Warrant Agent by written order to exchange or register
the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such Warrant, the
Transferor does hereby certify that the Transferor is familiar with the Warrant
Agreement relating to the above captioned Warrants and the restrictions on
transfers thereof as provided in Section 1.8(b) of such Warrant Agreement, and
that the transfer of this Warrant does not require registration under the
Securities Act of 1933, as amended (the "Act") because(*):
/_/ Such Warrant is being acquired for the Transferor's own account, without
transfer (in satisfaction of Section 1.8(a)(ii)(y)(A) or Section 1.8 (d)(i)(A)
of the Warrant Agreement).
/_/ Such Warrant is being transferred to a qualified institutional buyer (as
defined in Rule 144A under the Act) in reliance on Rule 144A or in accordance
with Regulation S under the Act.
/_/ Such Warrant is being transferred in accordance with Rule 144 under the
Act.
/_/ Such Warrant is being transferred in reliance on and in compliance with
an exemption from the registration requirements of the Act, other than Rule 144A
or Rule 144 or Regulation S under the Act. An opinion of counsel to the effect
that such transfer does not require registration under the Act accompanies this
Certificate.
{INSERT NAME OF TRANSFEROR}
By:
------------------------
Date:
-----------------
* Check applicable box.
B-1
<PAGE>
EXHIBIT C
Transferee Letter of Representation
Discovery Zone, Inc.
565 Taxtur Road, 5th Floor
Elmsford, New York 10523
Ladies and Gentlemen:
In connection with our proposed purchase of warrants ("Warrants") to
purchase Common Stock, par value $0.00017 per share (the "Common Stock" and,
together with the Warrants, the "Securities"), of Discovery Zone, Inc. (the
"Company"), we confirm that:
1. We understand that the Securities have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and, unless so
registered, may not be sold except as permitted in the following sentence. We
agree on our own behalf and on behalf of any investor account for which we are
purchasing Securities to offer, sell or otherwise transfer such Securities prior
to the date which is two years after the later of the date of original issue and
the last date on which the Company or any affiliate of the Company was the owner
of such Securities, or any predecessor thereto (the "Resale Restriction
Termination Date") only (a) to the Company, (b) pursuant to a registration
statement which has been declared effective under the Securities Act, (c) so
long as the Securities are eligible for resale pursuant to Rule 144A, under the
Securities Act, to a Person we reasonably believe is a qualified institutional
buyer under Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB and to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the
United States within the meaning of Regulation S under the Securities Act, (e)
to an institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act that is purchasing
for his own account or for the account of such an institutional "accredited
investor," or (f) pursuant to any other available exemption from the
registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
or the property of such investor account or accounts be at all times within our
or their control and to compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Securities
is proposed to be made pursuant to clause (e) above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from the
transferee substantially in the form of this letter to the warrant agent under
the Warrant Agreement pursuant to which the Securities were issued (the "Warrant
Agent") which shall provide, among other things, that the transferee is an
institutional "accredited investor" within the meaning of subparagraph (a)(1),
(2), (3) or (7) of Rule 501 under the Securities Act and that it is acquiring
such Securities for investment purposes and not for distribution in violation of
the Securities Act. The Warrant Agent and the Company reserve the right, prior
to any offer, sale or other transfer prior to the Resale Restriction Termination
Date of the Securities pursuant to clause (e) or (f) above, to require the
delivery of a
C-1
<PAGE>
written opinion of counsel, certifications, and/or other information reasonably
satisfactory to the Company and the Warrant Agent.
2. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) purchasing
for our own account or for the account of such an institutional "accredited
investor," and we are acquiring the Securities for investment purposes and not
with a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act and we have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Securities, and we and any accounts for which we
are acting are each able to bear the economic risk of our or its investment for
an indefinite period.
3. We are acquiring the Securities purchased by us for our own
account or for one or more accounts as to each of which we exercise sole
investment discretion.
4. You, the Warrant Agent and your respective counsel are entitled to
rely upon this letter and you are irrevocably authorized to produce this letter
or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
------------------------------
(Name of Purchaser)
By:
---------------------------
Upon transfer the Securities would be registered in the name of the new
beneficial owner as follows:
Name:
----------------------------------
Address:
--------------------------
Taxpayer ID Number:
---------------
C-2
================================================================================
DISCOVERY ZONE, INC.
----------------------
WARRANT AGREEMENT
----------------------
Dated as of July 17, 1998
Warrants to Purchase
Shares of Common Stock, Par Value $.00017 Per Share
Relating to the
Series B Preferred Units
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
<S> <C> <C>
SECTION 1.1. Issuance of Warrants.................................................-1-
SECTION 1.2. Form of Warrant Certificates.........................................-2-
SECTION 1.3. Execution of Warrant Certificates....................................-2-
SECTION 1.4. Appointment of Warrant Agent.........................................-2-
SECTION 1.5. Authentications and Delivery.........................................-3-
SECTION 1.6. Temporary Warrant Certificates.......................................-3-
SECTION 1.7. Separation of Warrants and Series B Preferred Stock. ...............-4-
SECTION 1.8. Registrar and Warrant Register.......................................-4-
SECTION 1.9. Registration of Transfers and Exchanges..............................-4-
SECTION 1.10. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates..-12-
SECTION 1.11. Offices for Exercise, etc...........................................-13-
ARTICLE II
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE
SECTION 2.1. Duration of Warrants................................................-13-
SECTION 2.2. Exercise, Exercise Price, Settlement and Delivery...................-13-
SECTION 2.3. Cancellation of Warrant Certificates................................-16-
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.1. Enforcement of Rights...............................................-16-
SECTION 3.2. Tag-Along Rights....................................................-17-
SECTION 3.3. Exchange Rights of Holders..........................................-19-
SECTION 3.4. Repurchase Right....................................................-19-
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY-
<S> <C> <C>
SECTION 4.1. Payment of Taxes....................................................-21-
SECTION 4.2. Notice of Expiration Date...........................................-22-
SECTION 4.3. Reservation of Common Stock.........................................-22-
SECTION 4.4. Warrant Shares to be Duly Authorized and Issued, Fully Paid
and Nonassessable...................................................-22-
SECTION 4.5. Reports.............................................................-22-
SECTION 4.6. Private Placement Numbers...........................................-23-
SECTION 4.7. Right of Action.....................................................-23-
SECTION 4.8. Survival............................................................-23-
ARTICLE V
ADJUSTMENTS
SECTION 5.1. Adjustment of Exercise Price and Number of Warrant
Shares Issuable.....................................................-23-
SECTION 5.2. Fractional Interest.................................................-31-
SECTION 5.3. When Adjustment Not Required........................................-31-
SECTION 5.4. Treasury Stock......................................................-32-
SECTION 5.5. Notices to Warrant Agent and Holders................................-32-
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.1. Warrant Agent.......................................................-33-
SECTION 6.2. Conditions of Warrant Agent's Obligations...........................-33-
SECTION 6.3. Resignation and Appointment of Successor............................-37-
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Defined Terms.......................................................-38-
SECTION 7.2. Amendment...........................................................-41-
SECTION 7.3. Notices and Demands to the Company and Warrant Agent................-42-
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 7.4. Address for Notices to the Company and for Transmission
of Documents........................................................-42-
SECTION 7.5. Notices to Holders..................................................-43-
SECTION 7.6. Applicable Law......................................................-43-
SECTION 7.7. Obtaining of Governmental Approvals.................................-43-
SECTION 7.8. Persons Having Rights Under Agreement...............................-43-
SECTION 7.9. Headings............................................................-43-
SECTION 7.10. Counterparts........................................................-43-
SECTION 7.11. Inspection of Warrant Agreement.....................................-44-
SECTION 7.12. Successors..........................................................-44-
EXHIBITS
EXHIBIT A FORM OF WARRANT CERTIFICATE.........................................A-1
EXHIBIT B CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS.............................B-1
EXHIBIT C TRANSFEREE LETTER OF REPRESENTATION.................................C-1
</TABLE>
iii
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Warrant Agreement"), dated as of July
17, 1998 is executed and delivered by Discovery Zone, Inc., a Delaware
corporation (together with any successor thereto, the "Company") and Firstar
Bank of Minnesota, N.A., as warrant agent (together with any successor warrant
agent, the "Warrant Agent"), for the benefit of the holders (the "Holders") from
time to time of the Warrant Certificates (as hereinafter defined).
WHEREAS, the Company has entered into a purchase agreement dated
as of July 13, 1998 (the "Series B Preferred Unit Purchase Agreement") with
Birch Acquisition L.L.C. ("Birch"), DZ Investors L.L.C. ("DZ Investors") and
Jefferies & Company, Inc. ("Jefferies" and, together with Birch and DZ
Investors, the "Purchasers"), pursuant to which the Company has agreed, among
other things, to sell to Birch, DZ Investors and Jefferies, 200 units, 100 units
and 40 units, respectively (collectively, the "Series B Preferred Units"), each
consisting of (i) 1,000 shares of 14 1/2 % Series B Junior Cumulative Preferred
Stock, par value $.01 per share, liquidation preference $25.00 per share (the
"Series B Preferred Stock") of the Company and (ii) one detachable warrant (each
a "Warrant" and, collectively, the " Warrants" and the certificates evidencing
the Warrants being hereinafter referred to as the "Warrant Certificates") to
initially purchase 2,131,667.4631 shares of the Company's Class A Voting Common
Stock, $.00017 par value per share (the "Common Stock") at an initial exercise
price of $.00017 per share, subject to adjustment in accordance with the terms
hereof.
WHEREAS, the Warrants shall be separately transferable from the
Series B Preferred Stock on and after the Separation Date (as hereinafter
defined); and
NOW, THEREFORE, in consideration of the purchase of the Series B
Preferred Units by each Purchaser and for other valuable consideration, the
adequacy and receipt of which is hereby acknowledged, and for the purpose of
defining the respective rights and obligations of the Company, the Warrant Agent
and the Holders, the parties hereto agree as follows:
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.1. Issuance of Warrants. Each Warrant Certificate
shall, when countersigned by the Warrant Agent, evidence the number of Warrants
specified therein, and each Warrant evidenced thereby shall represent the right,
subject to the provisions contained herein and therein, to purchase from the
Company (and the Company shall issue and sell to such Holder) 2,131,667.4631
fully paid and non-assessable shares of Common Stock (the shares of Common Stock
purchasable upon exercise of a Warrant being hereinafter referred to as the
"Warrant Shares" and, where appropriate, such term shall also mean the other
securities or
<PAGE>
property purchasable and deliverable upon exercise of a Warrant as provided in
Article V) at the price specified herein and therein, in each case subject to
adjustment as provided herein and therein.
SECTION 1.2. Form of Warrant Certificates. The Warrant
Certificates will initially be issued either in global form (the "Global
Warrants") or in registered form as definitive Warrant certificates (the
"Definitive Warrants"). The Warrant Certificates evidencing the Global Warrants
or the Definitive Warrants to be delivered pursuant to this Warrant Agreement
shall be substantially in the form set forth in Exhibit A attached hereto, dated
the date on which countersigned. Such Global Warrants shall represent such of
the outstanding Warrants as shall be specified therein and each shall provide
that it shall represent the aggregate amount of outstanding Warrants from time
to time endorsed thereon and that the aggregate amount of outstanding Warrants
represented thereby may from time to time be reduced or increased, as
appropriate. Any endorsement of a Global Warrant to reflect the amount of any
increase or decrease in the amount of outstanding Warrants represented thereby
shall be made by the Warrant Agent and Depositary (as defined) in accordance
with instructions given by the Holder thereof. The Depository Trust Company
("DTC"), a New York corporation, shall act as the depository with respect to the
Global Warrants (the "Depositary") until a successor shall be appointed by the
Company. Upon written request, a Holder may receive from the Warrant Agent
Definitive Warrants as set forth in Section 1.9 hereof.
SECTION 1.3. Execution of Warrant Certificates. The Warrant
Certificates shall be executed on behalf of the Company by its President or any
Vice President and attested to by its Secretary or Assistant Secretary. Such
signatures may be the manual or facsimile signatures of the present or any
future such officers. Typographical and other minor errors or defects in any
such reproduction of any such signature shall not affect the validity or
enforceability of any Warrant Certificate that has been duly countersigned and
delivered by the Warrant Agent.
In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be such officer before the Warrant
Certificate so signed shall be countersigned and delivered by the Warrant Agent
or disposed of by the Company, such Warrant Certificate nevertheless may be
countersigned and delivered or disposed of as though the person who signed such
Warrant Certificate had not ceased to be such officer of the Company; and any
Warrant Certificate may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Warrant Certificate, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Warrant Agreement any such person was not such an officer.
SECTION 1.4. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the terms and conditions set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
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SECTION 1.5. Authentications and Delivery. Subject to the
immediately following paragraph of this Section 1.5, Warrant Certificates shall
be authenticated by manual signature and dated the date of authentication by the
Warrant Agent and shall not be valid for any purpose unless so authenticated and
dated. The Warrant Certificates shall be numbered and shall be registered in the
Warrant Register (as defined in Section 1.8 hereof).
Upon the receipt by the Warrant Agent of a written order of the
Company, which order shall be signed by its President or any Vice President and
attested to by its Secretary or Assistant Secretary and shall specify the amount
of Warrants to be authenticated, whether the Warrants are to be Global Warrants
or Definitive Warrants, the date of such Warrants and such other information as
the Warrant Agent may reasonably request, without any further action by the
Company, the Warrant Agent is authorized, upon receipt from the Company at any
time and from time to time of the Warrant Certificates, duly executed as
provided in Section 1.3 hereof, to authenticate the Warrant Certificates and
deliver them. Such authentication shall be by a duly authorized signatory of the
Warrant Agent (although it shall not be necessary for the same signatory to sign
all Warrant Certificates).
In case any authorized signatory of the Warrant Agent who shall
have authenticated any of the Warrant Certificates shall cease to be such
authorized signatory before the Warrant Certificate shall be disposed of by the
Company, such Warrant Certificate nevertheless may be delivered or disposed of
as though the person who authenticated such Warrant Certificate had not ceased
to be such authorized signatory of the Warrant Agent; and any Warrant
Certificate may be authenticated on behalf of the Warrant Agent by such persons
as, at the actual time of authentication of such Warrant Certificates, shall be
the duly authorized signatories of the Warrant Agent, although at the time of
the execution and delivery of this Warrant Agreement any such person is not an
authorized signatory.
The Warrant Agent's authentication on all Warrant Certificates
shall be in substantially the form set forth in Exhibit A hereto.
SECTION 1.6. Temporary Warrant Certificates. Pending the
preparation of the definitive Warrant Certificates, the Company may execute, and
the Warrant Agent shall authenticate and deliver, temporary Warrant
Certificates, which are printed, lithographed, typewritten or otherwise
produced, substantially of the tenor of the definitive Warrant Certificates in
lieu of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Warrant
Certificates may determine, as evidenced by their execution of such Warrant
Certificates.
If temporary Warrant Certificates are issued, the Company will
cause definitive Warrant Certificates to be prepared without unreasonable delay.
After the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates at any office or agency
maintained by the Company for the purpose pursuant to Section 1.11 hereof.
Subject
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to the provisions of Section 4.1 hereof, such exchange shall be without charge
to the Holder. Upon surrender for cancellation of any one or more temporary
Warrant Certificates, the Company shall execute, and the Warrant Agent shall
authenticate and deliver in exchange therefor, one or more definitive Warrant
Certificates representing in the aggregate a like number of Warrants. Until so
exchanged, the Holder of a temporary Warrant Certificate shall in all respects
be entitled to the same benefits under this Warrant Agreement as a Holder of a
definitive Warrant Certificate.
SECTION 1.7. Separation of Warrants and Series B Preferred Stock.
The Warrants will be separately transferable from the Series B Preferred Stock
on July 17, 1998 (the "Separation Date").
SECTION 1.8. Registrar and Warrant Register. The Company will
keep, at the office or agency maintained by the Company for such purpose, a
register or registers in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of, and registration
of transfer and exchange of, Warrants as provided in this Article. Each Person
designated by the Company from time to time as a Person authorized to register
the transfer and exchange of the Warrants is hereinafter called, individually
and collectively, the "Registrar". Initially, Firstar Bank of Minnesota, N.A.
shall act as Registrar. Upon written notice to the Warrant Agent and any acting
Registrar, the Company may appoint a successor Registrar for such purposes.
The Company will at all times designate one Person (who may be
the Company and who need not be a Registrar) to act as repository of a master
list of names and addresses of the Holders (the "Warrant Register"). The Company
will act as such repository unless and until some other Person is, by written
notice from the Company to the Warrant Agent and the Registrar, designated by
the Company to act as such. The Company shall cause each Registrar to furnish to
such repository, on a current basis, such information as to all registrations of
transfer and exchanges effected by such Registrar, as may be necessary to enable
such repository to maintain the Warrant Register on as current a basis as is
practicable.
SECTION 1.9. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Definitive Warrants. When Definitive
Warrants are presented to the Warrant Agent with a request:
(i) to register the transfer of the Definitive Warrants;
or
(ii) to exchange such Definitive Warrants for an equal
number of Definitive Warrants, the Warrant Agent shall register
the transfer or make the exchange as requested if the
requirements under this Warrant Agreement as set forth in this
Section 1.9 for such transactions are met; provided, however,
that the
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Definitive Warrants presented or surrendered for registration of
transfer or exchange:
(x) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the
Company and the Warrant Agent, duly executed by the
Holder thereof or by its attorney, duly authorized
in writing and
(y) in the case of Warrants the offer and sale of which
has not been registered under the Securities Act,
and are presented for transfer or exchange prior to
(x) the date which is two years after the later of
the date of original issue (the "Issue Date") and
the last date on which the Company or any affiliate
of the Company was the owner of such Warrant, or
any predecessor thereto and (y) such later date, if
any, as may be required by any subsequent change in
applicable law (the "Resale Restriction Termination
Date"), such Warrants shall be accompanied, in the
sole discretion of the Company, by the following
additional information and documents, as
applicable:
(A) if such Warrant is being delivered to the
Warrant Agent by a Holder for
registration in the name of such Holder,
without transfer, a certification from
such Holder to that effect (in
substantially the form of Exhibit B
hereto); or
(B) if such Warrant is being transferred to a
qualified institutional buyer (as defined
in Rule 144A under the Securities Act) in
accordance with Rule 144A under the
Securities Act or pursuant to an
exemption from registration in accordance
with Rule 144 or Regulation S under the
Securities Act, a certification to that
effect (in substantially the form of
Exhibit B hereto); or
(C) if such Warrant is being transferred to
an institutional "accredited investor"
within the meaning of subparagraph
(a)(1), (a)(2), (a)(3) or (a)(7) of Rule
501 under the Securities Act, delivery of
a certification to that effect (in
substantially the form of Exhibit B
hereto) and a letter of representation
from the transferee in substantially the
form of Exhibit C hereto and an opinion
of counsel reasonably acceptable to the
Company to
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<PAGE>
the effect that such transfer is in
compliance with the Securities Act; or
(D) if such Warrant is being transferred in
reliance on another exemption from the
registration requirements of the
Securities Act, a certification to that
effect (in substantially the form of
Exhibit B hereto) and an opinion of
counsel reasonably acceptable to the
Company to the effect that such transfer
is in compliance with the Securities Act.
(b) Restrictions on Transfer of a Definitive Warrant for a
Beneficial Interest in a Global Warrant. A Definitive Warrant may not be
transferred for a beneficial interest in a Global Warrant except upon
satisfaction of the requirements set forth below. Upon receipt by the Warrant
Agent of a Definitive Warrant, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Warrant Agent, together
with:
(i) certification, substantially in the form of Exhibit B
hereto, that such Definitive Warrant is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the
Securities Act; and
(ii) written instructions directing the Warrant Agent to
make, or to direct the Depositary to make, an endorsement on the
Global Warrant to reflect an increase in the aggregate amount of
the Warrants represented by the Global Warrant;
then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct
the Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Warrants represented by the Global Warrant to be increased accordingly. If no
Global Warrant is then outstanding, the Company shall issue and the Warrant
Agent shall authenticate a new Global Warrant in the appropriate amount.
(c) Transfer and Exchange of Global Warrants. The transfer and
exchange of Global Warrants or beneficial interests therein shall be effected
through the Depositary, in accordance with this Section 1.9 and the procedures
of the Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global Warrant for a
Definitive Warrant.
(i) Any Person having a beneficial interest in a Global
Warrant may upon request transfer such beneficial interest for a
Definitive Warrant. Upon receipt by the Warrant Agent of written
instructions or such other form of instructions as is customary
for the Depositary from the Depositary or its nominee
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<PAGE>
on behalf of any Person having a beneficial interest in a Global
Warrant and upon receipt by the Warrant Agent of a written order
or such other form of instructions as is customary for the
Depositary or the Person designated by the Depositary as having
such a beneficial interest containing registration instructions
and, in the case of any such transfer or exchange prior to the
Resale Restriction Termination Date, the following additional
information and documents:
(A) if such beneficial interest is being
transferred to the Person designated by the
Depositary as being the beneficial owner, a
certificate from such Person to that effect
(in substantially the form of Exhibit B
hereto); or
(B) if such beneficial interest is being
transferred to a qualified institutional
buyer (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A
under the Securities Act or pursuant to an
exemption from registration in accordance
with Rule 144 or Regulation S under the
Securities Act, a certification to that
effect from the transferee or transferor (in
substantially the form of Exhibit B hereto);
or
(C) if such beneficial interest is being
transferred to an institutional "accredited
investor" within the meaning of subparagraph
(a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501
under the Securities Act, delivery of a
certification to that effect (in
substantially the form of Exhibit B hereto),
a letter of representation from the
transferee in substantially the form of
Exhibit C hereto and an opinion of counsel
reasonably acceptable to the Company to the
effect that such transfer is in compliance
with the Securities Act; or
(D) if such beneficial interest is being
transferred in reliance on another exemption
from the registration requirements of the
Securities Act, a certification to that
effect (in substantially the form of Exhibit
B hereto) and an opinion of counsel
reasonably acceptable to the Company to the
effect that such transfer is in compliance
with the Securities Act,
then the aggregate amount of the Global Warrant will be
reduced by the Depositary or its custodian and, following
such reduction, the Company will execute and, upon receipt
of an authentication order in the form of an Officers'
Certificate (as hereinafter defined), the Warrant Agent
will authenticate and deliver to the transferee a
Definitive Warrant.
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<PAGE>
(ii) Definitive Warrants issued in exchange for a
beneficial interest in a Global Warrant pursuant to Section
1.8(d) shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from
its direct or indirect participants or otherwise, shall instruct
the Warrant Agent in writing. The Warrant Agent shall deliver
such Definitive Warrant to the Persons in whose names such
Warrants are so registered.
(e) Restrictions on Transfer and Exchange of Global Warrants.
Notwithstanding any other provisions of this Warrant Agreement (other than the
provisions set forth in Section 1.9(f)), a Global Warrant may not be transferred
as a whole except by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any such nominee to a successor Depositary or a nominee
of such successor Depositary.
(f) Authentication of Definitive Warrants in Absence of
Depositary. If at any time:
(i) the Depositary for the Warrants notifies the Company
that the Depositary is unwilling or unable to continue as
Depositary for the Global Warrant and a successor Depositary for
the Global Warrant is not appointed by the Company within 90 days
after delivery of such notice or
(ii) the Company, at its sole discretion, notifies the
Warrant Agent in writing that it elects to cause the issuance of
Definitive Warrants under this Warrant Agreement,
then the Company will execute, and the Warrant Agent, upon receipt of an
officers' certificate signed by two duly authorized officers of the Company (one
of whom must be the principal executive officer, principal financial officer or
principal accounting officer) (an "Officers' Certificate") requesting the
authentication and delivery of Definitive Warrants, will authenticate and
deliver Definitive Warrants, in an aggregate number equal to the aggregate
number of warrants represented by the Global Warrant, in exchange for such
Global Warrant.
(g) Legends.
(i) Except to the extent permitted by paragraph (ii) of
this Section 1.9(g), each Warrant Certificate evidencing the
Global Warrants and the Definitive Warrants (and all Warrants
issued in exchange therefor or substitution thereof) shall bear a
legend substantially to the following effect:
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS. NEITHER THIS WARRANT CERTIFICATE NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE
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<PAGE>
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE, BY ITS
ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE PRIOR TO THE DATE WHICH IS TWO YEARS
AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF THE WARRANTS REPRESENTED BY THIS
WARRANT CERTIFICATE AND THE LAST DATE ON WHICH DISCOVERY ZONE, INC. ("THE
COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE (OR ANY PREDECESSOR OF SUCH WARRANTS OR
WARRANT CERTIFICATE) (THE "RESALE RESTRICTION TERMINATION DATE"), ONLY (A) TO
THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE WARRANTS REPRESENTED
BY THIS WARRANT CERTIFICATE ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, 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, (D) PURSUANT TO OFFERS AND
SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7)
OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE WARRANTS REPRESENTED
BY THIS WARRANT CERTIFICATE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE WARRANT AGENT'S, AS APPLICABLE, RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION REASONABLY
SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, AN ASSIGNMENT
IN THE FORM APPEARING ON THE OTHER SIDE OF THIS WARRANT CERTIFICATE IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE WARRANT AGENT. THIS LEGEND SHALL BE
REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION
DATE.
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THIS SECURITY IS SUBJECT TO A SERIES B PREFERRED UNIT PURCHASE AGREEMENT DATED
AS OF JULY 13, 1998 AMONG THE COMPANY, BIRCH ACQUISITION L.L.C., DZ HOLDINGS
L.L.C. AND JEFFERIES & COMPANY, INC., A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
Each Warrant Certificate (other than Warrant Certificate issued
to DZ Investors in connection with their purchase of Series B Preferred Units)
issued prior to the date on which all principal of and interest on the Company's
13 1/2 % Senior Collateralized Notes due 2002 (the "Notes") have been paid in
full, shall also bear the following legend on the face thereof:
PRIOR TO THE DATE ON WHICH THE STOCKHOLDER'S AGREEMENT (AS DEFINED BELOW) IS
TERMINATED, THE WARRANTS EVIDENCED BY THIS CERTIFICATE MAY NOT BE EXERCISED FOR
SHARES OF THE COMPANY'S COMMON STOCK, PAR VALUE $.00017 PER SHARE ("COMMON
STOCK") UNLESS THE HOLDER THEREOF HAS EXECUTED A COUNTERPART OF THE
STOCKHOLDERS' AGREEMENT DATED AS OF JULY 17, 1998, AS AMENDED FROM TIME TO TIME,
BY AND AMONG THE COMPANY, FIRSTAR BANK OF MINNESOTA, N.A., AS TRUSTEE WITH
RESPECT TO THE COMPANY'S 13 1/2% SENIOR COLLATERALIZED NOTES DUE 2002, AND
CERTAIN HOLDERS OF THE COMPANY'S COMMON STOCK, A COPY OF WHICH AGREEMENT IS ON
FILE AT THE OFFICES OF THE COMPANY. ANY PURPORTED EXERCISE OF THE WARRANTS
REPRESENTED BY THIS CERTIFICATE WITHOUT COMPLIANCE WITH THE ABOVE REQUIREMENTS
SHALL BE VOID.
To the extent a Warrant Certificate evidences a Global Warrant,
such Warrant Certificate shall also bear the legend with respect thereto
substantially in the form set forth on Exhibit A hereto.
(ii) Upon any sale or transfer of a Warrant pursuant to
Rule 144 under the Securities Act in accordance with this Section
1.9 or an effective registration statement under the Securities
Act;
(A) in the case of any Warrant that is a
Definitive Warrant, the Warrant Agent shall
permit the Holder thereof to exchange such
Warrant for a Definitive Warrant that does
not bear the legend set forth above and
rescind any related restriction on the
transfer of such Warrant; and
(B) any such Warrant represented by a Global
Warrant shall not be subject to the
provisions set forth in (i) above (such
sales or transfers being subject only to the
provisions of Section 1.9(c) hereof);
provided, however, that with respect to any
request for an exchange of a Warrant that is
represented by a Global Warrant for a
Definitive Warrant that does not
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bear the legend set forth above, which
request is made in reliance upon Rule 144
under the Securities Act, the Holder thereof
shall certify in writing to the Warrant
Agent that such request is being made
pursuant to Rule 144 under the Securities
Act (such certification to be substantially
in the form of Exhibit B hereto).
(h) Cancellation and/or Adjustment of a Global Warrant. At such
time as all beneficial interests in a Global Warrant have either been exchanged
for Definitive Warrants, redeemed, repurchased or canceled, such Global Warrant
shall be returned to or retained and canceled by the Warrant Agent. At any time
prior to such cancellation, if any beneficial interest in a Global Warrant is
exchanged for Definitive Warrants, redeemed, repurchased or canceled, the number
of Warrants represented by such Global Warrant shall be reduced and an
endorsement shall be made on such Global Warrant by the Warrant Agent or the
Depositary to reflect such reduction.
(i) Obligations with Respect to Transfers and Exchanges of
Definitive Warrants.
(i) To permit registrations of transfers and exchanges,
the Company shall execute, at the Warrant Agent's request, and
the Warrant Agent shall authenticate Definitive Warrants and
Global Warrants.
(ii) All Definitive Warrants and Global Warrants issued
upon any registration of transfer or exchange of Definitive
Warrants or Global Warrants shall be the valid obligations of the
Company, entitled to the same benefits under this Warrant
Agreement as the Definitive Warrants or Global Warrants
surrendered upon the registration of transfer or exchange.
(iii) Prior to due presentment for registration of
transfer of any Warrant, the Warrant Agent and the Company may
deem and treat the Person in whose name any Warrant is registered
as the absolute owner of such Warrant, and neither the Warrant
Agent nor the Company shall be affected by notice to the
contrary.
(j) Payment of Taxes. The Company or the Warrant Agent may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any exchange or transfer pursuant
to this Section 1.9.
(k) Other Limitations. Without limiting any other provisions set
forth herein regarding transfers of Warrants, if a Holder is a Regulated Entity
(as defined below), such Holder may transfer Warrants only under the following
circumstances: (i) in a widely distributed public offering; (ii) in a transfer
pursuant to Rule 144 under the Securities Act of 1933, as amended, or any
similar rule then in force; (iii) in a transfer constituting two percent or less
(or such greater amount determined in accordance with clause (vii) below) of the
outstanding shares of the
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Common Stock (assuming that any outstanding shares of the Company's Class B
Non-Voting Common Stock, par value $.00017 per share (the "Non-Voting Common
Stock"), and all outstanding shares of the Company's Series A Convertible
Preferred Stock (the "Convertible Preferred Stock") were converted into shares
of Common Stock); (iv) in a transfer to a Person if such Person already owns or
has negotiated to purchase at least a majority of the outstanding shares of
Common Stock (assuming all outstanding shares of the Company's Non-Voting Common
Stock and Convertible Preferred Stock were converted into shares of Common
Stock); (v) in a transfer to the Company; (vi) in a transfer to an affiliate of
such Holder or to any other Regulated Entity; or (vii) in any method of transfer
determined by the Regulated Entity to be permissible under the Bank Holding
Company Act of 1956, as amended (the "BHC Act") and any other applicable banking
regulations. "Regulated Entity" means (i) any entity that is a "bank holding
company" (as defined in Section 2(a) of the BHC Act) or any non-bank subsidiary
of such an entity and (ii) any entity, that pursuant to Section 8(a) of the
International Banking Act of 1978, as amended, is subject to the provisions of
the BHC Act or any non-bank subsidiary of such an entity.
SECTION 1.10. Lost, Stolen, Destroyed, Defaced or Mutilated
Warrant Certificates. Upon receipt by the Company and the Warrant Agent (or any
agent of the Company or the Warrant Agent, if requested by the Company) of
evidence satisfactory to them of the loss, theft, destruction, defacement, or
mutilation of any Warrant Certificate and of indemnity reasonably satisfactory
to them and, in the case of mutilation or defacement, upon surrender thereof to
the Warrant Agent for cancellation, then, in the absence of notice to the
Company or the Warrant Agent that such Warrant Certificate has been acquired by
a bona fide purchaser or holder in due course, the Company shall execute, and an
authorized signatory of the Warrant Agent shall manually authenticate and
deliver, in exchange for or in lieu of the lost, stolen, destroyed, defaced or
mutilated Warrant Certificate, a new Warrant Certificate representing a like
number of Warrants, bearing a number or other distinguishing symbol not
contemporaneously outstanding. Upon the issuance of any new Warrant Certificate
under this Section 1.10, the Company may require the payment from the Holder of
such Warrant Certificate of a sum sufficient to cover any tax, stamp tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Warrant Agent and the
Registrar) in connection therewith. Every substitute Warrant Certificate
executed and delivered pursuant to this Section 1.10 in lieu of any lost, stolen
or destroyed Warrant Certificate shall constitute an additional contractual
obligation of the Company, whether or not the lost, stolen or destroyed Warrant
Certificate shall be at any time enforceable by anyone, and shall be entitled to
the benefits of (but shall be subject to all the limitations of rights set forth
in) this Warrant Agreement equally and proportionately with any and all other
Warrant Certificates duly executed and delivered hereunder. The provisions of
this Section 1.10 are exclusive with respect to the replacement of lost, stolen,
destroyed, defaced or mutilated Warrant Certificates and shall preclude (to the
extent lawful) any and all other rights or remedies notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the
replacement of lost, stolen, destroyed, defaced or mutilated Warrant
Certificates.
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The Warrant Agent is hereby authorized to authenticate and
deliver the new Warrant Certificates required pursuant to the provisions of this
Section 1.10.
SECTION 1.11. Offices for Exercise, etc. So long as any of the
Warrants remain outstanding, the Company will designate and maintain in the
continental United States: (a) an office or agency where the Warrant
Certificates may be presented for exercise, (b) an office or agency where the
Warrant Certificates may be presented for registration of transfer and for
exchange (including the exchange of temporary Warrant Certificates for
definitive Warrant Certificates pursuant to Section 1.6 hereof), and (c) an
office or agency where notices and demands to or upon the Company in respect of
the Warrants or of this Warrant Agreement may be served. The Company may from
time to time change or rescind such designation, as it may deem desirable or
expedient. The Company will give to the Warrant Agent written notice of the
location of any such office or agency and of any change of location thereof. The
Company hereby designates the corporate trust office of the Warrant Agent in New
York, New York (the "Warrant Agent Office"), as the initial agency maintained
for each such purpose.
ARTICLE II
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE
SECTION 2.1. Duration of Warrants. Subject to the terms and
conditions established herein, the Warrants shall expire at 5:00 p.m., New York
City time on August 1, 2007 (the "Expiration Date"). Each Warrant may be
exercised on any Business Day (as hereinafter defined) on or after the
Exercisability Date (as hereinafter defined) and on or prior to the Expiration
Date.
Any Warrant not exercised before the close of business on the
Expiration Date relating to such Warrant shall become void, and all rights of
the Holder under the Warrant Certificate evidencing such Warrant and under this
Warrant Agreement shall cease.
SECTION 2.2. Exercise, Exercise Price, Settlement and Delivery.
(a) Subject to the provisions of this Warrant Agreement, each
Warrant Holder shall have the right to purchase from the Company on or after the
Separation Date (the "Exercisability Date") and on or prior to the Expiration
Date, up to 2,131,667.4631 fully paid and non-assessable Warrant Shares per each
Warrant such Holder owns, subject to adjustment in accordance with Article V
hereof, at the initial purchase price of $.00017 for each Warrant Share
purchased, subject to adjustment in accordance with Article V hereof (the
"Exercise Price").
(b) Warrants may be exercised, in whole or in part, on or after
the Exercisability Date by (i) surrendering at any Warrant Agent office the
Warrant Certificate evidencing such Warrants with the form of election to
purchase Warrant Shares set forth on the
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reverse side of the Warrant Certificate (the "Election to Exercise") duly
completed and signed by the registered Holder or Holders thereof or by the duly
appointed legal representative thereof or by a duly authorized attorney, (ii)
paying in full the Exercise Price for each such Warrant Share purchased and any
other amounts required to be paid pursuant to Section 4.1 hereof and (iii) other
than with respect to the Warrants acquired by DZ Investors in connection with
its purchase of the Series B Preferred Units, if such Warrant is being exercised
prior to the date on which the Stockholders' Agreement (as defined below) is
terminated, executing a counterpart of the Stockholders' Agreement by and among
the Company, the Trustee and certain holders of the Company's Common Stock and
Non-Voting Common Stock in substantially the form attached hereto as Exhibit D
(the "Stockholders' Agreement").
(c) Simultaneously with the exercise of each Warrant, payment in
full of the Exercise Price shall be made (i) in cash or by certified or official
bank check payable to the order of the Company, delivered to the office or
agency where the Warrant Certificate is being surrendered; or (ii) by delivery
of Warrant Certificates pursuant to Section 2.2(d); or (iii) by the surrender to
the Company for cancellation of shares of Series B Preferred Stock with an
aggregate liquidation preference together with accumulated and unpaid dividends
thereon (whether or not declared) equal to the aggregate Exercise Price for all
Warrant Shares issuable upon exercise of such Warrant. Subject to the provisions
of this Warrant Agreement, the rights represented by the Warrants shall be
exercisable at the election of the Holders thereof either in full at any time or
from time to time in part.
(d) In the event that any Holder of Warrant Certificates delivers
such Warrant Certificates to the Company and indicates on the Election to
Exercise that such Holder intends to exercise all, or any portion of, the
Warrants represented by such Warrant Certificate to satisfy its obligation to
pay the Exercise Price in respect thereof by virtue of the provisions of this
Section 2.2(d), such Holder shall become entitled to receive, instead of the
number of Warrant Shares such Holder would have received had the Exercise Price
been paid in cash pursuant to Section 2.2(c), a number of Warrant Shares in
respect of the exercises of such Warrants equal to the product of:
(A) the number of Warrant Shares issuable upon such
exercise of such Warrant Certificates (or, if only a portion of
such Warrant Certificates are being exercised, issuable upon the
exercise of such portion) multiplied by
(B) the quotient of:
(i) the difference of:
(X) the per share Fair Market Value of the
Common Stock at the time of such exercise; minus
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(Y) the Exercise Price at the time of such
exercise; divided by
(ii) the per share Fair Market Value of the Common
Stock at the time of such exercise.
For purposes of Rule 144 and Rule 144A under the Securities Act, the
Company and the Warrant Agent, on behalf of the Holders, hereby agree that the
exercise of any Warrants in accordance with this Section 2.2(d) shall be deemed
to be a conversion of such Warrants, pursuant to the terms of this Warrant
Agreement and the Warrants, into Warrant Shares.
(e) Upon such surrender of a Warrant Certificate and payment and
collection of the Exercise Price at any Warrant Agent Office, such Warrant
Certificate and payment shall be promptly delivered to the Warrant Agent. The
"Exercise Date" for a Warrant shall be the date when all of the items referred
to in the first sentence of paragraphs (b) and (c) of this Section 2.2 are
received by the Warrant Agent at or prior to 2:00 p.m., New York City time, on a
Business Day and the exercise of the Warrants will be effective as of such
Exercise Date. If any items referred to in the first sentence of paragraphs (b)
and (c) of this Section 2.2 are received after 2:00 p.m., New York City time, on
a Business Day, the exercise of the Warrants to which such item relates will be
effective on the next succeeding Business Day. Notwithstanding the foregoing, in
the case of an exercise of Warrants on the Expiration Date, if all of the items
referred to in the first sentence of paragraphs (b) and (c) of this Section 2.2
are received by the Warrant Agent at or prior to 5:00 p.m., New York City time,
on such Expiration Date, the exercise of the Warrants to which such items relate
will be effective on the Expiration Date.
(f) Upon the exercise of a Warrant in accordance with the terms
hereof, the receipt of a Warrant Certificate and payment of the Exercise Price,
the Warrant Agent shall: (i) cause an amount equal to the Exercise Price,
whether in cash, Warrant Certificates or shares of Series B Preferred Stock, to
be delivered or paid to the Company by crediting the same to the account
designated by the Company in writing to the Warrant Agent for that purpose; (ii)
in the case of a payment of the Exercise Price in cash, advise the Company
immediately by telephone of the amount so deposited to the Company's account and
promptly confirm such telephonic advice in writing; (iii) in the case of a
payment of the Exercise Price in Warrant Certificates or shares of Series B
Preferred Stock, advise the Company immediately by telephone of the number of
Warrant Certificates or the aggregate liquidation preference and accumulated and
unpaid dividends thereon (whether or not declared) of shares of Series B
Preferred Stock to be surrendered and promptly confirm such telephone advice in
writing; and (iv) as soon as practicable, advise the Company in writing of the
number of Warrants exercised in accordance with the terms and conditions of this
Warrant Agreement and the Warrant Certificates, the instructions of each
exercising Holder with respect to delivery of the Warrant Shares to which such
Holder is entitled upon such exercise, and such other information as the Company
shall reasonably request.
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(g) Subject to Section 5.2 hereof, as soon as practicable after
the exercise of any Warrant or Warrants in accordance with the terms hereof, the
Company shall issue or cause to be issued to or upon the written order of the
registered Holder evidencing such exercised Warrant or Warrants, a certificate
or certificates evidencing the Warrant Shares to which such Holder is entitled,
in fully registered form, registered in such name or names as may be directed by
such Holder pursuant to the Election to Exercise, as set forth on the reverse of
the Warrant Certificate. The Warrant Agent shall have no obligation to ascertain
the number of Warrant Shares to be issued with respect to the exercised Warrant
or Warrants. Such certificate or certificates evidencing the Warrant Shares
shall be deemed to have been issued and any Persons who are designated to be
named therein shall be deemed to have become the Holder of record of such
Warrant Shares as of the close of business on the Exercise Date. After such
exercise of any Warrant or Warrants, the Company shall also issue or cause to be
issued to or upon the written order of the registered Holder of such Warrant
Certificate, a new Warrant Certificate, countersigned by the Warrant Agent
pursuant to the Company's written instruction, evidencing the number of
Warrants, if any, remaining unexercised (unless such Warrants shall have
expired).
SECTION 2.3. Cancellation of Warrant Certificates. In the event
the Company shall purchase or otherwise acquire Warrants, the Warrant
Certificates evidencing such Warrants may thereupon be delivered to the Warrant
Agent, and if so delivered, shall be canceled by it and retired. The Warrant
Agent shall cancel all Warrant Certificates properly surrendered for exchange,
substitution, transfer or exercise. The Warrant Agent shall deliver all shares
of Series B Preferred Stock properly surrendered for exercise to the Company for
cancellation. The Warrant Agent shall destroy canceled Warrant Certificates held
by it and deliver a certificate of destruction to the Company. The Warrant Agent
shall account promptly to the Company with respect to Warrants exercised and
concurrently pay to the Company all money received, and deliver to the Company
all shares of Series B Preferred Stock received, by the Warrant Agent for the
purchase of Warrant Shares through the exercise of such Warrants.
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.1. Enforcement of Rights.
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(a) Notwithstanding any of the other provisions of this Warrant
Agreement, any Holder of Warrant Certificates or holder of Warrant Shares,
without the consent of the Warrant Agent, may, in and for its own behalf,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, its right to exercise the Warrant or Warrants
evidenced by its Warrant Certificate as provided in such Warrant Certificate and
in this Warrant Agreement.
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(b) Neither the Warrants nor any Warrant Certificate shall
entitle the Holders thereof to any of the rights of a holder of Common Stock,
including, without limitation, as applicable, the right to vote or to receive
any dividends or other payments or to consent or to receive notice as
stockholders in respect of the meetings of stockholders or for the election of
directors of the Company or to share in the assets of the Company in the event
of the liquidation, dissolution or winding up of the Company's affairs or any
other matter, or any rights whatsoever as stockholders of the Company.
SECTION 3.2. Tag-Along Rights. From and after the Issue Date
until the later of (A) the date of completion of a Public Equity Offering and
(B) the date on which the Common Stock is listed for trading on a national
securities exchange or is authorized for trading on any tier of the NASDAQ
National Market System (the "Tag-Along Period"), with respect to any proposed
sale, exchange, transfer or other disposition (collectively, a "Proposed
Transfer") of shares of Common Stock or Non-Voting Common Stock by Birch
Holdings L.L.C., Birch Acquisition L.L.C. or any of their Related Parties (any
such Persons being hereinafter referred to as a "Transferor") to a Person, other
than an Affiliate of Birch Holdings L.L.C. or Birch Acquisition L.L.C. (such
other Person being hereafter referred to as the "proposed purchaser"), each
Holder and each holder of Warrant Shares (individually, a "Tag Along Investor"
and, collectively, the "Tag-Along Investors") shall have the right (the
"Tag-Along Right") to require the Transferor, prior to consummation of the
Proposed Transfer, to include in the Proposed Transfer, on the same terms and at
the same price, up to the number of whole Warrant Shares owned by each such
Tag-Along Investor, or Warrants owned by each such Tag-Along Investor which are
exercisable for up to the number of whole Warrant Shares (provided that any Tag-
Along Investor electing to require the proposed Transferor to include Warrants
in such Proposed Transfer shall pay to the Transferor the aggregate Exercise
Price with respect to all such Warrants), equalling the sum of:
(i) the number derived by multiplying the total number of
shares of Common Stock and Non-Voting Common Stock the Transferor
proposes to transfer by a fraction, the numerator of which is the
total number of Warrant Shares owned by such Tag-Along Investor,
or which could then be acquired upon exercise of Warrants, by
such Tag-Along Investor, and the denominator of which is the sum
of (A) the total number of shares of Common Stock and Non-Voting
Common Stock owned by the Transferor, plus (B) the total number
of shares of Warrant Shares which are then outstanding, or which
could then be acquired upon exercise of Warrants, owned by all
Tag-Along Investors who delivered Tag-Along Notices (as defined
in Section 3.2(b) herein); and
(ii) any additional Warrant Shares, if any, such Tag-Along
Investor shall be entitled to transfer if any other Tag-Along
Investor has not elected to exercise its Tag-Along Right
hereunder (as determined pursuant to Section 3.2(c)).
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At all times during the Tag-Along Period, each of Birch
Acquisition L.L.C., Birch Holdings, L.L.C. and their respective Related Parties
and their respective successors (collectively, the "Birch Parties") will hold
their respective shares of Common Stock and Non-Voting Common Stock subject to
the Tag-Along Rights described herein, and their respective shares of Common
Stock and Non-Voting Common Stock will bear a legend indicating that they are
subject to the Tag-Along Rights described herein.
(a) Notice of Proposed Transfer. The Transferor and the Company
shall, not less than 20 nor more than 30 days prior to each Proposed Transfer,
notify, or cause to be notified, the Warrant Agent, each Holder and each holder
of Warrant Shares in writing (the "Sale Notice") of each such Proposed Transfer.
Such Sale Notice shall set forth: (i) the name of the Transferor and the number
of shares of Common Stock and Non-Voting Common Stock proposed to be
transferred, (ii) the proposed amount and form of consideration of any type and
character and terms and conditions of payment offered by such proposed purchaser
to the proposed Transferor or any of its affiliates and (iii) that the proposed
purchaser has been informed of the Tag-Along Right provided for in this Section
3.2 and has agreed to purchase shares of Common Stock and Non-Voting Common
Stock (and Warrant Shares) in accordance with the terms hereof.
(b) Exercise of Tag-Along Right. The Tag-Along Right may be
exercised by any Tag-Along Investor by delivery of a written notice (the
"Tag-Along Notice") to the Transferor along with delivery of a copy of the
written notice to the Warrant Agent within 10 days following receipt by the
Warrant Agent of the Sale Notice. The Tag-Along Notice shall state the amount of
shares of Warrant Shares that such Tag-Along Investor proposes to include in
such transfer to the proposed purchaser (as determined in this Section 3.2),
plus the amount of additional Warrant Shares, if any, that such Tag-Along
Investor would be willing to sell to the proposed purchaser in the event that
any of the other Tag-Along Investors elect not to exercise their Tag-Along
Rights in whole or in part.
(c) Additional Warrant Shares. The maximum amount of additional
Warrant Shares that each such Tag-Along Investor shall be entitled to sell, and
the proposed Transferor shall be required to include in the Proposed Transfer,
shall be determined by multiplying the total number of Warrant Shares, or
Warrant Shares which could be acquired upon exercise of Warrants, that Tag-Along
Investors could have elected to sell to the proposed purchaser but elected not
to so sell (as indicated in the Tag-Along Notices), by a fraction, the numerator
of which is the total number of Warrant Shares, or Warrant Shares which could be
acquired upon exercise of Warrants, owned by such Tag-Along Investors electing
to sell additional Warrant Shares and the denominator of which is the total
number of Warrant Shares, or Warrant Shares which could be acquired upon
exercise of Warrants, owned by all Tag-Along Investors who delivered Tag-Along
Notices.
(d) Limitations on Right of Transferor to Sell Common Stock and
Non-Voting Common Stock. In the event that the proposed purchaser does not
purchase Warrant Shares from the Tag-Along Investors on the same terms and
conditions as specified in the Sale Notice, then
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the Transferor shall not be permitted to sell any shares of Common Stock or
Non-Voting Common Stock to the proposed purchaser in the Proposed Transfer. If
no Tag-Along Notice is received during the 10-day period referred to above (or
if such Tag-Along Notices do not cover all the shares of Common Stock and
Non-Voting Common Stock proposed to be transferred), the Transferor shall have
the right, for a 45-day period after the expiration of the 10-day period
referred to above, to transfer the shares of Common Stock and Non-Voting Common
Stock specified in the Sale Notice (or the remaining shares of Common Stock and
Non-Voting Common Stock) on terms and conditions no more favorable than those
stated in the Tag-Along Notice and without regard to the Tag-Along Rights
described in this Section 3.2.
(e) Payment and Transfer of Warrant Shares. Any Warrant Shares
purchased from Tag-Along Investors hereunder shall be paid for in cash, at the
same price per share of Common Stock and Non-Voting Common Stock and upon the
same terms and conditions as such proposed transfer by the Transferor, it being
agreed, however, that (i) such terms and conditions do not include the making of
any representations and warranties, indemnities or other agreements other than
representations and warranties with respect to title of the Warrant Shares being
sold and authority to sell such Warrant Shares and indemnities related thereto,
(ii) no Tag-Along Investor shall, pursuant to any representation, warranty,
agreement or indemnity made in connection with a Proposed Transfer, be liable in
an amount to exceed the net proceeds received by such Tag-Along Investor in the
Proposed Transfer (without interest thereon) and (iii) no Tag- Along Investor
shall, in connection with any Proposed Transfer, have any liability in respect
of any representation, warranty, agreement or indemnity made by any other
Tag-Along Investor in connection with a Proposed Transfer. All payments to be
made to the Tag-Along Investors shall be made to the Warrant Agent on behalf of
the Tag-Along Investors as directed in writing by the Warrant Agent.
Notwithstanding any provision to the contrary in this Section 3.2, no Tag-Along
Investor shall be required to surrender or deliver Warrant Shares (or Warrant
Certificates representing Warrant Shares) to any Person (including, without
limitation, the proposed purchaser) as a condition precedent to exercise of a
Tag-Along Right hereunder; provided, however, that any such Tag-Along Investor
electing to exercise any Tag-Along Right hereunder shall, promptly after
consummation of a Proposed Transfer of Warrant Shares in accordance with this
Section 3.2(e), exercise all Warrants with respect to which a Tag-Along Right
has been exercised and request that Warrant Certificates (representing Warrant
Shares acquired upon exercise of such Warrants) be issued to such Tag-Along
Investor in accordance with the provisions of Article II hereof.
(f) Acknowledgment by Warrant Agent and the Company. The Company
agrees not to effect any transfer of shares of Common Stock or Non-Voting Common
Stock by any of the Birch Parties until the Company has received evidence
reasonably satisfactory to it and the Warrant Agent that the terms and
provisions of this Section 3.2 with respect to the exercise of any Tag-Along
Right, if applicable to such transfer, have been complied with in all respects.
SECTION 3.3. Exchange Rights of Holders. If either Birch Holdings
L.L.C., Birch Acquisition L.L.C. or any of their respective Related Parties that
are engaged primarily in the business of investing in equity securities of the
Company shall consummate a
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public or private offering of shares of Common Stock or Non-Voting Common Stock
or any security whether or not immediately convertible, exchangeable or
exercisable into Common Stock or Non-Voting Common Stock, the Holders and the
Holders shall have the right to convert the Warrants or Warrant Shares into such
number of shares of common stock of Birch Holdings L.L.C., Birch Acquisition
L.L.C. or such other entity, as the case may be, as have an equivalent Fair
Market Value to the Fair Market Value of the number of Warrant Shares
outstanding or issuable upon the exercise of outstanding Warrants as of the date
of such offering, as determined by an Independent Financial Advisor.
SECTION 3.4. Repurchase Right.
(a) If (A) the Company, in a single transaction or series of
related transactions, (i) sells, assigns, transfers, leases, conveys or
otherwise disposes of all or substantially all of the assets of the Company to
any Person; (ii) consolidates or merges with or into another Person and the
Company is not the surviving entity; or (iii) consolidates or merges with or
into another Person and the Company is the surviving entity (a "Forward Merger")
and (w) the shareholders of the Company immediately preceding such Forward
Merger will not continue to own at least a majority of the outstanding shares of
capital stock of the Company on a fully diluted basis following the consummation
of such Forward Merger, (x) as a direct or indirect result of such Forward
Merger, a Change of Control (as defined in the Indenture) shall have occurred,
(y) the net worth of the Company following the consummation of such Forward
Merger shall not at least equal the net worth of the Company immediately
preceding such Forward Merger, or (z) immediately following the consummation of
such Forward Merger, the Company would not be permitted to incur any additional
Indebtedness (as defined in the Indenture) pursuant to Section 4.12 of the
Indenture, and (B) the consideration payable in respect of any event described
in the immediately preceding clause (i), (ii) or (iii) does not consist solely
of cash (any such event, hereinafter, a "Repurchase Event"), then the Company
shall offer to repurchase (a "Repurchase Offer"), in accordance with the
procedures set forth in this Section 3.4, all Warrants at the per share Fair
Market Value of the Common Stock issuable upon exercise thereof, less the
Exercise Price (the "Repurchase Price"). The Company shall, subject to the
provisions described in this Section 3.4, be required to purchase all Warrants
properly tendered pursuant to a Repurchase Offer and not withdrawn.
Notwithstanding the foregoing, the provisions of this Section 3.4(a) shall not
apply in the event of an internal reorganization involving only the Company and
its wholly-owned subsidiaries pursuant to which the Company is the surviving
entity.
(b) The Repurchase Offer shall remain open for at least 20
Business Days and until the close of business on the fifth Business Day prior to
the Repurchase Date (as hereinafter defined).
(c) Not later than the 30th day following the occurrence of the
Repurchase Event, the Company shall mail to the Warrant Agent and to each Holder
a notice (the "Repurchase Notice") stating, among other things:
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(1) that a Repurchase Event has occurred and that such
Holder has the right to require the Company to repurchase such holder's
Warrants, or portion thereof, at the Repurchase Price;
(2) any information regarding such Repurchase Event
required to be furnished under applicable federal and state securities
laws, rules and regulations;
(3) a purchase date (the "Repurchase Date"), which shall
be on a Business Day and no earlier than 30 days nor later than 60 days
after the occurrence of a Repurchase Event;
(4) that any Warrant, or portion thereof, not tendered or
accepted for payment shall be subject to appropriate adjustment as
required by Section 5 of this Warrant Agreement, and continue in full
force and effect in accordance with this Warrant Agreement; and
(5) the instructions a Holder must follow in order to have
Warrants repurchased in accordance with this Section 3.4.
No failure of the Company to give the foregoing notice shall
limit any right to any Holder right to exercise a repurchase right hereunder.
(d) To exercise the repurchase right, the Holder must deliver, on
or before the fifth calendar day prior to the Repurchase Date, written notice of
the Company (or an agent designated by the Company for such purpose) of the
exercise of such repurchase right, together with the Warrant Certificates with
respect to which the right is being exercised, duly endorsed for transfer;
provided, however, that with respect to Warrants held of record by DTC, the
Company or its designated agent may accept as tendered for repurchase pursuant
to this Section 3.4 Warrants tendered by means of a book entry in accordance
with the normal procedures of DTC.
(e) On the Repurchase Date, the Company shall (i) accept for
payment Warrants or portions thereof tendered pursuant to the Repurchase Notice,
(ii) if the Company appoints a depository or Paying Agent, deposit with such
depository or Paying Agent money sufficient to pay the Repurchase Price of all
Warrants or portions thereof so tendered and (iii) deliver to the Warrant Agent
Warrants so accepted together with an Officers' Certificate stating the Warrants
or portions thereof tendered to the Company. DTC, the Company or the Paying
Agent, as the case may be, shall promptly mail to the Holders whose Warrants are
so accepted payment in an amount equal to the Repurchase Price, and the Warrant
Agent shall promptly authenticate and mail to Holders of Definitive Warrants new
Definitive Warrants equal in principal amount to any unpurchased portion of the
Definitive Warrant surrendered. The Company will publicly announce the results
of the Repurchase Offer on or as soon as practicable after the Repurchase Date.
For purposes of this Section 3.4, the Warrant Agent shall act as the Paying
Agent.
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(f) The Company, to the extent applicable and if required by law,
will comply with the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and any other federal and state securities laws, rules and regulations
that may then be applicable to any offer by the Company to purchase the Warrants
pursuant to the provisions of this Section 3.4.
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.1. Payment of Taxes. The Company will pay all
documentary stamp taxes attributable to the initial issuance of Warrants and of
the Warrant Shares upon the exercise of Warrants and all documentary stamp taxes
attributable to the separation of the Warrants from the Series B Preferred Stock
on the Separation Date; provided, however, that the Company shall not be
required to pay any tax or other governmental charge which may be payable in
respect of any transfer involved in the issue of any Warrant Certificates or any
certificates for Warrant Shares in a name other than the registered Holder
surrendered upon the exercise of a Warrant. In any such case, the Company shall
not be required to issue or deliver such Warrant Certificate or certificate for
Warrant Shares unless or until the Person or Persons requesting issuance thereof
shall have paid to the Company the amount of such tax or other governmental
charge or shall have established to the satisfaction of the Company that such
tax or other governmental charge has been paid or an exemption is available
therefrom.
SECTION 4.2. Notice of Expiration Date. The Company will give
notice of the Expiration Date to all Holders of the then outstanding Warrants,
not less than 90 and not more than 120 days prior to the Expiration Date.
SECTION 4.3. Reservation of Common Stock. The Company covenants
and agrees that it will at all times cause to be reserved and kept available out
of its authorized and unissued shares of Common Stock such number of shares of
Common Stock as will be sufficient to permit the exercise in full of all
Warrants issued hereunder and all other rights, warrants or options exercisable
into, and the conversion of all securities convertible into, Common Stock and
Non-Voting Common Stock.
SECTION 4.4. Warrant Shares to be Duly Authorized and Issued,
Fully Paid and Nonassessable. The Company covenants and agrees that it will take
all such action as may be necessary to ensure that all Warrant Shares delivered
upon the exercise in full of any Warrants, at the time of delivery of the
certificates representing such shares, shall be duly and validly authorized and
issued and fully paid and nonassessable, free of any preemptive rights in favor
of any Person in respect of such issuance and free of any security interest,
lien or other encumbrance of any kind or nature created by, arising out of
actions of, the Company, any subsidiary or any affiliate of the Company.
SECTION 4.5. Reports.
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(a) For so long as any Warrants are outstanding, the Company
shall deliver to the Warrant Agent and mail to each Holder, within 15 days after
the filing of the same with the Securities and Exchange Commission ("SEC"),
copies of its quarterly and annual reports and of the information, documents and
other reports, if any, which the Company is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act.
(b) For so long as any Warrants are outstanding, if at any time
the Company is not subject to the requirements of such Section 13 or 15(d) of
the Exchange Act, the Company shall file with the SEC, to the extent permitted,
and distribute to the Warrant Agent and to each Holder copies of the quarterly
and annual financial information that would have been required to be contained
in a filing with the SEC on Forms 10-Q and 10-K and all current reports that
would be required to be filed with the SEC on Form 8-K had the Company been
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act. All such financial information shall include consolidated financial
statements (including footnotes) prepared in accordance with generally accepted
accounting principles. Such annual financial information shall also include an
opinion thereon expressed by an independent accounting firm of established
national reputation. All such consolidated financial statements shall be
accompanied by a "Management's Discussion and Analysis of Financial Condition
and Results of Operation." The financial and other information to be distributed
to Holders shall be filed with the Warrant Agent and mailed to the Holders at
their respective addresses appearing in the Warrant Register maintained by the
Warrant Agent, within 120 days after the end of the Company's fiscal year and
within 60 days after the end of each of the first three quarters of each such
fiscal year. In addition, for so long as any Warrants are outstanding, the
Company shall furnish to the Holders and to securities analysts and to
prospective purchasers upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act for so long as
the Company is required for an offer or sale of the Warrants under Rule 144A.
From and after the date of effectiveness of any registration statement filed
with the SEC with respect to the Warrants, the Company will file with the SEC
such Forms 10-Q and 10-K and any other information required to be filed by it.
SECTION 4.6. Private Placement Numbers. The Company covenants and
agrees to obtain, and thereafter maintain, a private placement number in respect
of the Warrants and a private placement number or CUSIP number, as appropriate,
in respect of the Warrant Shares from the CUSIP Service Bureau of Standard &
Poor's, a division of McGraw-Hill, Inc.
SECTION 4.7. Right of Action. All rights of action in respect of
the Warrants are vested in the respective registered Holders of the Warrant
Certificates, and any registered Holder of any Warrant Certificate, without the
consent of the Holder of any other Warrant Certificate, may, on its own behalf
and for its own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of, its right to exercise the Warrants evidenced by such Warrant Certificate in
the manner provided in such Warrant Certificate and in this Warrant Agreement.
SECTION 4.8. Survival. The agreements of the Company contained in
Section 4.1 and Section 4.7 shall survive the exercise of and the expiration of
the Warrants.
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ARTICLE V
ADJUSTMENTS
SECTION 5.1. Adjustment of Exercise Price and Number of Warrant
Shares Issuable. The Exercise Price and the number and kind of Warrant Shares
purchasable upon the exercise of each Warrant shall be subject to adjustment
from time to time as follows:
(a) Stock Dividends, Subdivisions and Combinations. In case the
Company shall hereafter (A) pay a dividend in shares of Common Stock or
Non-Voting Common Stock or make a distribution in shares of Common Stock or
Non-Voting Common Stock, (B) reclassify by subdivision its outstanding shares of
Common Stock or Non-Voting Common Stock into a greater number of shares or (C)
reclassify by combination its outstanding shares of Common Stock or Non-Voting
Common Stock into a smaller number of shares, (i) the number of Warrant Shares
purchasable upon exercise of each Warrant immediately prior thereto shall be
adjusted so that the Holder of any Warrant Certificate thereafter exercised
shall be entitled to receive the number of Warrant Shares which such Holder
would have owned immediately following such action had such Warrant been
exercised immediately prior thereto, and (ii) the Exercise Price shall be
adjusted by multiplying such Exercise Price immediately prior to such adjustment
by a fraction, the numerator of which shall be the number of Warrant Shares
purchasable upon the exercise of each Warrant immediately prior to such
adjustment, and the denominator of which shall be the number of Warrant Shares
purchasable immediately thereafter. An adjustment made pursuant to this Section
5.1(a) shall become effective immediately after the record date, in the case of
a dividend, and shall become effective immediately after the effective date, in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this Section 5.1(a), the Holder of any Warrant
Certificate thereafter exercised shall become entitled to receive shares of two
or more classes of capital stock of the Company, the Board of Directors of the
Company shall determine, in its reasonable discretion, the allocation of the
adjusted Exercise Price between or among shares of such classes of capital
stock.
(b) Reclassification, Combinations, Mergers, etc. Subject to
Section 3.4, if (A) any capital reorganization, reclassification or change of
outstanding shares of Common Stock or Non-Voting Common Stock (other than as set
forth in Section 5.1(a) and other than a change in par value, or from par value
to no par value, or from no par value to par value; provided that the Company
shall not increase the par value of the Common Stock to exceed the Exercise
Price), or (B) in case of any consolidation or merger of the Company with or
into another corporation or other entity (other than a merger in which the
Company is the continuing corporation and which does not result in any
reclassification or change of the then outstanding shares of Common Stock or
Non-Voting Common Stock or other capital stock of the Company (other than a
change in par value, or from par value to no par value, or from no par value to
par value or as a result of a subdivision or combination)) or (C) in case of any
sale or conveyance to another corporation or other entity of all or
substantially all of the assets of the Company shall be effected in such a way
that the holders of Common Stock or Non-Voting Common Stock shall be
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entitled to receive shares of common stock, other securities or assets (whether
such stock, other securities or assets are issued or distributed by the Company
or another Person) with respect to or in exchange for Common Stock or Non-Voting
Common Stock, then, as a condition of such reclassification, reorganization,
change, consolidation, merger, sale or conveyance, the Company or such a
successor or purchasing corporation or other entity, as the case may be, shall
forthwith make lawful and adequate provision whereby the Holder of such Warrant
Certificate then outstanding shall have the right thereafter to receive on
exercise of such Warrant the kind and amount of shares of stock and other
securities and assets receivable upon such reclassification, reorganization,
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock or Non-Voting Common Stock that such holders would have
been entitled to receive upon exercise of such Warrant had such Warrant been
exercised immediately before such reclassification, reorganization, change,
consolidation, merger, sale or conveyance that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article V.
For purposes of this Section 5.1(b), "shares of stock and other
securities and property" receivable upon a reclassification, change,
consolidation, merger, sale or conveyance shall include stock of any successor
or acquiring corporation of any class which is not subject to redemption and
shall also include any evidence of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event, including any warrants or other rights to subscribe for or
purchase any such stock. If the issuer of securities deliverable upon exercise
of Warrants under the supplemental warrant agreement is an affiliate of the
formed, surviving or transferee corporation or other entity, such issuer shall
join in the supplemental warrant agreement.
In case of any such reclassification, reorganization, merger,
consolidation or dispositions of assets, the successor or acquiring corporation
or other entity shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant Agreement
to be performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of Directors
of the Company) in order to provide for adjustments of Warrant Shares into which
each Warrant is exercisable, which shall be as nearly equivalent as practicable
to the adjustments provided for in this Article V.
(c) Issuances of Common Stock, Non-Voting Common Stock or Rights.
In the event that the Company shall, at any time or from time to time after the
date hereof, issue, sell distribute or otherwise grant (in any such case, a
"Distribution") shares of Common Stock, Non-Voting Common Stock or Rights,
whether or not such Rights are immediately exercisable, convertible or
exchangeable, at a Consideration Per Share lower than the per share Fair Market
Value of the Common Stock or the Non-Voting Common Stock on the date of such
issuance or sale, or if the Company shall amend any of the provisions of any
Rights, including, without limitation, a change in the purchase, conversion,
exchange or exercise price per share of Common Stock or Non-Voting Common Stock,
as the case may be, of any such Right, or the
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Aggregate Consideration Receivable applicable to any such Right (other than
under or by reason of provisions designed to protect against dilution upon an
event which results in an adjustment pursuant to this Article V which is no less
favorable to the Holder than such adjustment is to the holder of such Rights),
then, immediately after the date of such issuance or sale,
(A) the number of Warrant Shares purchasable upon exercise
of each Warrant shall be increased so that the Holders thereafter will
be entitled to receive the number of Warrant Shares determined by
multiplying:
(i) the number of shares of Common Stock or such Holders
would have been entitled to receive immediately before the date
of such issuance or sale had such Holders exercised their
Warrants immediately prior thereto; by
(ii) a fraction, the numerator of which shall be the sum
of: (X) the number of shares of Common Stock and Non-Voting
Common Stock outstanding on such date plus (Y) the number of
additional shares of Common Stock and Non-Voting Common Stock
offered for subscription or purchase (or into which the Rights so
offered are initially convertible or exchangeable or exercisable,
as the case may be), and the denominator of which shall be the
sum of: (X) the number of shares of Common Stock and Non-Voting
Common Stock outstanding on such date plus (Y) the number of
shares of Common Stock or Non-Voting Common Stock that the
Aggregate Consideration Receivable would purchase at such per
share Fair Market Value of the Common Stock on the date of such
issuance or sale, and
(B) the Exercise Price in effect immediately after such
Distribution shall be adjusted by multiplying the Exercise Price in
effect immediately prior to such Distribution by the quotient of:
(i) the sum of: (A) the number of shares of Common Stock
and Non-Voting Common Stock outstanding immediately prior to such
Distribution; plus (B) the quotient of: (X) the Aggregate
Consideration Receivable; divided by (Y) the per share Fair
Market Value of the Common Stock or Non-Voting Common Stock; in
each case immediately prior to such Distribution; divided by
(ii) the sum of: (A) the number of shares of Common Stock
and Non-Voting Common Stock outstanding immediately prior to such
Distribution; plus (B) the number of shares of Common Stock and
Non-Voting Common Stock so issued or sold (or initially issuable
pursuant to any Rights).
No adjustment shall be made pursuant to subparagraph (A) above
which would decrease the number of shares of Common Stock purchasable upon
exercise of a Warrant. No adjustment shall be made pursuant to subparagraph (B)
above which would increase the Exercise Price of a Warrant.
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For purposes of the foregoing calculation, the total maximum
number of shares of Common Stock and/or Non-Voting Common Stock issuable upon
exercise, conversion or exchange, as applicable, of all Rights shall be deemed
to have been issued as of the date of such Distribution and thereafter shall be
deemed to be outstanding and the Company shall be deemed to have received as
consideration therefor the Aggregate Consideration Receivable applicable thereto
after giving effect to such exercise, conversion or exchange. Except as provided
in Section 5.1(g), no additional adjustments of the Exercise Price shall be made
upon the actual exercise, exchange or conversion, as applicable, of such Rights.
(d) Dividends and Distributions. In the event the Company shall,
at any time or from time to time after the date hereof, make or pay any dividend
of, or distribute to holders of Common Stock or Non-Voting Common Stock (in any
such case, a "Dividend"), shares of capital stock, any of its property or
assets, including, without limitation, cash, evidences of its indebtedness,
Rights or other securities (in each case, other than dividends payable in Common
Stock or Non-Voting Common Stock) (collectively, "Dividend Securities"), then,
in each such case, the Company shall reserve shares or other units of such
Dividend Securities for distribution to the Holders upon exercise of their
Warrants so that, in addition to the Warrant Shares issuable upon exercise
thereof, such Holders will receive upon such exercise the amount and kind of
such Dividend Securities that such Holders would have received if the Holders
had, immediately prior to the record date for the distribution of the Dividend
Securities, exercised the Warrants.
(e) Self-Tenders. If, at any time or from time to time after the
date hereof, the Company or any subsidiary of the Company shall repurchase, by
self-tender offer or otherwise, any shares of Common Stock or Non-Voting Common
Stock of the Company or any Right at a weighted average purchase price in excess
of the per share Fair Market Value of the Common Stock or Non-Voting Common
Stock, then on the Business Day immediately prior to the earliest of (i) the
date of such repurchase, (ii) the commencement of an offer to repurchase or
(iii) the public announcement of either (such date being referred to as the
"Determination Date"), the Company shall (x) offer to repurchase the Warrant
Shares on the same terms and conditions on which it has offered to repurchase
the shares of Common Stock or Non-Voting Common Stock that were the subject of
the self-tender or (y) offer to repurchase the Warrants on the same terms and
conditions on which it has offered to repurchase the rights that were the
subject of the self- tender.
(f) Fair Market Value of Consideration Received. Notwithstanding
any provision to the contrary herein, for purposes of this Article V, if any
Rights shall be issued in connection with the issuance and sale of other
securities of the Company, together comprising one integral transaction in which
no specific consideration is allocated to such Rights by the parties thereto,
such Rights shall be deemed to have been issued without consideration, provided,
however, that if any such Rights have an exercise price (to the extent
applicable) equal to or greater than the per share Fair Market Value of the
Common Stock or Non-Voting Common Stock on the date of issuance of such Rights,
then such Rights shall be deemed to have been issued for consideration equal to
such exercise price.
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(g) Deferral of Certain Adjustments. No adjustment to the
Exercise Price (including the related adjustment to the number of Warrant Shares
purchasable upon the exercise of each Warrant) shall be required hereunder
unless such adjustment, together with other adjustments carried forward as
provided below, would result in an increase or decrease of at least one percent
(1%) of the Exercise Price; provided, however, that any adjustments which by
reason of this 5.1(g) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. No adjustment need be made for
a change in the par value of the Common Stock or Non-Voting Common Stock;
provided, however, the Company shall not increase the par value of the Common
Stock or Non-Voting Common Stock to exceed the Exercise Price. All calculations
under this Section 5.1 shall be made to the nearest 1/1,000 of one cent or to
the nearest 1/1,000th of a Warrant Share, as the case may be.
(h) Other Adjustments. In the event that at any time, as a result
of an adjustment made pursuant to this Article V, Holders shall become entitled
to receive any securities of the Company other than shares of Common Stock or
Non-Voting Common Stock, thereafter the number of such other securities so
receivable upon exercise of each Warrant and the Exercise Price applicable to
such exercise shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares and the Exercise Price contained in this Article V, and all
other relevant provisions of this Article V that are applicable to shares of
Common Stock or Non-Voting Common Stock shall be applicable to such other
securities. In case at any time or from time to time the Company shall take any
action in respect of its outstanding shares of Common Stock or Non-Voting Common
Stock, other than any action described in this Article V, or any event occurs as
to which the provisions of this Article V are not strictly applicable, then the
number of Warrant Shares for which each Warrant is exercisable shall be adjusted
in such manner as may be equitable in the circumstances and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares
and the Exercise Price contained in this Article V and as shall be reasonably
necessary, in the good faith opinion of the Board of Directors of the Company,
to protect the exercise rights of the Holders, but in no event shall any such
adjustment have the effect of adversely affecting the Holders. If the Company
shall at any time or from time to time issue, sell or distribute any shares of
capital stock (other than Common Stock or Non-Voting Common Stock), any
evidences of indebtedness, any property or assets, Rights or other securities,
then, in each such case, such issuance, sale or distribution shall be deemed to
be of, or in respect of, Common Stock and Non-Voting Common Stock for purposes
of this Article V.
(i) Statement of Warrant Certificates. Irrespective of any
adjustment in the number or kind of Warrant Shares issuable upon the exercise of
each Warrant or the Exercise Price, Warrant Certificates theretofore or
thereafter issued shall continue to express the same number and kind of Warrant
Shares and Exercise Price as are stated in the Warrant Certificates initially
issuable pursuant to this Warrant Agreement.
(j) Increased Warrant Shares or Reduced Exercise Price. From time
to time, the Company may, for a period of not less than 20 Business Days, in its
discretion, upon written notice to the Warrant Agent, increase the number of
Warrant Shares purchasable upon the
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exercise of each Warrant, without making any adjustment to the Exercise Price,
or reduce the Exercise Price, without making any adjustment to the number of
Warrant Shares purchasable upon the exercise of each Warrant; provided that in
the event the Company elects to make any such adjustments, the Company shall
make the same or proportional adjustment, as the case may be, with respect to
all outstanding Warrants.
(k) No Adjustments for Certain Incentive Compensation, Issuance
of Warrant Shares or Issuance of Shares Pursuant to Existing Warrants.
Notwithstanding any other provision hereof, it is expressly understood that the
Warrants shall not be adjusted with respect to (a) Common Stock, Non-Voting
Common Stock or Rights, in any case, that may be issued to any of the Company's
officers or employees pursuant to the stock option plans or similar plans of the
Company, including, without limitation, the Discovery Zone, Inc. 1997 Stock
Incentive Plan (collectively, the "Plans"), to the extent that shares of Common
Stock, Non-Voting Common Stock or other securities issued or granted under such
Plans are issued or granted at a price, or with an exercise price, that is no
less than the per share Fair Market Value of the Common Stock or Non-Voting
Common Stock at the date of grant or issuance and such grant or issuance,
together with all previous grants and issuances under all such Plans, represent
not more than 10% of the fully diluted Common Stock and Non-Voting Common Stock
at the time of such grant or issuance, (b) the conversion or exchange (other
than pursuant to a reclassification), in any case on a share-for-share basis, of
Common Stock for Non-Voting Common Stock, (c) the issuance of any Warrant Shares
or (d) exercise of the Existing Warrants.
(l) No Impairment. The Company will not, by amendment of its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, liquidation, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Company, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 5.1 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holders against impairment.
(m) Further Equitable Adjustments. If, after one or more
adjustments to the Exercise Price pursuant to this Section 5.1, the Exercise
Price cannot be reduced further without falling below the greater of (i) the par
value of the Common Stock and the Non-Voting Common Stock or (ii) the lowest
positive exercise price legally permissible for warrants to acquire shares of
common stock, the Company shall make further adjustments to compensate the
Holders, consistent with the foregoing principles, as the Board of Directors of
the Company, acting in good faith, deems necessary, including an increase in the
number of Warrant Shares issuable upon exercise of outstanding Warrants and/or a
cash payment to the Holders.
(n) Other Adjustments.
(i) Adjustments shall be made pursuant to this Section 5.1
successively whenever any of the events referred to in Section 5.1(a)
through Section 5.1(e), inclusive, and Section 5.1(p) shall occur.
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(ii) If any Warrant shall be exercised subsequent to the
record date for any of the events referred to in this Section 5.1, but
prior to the effective date thereof, appropriate adjustments shall be
made immediately after such effective date so that the Holder of such
Warrant on such record date shall have received, in the aggregate, the
kind and number of shares of Common Stock, Non-Voting Common Stock or
other securities or property or assets that it would have owned or been
entitled to receive on such effective date had such Warrant been
exercised prior to such record date.
(iii) Shares of Common Stock and Non-Voting Common Stock
owned by or held for the account of the Company shall not, for purposes
of the adjustments set forth in this Section 5.1 be deemed outstanding.
(o) Expiration of Rights. Upon the expiration of any Rights
referred to in this Section 5.1, without the exercise, exchange or conversion,
as applicable, thereof, the Exercise Price and the number of Warrant Shares
shall, upon such expiration, be readjusted and shall thereafter be such Exercise
Price and such number of Warrant Shares as would have been had such Exercise
Price and such number of Warrant Shares been originally adjusted (or had the
original adjustment not been required, as the case may be) as if:
(i) the only shares of Common Stock and Non-Voting Common
Stock so issued were the shares of Common Stock and Non-Voting Common
Stock, if any, actually issued or sold upon the exercise of such Rights;
and
(ii) such shares of Common Stock and Non-Voting Common
Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the aggregate
consideration, if any, actually received by the Company for the
issuance, sale or grant of all such Rights, whether or not exercised;
provided, however, that no such readjustment shall have the effect of
increasing the Exercise Price by an amount in excess of the amount of
the reduction initially made in respect of the issuance, sale, or grant
of such Rights.
(p) Adjustments in Connection with Plan Distributions. If, at any
time after July 22, 1997, and for so long as Warrants shall continue to be
outstanding, the Company shall have issued shares of Common Stock, Non-Voting
Common Stock or Rights to holders of Disputed Claims (as such term is defined in
the Company's Third Amended Plan of Reorganization, dated March 11, 1997 (the
"Reorganization Plan")) in settlement of such claims in an aggregate amount at
any time outstanding greater than 4,444,444 (which amount represents the sum of
(x) all of the issued and outstanding Common Stock and Non-Voting Common Stock
on July 22, 1997 in an aggregate amount of 4,000,000 issued to holders of
certain claims against the Company in accordance with the Reorganization Plan
and (y) 444,444 shares of Common Stock reserved for issuance upon exercise of
the Ten Year Warrants (as defined under the Reorganization Plan) (an "Excess
Plan Distribution"), then, on the date of any such Excess Plan Distribution, the
number of Warrant Shares issuable upon exercise of all Warrants shall be
increased such that each Holder thereof would receive upon such exercise on the
date of any such
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Excess Plan Distribution such number of Warrant Shares as shall be necessary to
cause such Holder's percentage interest in the Common Stock or Non-Voting Common
Stock on a fully diluted basis (except issuances of shares of Common Stock upon
exercise of options granted under the Company's 1997 Stock Incentive Plan (the
"Plan")) immediately after such Excess Payment Distribution to equal such
Holder's percentage interest in Common Stock or Non-Voting Common Stock on a
fully diluted basis (except issuances of shares of Common Stock upon exercise of
options granted under the Plan) immediately prior to such Excess Plan
Distribution. Notwithstanding the foregoing, if after July 22, 1997 the Company
shall, in connection with the resolution of Disputed Claims, have issued shares
of Common Stock or Non-Voting Common Stock in an aggregate amount less than
4,444,444, the balance of any such shares of Common Stock or Non-Voting Common
Stock may be distributed by the Company without requiring any adjustment
pursuant to this Section 5.1(p). The adjustments required by this Section 5.1(p)
shall not limit or otherwise adversely affect the rights of the Holders under
any other adjustments required by this Article V.
SECTION 5.2. Fractional Interest. The Company shall not be
required to issue fractional shares of Common Stock or Non-Voting Common Stock
on the exercise of Warrants. If more than one Warrant shall be presented for
exercise in full at the same time by the same Holder, the number of full shares
of Common Stock or Non-Voting Common Stock which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number of shares of
Common Stock or Non-Voting Common Stock acquirable on exercise of the Warrants
so presented. If any fraction of a share of Common Stock or Non-Voting Common
Stock would, except for the provisions of this Section 5.2, be issuable on the
exercise of any Warrant, the Company shall either (i) pay an amount in cash
calculated by the Company to equal the per share Fair Market Value of the Common
Stock or Non-Voting Common Stock multiplied by such fraction of a share of
Common Stock or Non-Voting Common Stock computed to the nearest whole cent or
(ii) aggregate all such fractional shares of Common Stock and Non-Voting Common
Stock into a whole number of shares and sell such aggregated fractional shares
on behalf of the Holders entitled thereto in a public or private sale and
distribute, on a pro rata basis, the net cash proceeds therefrom to such
Holders. While the Company will use its best efforts to secure the best
available sale price for such aggregated fractional shares, such price shall not
necessarily be the highest price obtainable for such shares. By their
acceptances of the Warrant Certificates, Holders expressly waive any and all
rights to receive any fraction of a share of Common Stock or Non-Voting Common
Stock or a stock certificate or scrip representing a fraction of a share of
Common Stock or Non-Voting Common Stock.
SECTION 5.3. When Adjustment Not Required. If the Company shall
take a record of the holders of its Common Stock or Non-Voting Common Stock for
the purpose of entitling them to receive a dividend or distribution or
subscription or purchase rights and shall, thereafter and before the
distribution to stockholders thereof, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record and any such
adjustment previously made in respect thereof shall be rescinded and annulled.
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SECTION 5.4. Treasury Stock. The sale or other disposition of any
issued shares of Common Stock or Non-Voting Common Stock owned or held by or for
the account of the Company shall be deemed an issuance thereof and, except for a
voluntary tender or exchange offer made by the Company or any subsidiary of the
Company subject to Section 13(e) of the Exchange Act, a repurchase thereof and
designation of such shares as treasury stock shall not be deemed to be a
redemption thereof for the purposes of this Warrant Agreement.
SECTION 5.5. Notices to Warrant Agent and Holders. Whenever the
number of Warrant Shares is adjusted or the Exercise Price in respect thereof is
adjusted, as herein provided, the Company shall promptly or, if notice of such
adjustment is required to be given to DTC, at least five (5) days prior to the
date on which notice of such adjustment is given to DTC, give to each Holder
notice of such adjustment or adjustments and shall promptly deliver to each
Holder and the Warrant Agent an Officer's Certificate (confirmed by a
certificate from the Company's independent certified public accountants) setting
forth: (i) the number of Warrant Shares issuable upon the exercise of each
Warrant and the Purchase Price of such shares after such adjustment; (ii) a
brief statement of the facts requiring such adjustment; and (iii) the
computation by which such adjustment was made.
So long as any Warrant is outstanding, within ninety (90) days of
the end of each fiscal year of the Company, the Company shall deliver to each
Holder an Officer's Certificate setting forth: (i) the number of Warrant Shares
issuable upon the exercise of each Warrant and the Exercise Price of such shares
as of the end of such fiscal year; (ii) a brief statement of the facts requiring
each adjustment, if any, required to be made in such fiscal year; and (iii) the
computation by which each such adjustment was made.
In the event that the Holders of at least 25% of the outstanding
Warrants shall challenge any of the calculations set forth in such notice within
20 Business Days after the Company's delivery thereof, the Company shall retain
an Independent Financial Advisor to prepare and execute a certificate verifying
that no adjustment is required. The Company shall promptly cause a signed copy
of any certificate prepared pursuant to this Section 5.5 to be delivered to each
Holder. The Company shall keep at the Warrant Agent Office copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours upon reasonable notice by any Holder or any
prospective purchaser of a Warrant designated by a Holder thereof.
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.1. Warrant Agent. At no time when the Company may be
acting as its own Warrant Agent shall any of its obligations to the Holders be
in any respect reduced as a result thereof. The Warrant Agent shall have the
powers and authority specifically
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granted to and conferred upon it in the Warrant Certificates and this Warrant
Agreement and such further powers and authority to act on behalf of the Company
as the Company may hereafter grant to or confer upon it and it shall accept in
writing. All of the terms and provisions with respect to such powers and
authority contained in the Warrant Certificates are subject to and governed by
the terms and provisions hereof.
SECTION 6.2. Conditions of Warrant Agent's Obligations. The
Warrant Agent accepts its obligations herein set forth upon the terms and
conditions hereof and in the Warrant Certificates, including the following, to
all of which the Company agrees and to all of which the rights hereunder of the
Holders from time to time of the Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation to be
agreed upon with the Company in writing for all services rendered by it and the
Company agrees promptly to pay such compensation and to reimburse the Warrant
Agent for its reasonable out-of-pocket expenses (including reasonable fees and
expenses of counsel) incurred without gross negligence, bad faith or willful
misconduct on its part in connection with the services rendered by it hereunder.
The Company also agrees to indemnify the Warrant Agent, each predecessor Warrant
Agent, and their respective directors, officers, affiliates, agents and
employees for, and to hold it and its directors, officers, affiliates, agents
and employees harmless against, any loss, liability or expense of any nature
whatsoever (including, without limitation, fees and expenses of counsel)
incurred without gross negligence, bad faith or willful misconduct on the part
of the Warrant Agent or predecessor Warrant Agent, arising out of or in
connection with its acting as such Warrant Agent hereunder and its exercise or
failure to exercise of its rights and performance of its obligations hereunder.
The obligations of the Company under this Section 6.2 shall survive the exercise
and the expiration of the Warrant Certificates and the resignation and removal
of the Warrant Agent.
(b) In acting under this Warrant Agreement and in connection with
the Warrant Certificates, the Warrant Agent is acting solely as agent of the
Company and does not assume any obligation or relationship of agency or trust
for or with any of the owners or Holders of the Warrant Certificates.
(c) The Warrant Agent may consult with counsel and any advice or
written opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with such advice or opinion.
(d) The Warrant Agent shall be fully protected and shall incur no
liability for or in respect of any action taken or omitted to be taken or thing
suffered by it in reliance upon any Warrant Certificate, notice, direction,
consent, certificate, affidavit, opinion of counsel, instruction, statement or
other paper or document reasonably believed by it to be genuine and to have been
presented or signed by the proper parties.
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(e) The Warrant Agent and its Related Parties may become the
owners of, or acquire any interest in, Warrant Certificates, shares or other
obligations of the Company with the same rights that it or they would have if it
were not the Warrant Agent hereunder and, to the extent permitted by applicable
law, it or they may engage or be interested in any financial or other
transaction with the Company and may act on, or as depositary, trustee or agent
for, any committee or body of holders of shares or other obligations of the
Company as freely as if it were not the Warrant Agent hereunder. Nothing in this
Warrant Agreement shall be deemed to prevent the Warrant Agent or such Related
Parties from acting in any other capacity for the Company.
(f) The Warrant Agent shall not be under any liability for
interest on, and shall not be required to invest, any money at any time received
by it pursuant to any of the provisions of this Warrant Agreement or of the
Warrant Certificates.
(g) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Warrant Agreement (or any term or provision
hereof) or the execution and delivery hereof or in respect of the validity or
execution of any Warrant Certificate (except its authentication thereof).
(h) The recitals and other statements contained herein and in the
Warrant Certificates (except as to the Warrant Agent's authentication thereon)
shall be taken as the statements of the Company, and the Warrant Agent assumes
no responsibility for the correctness of such recitals or other statements. The
Warrant Agent does not make any representation as to the validity or sufficiency
of this Warrant Agreement or the Warrant Certificates; provided, however, that
the Warrant Agent shall not be relieved of its duty to authenticate the Warrant
Certificates as authorized by this Warrant Agreement. The Warrant Agent shall
not be accountable for the use or application by the Company of the proceeds of
the exercise of any Warrant.
(i) Before the Warrant Agent acts or refrains from acting with
respect to any matter contemplated by this Warrant Agreement, it may require:
(A) an Officers' Certificate stating that, in the opinion
of the signers, all conditions precedent, if any, provided for in
this Warrant Agreement relating to the proposed action have been
complied with; and
(B) if reasonably necessary in the sole judgment of the
Warrant Agent, an opinion of counsel for the Company stating
that, in the opinion of such counsel, all such conditions
precedent have been complied with.
Each Officers' Certificate or, if requested, an opinion of
counsel (with respect to which such counsel may rely, as to matters of fact, on
a certificate or certificates of Officers of the Company) with respect to
compliance with a condition or covenant provided for in this Warrant Agreement
shall include:
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(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 or
she has made such examination or investigation as is necessary to enable
him or her 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
such Person, such condition or covenant has been complied with.
(j) The Warrant Agent shall be obligated to perform such duties
as are herein and in the Warrant Certificates specifically set forth and no
implied duties or obligations shall be read into this Warrant Agreement or the
Warrant Certificates against the Warrant Agent. The Warrant Agent shall not be
accountable or under any duty or responsibility for the use by the Company of
any of the Warrant Certificates authenticated by the Warrant Agent and delivered
by it to the Company pursuant to this Warrant Agreement. The Warrant Agent shall
have no duty or responsibility in case of any default by the Company in the
performance of its covenants or agreements contained in the Warrant Certificates
or in the case of the receipt of any written demand from a Holder with respect
to such default, including, without limiting the generality of the foregoing,
any duty or responsibility to initiate or attempt to initiate any proceedings at
law or otherwise or, except as provided in Section 7.2 hereof, to make any
demand upon the Company. The Warrant Agent shall not be obligated to perform any
duty to the extent prohibited by law.
(k) Unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from the Company
made or given under any provision of this Warrant Agreement shall be sufficient
if signed by its President or, Vice President and attested by its Treasurer,
Controller, Secretary or any Assistant Secretary.
(l) The Warrant Agent shall have no responsibility in respect of
any adjustment pursuant to Article V hereof.
(m) The Company agrees that it will perform, execute, acknowledge
and deliver, or cause to be performed, executed, acknowledged and delivered, all
such further and other acts, instruments and assurances as may reasonably be
required by the Warrant Agent for the carrying out or performing by the Warrant
Agent of the provisions of this Warrant Agreement.
(n) The Warrant Agent is hereby authorized and directed to accept
written instructions with respect to the performance of its duties hereunder
from any one of the
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President, the Treasurer, the Controller, any Vice President or the Secretary of
the Company or any other officer or official of the Company reasonably believed
to be authorized to give such instructions and to apply to such officers or
officials for advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered to be taken by it in good faith
in accordance with instructions with respect to any matter arising in connection
with the Warrant Agent's duties and obligations arising under this Warrant
Agreement. Such application by the Warrant Agent for written instructions from
the Company may, at the option of the Warrant Agent, set forth in writing any
action proposed to be taken or omitted by the Warrant Agent with respect to its
duties or obligations under this Warrant Agreement and the date on or after
which such action shall be taken, and the Warrant Agent shall not be liable for
any action taken or omitted to be taken in accordance with a proposal included
in any such application on or after the date specified therein (which date shall
be not less than 10 Business Days after the Company receives such application
unless the Company consents to a shorter period), provided that (i) such
application includes a statement to the effect that it is being made pursuant to
this Section 6.2(n) and that unless objected to prior to such date specified in
the application, the Warrant Agent will not be liable for any such action or
omission to the extent set forth in such application and (ii) prior to taking or
omitting any such action, the Warrant Agent has not received written
instructions objecting to such proposed action or omission.
(o) Whenever in the performance of its duties under this Warrant
Agreement the Warrant Agent shall deem it necessary or desirable that any fact
or matter be proved or established by the Company prior to taking or suffering
any action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the President, the
Treasurer, the Controller, any Vice President or the Secretary of the Company or
any other officer or official of the Company reasonably believed by the Warrant
Agent to be authorized to give such instructions and delivered to the Warrant
Agent and such certificate shall grant full authorization to the Warrant Agent
for any action taken or suffered in good faith by it under the provisions of
this Warrant Agreement in reliance upon such certificate.
(p) The Warrant Agent shall not be required to risk or expend its
own funds in the performance of its obligations and duties hereunder.
SECTION 6.3. Resignation and Appointment of Successor.
(a) The Company agrees, for the benefit of the Holders, that
there shall at all times be a Warrant Agent hereunder.
(b) The Warrant Agent may at any time resign as Warrant Agent by
giving written notice to the Company of such intention on its part, specifying
the date on which its desired resignation shall become effective, provided that
such date shall be at least 30 days after the date on which such notice is given
unless the Company agrees to accept less notice. Upon receiving such notice of
resignation, or in the event the Company shall determine not to continue to act
as its own Warrant Agent, the Company shall promptly appoint a successor Warrant
Agent,
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qualified as provided in Section 6.3(d) hereof, by written instrument in
duplicate signed on behalf of the Company, one copy of which shall be delivered
to the resigning Warrant Agent and one copy to the successor Warrant Agent. As
provided in Section 6.3(d) hereof, such resignation shall become effective upon
the earlier of (x) the acceptance of the appointment by the successor Warrant
Agent or (y) 30 days after receipt by the Company of notice of such resignation.
The Company may, at any time and for any reason, and shall, upon any event set
forth in the next succeeding sentence, remove the Warrant Agent and appoint a
successor Warrant Agent by written instrument in duplicate, specifying such
removal and the date on which it is intended to become effective, signed on
behalf of the Company, one copy of which shall be delivered to the Warrant Agent
being removed and one copy to the successor Warrant Agent. The Warrant Agent
shall be removed as aforesaid if it shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or a receiver of the Warrant Agent or of
its property shall be appointed, or any public officer shall take charge or
control of it or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation. Any removal of the Warrant Agent and any
appointment of a successor Warrant Agent shall become effective upon acceptance
of appointment by the successor Warrant Agent as provided in Section 6.3(d). As
soon as practicable after appointment of the successor Warrant Agent, the
Company shall cause written notice of the change in the Warrant Agent to be
given to each of the registered Holders in the manner provided for in Section
7.4 hereof.
(c) Upon resignation or removal of the Warrant Agent, if the
Company shall fail to appoint a successor Warrant Agent within a period of 30
days after receipt of such notice of resignation or removal, then the Holder or
the Warrant Agent may apply to a court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Pending appointment of a
successor to the Warrant Agent, either by the Company or by such a court, the
duties of the Warrant Agent shall be carried out by the Company.
(d) Any successor Warrant Agent, whether appointed by the Company
or by a court, shall be a bank or trust company in good standing, incorporated
under the laws of the United States of America or any State thereof and having,
at the time of its appointment, a combined capital surplus of at least $150
million. Such successor Warrant Agent shall execute and deliver to its
predecessor and to the Company an instrument accepting such appointment
hereunder and all the provisions of this Warrant Agreement, and thereupon such
successor Warrant Agent, without any further act, deed or conveyance, shall
become vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Warrant Agent
hereunder, and such predecessor shall thereupon become obligated to (i) transfer
and deliver, and such successor Warrant Agent shall be entitled to receive, all
securities, records or other property on deposit with or held by such
predecessor as Warrant Agent hereunder and (ii) upon payment of the amounts then
due it pursuant to Section 6.2(a) hereof, pay over, and such successor Warrant
Agent shall be entitled to receive, all money deposited with or held by any
predecessor Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent
hereunder may be merged or converted, or any corporation or bank with which the
Warrant Agent may be
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consolidated, or any corporation or bank resulting from any merger, conversion
or consolidation to which the Warrant Agent shall be a party, or any corporation
or bank to which the Warrant Agent shall sell or otherwise transfer all or
substantially all of its corporate trust business or assets, shall be the
successor to the Warrant Agent under this Warrant Agreement (provided that such
corporation or bank shall be qualified as aforesaid) without the execution or
filing of any document or any further act on the part of any of the parties
hereto.
(f) No Warrant Agent under this Warrant Agreement shall be
personally liable for any action or omission of any successor Warrant Agent or
of the Company.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Defined Terms. Unless otherwise defined in this
Warrant Agreement, the capitalized terms set forth below and used in this
Warrant Agreement shall have the meanings given to such terms below:
"Aggregate Consideration Receivable" means, in the case of a
sale, issuance or other distribution of shares of Common Stock or Non-Voting
Common Stock, the aggregate amount paid to the Company in connection therewith
and, in the case of an issuance, sale or other distribution of Rights, or any
amendment thereto, the sum of: (a) the aggregate amount paid to the Company for
such Rights; plus (b) the aggregate consideration or premium stated in such
Rights to be payable for the shares of Common Stock or Non-Voting Common Stock
covered thereby, in each case, without deduction for any fees, expenses or
underwriters discounts; provided further, that if all or any portion of the
aggregate amount paid to the Company for such Rights was not paid in cash, the
amount of such consideration other than cash received by the Company shall be
deemed to be the then Fair Market Value of such consideration.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday and
Friday on which (i) banks in New York City or the city in which the principal
corporate trust office of the Warrant Agent is located, (ii) the principal
national securities exchange or market, if any, on which the Common Stock, the
Non-Voting Common Stock or the Warrants are listed or admitted to trading, in
each case, are not obligated by law or executive order to be closed.
"Capital Stock" means, with respect to any person, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock and any and all warrants, options and rights with
respect thereto, including, without limitation, each class of common stock and
preferred stock, partnership interests and other indicia of ownership of such
person.
"Closing Prices" means, per share of Common Stock, Non-Voting
Common Stock or any other security, on any date specified herein:
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(i) the last sale price, regular way, on such date or, if no
such sale takes place on such date, the average of the
closing bid and asked prices on such date, in each case as
officially reported on the principal national securities
exchange on which the Common Stock, Non-Voting Common
Stock or other security is then listed or admitted to
trading; and
(ii) if the Common Stock, Non-Voting Common Stock or other
security is not then listed or admitted to trading on any
national securities exchange, but is designated as a
national market system security by the National
Association of Securities Dealers, Inc. ("NASD"), the last
trading price of the Common Stock, Non-Voting Common Stock
or such other security on such date, or if there shall
have been no trading on such date or if the Common Stock,
Non-Voting Common Stock or such other security is not so
designated, the average of the reported closing bid and
asked prices on such date as shown by the National
Association of Securities Dealers Annotated Quotation
System ("NASDAQ").
"Consideration Per Share" means, with respect to shares of Common
Stock, Non-Voting Common Stock or Rights, the quotient of: (a) the Aggregate
Consideration Receivable in respect of such shares of Common Stock, Non-Voting
Common Stock or such Rights, divided by (b) the total number of such shares of
Common Stock or Non-Voting Common Stock or, in the case of Rights, the total
number of shares of Common Stock or Non-Voting Common Stock into which such
Rights are exercisable or convertible.
"Convertible Preferred Stock" means the Series A Convertible
Preferred Stock of the Company issued by the Company in connection with the
issuance of the Existing Notes and the Existing Warrants.
"Disqualified Capital Stock" means any 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
redeemable at the option of the holder thereof, in whole or in part, on or prior
to May 1, 2002.
"Existing Warrants" means the warrants to purchase the Company's
Common Stock initially issued on July 22, 1997 in connection with the Company's
issuance of the Existing Notes.
"Fair Market Value" means, per share of Common Stock, Non-Voting
Common Stock or any other security, as of any date of determination, the
arithmetic mean of the daily Closing Prices for the 30 consecutive trading days
before such date of determination; provided, however, that if the Common Stock,
Non-Voting Common Stock or such other security is then neither listed or
admitted to trading on any national securities exchange, designated as a
national
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market system security by the NASD or quoted by NASDAQ, then "Fair Market Value"
means the fair market value of one share of Common Stock, Non-Voting Common
Stock or such other security as determined by an Independent Financial Advisor
as of the date of determination. Any such valuation by an Independent Financial
Advisor shall be based on a sale of the Company, and such valuation shall not be
discounted based on a lack of liquidity or voting rights, with respect to any
such shares, or based on a lack of control of the Company or by the minority
position of the holders of any such shares. For all purposes of this Agreement,
the Fair Market Value of the Non-Voting Common Stock will be deemed to be the
same as the Fair Market Value of the Common Stock.
"Independent Financial Advisor" means Jefferies & Company, Inc.
or any of its successors. If and only to the extent Jefferies & Company, Inc. or
any such successor shall resign from acting as such, such other firm of
independent certified public accountants, an investment banking or appraisal
firm (which firm shall own no equity interest of, and shall not be an affiliate,
subsidiary or Related Party of the Company) of recognized national standing to
be retained by the Company and acceptable to Jefferies & Company, Inc. and the
Warrant Agent.
"Notes" means the Company's 13% Senior Collateralized Notes due
2002.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Public Equity Offering" means an offering of Qualified Capital
Stock of the Company pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (other than a registration statement on Form
S-8 or otherwise relating to equity securities under any employee benefit plans)
which results in net proceeds to the Company of at least $20 million.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Offering" means an offering of Qualified Capital Stock
of the Company which results in net proceeds to the Company of at least $20
million, all or a portion of which are used to redeem 100% of the Notes and such
redemption occurs within 30 days of the date of the closing of such offering.
"Related Party" means, with respect to any Person: (A) any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person, (B) any spouse or immediate family
member of such Person or (C) a trust, corporation, partnership or other entity,
the beneficiaries, stockholders, partners, owners or Persons holding a 50% or
more controlling interest of which consist of such Person and/or such other
Persons or entities referred to in the immediately preceding clause (A). A
Person shall be deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the
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direction of the management and policies of such other Person, whether through
the ownership of voting securities, by contract or otherwise.
"Right" means and includes:
(a) any warrant (including, without limitation, any
Warrant) or any option (including, without limitation, employee stock
options) to acquire directly or indirectly Common Stock or Non-Voting
Common Stock;
(b) any right issued to holders of the Common Stock, or
any class thereof, permitting the holders thereof to subscribe directly
or indirectly for shares of additional Common Stock or Non-Voting Common
Stock (pursuant to a rights offering or otherwise);
(c) any right to acquire Common Stock or Non-Voting Common
Stock pursuant to the provisions of any security convertible directly or
indirectly or exchangeable directly or indirectly into Common Stock or
Non-Voting Common Stock; and
(d) any similar right permitting the holder thereof
directly or indirectly to subscribe for or purchase shares of Common
Stock or Non-Voting Common Stock.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
SECTION 7.2. Amendment. This Warrant Agreement and the terms of
the Warrants may be amended by the Company and the Warrant Agent, without the
consent of any Holder, (i) for the purpose of curing any ambiguity, (ii) for
curing, correcting or supplementing any defective or inconsistent provision
contained herein or therein or (iii) in any other manner which the Company may
reasonably deem necessary or desirable, which in each of clauses (i), (ii) and
(iii) shall not adversely affect in any respect the interests of any of the
Holders.
The Company and the Warrant Agent may modify this Warrant
Agreement and the terms of the Warrants with the consent of not less than a
majority in number of the then outstanding Warrants representing a majority of
the Warrant Shares then issuable upon the exercise of all then outstanding
Warrants (excluding Warrants held by the Company or by any subsidiary of the
Company) for the purpose of adding any provision to or changing in any manner or
eliminating any of the provisions of this Warrant Agreement or modifying in any
manner the rights of the Holders; provided, however, that no such modification
that increases the Exercise Price, reduces the number of Warrant Shares
purchaseable upon the exercise of Warrants, reduces the period of time during
which the Warrants are exercisable hereunder, otherwise adversely affects the
exercise rights of the Holders, reduces the percentage required for
modification, or effects any change to this Section 7.2, may be made with
respect to an outstanding Warrant without the consent of the Holder of such
Warrant.
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Any modification or amendment made in accordance with this
Warrant Agreement will be conclusive and binding on all present and future
Holders whether or not they have consented to such modification or amendment or
waiver and whether or not notation of such modification or amendment is made
upon such Warrant Certificates. Any instrument given by or on behalf of any
Holder in connection with any consent to any modification or amendment will be
conclusive and binding on all subsequent Holders.
SECTION 7.3. Notices and Demands to the Company and Warrant
Agent. If the Warrant Agent shall receive any notice or demand addressed to the
Company by the Holder of a Warrant Certificate pursuant to the provisions hereof
or of the Warrant Certificates, the Warrant Agent shall promptly forward such
notice or demand to the Company.
SECTION 7.4. Address for Notices to the Company and for
Transmission of Documents. All notices hereunder to the Company and the Warrant
Agent shall be deemed to have been given when sent by certified or registered
mail, postage prepaid, or by telecopy, confirmed by first class mail, postage
prepaid, addressed as follows:
To the Company:
Discovery Zone, Inc.
565 Taxter Road, 5th Floor
Elmsford, New York 10523
Telecopy: (914) 345-4500
Telephone: (914) 345-4516
Attention: Chief Executive Officer
To the Warrant Agent:
Firstar Bank of Minnesota, N.A.
101 East 5th Street
St. Paul, Minnesota 55101
Telecopy: (651) 229-6415
Telephone: (651) 229-2600
Attention: Frank P. Leslie, III
SECTION 7.5. Notices to Holders. Notices to Holders shall be
mailed to such Holders at the addresses of such Holders as they appear in the
Warrant Register. Any such notice shall be sufficiently given if sent by
first-class mail, postage prepaid.
SECTION 7.6. Applicable Law. THE VALIDITY, INTERPRETATION
AND PERFORMANCE OF THIS WARRANT AGREEMENT AND EACH WARRANT
ISSUED HEREUNDER AND OF THE RESPECTIVE TERMS AND PROVISIONS THEREOF
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
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SECTION 7.7. Obtaining of Governmental Approvals. The Company
will from time to time take all action required to be taken by it which may be
necessary to obtain and keep effective any and all permits, consents and
approvals of governmental agencies and authorities and securities laws filings
under United States Federal and State laws, and the rules and regulations of all
stock exchanges or markets on which the Warrants may be listed, which may be or
become requisite in connection with the issuance, sale, transfer, and delivery
of the Warrant Certificates, the exercise of the Warrants or the issuance, sale,
transfer and delivery of the Warrant Shares, it being understood, however, that
the only contractual registration rights of the Holders are those set forth in
the Series B Preferred Unit Purchase Agreement.
SECTION 7.8. Persons Having Rights Under Agreement. Nothing in
this Warrant Agreement expressed or implied and nothing that may be inferred
from any of the provisions hereof is intended, or shall be construed, to confer
upon, or give to, any Person other than the Company, the Warrant Agent, the
Holders from time to time of the Warrant Certificates, Birch Acquisition L.L.C.
and Birch Holdings L.L.C. any right, remedy or claim under or by reason of this
Warrant Agreement or of any covenant, condition, stipulation, promise or
agreement hereof and all covenants, conditions, stipulations, promises and
agreements in this Warrant Agreement contained shall be for the sole and
exclusive benefit of the Company, Birch Acquisition L.L.C., Birch Holdings
L.L.C. and the Warrant Agent and their successors, and of the Holders from time
to time of the Warrant Certificates.
SECTION 7.9. Headings. The descriptive headings of the several
Articles and Sections of this Warrant Agreement are inserted for convenience of
reference only and shall not control or affect the meaning or construction of
any of the provisions hereof.
SECTION 7.10. Counterparts. This Warrant Agreement may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original; but such Counterparts shall together constitute but
one and the same instrument.
SECTION 7.11. Inspection of Warrant Agreement. A copy of this
Warrant Agreement shall be available at all reasonable times at the Warrant
Agent Office, for inspection by the Holder of any Warrant Certificate. The
Warrant Agent may require such Holder to submit his Warrant Certificate for
inspection by it.
SECTION 7.12. Successors. All the covenants and provisions of
this Warrant Agreement by or for the benefit of the Company or the Warrant Agent
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
* * * * *
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IN WITNESS WHEREOF, this Warrant Agreement has been duly executed
by the Company and the Warrant Agent as of the day and year first above written.
DISCOVERY ZONE, INC.
By: /s/ Scott W. Bernstein
----------------------------
Name: Scott W. Bernstein
Title: President and CEO
FIRSTAR BANK OF MINNESOTA, N.A.
as Warrant Agent
By: /s/ Frank P. Leslie III
----------------------------
Name: Frank P. Leslie III
Title: Vice President
ACKNOWLEDGED AND AGREED TO:
- ---------------------------
BIRCH HOLDINGS L.L.C.
By: /s/Greg S. Feldman
----------------------------------
Name: Greg S. Feldman
Title: Member
BIRCH ACQUISITION L.L.C.
By: /s/ Greg S. Feldman
----------------------------------
Name: Greg S. Feldman
Title: Member
<PAGE>
EXHIBIT A
{FORM OF WARRANT CERTIFICATE}
{FACE}
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR WARRANTS IN
CERTIFICATED FORM, THIS WARRANT MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR 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.1
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAWS. NEITHER THIS WARRANT CERTIFICATE NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE, BY
ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE PRIOR TO THE DATE WHICH IS TWO YEARS
AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF THE WARRANTS REPRESENTED BY THIS
WARRANT CERTIFICATE AND THE LAST DATE ON WHICH DISCOVERY ZONE, INC. ("THE
COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE (OR ANY PREDECESSOR OF SUCH WARRANTS OR
WARRANT CERTIFICATE) (THE "RESALE
- ------------------
1 This paragraph is to be included only if the Warrant Certificate is in global
form.
A-1
<PAGE>
RESTRICTION TERMINATION DATE"), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, 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, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE FOR ITS
OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR,"
FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE WARRANT AGENT'S, AS
APPLICABLE, RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE
(D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION REASONABLY SATISFACTORY TO EACH OF THEM, AND IN EACH OF
THE FOREGOING CASES, AN ASSIGNMENT IN THE FORM APPEARING ON THE OTHER SIDE OF
THIS WARRANT CERTIFICATE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
WARRANT AGENT. THIS LEGEND SHALL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER
THE RESALE RESTRICTION TERMINATION DATE.
THIS SECURITY IS SUBJECT TO A SERIES B PREFERRED UNIT PURCHASE AGREEMENT
DATED AS OF JULY 13, 1998 BETWEEN THE COMPANY, BIRCH ACQUISITION L.L.C., DZ
INVESTMENTS L.L.C. AND JEFFERIES & COMPANY, INC., A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY.
PRIOR TO THE DATE ON WHICH THE STOCKHOLDERS' AGREEMENT (AS DEFINED BELOW
IS TERMINATED), THE WARRANTS EVIDENCED BY THIS CERTIFICATE MAY NOT BE EXERCISED
FOR SHARES OF THE COMPANY'S COMMON STOCK, PAR VALUE $.00017 PER SHARE ("COMMON
STOCK") UNLESS THE HOLDER THEREOF HAS EXECUTED A COUNTERPART OF THE
STOCKHOLDERS' AGREEMENT DATED AS OF JULY 17, 1998, AS AMENDED FROM TIME TO TIME,
BY AND AMONG THE COMPANY, FIRSTAR BANK OF MINNESOTA, N.A., AS TRUSTEE WITH
RESPECT TO THE COMPANY'S 13 1/2% SENIOR
A-2
<PAGE>
COLLATERALIZED NOTES DUE 2002, AND CERTAIN HOLDERS OF THE COMPANY'S COMMON
STOCK, A COPY OF WHICH AGREEMENT IS ON FILE AT THE OFFICES OF THE COMPANY, ANY
PURPORTED EXERCISE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE WITHOUT
COMPLIANCE WITH THE ABOVE REQUIREMENTS SHALL BE VOID.
A-3
<PAGE>
CUSIP NUMBER: ____________
No. [ ] [ ] Warrants
WARRANT CERTIFICATE
DISCOVERY ZONE, INC.
This Warrant Certificate certifies that [ ], or its registered assigns,
is the registered holder of [ ] Warrants (the "Warrants") to purchase, subject
to the conditions set forth in the Warrant Agreement, shares of Class A Voting
Common Stock, par value $0.00017 per share (the "Common Stock"), of Discovery
Zone, Inc., a Delaware corporation (the "Company"). Each Warrant entitles the
holder to purchase from the Company at any time on or after the Exercisability
Date (as defined in the Warrant Agreement) and until 5:00 p.m., New York City
time, on August 1, 2007 (the "Expiration Date"), 2,131,667.4631 fully paid and
non-assessable shares of Common Stock (as such number may be adjusted from time
to time, the "Warrant Shares", which may also include any other securities or
property issuable upon exercise of a Warrant, such adjustment and inclusion each
as provided in the Warrant Agreement) at the initial exercise price (the
"Exercise Price") of $0.00017 per Warrant Share upon surrender of this Warrant
Certificate and payment of the Exercise Price at any office or agency maintained
for that purpose by the Company (the "Warrant Agent Office"), subject to the
conditions set forth herein and in the Warrant Agreement.
The Exercise Price shall be payable either (i) in cash or by certified
or official bank check in the lawful currency of the United States of America
which as of the time of payment is legal tender for payment of public or private
debts, (ii) by the surrender of Warrant Certificates in accordance with the
terms of the Warrant Agreement, or (iii) by the surrender of the Company's 14
1/2% Series B Junior Cumulative Preferred Stock (the "Series B Preferred Stock")
in accordance with the terms of the Warrant Agreement. Until otherwise
designated by the Company, the initial Warrant Agent Office will be the office
of Firstar Bank of Minnesota, N.A., having a principal office at 101 East 5th
Street, St. Paul, Minnesota 55101. The number of Warrant Shares issuable upon
exercise of the Warrants is subject to adjustment upon the occurrence of certain
events set forth in the Warrant Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York City time,
on August 1, 2007 shall thereafter be void.
Reference is hereby made to the further provisions on the reverse
hereof, which provisions shall for all purposes have the same effect as though
fully set forth at this place.
All capitalized terms used in this Warrant Certificate and not otherwise
defined herein shall have the meanings ascribed thereto in the Warrant
Agreement.
A-4
<PAGE>
This Warrant Certificate shall not be valid unless authenticated by the
Warrant Agent, as such term is used in the Warrant Agreement. Initially, the
Company shall act as its own Warrant Agent.
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK.
A-5
<PAGE>
WITNESS the corporate seal of the Company and the signatures of its duly
authorized officers.
Dated:
------------------
DISCOVERY ZONE, INC.
By:
----------------------------
Name:
Title:
Attest:
- ------------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Warrants
referred to in the within-
mentioned Warrant Agreement:
FIRSTAR BANK OF MINNESOTA, N.A.
as Warrant Agent
By:
----------------------------
Name:
Title:
A-6
<PAGE>
{FORM OF WARRANT CERTIFICATE}
{REVERSE}
DISCOVERY ZONE, INC.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants, each of which represents the right to purchase at
any time on or after the date hereof and until 5:00 p.m., New York City time, on
August 1, 2007, 2,131,667.4631 Warrant Shares, subject to adjustment as set
forth in the Warrant Agreement (as defined). The Warrants are issued pursuant to
a Warrant Agreement dated as of July 17, 1998 (the "Warrant Agreement"), duly
executed and delivered by the Company for the benefit of the holders from time
to time of the Warrant Certificates, and subject to the terms and provisions of
a purchase agreement, dated as of July 13, 1998, among Birch Acquisition L.L.C.,
DZ Investors L.L.C., Jefferies & Company, Inc. and the Company (the "Series B
Preferred Unit Purchase Agreement"), which Warrant Agreement and Series B
Preferred Unit Purchase Agreement are hereby incorporated by reference in and
made a part of this instrument and are hereby referred to for a description of
the rights, limitation of rights, obligations, duties and immunities thereunder
of the Warrant Agent, the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrant
Certificates. Warrants may be exercised by (i) surrendering at any Warrant Agent
Office this Warrant Certificate with the form of Election to Exercise set forth
hereon duly completed and executed and (ii) paying in full the Warrant Exercise
Price for each such Warrant exercised and any other amounts required to be paid
pursuant to the Warrant Agreement, and (iii) prior to the date on which the
Stockholders' Agreement (as defined in the Warrant Agreement) is terminated,
executing a counterpart of the Stockholders' Agreement.
If all of the items referred to in the last sentence of the preceding
paragraph are received by the Warrant Agent at or prior to 2:00 p.m., New York
City time, on a Business Day, the exercise of the Warrant to which such items
relate will be effective on such Business Day. If any items referred to in the
last sentence of the preceding paragraph are received after 2:00 p.m., New York
City time, on a Business Day, the exercise of the Warrants to which such item
relates will be deemed to be effective on the next succeeding Business Day.
Notwithstanding the foregoing, in the case of an exercise of Warrants on the
Expiration Date, if all of the items referred to in the last sentence of the
preceding paragraph are received by the Warrant Agent at or prior to 5:00 p.m.,
New York City time, on such Expiration Date, the exercise of the Warrants to
which such items relate will be effective on the Expiration Date.
Subject to the terms of the Warrant Agreement, as soon as practicable
after the exercise of any Warrant or Warrants, the Company shall issue or cause
to be issued to or upon the written order of the registered holder of this
Warrant Certificate, a certificate or certificates evidencing the Warrant Share
or Warrant Shares to which such holder is entitled, in fully registered form,
registered in such name or names as may be directed by such holder pursuant to
the Election to Exercise, as set forth on the reverse of this Warrant
Certificate. Such certificate or certificates
A-7
<PAGE>
evidencing the Warrant Share or Warrant Shares shall be deemed to have been
issued and any Persons who are designated to be named therein shall be deemed to
have become the holder of record of such Warrant Share or Warrant Shares as of
the close of business on the date upon which the exercise of this Warrant was
deemed to be effective as provided in the preceding paragraph.
The Company will not be required to issue fractional shares of Common
Stock upon exercise of the Warrants or distribute Warrant Certificates that
evidence fractional shares of Common Stock. In lieu of fractional shares of
Common Stock, there shall be paid to the registered Holder of this Warrant
Certificate at the time such Warrant Certificate is exercised an amount in cash
equal to the same fraction of the Fair Market Value per share of Common Stock as
determined in accordance with the Warrant Agreement.
Warrant Certificates, when surrendered at any Warrant Agent Office by
the holder thereof in person or by legal representative or attorney duly
authorized in writing, may be exchanged for a new Warrant Certificate or new
Warrant Certificates evidencing in the aggregate a like number of Warrants, in
the manner and subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
Upon due presentment for registration of transfer of this Warrant
Certificate at any office or agency maintained by the Company or the Warrant
Agent for that purpose, a new Warrant Certificate evidencing in the aggregate a
like number of Warrants shall be issued to the transferee in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone) for the
purpose of any exercise hereof and for all other purposes, and neither the
Company nor the Warrant Agent shall be affected by any notice to the contrary.
All capitalized terms used in this Warrant Certificate and not otherwise
defined herein have the meanings given to such terms in the Warrant Agreement.
A-8
<PAGE>
ELECTION TO EXERCISE
To be executed upon exercise of Warrants on the Exercise Date
The undersigned hereby irrevocably elects to exercise ______ of the
Warrants represented by this Warrant Certificate and purchase the whole number
of shares of Common issuable upon the exercise of such Warrants and herewith
tenders payment for such Warrant Shares:*
(i) |_| in the amount of $_____________ in cash or by certified or official
bank check; and/or
(ii) |_| in Warrant Certificates,
(iii) |_| in shares of 14 1/2% of Series B Junior Preferred Stock.
in each case, pursuant to Section 2.2 of the Warrant Agreement.
The undersigned requests that a certificate representing shares of _______
Common Stock; be registered in the name of ___________________, whose address is
____________________, and that such certificate be delivered to
_____________________, whose address is ____________________. Any cash payments
to be paid in lieu of a fractional Warrant Share should be made to
____________________, whose address is ____________________, and the check
representing payment thereof should be delivered to ____________________, whose
address is _____________________.
Name of holder of Warrant Certificate:
(Please Print)
Tax Identification or
Social Security Number:
Signature:
Note: The above signature must correspond
with the name as written upon the face of
this Warrant Certificate in every
particular, without alteration or
enlargement or any change whatever.
Dated:
-----------------,---
- -----------------
* Indicate, as applicable, the form of consideration being provided.
A-9
<PAGE>
ASSIGNMENT
For value received, ____________________ hereby sells, assigns and
transfers unto ____________________ the within Warrant Certificate, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ____________________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated:
-----------------,---
Signature:
---------------------------------------------------------
Note: The above signature must correspond with the
name as written upon the face of this Warrant
Certificate in every particular, without alteration
or enlargement or any change whatever.
SCHEDULE OF EXCHANGES OF DEFINITIVE WARRANTS**
The following exchanges of a part of this Global Warrant for Definitive Warrants
have been made:
<TABLE>
<CAPTION>
Amount of Amount of Number of
Decrease in Increase in Warrants of This
Number of Number of Global Warrant Signature of Authorized
Date of Warrants of Warrants of Following Such Signatory of Warrant
Exchange This Global This Global Decrease (or Agent or Depository
Warrant Warrant Increase)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------------
** This is to be included only if the Warrant Certificate is in global form.
A-10
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants") of Discovery Zone, Inc.
This Warrant Certificate relates to _____ Warrants held in *_____ book-entry or
*_____ certificated form by ____________________ (the "Transferor").
The Transferor:*
/_/ has requested the Warrant Agent by written order to deliver in exchange
for its beneficial interest in the Global Warrant held by the Depositary a
Warrant or Warrants in definitive, registered form of authorized denominations
and an aggregate number equal to its beneficial interest in such Global Warrant
(or the portion thereof indicated above) or
/_/ has requested the Warrant Agent by written order to exchange or register
the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such Warrant, the
Transferor does hereby certify that the Transferor is familiar with the Warrant
Agreement relating to the above captioned Warrants and the restrictions on
transfers thereof as provided in Section 1.8(b) of such Warrant Agreement, and
that the transfer of this Warrant does not require registration under the
Securities Act of 1933, as amended (the "Act") because(*):
/_/ Such Warrant is being acquired for the Transferor's own account, without
transfer (in satisfaction of Section 1.8(a)(ii)(y)(A) or Section 1.8 (d)(i)(A)
of the Warrant Agreement).
/_/ Such Warrant is being transferred to a qualified institutional buyer (as
defined in Rule 144A under the Act) in reliance on Rule 144A or in accordance
with Regulation S under the Act.
/_/ Such Warrant is being transferred in accordance with Rule 144 under the
Act.
/_/ Such Warrant is being transferred in reliance on and in compliance with
an exemption from the registration requirements of the Act, other than Rule 144A
or Rule 144 or Regulation S under the Act. An opinion of counsel to the effect
that such transfer does not require registration under the Act accompanies this
Certificate.
{INSERT NAME OF TRANSFEROR}
By:
----------------------
Date:
--------------
* Check applicable box.
B-1
<PAGE>
EXHIBIT C
Transferee Letter of Representation
Discovery Zone, Inc.
565 Taxtur Road, 5th Floor
Elmsford, New York 10523
Ladies and Gentlemen:
In connection with our proposed purchase of warrants ("Warrants") to
purchase Common Stock, par value $0.00017 per share (the "Common Stock" and,
together with the Warrants, the "Securities"), of Discovery Zone, Inc. (the
"Company"), we confirm that:
1. We understand that the Securities have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and, unless so
registered, may not be sold except as permitted in the following sentence. We
agree on our own behalf and on behalf of any investor account for which we are
purchasing Securities to offer, sell or otherwise transfer such Securities prior
to the date which is two years after the later of the date of original issue and
the last date on which the Company or any affiliate of the Company was the owner
of such Securities, or any predecessor thereto (the "Resale Restriction
Termination Date") only (a) to the Company, (b) pursuant to a registration
statement which has been declared effective under the Securities Act, (c) so
long as the Securities are eligible for resale pursuant to Rule 144A, under the
Securities Act, to a Person we reasonably believe is a qualified institutional
buyer under Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB and to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the
United States within the meaning of Regulation S under the Securities Act, (e)
to an institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act that is purchasing
for his own account or for the account of such an institutional "accredited
investor," or (f) pursuant to any other available exemption from the
registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
or the property of such investor account or accounts be at all times within our
or their control and to compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Securities
is proposed to be made pursuant to clause (e) above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from the
transferee substantially in the form of this letter to the warrant agent under
the Warrant Agreement pursuant to which the Securities were issued (the "Warrant
Agent") which shall provide, among other things, that the transferee is an
institutional "accredited investor" within the meaning of subparagraph (a)(1),
(2), (3) or (7) of Rule 501 under the Securities Act and that it is acquiring
such Securities for investment purposes and not for distribution in violation of
the Securities Act. The Warrant Agent and the Company reserve the right, prior
to any offer, sale or other transfer prior to the Resale Restriction Termination
Date of the Securities pursuant to clause (e) or (f) above, to require the
delivery of a
C-1
<PAGE>
written opinion of counsel, certifications, and/or other information reasonably
satisfactory to the Company and the Warrant Agent.
2. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) purchasing
for our own account or for the account of such an institutional "accredited
investor," and we are acquiring the Securities for investment purposes and not
with a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act and we have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Securities, and we and any accounts for which we
are acting are each able to bear the economic risk of our or its investment for
an indefinite period.
3. We are acquiring the Securities purchased by us for our own
account or for one or more accounts as to each of which we exercise sole
investment discretion.
4. You, the Warrant Agent and your respective counsel are entitled to
rely upon this letter and you are irrevocably authorized to produce this letter
or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
------------------------------
(Name of Purchaser)
By:
---------------------------
Upon transfer the Securities would be registered in the name of the new
beneficial owner as follows:
Name:
-----------------------------------
Address:
--------------------------
Taxpayer ID Number:
---------------
C-2
================================================================================
ESCROW AND SECURITY AGREEMENT
Dated as of July 17, 1998
From
DISCOVERY ZONE, INC.,
as Pledgor
to
FIRSTAR BANK OF MINNESOTA, N.A.,
as Trustee and Security Agent
================================================================================
<PAGE>
ESCROW AND SECURITY AGREEMENT
This ESCROW AND SECURITY AGREEMENT (as amended, restated,
supplemented or modified from time to time, this "Escrow and Security
Agreement") is made and entered into as of July 17, 1998 by and among DISCOVERY
ZONE, INC., a Delaware corporation (the "Pledgor"), having its principal office
at 565 Taxter Road, Elmsford, New York 10523, JEFFERIES & COMPANY, INC., acting
as the Initial Purchaser (the "Initial Purchaser"), and FIRSTAR BANK OF
MINNESOTA, N.A., as trustee and collateral agent under the Indenture (as defined
below), having an office at 101 East 5th Street, St. Paul, Minnesota 55101 (in
such capacity, the "Trustee") for the holders (the "Holders") of the Notes (as
defined herein) issued by the Pledgor under the Indenture referred to below, and
FIRSTAR BANK OF MINNESOTA, N.A., as Securities Intermediary having an office at
101 East 5th Street, St. Paul, Minnesota 55101 (in such capacity, the "Security
Agent"). Capitalized terms not otherwise defined herein shall have the meanings
set forth in the UCC (as defined below) and the Federal Regulations contained in
Subpart D of 31 C.F.R. Part 357.
W I T N E S S E T H:
WHEREAS, the Pledgor and the Initial Purchaser are parties to
a Purchase Agreement, dated July 17, 1998 (the "Purchase Agreement"), pursuant
to which the Pledgor will issue and sell to the Initial Purchaser 20,000 Units,
each consisting of $1,000 principal amount of its 13 1/2% Senior Collateralized
Notes due 2002 (collectively, as replaced or exchanged by the 13 1/2% Senior
Collateralized Notes due 2002, Series B, or otherwise, the "Notes"), and
warrants to purchase shares of the Pledgor's common stock;
WHEREAS, the Pledgor and the Trustee, have entered into that
certain Indenture dated as of the date hereof (as amended, restated,
supplemented or otherwise modified from time to time, the "Indenture"), pursuant
to which the Pledgor is issuing the Initial Notes on the date hereof;
WHEREAS, pursuant to the Purchase Agreement and the Indenture,
the Pledgor is required to deposit on the Issue Date any combination of cash,
securities, instruments and certificates in an escrow account established by the
Trustee with the Security Agent (such account, together with any successor
account, the "Escrowed Interest Account") to be held by the Trustee for its
benefit and the ratable benefit of the Holders to secure the Pledgor's
obligation (i) to provide for payment in full of any and all scheduled payments
of interest due on the Notes from the Issue Date through August 1, 1999 and (ii)
in the event that the Notes are required to be redeemed or prepaid or otherwise
become due and payable prior to August 1, 1999, to secure the partial repayment
of the principal, premium, if any, and interest on the Notes that are redeemed,
prepaid or otherwise due and payable (collectively, the "Obligations");
-1-
<PAGE>
WHEREAS, the Security Agent has established a Securities
Account (the "New York Securities Intermediary Account") with Bankers Trust
Company, New York, New York (together with any successors or assigns, the "New
York Securities Intermediary") as Security Agent's Securities Intermediary
located in New York, New York in which the Collateral (as defined below)
deposited into the Escrowed Interest Account will be held;
WHEREAS, pursuant to the terms and conditions of this Escrow
and Security Agreement, the Pledgor shall instruct the Trustee, and the Trustee
shall instruct the Security Agent, to purchase or caused to be purchased, with
all or a portion of the Escrowed Funds (as hereinafter defined), Securities
Entitlements in certain Pledged Securities (as hereinafter defined) to be
credited to the Escrowed Interest Account in the name of the Trustee (or as
otherwise required in accordance with applicable law), and under the sole
dominion and control (including "control" as defined in UCC ss. 9-115(1)(e)) of
the Trustee, with respect to which the Trustee is the sole Entitlement Holder,
as set forth herein;
WHEREAS, pursuant to the terms and conditions of this Escrow
and Security Agreement, the Security Agent shall instruct the New York
Securities Intermediary to purchase or cause to be purchased, with all or a
portion of the Escrowed Funds, Securities Entitlements in certain Pledged
Securities to be credited to the Escrowed Interest Account through the New York
Securities Intermediary Account in the name of the Trustee (or as otherwise
required in accordance with applicable law), and under the sole dominion and
control (including "control" as defined in UCC ss. 9-115(1)(e)) of the Security
Agent with respect to which the Security Agent is the sole Entitlement Holder,
as set forth herein; and
WHEREAS, to secure the Obligations of the Pledgor, the Pledgor
has agreed to (i) pledge to the Trustee for its benefit and the ratable benefit
of the Holders, a security interest in the Escrowed Funds, the Pledged
Securities and the other Collateral (as hereinafter defined) and (ii) execute
and deliver this Escrow and Security Agreement in order to secure the payment
and performance by the Pledgor of all the Obligations.
AGREEMENT
NOW, THEREFORE, in consideration of the premises herein
contained, and in order to induce the Holders to purchase the Notes, the
Pledgor, the Initial Purchaser, the Trustee and the Security Agent hereby agree,
for the benefit of the Trustee and the Security Agent and for the ratable
benefit of the Holders, as follows:
SECTION 1. Definitions; Appointment; Deposit and Investment.
1.1 Definitions. All defined terms used herein without
definition shall have the respective meanings ascribed to them in the Indenture.
Unless otherwise defined herein or in the Indenture, terms used in Articles 8 or
9 of the Uniform Commercial Code as in effect in the State of New York (the
"UCC") are used herein as therein defined.
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1.2 Pledge and Grant of Security Interest. As security for the
prompt and complete payment and performance of the Obligations (whether at the
stated maturity, by acceleration or otherwise), the Pledgor hereby pledges to
the Trustee for its benefit and for the ratable benefit of the Holders, and
hereby grants to the Trustee for its benefit and for the ratable benefit of the
Holders, a continuing first priority perfected security interest in and to all
of the Pledgor's right, title and interest in, to and under the following
(hereinafter collectively referred to as the "Collateral"), whether
characterized as investment property, general intangibles or otherwise: (a) the
Escrowed Interest Account, all funds and securities or other investment property
held therein and all certificates and instruments, if any, from time to time
representing or evidencing the Escrowed Interest Account, including, without
limitation, the Escrowed Funds and the Pledged Securities, and any and all
Security Entitlements to the Escrowed Funds and the Pledged Securities, and any
and all related Securities Accounts in which Security Entitlements to the
Escrowed Funds and the Pledged Securities are carried, (b) all notes,
certificates of deposit, deposit accounts, checks and other instruments from
time to time hereafter delivered to or otherwise possessed by the Security Agent
for or on behalf of the Pledgor in substitution for or in addition to any or all
then existing Collateral, (c) all interest, dividends, cash, instruments and
other property from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of the then existing Collateral, and
(d) all proceeds of any and all of the foregoing Collateral (including, without
limitation, proceeds that constitute property of the types described in clauses
(a) - (c) above) and, to the extent not otherwise included, all cash.
1.3. Deposit of Escrowed Funds. Concurrently, with the
execution and delivery of this Escrow and Security Agreement, the Pledgor has
deposited, or caused the Initial Purchaser to deposit $2,800,000 in cash
(collectively, the "Escrowed Funds") into the Escrowed Interest Account or such
greater amount as will be sufficient to provide for payment in full of the first
five (5) scheduled interest payments due on the outstanding Notes, being all
such scheduled interest payments from August 1, 1998 through August 1, 1999
(inclusive of the interest payments due and owing on August 1, 1998 and August
1, 1999, respectively). Until the date upon which the Escrowed Funds are
invested in accordance with Section 1.4 or Section 5, the Security Agent shall
invest the Escrowed Funds in money market accounts with any bank having capital
surplus and undivided profits aggregating at least $500 million or money market
funds investing only in U.S. Government Obligations to the extent such accounts
or funds do not impose any fee, cost or expense (such as a breakage fee) in
connection with any withdrawal, termination or liquidation of any such
investment; provided, however, that for the first Business Day from the Issue
Date the Escrowed Funds shall be invested in the instruments described in clause
(iv) of the definition of Cash Equivalent in the Indenture.
1.4. Purchase of Pledged Securities. At the direction of the
Pledgor, as set forth in a written notice (the "Pledged Securities Notice"), the
first of which will be delivered to the Security Agent, no later than three
business days after the date of this Escrow and Security Agreement, the form of
which is acceptable to the Security Agent, the Security Agent shall invest the
Escrowed Funds in U.S. Government Obligations in the manner as directed in the
Pledged Securities Notice (such U.S. Government Obligations, hereinafter, the
"Pledged Securities"); provided, to accomplish such investment the Security
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Agent shall obtain a Securities Entitlement in Pledged Securities that are
registered in the name of the New York Securities Intermediary on the records
of the FRBNY (as defined below) and credited by the New York Securities
Intermediary to the New York Securities Intermediary Account, which Securities
Entitlement shall be credited by the Security Agent to the Escrowed Interest
Account, for the benefit of the Trustee and the ratable benefit of the Holders
in accordance with the terms and conditions of this Escrow and Security
Agreement. Each Pledged Securities Notice shall specify the amount and nature of
the Pledged Securities required to be purchased by the Security Agent through
the New York Securities Intermediary with the Escrowed Funds and contain all
necessary directions or authorizations necessary or reasonably required by the
Security Agent to make such investment. The initial Pledged Securities Notice
shall be accompanied by a written opinion of a nationally recognized firm of
independent public accountants or a recognized financial advisor, selected by
the Pledgor and approved by the Initial Purchaser (the "Independent Financial
Advisor"), in form and substance reasonably acceptable to the Security Agent and
the Trustee, confirming that the aggregate amount of the Pledged Securities and
Escrowed Funds, after giving effect to the investment in the Pledged Securities
referred to in such Pledged Securities Notice, will be sufficient upon receipt
of scheduled interest and principal payments of all Pledged Securities to
provide for payment in full of all scheduled interest payments due on the
outstanding Notes during the period commencing on the Issue Date and ending on
August 1, 1999.
SECTION 2. Security for Obligation. This Escrow and Security
Agreement secures the prompt and complete payment and performance when due
(whether at stated maturity, by acceleration or otherwise) of all the
Obligations.
SECTION 3. Delivery of Pledged Securities; Escrowed Interest
Account; Interest. (a) The Trustee shall become the holder of a Security
Entitlement to the Pledged Securities through action by the Security Agent, as
confirmed (in writing or electronically or otherwise in accordance with standard
industry practice) to the Trustee by the Security Agent (i) indicating by
book-entry that the Pledged Securities and all Security Entitlements thereto
have been credited to the Escrowed Interest Account, or (ii) acquiring the
Pledged Securities or a Security Entitlement thereto for the Trustee and
accepting the same for credit to the Escrowed Interest Account. All securities
or other property underlying any Financial Assets credited to the Escrowed
Interest Account shall be registered in the name of the Security Agent, endorsed
to the Security Agent or in blank or credited to the New York Securities
Intermediary Account maintained by the New York Securities Intermediary and in
no case will any Financial Asset credited to the Escrowed Interest Account be
registered in the name of the Pledgor, payable to the order of the Pledgor or
specially endorsed to the Pledgor except to the extent the foregoing have been
specially endorsed to the Security Agent or in blank. The Security Agent shall
become the holder of a Security Entitlement to the Pledged Securities through
action by the New York Securities Intermediary, as confirmed (in writing or
electronically or otherwise in accordance with standard industry practice) to
the Security Agent by the New York Securities Intermediary (i) indicating by
book-entry that the Pledged Securities and all Security Entitlements thereto
have been credited to the New York Securities Intermediary Account, or (ii)
acquiring the Pledged Securities or a Security Entitlement thereto for the
Security Agent and accepting the same for credit to the New York
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Securities Intermediary Account. All securities or other property underlying any
Financial Assets credited to the New York Securities Intermediary Account shall
be registered in the name of the New York Securities Intermediary, endorsed to
the New York Securities Intermediary or in blank or credited to another
securities account maintained in the name of the New York Securities
Intermediary and in no case will any Financial Asset credited to the New York
Securities Intermediary Account be registered in the name of the Pledgor,
payable to the order of the Pledgor or specially endorsed to the Pledgor except
to the extent the foregoing have been specially endorsed to the New York
Securities Intermediary or in blank.
(b) Prior to or concurrently with the execution and
delivery hereof and prior to the transfer to the Trustee of the Pledged
Securities (or acquisition by the Trustee of any Security Entitlement thereto)
as provided in subsection (a) of this Section 3, the Trustee shall establish
with the Security Agent the Escrowed Interest Account, as identified on Schedule
A hereto, on the books of the Security Agent as a Securities Account and the
Security Agent shall simultaneously establish or shall have established with the
New York Securities Intermediary, the New York Securities Intermediary Account,
as identified on Schedule A hereto, on the books of the New York Securities
Intermediary as a Securities Account which the New York Securities Intermediary
shall maintain at the offices of the New York Securities Intermediary located at
280 Park Avenue, New York, New York as a Securities Account at the Federal
Reserve Bank of New York ("FRBNY"). Upon transfer of the Pledged Securities to
the Escrowed Interest Account, and in turn, to the New York Securities
Intermediary Account, the New York Securities Intermediary shall make
appropriate book entries indicating that the Pledged Securities and/or such
Security Entitlement have been registered in the name of the New York Securities
Intermediary, as Securities Intermediary for the Security Agent, who in turn is
Securities Intermediary for the Trustee, each of which will continuously be
maintained on the books of the issuer of the Pledged Securities in the State of
New York. Subject to the other terms and conditions of this Escrow and Security
Agreement, (i) all funds or other property held by the Trustee pursuant to this
Escrow and Security Agreement shall be promptly delivered to the Security Agent
and held in and credited to the Escrowed Interest Account through the New York
Securities Intermediary Account subject (except as expressly provided in Section
7 (a), (b) and (g) hereof) to the exclusive dominion and control (including
"control" as defined in UCC ss. 9-115(1)(e) and UCC ss. 8-106) of the Trustee
and exclusively for the benefit of the Trustee and for the ratable benefit of
the Holders of the Notes and segregated from all other funds or other property
otherwise held by the Trustee and (ii) all funds or other property held by the
Security Agent pursuant to this Escrow and Security Agreement to be applied to
purchase Securities Entitlements with respect to U.S. Government Obligations
shall be promptly delivered to the New York Securities Intermediary and held in
and credited to the New York Securities Intermediary Account subject (except as
expressly provided in Section 7(a), (b) and (g) hereof) to the exclusive
dominion and control (including "control" as defined in UCC ss. 9-115(1)(e) and
UCC ss. 8-106) of the Security Agent and exclusively for the benefit of Security
Agent for the benefit of the Trustee and segregated from all other funds or
property otherwise held by the Security Agreement. The Escrowed Interest Account
shall be maintained by the Security Agent as a Securities Account to which
Financial Assets are or may be credited, and the New York Securities
Intermediary and the Security Agent shall, subject to the terms and conditions
hereof, treat the Trustee as the party entitled to exercise
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the rights with respect to any Financial Asset credited to the Escrowed Interest
Account. The New York Securities Intermediary Account shall be maintained at the
New York Securities Intermediary for the Security Agent as a Securities Account
to which Financial Assets are or may be credited and shall, subject to the terms
and conditions hereof, with the Security Agent as the party entitled to exercise
the rights with respect to any Financial Asset credited thereto. All securities
or other property underlying any Financial Assets credited to the Escrowed
Interest Account through the New York Securities Intermediary Account shall be
registered in the name of the Security Agent endorsed to the Security Agent or
in blank or credited to another securities account maintained in the New York
Securities Intermediary Account in the name of the Security Agent (or the New
York Securities Intermediary for the Security Agent) and in no case will any
Financial Asset credited to the Escrowed Interest Account or the New York
Securities Intermediary Account be registered in the name of the Pledgor,
payable to the order of the Pledgor or specially endorsed to the Pledgor except
to the extent the foregoing have been specially endorsed to the Security Agent
or in blank.
(c) The Trustee and the Security Agent, as the case
may be, shall, in accordance with all applicable laws, have sole dominion and
control (including "control" as defined in UCC ss.9-115(1)(e) and UCC ss. 8-106)
over the Escrowed Interest Account, and it shall be a term and condition of the
Escrowed Interest Account and the Pledgor irrevocably instructs the Trustee and
the Security Agent, notwithstanding any other term or condition to the contrary
in any other agreement, that no Pledged Collateral shall be released to or for
the account of, or withdrawn by or for the account of, the Pledgor or any other
Person except as expressly provided in this Escrow and Security Agreement.
(d) The Trustee and the Security Agent, as the case
may be, shall, in accordance with and subject to all applicable laws, be the
sole entitlement holders of, and have the sole power to originate "Entitlement
Orders" (as defined in UCC ss. 8-102(a)(8)) with respect to, the Escrowed
Interest Account and the New York Securities Intermediary Account, respectively,
and all U.S. Government Obligations held with respect thereto, and it shall be a
term and condition of the Escrowed Interest Account and the Security Agent, as
the case may be, that the Trustee and the Security Agent, respectively, shall
have the right to issue such Entitlement Orders with respect to the Escrowed
Interested Account and the New York Securities Intermediary Account,
respectively, and all assets and properties from time to time carried in the
Escrowed Interest Account and the New York Securities Intermediary Account,
respectively, including Security Entitlements and other "Financial Assets" (as
defined in UCC ss. 8-102(a)(9); it being agreed by each of the parties hereto
that all such assets and properties from time to time carried in the Escrowed
Interest Account shall be treated as "Financial Assets" for the purpose of the
UCC pursuant to UCC ss.8-102(a)(9)(iii)) without further consent of the Pledgor
or any other Person (except, to the extent required under the Indenture, of the
Holders), and that no Collateral shall be released to or for the account of, or
withdrawn by or for the account of, the Pledgor or any other Person except as
expressly provided in this Escrow and Security Agreement.
(e) All Collateral shall be retained in the Escrowed
Interest Account, including Securities Entitlements with respect to Pledged
Securities that are credited
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to the New York Securities Intermediary Account, pending disbursement pursuant
to the terms hereof.
(f) Concurrently with the execution and delivery of
this Escrow and Security Agreement, the Trustee and the Security Agent are
delivering to the Pledgor and to the Initial Purchaser, a duly executed
certificate, in the form of Exhibit A hereto, of an officer of the Trustee,
confirming the Trustee's establishment and maintenance of the Escrowed Interest
Account and the New York Securities Intermediary Account, all accordance with
this Escrow and Security Agreement.
(g) Concurrently with the execution and delivery of
this Escrow and Security Agreement, the Pledgor shall deliver to the Trustee
acknowledgement copies or stamped receipt copies of proper financing statements,
duly filed under the UCC of the State of New York, covering the Collateral
described in this Escrow and Security Agreement.
(h) In the event that the Security Agent has or
subsequently obtains by agreement, operation of law or otherwise a security
interest in the Escrowed Interest Account or any Security Entitlement credited
thereto, the Security Agent hereby agrees that such security interest shall be
subordinate to the security interest of the Trustee. The Financial Assets and
other items deposited to the Escrowed Interest Account or the New York
Securities Intermediary Account will not be subject to deduction, set-off,
banker's lien, or any other right in favor of any person other than the Trustee.
SECTION 4. Maintaining the Security Account.
(a) So long as any Obligation shall remain unpaid,
the Pledgor will maintain the Escrowed Interest Account with the Security Agent,
which shall maintain the New York Securities Intermediary Account with the New
York Securities Intermediary or otherwise with a Securities Intermediary in New
York, New York.
(b) It shall be a term and condition of the Escrowed
Interest Account, notwithstanding any term or condition to the contrary in any
other agreement relating to the Escrowed Interest Account, and except as
otherwise provided by the provisions of Section 7 and Section 14, that no amount
(including interest on Escrowed Funds or Pledged Securities) shall be paid or
released to or for the account of, or withdrawn by or for the account of, the
Pledgor or any other Person (other than the Trustee for the benefit of the
Holders), from the Escrowed Interest Account.
(c) The Escrowed Interest Account and New York
Securities Intermediary Account shall be subject to such applicable laws, and
such applicable regulations of the Board of Governors of the Federal Reserve
System and of any other appropriate banking or governmental authority, as may
now or hereafter be in effect.
SECTION 5. Investments. If requested in writing by the
Pledgor, the Security Agent will, subject to the provisions of Section 7 and
Section 14, from time to time
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(a) invest Escrowed Funds and other amounts on deposit in the Escrowed Interest
Account or the New York Securities Intermediary Account (other than Pledged
Securities) in accordance with Section 1.4 in the name of the Security Agent, as
the Pledgor may select in writing, and (b) invest interest paid on the Pledged
Securities referred to in clause (a) above, and so reinvest other proceeds of
such Pledged Securities that may mature or be sold, in each case in accordance
with Section 1.4 in the name of the Security Agent, as the Pledgor may select in
writing, all of which Pledged Securities shall be maintained in the Escrowed
Interest Account or, as the case may be, through the New York Securities
Intermediary Account. Interest and proceeds that are not invested or reinvested
in Pledged Securities as provided above shall at the option of Pledgor, either
be deposited or remain on deposit in, as the case may be, and held in the
Escrowed Interest Account or the New York Securities Intermediary Account. In no
event shall the Security Agent be liable for any loss in the investment or
reinvestment of amounts held in the Escrowed Interest Account or the New York
Securities Intermediary Account. All such investments selected by the Pledgor
shall be subject to availability to the Security Agent. The Security Agent and
the Trustee shall be under no duty to invest (or otherwise pay interest on) any
amounts held by it hereunder, absent specific written investment instructions
from the Pledgor in accordance with the terms hereof.
SECTION 6. Security Agent's Representations, Warranties and
Covenants. The Security Agent represents and warrants that it is as of the date
hereof, and it agrees that for so long as it maintains the Escrowed Interest
Account and the New York Securities Intermediary Account and acts as Securities
Intermediary pursuant to this Escrow and Security Agreement it, and the New York
Securities Intermediary, shall be a "Securities Intermediary" (as defined in the
UCC and in 31 C.F.R. ss.357.2) and the New York Securities Intermediary shall be
eligible to maintain, and does maintain, a Participant's Securities Account (as
defined in 31 C.F.R. ss.357.2) in the name of the New York Securities
Intermediary with the FRBNY (a "FRBNY Member Securities Account"). In
furtherance of the foregoing, the Security Agent hereby:
(a) represents and warrants that it is a corporation
that in the ordinary course of its business maintains Securities Accounts for
others and is acting in that capacity hereunder and with respect to the Escrowed
Interest Account and that the New York Securities Intermediary in the ordinary
course of its business, maintains Securities Accounts for others and is acting
in that capacity hereunder and with respect to the Escrowed Interest Account
through the New York Securities Intermediary Account;
(b) represents and warrants that it maintains the New
York Securities Intermediary Account at the New York Securities Intermediary
which account is an FRBNY Member Securities Account with the FRBNY and that the
U.S. Government Obligations constituting the Pledged Securities transferred to
the Security Agent and, in turn, the New York Securities Intermediary pursuant
to Section 3 have been credited to the FRBNY Member Securities Account;
(c) agrees that the Escrowed Interest Account shall
be an account to which Financial Assets may be credited, and the Security Agent
undertakes to treat the
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Trustee as the sole person entitled to exercise rights that comprise (and
entitled to the benefits of) such Financial Assets, and entitled to exercise the
rights of an Entitlement Holder and control in the manner contemplated by the
UCC, and further agrees to identify the Trustee in the records of the Security
Agent as the sole person having a Security Entitlement against the Security
Agent with respect to the Escrowed Interest Account and all Financial Assets
credited thereto and further agrees that the New York Securities Intermediary
Account shall be an account to which Financial Assets may be credited, and the
Security Agent shall be the sole person entitled to exercise rights that
comprise (and entitled to the benefits of) such Financial Assets, and entitled
to exercise the rights of an Entitlement Holder and control in the manner
contemplated by the UCC, and further agrees it shall be identified in the
records of the Security Agent and the New York Securities Intermediary as the
sole person having a Security Entitlement against thereto with respect to the
New York Securities Intermediary Account and all Financial Assets credited
thereto;
(d) hereby represents and warrants that it has not
granted, and covenants that so long as it acts as the Security Agent hereunder
it shall not grant, control (including, without limitation, "control" as defined
in UCC ss.9-115(1)(e)) over or with respect to any Pledged Securities or
Escrowed Funds credited to the Escrowed Interest Account or the New York
Securities Intermediary Account from time to time to any other Person other than
the Trustee;
(e) covenants that in its capacity as Security Agent
hereunder and with respect to the Escrowed Interest Account and the New York
Securities Intermediary Account, it shall not take any action inconsistent with,
and represents and covenants that it is not and so long as this Escrow and
Security Agreement remains in effect will not become party to any agreement, the
terms of which are inconsistent with the provisions of this Escrow and Security
Agreement;
(f) agrees, with the other parties to this Escrow and
Security Agreement, that any item of property credited to the Escrowed Interest
Account or the New York Securities Intermediary Account shall be treated as a
Financial Asset;
(g) agrees, with the other parties to this Escrow and
Security Agreement, so long as it serves as the Security Agent pursuant to this
Escrow and Security Agreement, to maintain the Escrowed Interest Account and the
New York Securities Intermediary Account, each as a Securities Account and
maintain appropriate books and records in respect thereof in accordance with its
usual procedures and subject to the terms of this Escrow and Security Agreement;
(h) agrees, with the other parties to this Escrow and
Security Agreement, that the Security Agent's and the New York Securities
Intermediary's jurisdiction, respectively, for purposes of UCC ss. 8-110(e) and
31 C.F.R. 357.11(b) as it pertains to this Escrow and Security Agreement, the
Escrowed Interest Account, the New York Securities Intermediary Account, and
Security Entitlements relating thereto, shall be the State of New York;
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(i) agrees that it is and shall remain a Securities
Entitlement holder in the Escrowed Interest Account and the New York Securities
Intermediary Account held at the New York Securities Intermediary or other
Securities Intermediary in New York, New York; and
(j) represents and warrants that: (i) there are no
other agreements entered into between the Security Agent and the Pledgor with
respect to the Escrowed Interest Account or the New York Securities Intermediary
Account and (ii) except for the claims and interest of the Trustee and of the
Pledgor in the Escrowed Interest Account, the Security Agent does not know of
any claim to, or interest in, the Escrowed Interest Account or the New York
Securities Intermediary Account or in any Financial Asset credited thereto. In
the event of any conflict between this Escrow and Security Agreement (or any
portion thereof) and any other agreement now existing or hereafter entered into,
the terms of this Escrow and Security Agreement shall prevail.
SECTION 7. Disbursements. The Security Agent shall hold the
Collateral in the Escrowed Interest Account, including Securities Entitlements
with respect to the Book Entry Securities credited to the New York Securities
Intermediary Account, and release the same, or a portion thereof, only as
directed by the Trustee. The Trustee agrees to direct the Security Agent (and
the Security Agent agrees to direct the New York Securities Intermediary) as
follows:
(a) At least five Business Days prior to the due date
of any of the first five scheduled interest payments on the Notes from the Issue
Date through August 1, 1999, the Pledgor may, pursuant to written instructions
executed by the Pledgor (an "Issuer Order"), direct the Trustee to cause the
Security Agent to release from the Escrowed Interest Account and pay to the
Holders proceeds sufficient to provide for payment in full of the scheduled
interest then due on the Notes. Upon receipt of an Issuer Order, the Trustee
will take any action necessary to provide for the payment of the scheduled
interest on the Notes in accordance with the payment provisions of the Indenture
to the Holders from (and to the extent of) the Collateral, including Securities
Entitlements with respect to the Pledged Securities maintained in the New York
Securities Intermediary Account, Escrowed Funds and proceeds thereof in the
Escrowed Interest Account. Nothing in this Section 7 shall affect the Trustee's
rights to apply the Collateral to the payments of amounts due on the Notes upon
acceleration thereof.
(b) If the Pledgor makes any interest payment or
portion of an interest payment for which the Collateral is security from a
source of funds other than the Escrowed Interest Account ("Pledgor Funds"), the
Pledgor may, after payment in full of such interest payment or portion thereof
from proceeds of the Collateral or such Pledgor Funds or both, direct the
Security Agent to release to the Pledgor or to another party at the direction of
the Pledgor (the "Pledgor's Designee"), net of any costs, fees or expenses (such
as breakage fees) incurred to permit such release, proceeds from the Escrowed
Interest Account, including with respect to Securities Entitlements in the
Pledged Securities maintained in the New York Securities Intermediary Account,
in an amount less than or
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equal to the amount of Pledgor Funds appropriately applied to such interest
payment so that there remains in the Escrowed Interest Account, including with
respect to Securities Entitlements in the Pledged Securities maintained in the
New York Securities Intermediary Account, an amount at least sufficient to pay
in full, after receipt of scheduled interest and principal payments on Pledged
Securities, in the written opinion of an Independent Financial Advisor (which
written opinion shall accompany any Issuer Order), the remaining of the first
five interest payments due on the Notes. Upon receipt of an Issuer Order and the
related written opinion of such Independent Financial Advisor by the Trustee,
the Trustee shall pay over to the Pledgor or the Pledgor's Designee, as the case
may be, the appropriate requested amount from proceeds in the Escrowed Interest
Account, including with respect to Securities Entitlements in the Pledged
Securities maintained in the New York Securities Intermediary Account.
Immediately prior to any release of funds to the Pledgor pursuant to this
Section 7(b), Section 7(d) or Section 7(g), the Pledgor shall deliver to the
Security Agent a certificate signed by an officer of the Pledgor stating that
such release has been duly authorized by the Pledgor and will not contravene any
provision of applicable law or the Certificate of Incorporation of the Pledgor
or any material agreement or other material instrument binding upon the Pledgor
or any of its subsidiaries or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Pledgor or any of its
subsidiaries or result in the creation or imposition of any security interest in
or lien on any assets of the Pledgor, except for the security interests granted
under this Escrow and Security Agreement.
(c) At least five Business Days prior to the due date
of any of the first five scheduled interest payments on the Notes (or one
Business Day in the case of the first such interest payment), the Pledgor
covenants to give the Trustee (by Issuer Order) notice as to the amount of
interest that will be paid pursuant to Section 7(a) or (b) and as to the
respective amounts of interest that will be paid pursuant to Section (a) or (b).
If no such notice is given by such fifth Business Day (or one Business Day in
the case of the first such interest payment) prior to the respective first five
scheduled interest payments on the Notes, the Trustee will act pursuant to
Section 7(a) as if it had received an Issuer Order pursuant thereto for the
payment in full of the scheduled interest then due.
(d) If Pledgor has optionally redeemed Notes with the
net proceeds of a Primary Offering, the Pledgor may, pursuant to an Issuer
Order, direct the Trustee to release to Pledgor proceeds from the Escrowed
Interest Account, including with respect to Securities Entitlements in the
Pledged Securities maintained in the New York Securities Intermediary Account,
in an amount which bears the same proportion to the aggregate value of the
Collateral on deposit in or otherwise credited to Escrowed Interest Account,
including the value of Securities Entitlements with respect to the New York
Securities Intermediary Account, immediately prior to the release of such
proceeds as the aggregate principal amount of the Notes so redeemed by Pledgor
bears to the aggregate principal amount of the Notes outstanding immediately
prior to such redemption, net of any costs, fees or expenses (such as breakage
fees) incurred to permit such release, so that there remains in the Escrowed
Interest Account, including Securities Entitlements with respect to the New York
Securities Intermediary Account, an amount sufficient to pay in full, after
receipt of scheduled interest and principal payments on Pledged Securities, in
the written opinion of an Independent
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Financial Advisor (which written opinion shall accompany any Issuer Order) the
remaining of the first five interest payments due on the Notes. Immediately
prior to any release of funds to the Pledgor pursuant to this Section 7(d), the
Pledgor shall deliver any and all certificates described in and pursuant to
Section 7(b).
(e) Upon the occurrence and after the continuation of
an Event of Default, the Trustee in its sole and absolute discretion may apply
any or all Collateral, including the Escrowed Funds and the Pledged Securities,
to the payment of all Obligations and any and all principal of and interest and
expenses on the Notes, in accordance with the terms and provisions of Section
14.
(f) Upon payment in full of the first five scheduled
interest payments on the Notes in a timely manner, and if no Event of Default
has occurred and is continuing, the security interest in the Collateral
evidenced by this Escrow and Security Agreement will automatically terminate and
be of no further force and effect and upon receipt of an Issuer Order in
accordance with Section 17.9(b) hereof, the Collateral remaining, if any, shall
promptly be paid over and transferred to the Pledgor. Furthermore, upon the
release of any Collateral from the Escrowed Interest Account or the New York
Securities Intermediary Account in accordance with the terms of this Escrow and
Security Agreement, whether upon release of Collateral to Holders as payment of
interest or otherwise, the security interest evidenced by this Escrow and
Security Agreement in such released Collateral will automatically terminate and
be of no further force and effect.
(g) If at any time, the total of the Escrowed Funds
and the Pledged Securities exceed the amount sufficient to pay in full, after
receipt of scheduled interest and principal payments on the Pledged Securities,
in the written opinion of the Independent Financial Advisor delivered to the
Trustee, the remaining of the first five scheduled interest payments due on the
Notes, and no Event of Default has occurred and shall be continuing, the Pledgor
may, pursuant to an Issuer Order, direct the Trustee to release from the
Escrowed Interest Account or, as the case may be, the New York Securities
Intermediary Account, any such overfunded amount of the Escrowed Funds (existing
on the Issue Date) to the Pledgor, net of any costs, fees and expenses (such as
brokerage fees) incurred to permit such release, so that there remains in the
Escrowed Interest Account through the New York Securities Intermediary Account,
an amount at least sufficient to pay in full, after receipt of scheduled
interest and principal payments on the Pledged Securities, in such written
opinion of the Independent Financial Advisor, the remaining of the first five
scheduled interest payments due on the Notes. Immediately prior to any release
of such funds to the Pledgor pursuant to this Section 7(g), the Pledgor shall
deliver any and all certificates described in and pursuant to Section 7(b). Upon
receipt of the foregoing certificates, Issuer Order and opinion, the Trustee
shall pay over to the Pledgor such overfunded amounts, net of such costs, fees
or expenses.
(h) The Trustee may, but shall not be required to,
liquidate any Escrowed Funds or Pledged Securities, in whole or in part, in
order to make any scheduled payment of interest or any release or other required
payment hereunder and shall not be responsible for any loss, cost or expense,
including any breakage fee, diminution in principal
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or penalty in connection therewith, all of which loss, cost or expense shall be
borne solely by the Pledgor.
(i) Nothing contained in Section 1, Section 5, this
Section 7 or any other provision of this Escrow and Security Agreement shall (i)
afford the Pledgor any right to issue entitlement orders with respect to any
Security Entitlement to the Escrowed Funds, the Pledged Securities or any
securities account in which any such Security Entitlement may be carried, or
otherwise afford the Pledgor control of any such Security Entitlement or (ii)
otherwise give rise to any rights of Pledgor with respect to the Escrowed Funds,
the Pledged Securities, any Security Entitlement thereto or any securities
account in which any such Security Entitlement may be carried, other than the
Pledgor's rights under this Escrow and Security Agreement as the beneficial
owner of Collateral pledged to and subject to the exclusive dominion and control
(including "control" as defined in UCC ss. 9-115(1)(e) and UCC ss. 8-106)
(except as expressly provided in Sections 7(a) - (g) hereof) of the Trustee in
its capacity as such (and not as a Securities Intermediary). The Pledgor
acknowledges, confirms and agrees that the Trustee holds a Security Entitlement
to the Escrowed Funds and the Pledged Securities, as applicable, solely as
escrow agent for the Holders and not as a securities intermediary.
SECTION 8. Representations and Warranties. The Pledgor hereby
represents and warrants that:
(a) The execution and delivery by the Pledgor of, and
the performance by the Pledgor of its obligations under, this Escrow and
Security Agreement does not contravene any provision of applicable law or the
Certificate of Incorporation of the Pledgor or any material agreement or other
material instrument binding upon the Pledgor or any of its subsidiaries or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Pledgor or any of its subsidiaries, or result in the
creation or imposition of any security interest on any assets of the Pledgor,
except for the security interest granted under this Escrow and Security
Agreement; no consent, approval, authorization or order of, or qualification
with, any governmental body or agency that have not been obtained is required
(i) for the performance by the Pledgor of its obligations under this Escrow and
Security Agreement, (ii) for the pledge by the Pledgor of the Collateral
pursuant to this Escrow and Security Agreement or (iii) except for any such
consents, approvals, authorizations or orders required to be obtained by the
Trustee (or the Holders) for reasons other than the consummation of this
transaction, for the exercise by the Trustee of the rights provided for in this
Escrow and Security Agreement or the remedies in respect of the Collateral
pursuant to this Escrow and Security Agreement.
(b) The Pledgor is the beneficial owner of the
Collateral, free and clear of any security interest or any Lien or claims of any
person or entity (except for the security interests granted under this Escrow
and Security Agreement). No financing statement covering the Pledgor's interest
in the Collateral is on file in any public office other than the financing
statements, if any, filed pursuant to this Escrow and Security Agreement and no
notice to or arrangement with any financial institution (other than the Security
Agent)
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has been made regarding any security interest in or Lien on or nominee
arrangement for any Collateral.
(c) This Escrow and Security Agreement has been duly
authorized, validly executed and delivered by the Pledgor and (assuming the due
authorization and valid execution and delivery of this Escrow and Security
Agreement by the Trustee and the Security Agent and enforceability of the Escrow
and Security Agreement against the Trustee and the Security Agent in accordance
with its terms) constitutes the valid and binding agreement of the Pledgor,
enforceable against the Pledgor in accordance with its terms, except as (i) the
enforceability hereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, preference, reorganization, moratorium or similar laws now or
hereafter in effect relating to or affecting creditors' rights or remedies
generally, (ii) equitable remedies may be limited by equitable principles of
general applicability and the discretion of the court before which any
proceeding therefor may be brought, (iii) the exculpation provisions and rights
to indemnification hereunder may be limited by U.S. federal and state securities
laws and public policy considerations and (iv) the waiver of rights and defenses
contained in Section 14(b), Section 17.11 and Section 17.16 hereof may be
limited by applicable law.
(d) Upon execution and delivery of this Escrow and
Security Agreement, the pledge of and grant of a security interest in the
Collateral securing the payment of the Obligations for the benefit of the
Security Agent and the Holders constitute a first priority perfected security
interest in such Collateral, enforceable as such against all creditors of the
Pledgor (and any persons purporting to purchase any of the Collateral from the
Pledgor).
(e) There are no legal or governmental proceedings
pending or, to the best of the Pledgor's knowledge, threatened to which the
Pledgor or any of its subsidiaries is a party or to which any of the properties
of the Pledgor or any such subsidiary will be subject that would materially
adversely affect the power or ability of the Pledgor to perform its obligations
under this Escrow and Security Agreement or to consummate the transactions
contemplated hereby.
(f) The pledge of the Collateral pursuant to this
Escrow and Security Agreement is not prohibited by law or governmental
regulation (including, without limitation, Regulations T, U and X of the Board
of Governors of the Federal Reserve System) applicable to the Pledgor.
(g) No Event of Default, or event which with notice
or passage of time or both would be an Event of Default, exists.
SECTION 9. Further Assurances. The Pledgor will, promptly upon
request by the Trustee (which request the Trustee may submit at the direction of
the Holders of at least a majority in principal amount of the Notes then
outstanding), execute and deliver or cause to be executed and delivered, or use
its reasonable best efforts to procure, all assignments, instruments and other
documents, deliver any instruments to the Trustee and take any other actions
that are necessary or desirable to perfect, continue the perfection of or
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protect the first priority of the Trustee's security interest in and to the
Collateral, to protect the Collateral against the rights, claims, or interests
of third persons (other than any such rights, claims or interests created by or
arising through the Trustee) or to effect the purposes of this Escrow and
Security Agreement. The Pledgor also hereby authorizes the Trustee to file any
financing or continuation statements in the United States with respect to the
Collateral without the signature of the Pledgor (to the extent permitted by
applicable law). The Pledgor will promptly pay all costs incurred in connection
with any of the foregoing within 30 days of receipt of an invoice therefor. The
Pledgor also agrees, whether or not requested by the Security Agent, to take all
actions that are necessary to perfect or continue the perfection of, or to
protect the first priority of, the Trustee's security interest in and to the
Collateral, including the filing of all necessary financing and continuation
statements, and to protect the Collateral against the rights, claims or
interests of third persons (other than any such rights, claims or interests
created by or arising through the Security Agent).
SECTION 10. Covenants. The Pledgor covenants and agrees with
the Trustee and the Holders that from and after the date of this Escrow and
Security Agreement until the earlier of payment in full in cash of (x) each of
the first five scheduled interest payments due on the Notes under the terms of
the Indenture or (y) all obligations due and owing under the Indenture and the
Notes in the event such obligations become due and payable prior to the payment
of the first five scheduled interest payments on the Notes:
(a) that (i) it will not (and will not purport to)
sell or otherwise dispose of, or grant any option or warrant with respect to,
any of the Collateral or (ii) it will not create or permit to exist any Lien
upon or with respect to any of the Collateral (except for the security interests
granted under this Escrow and Security Agreement and any Lien created by or
arising through the Security Agent) and at all times will be the sole beneficial
owner of the Collateral; or
(b) that it will not (i) enter into any agreement or
understanding that restricts or inhibits or purports to restrict or inhibit the
Security Agent's rights or remedies hereunder, including, without limitation,
the Security Agent's right to sell or otherwise dispose of the Collateral
pursuant to the terms hereof or (ii) fail to pay or discharge any tax,
assessment or levy of any nature with respect to the Collateral not later than
five days prior to the date of any proposed sale under any judgment, writ or
warrant of attachment with respect to the Collateral.
SECTION 11. Power of Attorney. In addition to all of the
powers granted to the Trustee pursuant to the Indenture, the Pledgor hereby
appoints and constitutes the Trustee as the Pledgor's attorney-in-fact (with
full power of substitution) to exercise to the fullest extent permitted by law
all of the following powers upon and at any time after the occurrence and during
the continuance of an Event of Default: (a) collection of proceeds of any
Collateral; (b) conveyance of any item of Collateral to any purchaser thereof;
(c) giving of any notices or recording of any Liens under Section 6 hereof; and
(d) paying or discharging taxes or Liens levied or placed upon the Collateral,
the legality or validity thereof and the amounts necessary to discharge the same
to be determined by the Security Agent in its sole reasonable discretion, and
such payments made by the Security Agent to
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become part of the Obligations, due and payable immediately upon demand. The
Security Agent's authority under this Section 11 shall include, without
limitation, the authority to endorse and negotiate any checks, certificates or
instruments representing proceeds of Collateral bearing the name of the Pledgor
into the name of the Security Agent, execute and give receipt for any
certificate of ownership or any document constituting Collateral, transfer title
to any item of Collateral, sign the Pledgor's name on all financing statements
(to the extent permitted by applicable law) or any other documents deemed
necessary or appropriate by the Trustee to preserve, protect or perfect the
security interest in the Collateral and to file the same, prepare, file and sign
the Pledgor's name on any notice of Lien, and to take any other actions arising
from or incident to the powers granted to the Trustee in this Escrow and
Security Agreement. This power of attorney is coupled with an interest and is
irrevocable by the Pledgor.
SECTION 12. No Assumption of Duties; Reasonable Care. The
rights and powers granted to the Trustee hereunder are being granted in order to
preserve and protect the security interest of the Trustee and the Holders in and
to the Collateral granted hereby and shall not be interpreted to, and shall not
impose any duties on the Trustee in connection therewith other than those
expressly provided herein or imposed under applicable law and no implied
covenants, functions, responsibilities, duties, obligations, or liabilities
shall be read into this Escrow and Security Agreement or otherwise exist against
the Trustee. Except as provided by applicable law or by the Indenture, the
Security Agent shall be deemed to have exercised reasonable care in the custody
and preservation of the Collateral in its possession (directly or through the
New York Securities Intermediary) if the Collateral is accorded treatment
substantially equal to that which the Security Agent accords similar property
held by the Security Agent for similar accounts, it being understood that the
Security Agent in its capacity as such shall not have any responsibility for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities or other matters relative to any Collateral, whether or not the
Security Agent has or is deemed to have knowledge of such matters, (b) taking
any necessary steps to preserve rights against any parties with respect to any
Collateral or (c) investing or reinvesting any of the Collateral, provided,
however, that nothing contained in this Escrow and Security Agreement shall
relieve the Security Agent of any responsibilities as a securities intermediary
under applicable law.
SECTION 13. Indemnity. The Pledgor shall indemnify, hold
harmless and defend the Trustee and the Security Agent and their respective
directors, officers, agents and employees, from and against any and all claims,
actions, obligations, liabilities and expenses, including reasonable defense
costs and expenses, reasonable investigative fees and costs, and reasonable
legal fees and damages arising from the Trustee's and Security Agent's
performance under this Escrow and Security Agreement, except to the extent that
such claim, action, obligation, liability or expense is directly attributable to
the bad faith, gross negligence or wilful misconduct of such indemnified person.
SECTION 14. Remedies Upon Event of Default. If any Event of
Default under the Indenture (any such Event of Default being referred to in this
Escrow and Security Agreement as an "Event of Default") shall have occurred and
be continuing:
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(a) The Trustee and the Holders shall have, in
addition to all other rights given by law or by this Escrow and Security
Agreement or the Indenture or any other Collateral Agreement, all of the rights
and remedies with respect to the Collateral of a secured party under the UCC in
effect in the State of New York at that time. In addition, with respect to any
Collateral, the Trustee may and, at the direction of the Holders of a majority
in principal amount of the Notes then outstanding, shall, sell or cause the same
to be sold at any broker's board or at public or private sale, in one or more
sales or lots, at such price or prices as the Trustee may deem best, for cash or
on credit or for future delivery, without assumption of any credit risk. The
purchaser of any or all Collateral so sold shall thereafter hold the same
absolutely, free from any claim, encumbrance or right of any kind whatsoever
created by or through the Pledgor. Unless any of the Collateral threatens, in
the reasonable judgment of the Trustee, to decline speedily in value or is or
becomes of a type sold on a recognized market, the Trustee will give the Pledgor
reasonable notice of the time and place of any public sale thereof, or of the
time after which any private sale or other intended disposition is to be made.
Any sale of the Collateral conducted in conformity with reasonable commercial
practices of banks, insurance companies, commercial finance companies, or other
financial institutions disposing of property similar to the Collateral shall be
deemed to be commercially reasonable. Any requirements of reasonable notice
shall be met if such notice is delivered to the address of the recipient in and
in accordance with Section 17.1 hereof at least ten days before the time of the
sale or disposition. The Trustee or any Holder of Notes may, in its own name or
in the name of a designee or nominee, buy any of the Collateral at any public
sale and, if permitted by applicable law, at any private sale. All expenses
(including court costs and reasonable attorneys' fees, expenses and
disbursements) of, or incident to, the enforcement of any of the provisions
hereof shall be recoverable from the proceeds of the sale or other disposition
of the Collateral.
(b) The Pledgor further agrees to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Collateral pursuant to this Section 14 valid and binding
and in compliance with the Indenture and any and all other applicable
requirements of law. The Pledgor further agrees that a breach of any of the
covenants contained in this Section 14 will cause irreparable injury to the
Trustee and the Holders, that the Trustee and the Holders have no adequate
remedy at law in respect of such breach and, as a consequence, that each and
every covenant contained in this Section 14 shall be specifically enforceable
against the Pledgor, and the Pledgor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except for
a defense that no Event of Default has occurred.
SECTION 15. Expenses. The Pledgor will upon demand pay to each
of the Trustee and the Security Agent the amount of any and all reasonable
expenses, including, without limitation, the reasonable fees, expenses and
disbursements of its counsel, experts and agents retained by each of the Trustee
and the Security Agent, that each of the Trustee and the Security Agent may
incur in connection with (a) the review, negotiation and administration of this
Escrow and Security Agreement, (b) the custody or preservation of, or the sale
of, collection from, or other realization upon, any of the Collateral, (c) the
exercise
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or enforcement of any of the rights of the Trustee and the Holders hereunder or
(d) the failure by the Pledgor to perform or observe any of the provisions
hereof.
SECTION 16. Security Interest Absolute. All rights of the
Trustee and the Holders and security interests and Liens hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the
Indenture or any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of
payment of, or in any other term of, all or any of the Obligations or other
obligations under the Indenture, or any other amendment or waiver of or any
consent to any departure from the Indenture;
(c) any taking, exchange, surrender or release of, or
non-perfection of any Liens on, any other collateral for all or any of the
Obligations, or any taking, release or amendment or waiver from any guaranty for
all or any of the Obligations;
(d) any change, restructuring or termination of the
corporate structure or the existence of the Pledgor or any of its subsidiaries;
or
(e) to the extent permitted by applicable law, any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, the Pledgor in respect of the Obligations or of this Escrow and
Security Agreement.
SECTION 17. Miscellaneous Provisions.
17.1 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 Pledgor:
Discovery Zone, Inc.
565 Taxter Road, 5th Floor
Elmsford, New York 10523
Attn: Chief Executive Officer
Telephone Number: (914) 345-4500
Telecopy Number: (914) 345-4527
with a copy to attn: General Counsel
Telecopy Number: (914) 345-4516
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with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attn: Douglas P. Bartner, Esq.
Telephone Number: (212) 848-4000
Telecopy Number: (212) 848-7179
if to the Security Agent:
Firstar Bank of Minnesota, N.A.
101 East 5th Street
St. Paul, MN 55101
Attn: Corporate Trust
Telephone Number: (651) 229-2600
Telecopy Number: (651) 229-6415
if to the Trustee:
Firstar Bank of Minnesota, N.A.
101 East 5th Street
St. Paul, MN 55101
Attn: Corporate Trust
Telephone Number: (651) 229-2600
Telecopy Number: (651) 229-6415
Each of the Pledgor, the Trustee and Security Agent 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 Pledgor or the
Trustee and Security Agent 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 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).
17.2. No Adverse Interpretation of Other Agreements. This
Escrow and Security Agreement may not be used to interpret another pledge,
security or debt agreement of the Pledgor or any subsidiary thereof. No such
pledge, security or debt agreement (other than the Indenture) may be used to
interpret this Escrow and Security Agreement.
17.3. Severability. The provisions of this Escrow and Security
Agreement are severable, and if any clause or provision shall be held invalid,
illegal or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect in that jurisdiction only such
clause or provision, or part thereof, and shall not in any manner
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affect such clause or provision in any other jurisdiction or any other clause or
provision of this Escrow and Security Agreement in any jurisdiction.
17.4. Headings. The headings in this Escrow and Security
Agreement have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
or provisions hereof.
17.5. Counterpart Originals. This Escrow and Security
Agreement may be signed in two or more counterparts, each of which shall be
deemed an original, but all of which shall together constitute one and the same
agreement.
17.6. Benefits of Escrow and Security Agreement. Nothing in
this Escrow and Security Agreement, express or implied, shall give to any
person, other than the parties hereto and their successors hereunder, and the
Holders, any benefit or any legal or equitable right, remedy or claim under this
Escrow and Security Agreement.
17.7. Amendments, Waivers and Consents. Any amendment or
waiver of any provision of this Escrow and Security Agreement and any consent to
any departure by the Pledgor from any provision of this Escrow and Security
Agreement shall be effective only if made or duly given in compliance with all
of the terms and provisions of the Indenture, and neither the Security Agent nor
any Holder of Notes shall be deemed, by any act, delay, indulgence, omission or
otherwise, to have waived any right or remedy hereunder or to have acquiesced in
any Default or Event of Default or in any breach of any of the terms and
conditions hereof. Failure of the Security Agent or any Holder of Notes to
exercise, or delay in exercising, any right, power or privilege hereunder shall
not preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Security Agent or any Holder of Notes
of any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy that the Security Agent or such Holder of Notes would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law.
17.8. Interpretation of Agreement. All terms not defined
herein or in the Indenture shall have the meaning set forth in the UCC, except
where the context otherwise requires. To the extent a term or provision of this
Escrow and Security Agreement conflicts with the Indenture, the Indenture shall
control with respect to the subject matter of such term or provision. Acceptance
of or acquiescence in a course of performance rendered under this Escrow and
Security Agreement shall not be relevant to determine the meaning of this Escrow
and Security Agreement even though the accepting or acquiescing party had
knowledge of the nature of the performance and opportunity for objection.
17.9. Continuing Security Interest; Termination.
(a) This Escrow and Security Agreement shall create a
continuing security interest in and to and Lien on the Collateral and shall,
unless otherwise provided in the Indenture or in this Escrow and Security
Agreement, remain in full force and effect until
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the payment in full in cash of the Obligations. This Escrow and Security
Agreement shall be binding upon the Pledgor, its transferees, successors and
assigns, and shall inure, together with the rights and remedies of the Security
Agent hereunder, to the benefit of the Trustee, the Holders and their respective
successors, transferees and assigns.
(b) This Escrow and Security Agreement shall
terminate upon the payment in full in cash of the Obligations. At such time, the
Trustee shall cause the Security Agent, pursuant to an Issuer Order, and subject
to and in accordance with the applicable terms of the Indenture, if any, to
reassign and redeliver to the Pledgor all of the Collateral hereunder that has
not been sold, disposed of, retained or applied by the Trustee in accordance
with the terms of this Escrow and Security Agreement and the Indenture such that
such Collateral will be subject in all respects to a valid and existing security
interest and Lien under the Indenture and Security Agreement. Such reassignment
and redelivery shall be without warranty by or recourse to the Security Agent in
its capacity as such, except as to the absence of any Liens on the Collateral
created by or arising through the Trustee (except as may be granted under the
Indenture or Security Agreement or other Collateral Agreement), and shall be at
the cost and expense of the Pledgor.
17.10. Survival Provisions. All representations, warranties
and covenants of the Pledgor contained herein shall survive the execution and
delivery of this Escrow and Security Agreement, and shall terminate only upon
the termination of this Escrow and Security Agreement. The obligations of the
Pledgor under Sections 13 and 15 hereof shall survive the termination of this
Escrow and Security Agreement.
17.11. Waivers. The Pledgor waives presentment and demand for
payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
17.12. Authority of the Security Agent.
(a) The Security Agent shall have and be entitled to
exercise all powers hereunder that are specifically granted to the Security
Agent by the terms hereof, together with such powers as are reasonably incident
thereto. The Security Agent may perform any of its duties hereunder or in
connection with the Collateral by or through agents or employees and shall be
entitled to retain counsel and to act in reliance upon the advice of counsel
concerning all such matters. Except as otherwise expressly provided in this
Escrow and Security Agreement or the Indenture, neither the Security Agent nor
any director, officer, employee, attorney or agent of the Security Agent shall
be liable to the Pledgor for any action taken or omitted to be taken by the
Security Agent, in its capacity as Security Agent, hereunder, except for its own
bad faith, gross negligence or willful misconduct, and the Security Agent shall
not be responsible for the validity, effectiveness or sufficiency hereof or of
any document or security furnished pursuant hereto. The Security Agent and its
directors, officers, employees, attorneys and agents shall be entitled to rely
on any communication, instrument or document believed by it or them to be
genuine and correct and to have been signed or sent by the proper person or
persons. The Security Agent shall have
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no duty to cause any financing statement or continuation statement to be filed
in respect of the Collateral.
(b) The Pledgor acknowledges that the rights and
responsibilities of the Security Agent under this Escrow and Security Agreement
with respect to any action taken by the Security Agent or the exercise or
non-exercise by the Security Agent of any option, right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Escrow and Security Agreement shall, as between the Security Agent and the
Holders, be governed by the Indenture and by such other agreements with respect
thereto as may exist from time to time among them, but, as between the Security
Agent and the Pledgor, the Security Agent shall be conclusively presumed to be
acting as agent for the Holders with full and valid authority so to act or
refrain from acting, and the Pledgor shall not be obligated or entitled to make
any inquiry respecting such authority.
(c) The Security Agent shall maintain appropriate
books and records with respect to the Collateral in which shall be recorded all
deposits and transactions in and disbursements from the Security Account and
regarding the Pledged Securities and shall permit the Pledgor to inspect and to
make copies of such books and records at the Pledgor's sole cost and expense.
17.13. Successor Security Agent. The term Security Agent shall
mean the Person named as the "Security Agent" in the first paragraph of this
Escrow and Security Agreement until a successor Security Agent shall have become
such, and thereafter "Security Agent" shall mean the Person who is then the
Security Agent hereunder. If the Security Agent consolidates with, merges or
converts into, or transfers all or substantially all of its corporate trust
business to another entity, the resulting, surviving or transferee entity,
without any further act, shall be the successor Security Agent.
17.14. Final Expression. This Escrow and Security Agreement,
together with the Indenture and any other agreement executed in connection
herewith, is intended by the parties as a final expression of this Escrow and
Security Agreement and is intended as a complete and exclusive statement of the
terms and conditions thereof.
17.15. Rights of Holders. No Holder of Notes shall have any
rights granted to individual Holders pursuant to Section 6.7 of the Indenture;
provided that nothing in this subsection shall limit any rights granted to the
Security Agent under the Notes or the Indenture.
17.16. GOVERNING LAW, SUBMISSION TO JURISDICTION; WAIVER
OF JURY TRIAL; WAIVER OF DAMAGES.
(a) THIS ESCROW AND SECURITY AGREEMENT SHALL BE
GOVERNED BY AND INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK, AND ANY
DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR, THE SECURITY AGENT AND THE TRUSTEE
AND/OR THE HOLDERS
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IN CONNECTION WITH THIS ESCROW AND SECURITY AGREEMENT, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK. NOTWITHSTANDING THE FOREGOING, THE MATTERS
IDENTIFIED IN 31 C.F.R. PART 357, 61 FED. REG. 43626 (AUGUST 23, 1996) SHALL BE
GOVERNED SOLELY BY THE LAWS SPECIFIED THEREIN. THE SECURITY ACCOUNT SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. REGARDLESS OF ANY PROVISION IN
ANY OTHER AGREEMENT, FOR PURPOSES OF THE UCC, NEW YORK SHALL BE DEEMED TO BE THE
SECURITY AGENT'S LOCATION AND THE ESCROWED INTEREST ACCOUNT (AS WELL AS THE
SECURITIES ENTITLEMENTS RELATED THERETO) SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
(b) THE PLEDGOR AGREES THAT THE SECURITY AGENT SHALL,
IN ITS CAPACITY AS SECURITY AGENT OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF
NOTES, HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED
AGAINST THE PLEDGOR OR THE COLLATERAL IN A COURT IN ANY LOCATION REASONABLY
SELECTED IN GOOD FAITH (AND HAVING PERSONAL OR IN REM JURISDICTION OVER THE
PLEDGOR OR THE COLLATERAL, AS THE CASE MAY BE) TO ENABLE THE SECURITY AGENT TO
REALIZE ON SUCH COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF THE SECURITY AGENT. THE PLEDGOR AGREES THAT IT WILL NOT
ASSERT ANY COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS IN ANY PROCEEDING BROUGHT BY
THE SECURITY AGENT TO REALIZE ON SUCH COLLATERAL OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF THE SECURITY AGENT, WITH RESPECT TO SUCH
COLLATERAL, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS WHICH, IF NOT
ASSERTED IN ANY SUCH PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED. THE
PLEDGOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN
THE CITY OF NEW YORK ONCE THE TRUSTEE HAS COMMENCED A PROCEEDING DESCRIBED IN
THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(c) THE RIGHTS AND POWERS GRANTED TO THE SECURITY
AGENT HEREUNDER ARE BEING GRANTED IN ORDER TO PRESERVE AND PROTECT THE SECURITY
INTEREST OF THE TRUSTEE AND THE HOLDERS IN AND TO THE COLLATERAL GRANTED HEREBY
AND SHALL NOT BE INTERPRETED TO, AND SHALL NOT IMPOSE ANY DUTIES ON THE SECURITY
AGENT IN CONNECTION THEREWITH OTHER THAN THOSE EXPRESSLY PROVIDED HEREIN OR
IMPOSED UNDER APPLICABLE LAW AND NO IMPLIED COVENANTS, FUNCTIONS,
RESPONSIBILITIES, DUTIES, OBLIGATIONS, OR LIABILITIES SHALL BE READ INTO THIS
ESCROW AND SECURITY AGREEMENT OR OTHERWISE EXIST AGAINST THE SECURITY AGENT.
EXCEPT AS PROVIDED BY APPLICABLE LAW OR BY THE INDENTURE, THE SECURITY AGENT
SHALL
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<PAGE>
BE DEEMED TO HAVE EXERCISED REASONABLE CARE IN THE CUSTODY AND PRESERVATION OF
THE COLLATERAL IN ITS POSSESSION IF THE COLLATERAL IS ACCORDED TREATMENT
SUBSTANTIALLY EQUAL TO THAT WHICH THE SECURITY AGENT ACCORDS SIMILAR PROPERTY
HELD BY THE SECURITY AGENT FOR SIMILAR ACCOUNTS, IT BEING UNDERSTOOD THAT THE
SECURITY AGENT IN ITS CAPACITY AS SUCH SHALL NOT HAVE ANY RESPONSIBILITY FOR (A)
ASCERTAINING OR TAKING ACTION WITH RESPECT TO CALLS, CONVERSIONS, EXCHANGES,
MATURITIES OR OTHER MATTERS RELATIVE TO ANY COLLATERAL, WHETHER OR NOT THE
SECURITY AGENT HAS OR IS DEEMED TO HAVE KNOWLEDGE OF SUCH MATTERS, (B) TAKING
ANY NECESSARY STEPS TO PRESERVE RIGHTS AGAINST ANY PARTIES WITH RESPECT TO ANY
COLLATERAL OR (C) INVESTING OR REINVESTING ANY OF THE COLLATERAL, PROVIDED,
HOWEVER, THAT NOTHING CONTAINED IN THIS ESCROW AND SECURITY AGREEMENT SHALL
RELIEVE THE SECURITY AGENT OF ANY RESPONSIBILITIES AS A SECURITIES INTERMEDIARY
UNDER APPLICABLE LAW.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Pledgor, the Initial Purchaser, the Trustee and
the Security Agent have each caused this Escrow and Security Agreement to be
duly executed and delivered as of the date first above written.
Pledgor:
DISCOVERY ZONE, INC.
By: /s/ Scott W. Bernstein
-----------------------------------------
Name: Scott W. Bernstein
Title: President and Chief Executive Officer
Trustee:
FIRSTAR BANK OF MINNESOTA, N.A.
By: /s/ Frank P. Leslie, III
-----------------------------------------
Name: Frank P. Leslie, III
Title: Vice President
Initial Purchaser:
JEFFERIES & COMPANY, INC.
By: /s/ Andrew Booth
-----------------------------------------
Name: Andrew Booth
Title: Senior Vice President
<PAGE>
Security Agent:
FIRSTAR BANK OF MINNESOTA, N.A.
By: /s/ Frank P. Leslie, III
----------------------------------------
Name: Frank P. Leslie, III
Title: Vice President
<PAGE>
EXHIBIT A
FIRSTAR BANK OF MINNESOTA, N.A.
OFFICER'S CERTIFICATE
Pursuant to Section 6(f) of the Escrow and Security Agreement
(the "Escrow and Security Agreement") dated as of July __, 1998 by and among
Discovery Zone, Inc. (the "Pledgor"), Jefferies & Company, Inc. (the "Initial
Purchaser"), Firstar Bank of Minnesota, N.A., as trustee (the "Trustee") and as
securities intermediary (the "Security Agent"), for the holders of the Pledgor's
13 1/2% Senior Collateralized Notes, due 2002, the undersigned officer of the
Security Agent, on behalf of the Security Agent, makes the following
certifications to the Pledgor and the Initial Purchaser. Capitalized terms used
and not defined in this Officer's Certificate have the meanings set forth or
referred to in the Escrow and Security Agreement.
1. Substantially contemporaneously with the execution and
delivery of this Officer's Certificate, the Security Agent has established: (i)
a securities account at its offices, as Securities Intermediary, (the "Escrowed
Interest Account") with respect to which the Trustee is the Entitlement Holder
and through which the Trustee has acquired a Security Entitlement to Collateral
and (ii) a securities account at the New York, New York offices of Bankers Trust
Company, as Securities Intermediary (the "New York Securities Intermediary
Account") with respect to which the Security Agent is the Entitlement Holder and
through which the Security Agent has acquired a Security Entitlement to the
Collateral. The Security Agent has sole dominion and control and has made
appropriate book entries in its records establishing that such Collateral and
the Trustee's security entitlement thereto have been credited to and are held in
the Escrowed Interest Account or the New York Securities Intermediary Account,
as applicable.
2. The Security Agent has established and maintained and will
maintain the Escrowed Interest Account and the New York Securities Intermediary
Account and all Securities Entitlements and other positions carried in the
Escrowed Interest Account and the New York Securities Intermediary Account
solely in its capacity as Security Agent and has not asserted and will not
assert any claim to or interest in the Escrowed Interest Account or the New York
Securities Intermediary Account or any such Securities Entitlements or other
positions except in such capacity.
3. The Trustee has acquired its Security Entitlement to the
Collateral for value and without notice of any adverse claim thereto. Without
limiting the generality of the foregoing, the Collateral is not and the
Trustee's Security Entitlement to such Collateral is not, to the Trustee's
knowledge, subject to any Lien granted by or to or arising through or in favor
of any Securities Intermediary (including, without limitation, the Trustee or
the Federal Reserve Bank of New York) through which the Trustee derives its
Security Entitlement to the Collateral).
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<PAGE>
4. The Security Agent has not caused or permitted the
Collateral or its Security Entitlement thereto or any other assets in the
Escrowed Interest Account or the New York Securities Intermediary Account to
become subject to any Lien created by or arising through the Security Agent.
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<PAGE>
IN WITNESS WHEREOF, the undersigned officer has executed this
Officer's Certificate on behalf of Firstar Bank of Minnesota, N.A., as Trustee,
and Firstar Bank of Minnesota, N.A., as Security Agent, this ____ day of July,
1998.
FIRSTAR BANK OF MINNESOTA, N.A.
as Trustee
By: ______________________________
Name: Frank P. Leslie, III
Title: Vice President
FIRSTAR BANK OF MINNESOTA, N.A.
as Security Agent
By: ______________________________
Name: Frank P. Leslie, III
Title: Vice President
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<PAGE>
SCHEDULE A
Escrowed Interest Account:
Firstar Bank of Minnesota, N.A., as Trustee - Re: Discovery Zone, Inc.
Firstar Bank of Minnesota, N.A.
Account No.: 80-52780-00
New York Securities Intermediary Account:
Firstar Bank of Minnesota, N.A., as Trustee - Re: Discovery Zone, Inc.
Bankers Trust Company
Account No.: 01-500-832
-4-
==============================
PLEDGE AGREEMENT
From
DISCOVERY ZONE, INC.,
as Pledgor
to
FIRSTAR BANK OF MINNESOTA, N.A.,
as Collateral Agent
Dated as of July 17, 1998
==============================
<PAGE>
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (together with any amendments,
replacements and supplements hereafter entered into, the "Pledge Agreement"),
dated as of July 17, 1998, between Discovery Zone, Inc., a Delaware corporation
(together with its successors and assigns, the "Pledgor"), and Firstar Bank of
Minnesota, N.A., as Trustee under the Indenture (as defined below), acting as
Collateral Agent hereunder (together with its successors and assigns, in such
capacity, the "Collateral Agent"), is made for the ratable benefit of the
Holders. As used herein, all capitalized terms not otherwise defined herein
shall have the meanings set forth in the Indenture, dated as of the date hereof
(together with all amendments and supplements thereto, the "Indenture"), among
the Pledgor, each of the Subsidiary Guarantors and the Collateral Agent,
relating to the Pledgor's 13 1/2% Senior Collateralized Notes due 2002 (the
"Initial Notes") and 13 1/2% Senior Collateralized Notes due 2002, Series B, to
be issued in exchange for the Initial Notes pursuant to the Registration Rights
Agreement, the Purchase Agreement and the Indenture ("Exchange Notes" and,
together with the Initial Notes, the "Notes"), as amended from time to time in
accordance with the terms thereof.
W I T N E S S E T H:
WHEREAS, the Pledgor has issued or will issue $20 million
aggregate principal amount of Notes pursuant to the Indenture;
WHEREAS, the Pledgor is or, as of the Issue Date, will be the
legal and beneficial owner of the issued and outstanding shares of Capital Stock
set forth on Schedule A attached hereto; and
WHEREAS, in order to secure the payment and performance in
full of the Obligations of the Pledgor under the Indenture and the Notes, the
parties hereto desire to set forth their mutual understanding and certain
agreements regarding the terms and conditions of the pledge of the Pledged
Collateral (as defined below) made by the Pledgor to the Collateral Agent for
the ratable benefit of the Holders.
NOW, THEREFORE, in consideration of the premises and other
benefits to the Pledgor, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. Pledge. As collateral security for the complete
payment and performance in full of the Obligations of the Pledgor under the
Indenture, the Notes and the Collateral Agreements (as contemplated by Article
Eight of the Indenture), the Pledgor hereby pledges, assigns, transfers, sets
over and delivers unto the Collateral Agent, and hereby grants unto the
Collateral Agent for the ratable benefit of the Holders and unto their
respective successors and assigns, a continuing security interest in all of the
right, title and interest of the Pledgor in, to and under any and all of the
following described property, rights and interests (collectively, the "Pledged
Collateral"):
(a) all of the issued and outstanding shares of
Capital Stock identified on Schedule A attached hereto of the Subsidiaries and
all other wholly-owned subsidiaries of the Pledgor therein set forth (the
"Pledged Subsidiaries");
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<PAGE>
(b) all other shares of Capital Stock or other equity
securities issued, or in the future issued by the Pledged Subsidiaries now or
hereafter owned or acquired by the Pledgor in any manner, and the certificates
representing such securities, and any present or future options, warrants or
other rights to subscribe for or purchase any property described in Section 1(a)
or any notes, bonds, debentures or other evidences of indebtedness that are at
any time convertible, exchangeable or exercisable into Capital Stock or other
equity securities of the Pledged Subsidiaries or have or at any time could by
their terms have voting rights with respect to any matter affecting the Pledged
Subsidiaries and all securities, certificates and instruments representing or
evidencing ownership of any of the property described in Section 1(a) and this
Section 1(b) hereof;
(c) all shares of Capital Stock, other equity
securities of any entity issued to the Pledgor or any other security described
in Section 1(b) if, at the time of issuance, the entity is or as a result of
such issuance becomes a Subsidiary under the Indenture (the property described
in Section 1(a), Section 1(b) and this Section 1(c) being referred to herein
collectively as the "Pledged Securities");
(d) any additional property of the kind or type
described in this Section 1 required to be supplied under the terms of this
Pledge Agreement; and
(e) all proceeds and products of the Pledged
Securities, including without limitation dividends, distributions, cash,
instruments and other property or securities, now or hereafter at any time or
from time to time received or receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of the Pledged
Securities;
TO HAVE AND TO HOLD the Pledged Collateral, together with all
rights, titles, interests, powers, privileges and preferences pertaining or
incidental thereto, unto the Collateral Agent for the benefit of the Holders and
unto their respective successors and assigns.
Section 2. Representations, Warranties and Covenants of the
Pledgor. The Pledgor hereby represents and warrants (as of the date of execution
hereof as to the Pledged Collateral existing on such date and as of the date of
acquisition as to the Pledged Collateral acquired subsequently), covenants and
agrees that:
(a) As of the Issue Date, the Pledgor will be the
legal and beneficial owner of the Pledged Collateral, will hold the Pledged
Collateral free and clear of all Liens (except for the security interest granted
hereunder to the Collateral Agent for the ratable benefit of Holders of Notes
and except for taxes not yet payable and except for Liens securing the Eligible
Credit Facility and the Existing Notes), and has not made and will not make any
other pledge, assignment, mortgage, hypothecation or transfer of the Pledged
Collateral except for Liens securing the Eligible Credit Facility and the
Existing Notes.
(b) The Pledged Securities have been or, upon the
Issue Date, will be duly authorized and validly issued and are fully paid and
non-assessable.
(c) Upon delivery of physical certificates evidencing
the Pledged Securities to the Collateral Agent, and the continued possession
thereof by the Collateral Agent, or upon written acknowledgement, confirmation
and agreement (a "Pledge Possession Agreement") by the Lender under the Eligible
Credit Facility, the collateral agent under the Existing Notes or any other
person who holds or has acquired possession of any such certificates, that such
person is
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<PAGE>
holding such certificates and related collateral for the Collateral Agent or
holders of the Notes in connection with this Pledge Agreement, the Collateral
Agent will have a continuing perfected security interest in the Pledged
Securities, securing the Obligations, subject only to the New Intercreditor
Agreements.
(d) As of the Issue Date, the Pledgor will have the
requisite corporate power and authority to pledge the Pledged Collateral in
accordance herewith and will defend its title thereto against the claims of all
persons whomsoever and shall maintain and preserve the security interest granted
hereunder with respect to the Pledged Collateral as long as this Pledge
Agreement shall remain in full force and effect, subject to the Permitted Liens.
(e) Neither the execution and delivery of this Pledge
Agreement by the Pledgor, the performance by the Pledgor of its obligations
hereunder, nor the transactions herein contemplated will violate the Pledgor's
or any Pledged Subsidiary's Certificate of Incorporation or bylaws, each as will
be in effect as of the Issue Date, violate the terms of any agreement,
indenture, mortgage, deed of trust, equipment lease, instrument or other
document to which the Pledgor or any Pledged Subsidiary is a party, violate any
law, order, rule or regulation applicable to the Pledgor or any Pledged
Subsidiary of any court or any government, regulatory body or administrative
agency or other governmental body having jurisdiction over the Pledgor or any
Pledged Subsidiary or their properties, or result in or require the creation or
imposition of any Lien (other than the Lien contemplated hereby), upon or with
respect to any of the property now owned or hereafter acquired by the Pledgor or
any Pledged Subsidiary, which violation or conflict would have a material
adverse effect on the financial condition, business, assets or liabilities of
the Pledgor or any Pledged Subsidiary, taken as a whole, or on the value of the
Pledged Collateral or on the security interests hereunder.
(f) The Pledged Securities, described in Schedule A
attached hereto, include all of the issued and outstanding shares of Capital
Stock of the Pledged Subsidiaries, and, as of the date of execution hereof,
there are no outstanding options, warrants or other rights to subscribe for or
purchase any property described in Section 1(a) or any notes, bonds, debentures
or other evidences of indebtedness that are at any time convertible into Capital
Stock of the Pledged Subsidiaries or have or at any time could by their terms
have voting rights with respect to any matters affecting the Pledged
Subsidiaries.
(g) Other than the occurrence of the Issue Date, no
consent or approval which has not been obtained prior to the date hereof of any
other person or entity, no authorization, approval or other action (other than
delivery of physical certificates evidencing the Pledged Securities or the
execution and delivery of a Pledge Possession Agreement, as the case may be) by,
and no notice to or filing with, any governmental body (other than UCC filings),
regulatory authority or securities exchange, was or is necessary as a condition
to the validity of the pledge hereunder of the Pledged Collateral, and such
pledge is effective to vest in the Collateral Agent the rights of the Collateral
Agent in the Pledged Collateral as set forth herein. Except under the Indenture
and this Pledge Agreement, there are no restrictions on the transferability of
any of the Pledged Collateral transferred or delivered by the Pledgor hereunder
or, except for restrictions related to federal and state securities laws
governing the sale of "restricted stock" or "control stock," with respect to the
foreclosure, transfer or disposition thereof by the Collateral Agent.
(h) The Pledgor shall deliver to the Collateral Agent
concurrently with the execution of this Pledge Agreement or, to the extent
acquired subsequent to the date of execution
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<PAGE>
hereof, immediately upon the Pledgor's acquisition thereof, all certificates and
instruments representing the Pledged Securities, and each other item of Pledged
Collateral (including all certificates, instruments and notes representing any
such Pledged Collateral), or an executed Pledge Possession Agreement, in form
and substance satisfactory to the Collateral Agent, as the case may be. Any and
all Pledged Securities so delivered to the Collateral Agent shall be accompanied
by undated duly executed powers in blank and by such other instruments of
transfer or documents as the Collateral Agent may reasonably request. The
Collateral Agent shall hold the certificates representing the Pledged Securities
delivered to it in its own name or in the name of its nominee, all in form and
substance satisfactory to the Collateral Agent. The Pledgor hereby acknowledges
that the Collateral Agent may, in its discretion, appoint one or more financial
institutions to act as the Collateral Agent's agent in holding in custodial
accounts instruments or other financial assets in which the Collateral Agent is
granted a security interest hereunder, including, without limitation,
certificates of deposit and other instruments evidencing short term obligations.
(i) The Collateral Agent shall at all times have full
and free access during normal business hours to all of the books, correspondence
and records of the Pledgor relating to the Pledged Collateral (other than
information that is privileged and confidential) and the Collateral Agent and
its representatives may examine the same, make abstracts therefrom and make
photocopies thereof, and the Pledgor agrees to render to the Collateral Agent,
at the Pledgor's costs and expense, such clerical and other assistance as may be
requested by the Collateral Agent with regard thereto.
(j) The Pledgor shall not permit any of the Pledged
Subsidiaries to issue any securities of the type required to be pledged
hereunder unless such securities are promptly pledged and delivered hereunder to
the Collateral Agent in accordance with Section 2(h).
(k) If, while this Pledge Agreement is in effect,
subject to the terms and conditions of Section 2(c), any stock dividend, stock
split, reclassification, readjustment, reorganization, merger, consolidation,
exchange offer, tender offer or other change in the capital structure, including
the creation of any subscription or other rights relating to the Pledged
Securities, is declared or made, by any of the Pledged Subsidiaries or any other
issuer of Pledged Collateral, all substituted and additional securities or
interest issued with respect to the Pledged Collateral and evidenced by
certificates shall be endorsed in blank by the Pledgor promptly upon receipt
thereof or otherwise appropriately transferred to the Collateral Agent in
negotiable form, and all certificates or instruments evidencing such securities
shall be delivered to the Collateral Agent to be held under the terms of this
Pledge Agreement in the same manner as, and as a part of, the Pledged
Collateral. All Pledged Securities shall be evidenced by one or more
certificates. Any securities that may be issued upon exercise of any
subscription or other rights relating to the Pledged Securities shall be
endorsed in blank and delivered to the Collateral Agent with any necessary
powers.
(l) The Pledgor shall pay and discharge all taxes,
assessments and governmental charges or levies against any Pledged Collateral
prior to delinquency thereof and shall keep all Pledged Collateral free of all
unpaid charges whatsoever, unless contested in good faith by appropriate
proceedings, properly instituted and diligently conducted, and adequate reserves
have been set aside in accordance with GAAP.
(m) The Pledgor shall promptly notify the Collateral
Agent in writing of any material changes in any fact or circumstance represented
or warranted by the Pledgor with respect to any material portion of the Pledged
Collateral, of any impairment of the Pledged Collateral and of any claim, action
or proceeding affecting title to all or any of the Pledged Collateral.
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<PAGE>
(n) The chief executive office and principal place of
business of the Pledgor is located at 565 Taxter Road, Elmsford, New York 10523.
The Pledgor shall not relocate its principal place of business or chief
executive office to another county or state or change its name, identity or
corporate structure unless the Pledgor (i) gives at least thirty (30) days'
prior written notice to the Collateral Agent, which notice shall specify such
new name, identity, corporate structure or new location and provide such other
information as the Collateral Agent may reasonably request and (ii) takes all
action reasonably satisfactory to the Collateral Agent to maintain the security
interest of the Collateral Agent in the Collateral.
(o) Upon Pledgor acquiring or forming any subsidiary,
the Pledgor shall amend Schedule A attached hereto to include such subsidiary
and such subsidiary shall thenceforth be treated hereunder for all purposes as a
Pledged Subsidiary and all shares of Capital Stock or other equity securities of
such subsidiary issued to Pledgor shall be treated hereunder for all purposes as
Pledged Collateral.
Section 3. Administration of the Pledged Collateral. The
Collateral Agent shall administer the Pledged Collateral in accordance with the
provisions hereof and of the Indenture.
Section 4. Release and Substitution of Pledged Collateral. The
Pledged Collateral shall not be released from the security interest created
hereunder and no property shall be substituted for any of the Pledged
Collateral, except in accordance with the provisions of Article Ten of the
Indenture and in accordance with the provisions of Section 18 hereof. The
Collateral Agent shall return the physical certificates and related stock powers
evidencing Pledged Collateral in its possession when so permitted by the
Indenture and this Pledge Agreement.
Section 5. Voting Rights, Dividends, Etc.
(a) Until an Event of Default (as defined below)
shall have occurred and be continuing:
(i) except as otherwise provided in Sections
5(b) and (c) and Section 6 of this Pledge Agreement, the Pledgor shall be
entitled to exercise any and all voting or consensual rights and powers,
including subscription rights, accruing to an owner of the Pledged Collateral or
any part thereof for any purpose not inconsistent with the terms of this Pledge
Agreement or any agreement giving rise to any of the Indenture Obligations;
(ii) except as otherwise provided in this
Pledge Agreement, the Pledgor shall be entitled to retain and use any and all
dividends, distributions or other payments which are permitted by the Indenture
and paid in cash or property (other than securities which are subject to this
Pledge Agreement) and the Collateral Agent, upon receipt of any of the
foregoing, shall promptly pay or distribute the same to the Pledgor; and
(iii) the Collateral Agent shall execute and
deliver to the Pledgor or cause to be executed and delivered to the Pledgor, all
such proxies, powers of attorney, dividend orders and other instruments as the
Pledgor may reasonably request for the purpose of enabling it to exercise the
voting or consensual rights and powers which the Pledgor is entitled to exercise
pursuant to the foregoing Section 5(a)(i) or to receive the dividends,
distributions or other payments which the Pledgor is authorized to retain
pursuant to the foregoing Section 5(a)(ii).
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NY2-146897.5
<PAGE>
(b) Upon the occurrence and during the continuation
of an Event of Default, (i) upon notice from the Collateral Agent, all rights of
the Pledgor to exercise the voting or consensual rights and powers which the
Pledgor would otherwise be entitled to exercise pursuant to Section 5(a)(i), and
(ii) all rights of the Pledgor to receive the dividends, distributions and other
payments which the Pledgor would otherwise be authorized to receive and retain
pursuant to Section 5(a)(ii), shall automatically cease, and all such rights
shall thereupon become vested in the Collateral Agent, which, subject to the New
Intercreditor Agreements, shall then have the sole and exclusive right and
authority to exercise, in its sole discretion, all such voting and consensual
rights and powers and to receive and retain as Pledged Collateral all such
dividends, distributions and other payments.
(c) Upon the occurrence and during the continuation
of an Event of Default, the Collateral Agent shall have the sole and exclusive
right and authority to receive and retain as Pledged Collateral all dividends,
distributions and other payments which are paid on the Pledged Collateral (other
than dividends, distributions or other payments permitted by the Indenture and
paid on the shares of common stock of the company issuing such shares) in cash
or property. Any and all money and other property paid over to or received by
the Collateral Agent pursuant to the provisions of Section 5(b) or this Section
5(c) shall be retained by the Collateral Agent as additional Pledged Collateral
hereunder and shall be administered and applied in accordance with the
provisions of this Pledge Agreement, the Indenture, and the New Intercreditor
Agreements. All dividends and interest payments which are received by the
Pledgor contrary to the provisions of Section 5(b) or this Section 5(c) shall be
received in trust for the benefit of the Collateral Agent, shall be segregated
from other funds of the Pledgor and shall be forthwith paid over to the
Collateral Agent as Pledged Collateral in the same form as so received (with any
necessary endorsement).
Section 6. Default; Remedies.
(a) Defined. For purposes of this Pledge Agreement,
as provided in the preamble to this Pledge Agreement, the terms "Default" and
"Event of Default" shall have the respective meanings provided in the Indenture.
(b) Exercise of Remedies Under the Pledge Agreement.
If an Event of Default shall have occurred and be continuing, the Collateral
Agent shall commence the taking of such actions (or refrain from taking actions)
toward collection or enforcement of this Pledge Agreement and the Pledged
Collateral (or any portion thereof), including, without limitation, action
toward foreclosure upon any Pledged Collateral, as it deems appropriate in
accordance with and subject to the applicable terms of the Indenture or within
three (3) Business Days after written instructions from the Requisite Holders
(as defined in Section 6(f) below), to the extent allowed by law (and subject to
the applicable terms of the Indenture and pursuant to the terms hereof). If any
Event of Default that was the basis for the commencement of such action shall
have been cured or waived, and, in the case where there has been an
acceleration, rescission of such acceleration shall have occurred, in each case
in accordance with the terms of the Indenture, any direction to the Collateral
Agent to take any action in connection with the aforementioned notice shall be
deemed rescinded upon notification by that percentage of Holders necessary to
effect such waiver with respect to such Event of Default as provided for in the
Indenture. The Collateral Agent shall have no obligation to take any collection
or enforcement action except upon satisfaction of the conditions set forth in
Section 7.01 and Section 7.02 of the Indenture.
(c) Remedies Generally. If an Event of Default shall
have occurred and be continuing, the Collateral Agent itself or by its agents or
attorneys may exercise any or all of its
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<PAGE>
rights and remedies hereunder or under the Indenture, or any other instrument or
agreement securing, evidencing or relating to the Indenture Obligations, the
Notes or under applicable laws (including all of the rights and remedies of a
secured creditor under the UCC then in effect in the State of New York, the
"UCC"), retain possession of the Pledged Collateral or sell, assign, transfer,
or dispose of, endorse and deliver the whole or, from time to time, any part of
the Pledged Collateral at public or private sale or sales, at any exchanges,
brokers board or at any of the Collateral Agent's offices or elsewhere, for
cash, upon credit or for other property, for immediate or future delivery, and,
to the extent permitted by applicable law, for such price or prices and on such
other terms as the Collateral Agent may deem commercially reasonable. Upon
consummation of any such sale, the Collateral Agent shall have the right to
assign, transfer, endorse and deliver to the purchaser or purchasers thereof the
Pledged Collateral so sold. Each such purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of the
Pledgor, and the Pledgor hereby waives (to the full extent permitted by law) all
rights of redemption, stay or appraisal which the Pledgor now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted. The Collateral Agent shall give the Pledgor ten (10) days'
written notice (which the Pledgor agrees shall be deemed to be reasonable
notification within the meaning of Section 9-504(3) of the UCC) in accordance
with Section 19 of the Collateral Agent's intention to make any such public or
private sale. Any such sale shall be held at such time or times and at such
place or places as the Collateral Agent may fix. At any such sale, the Pledged
Collateral, or portion thereof to be sold, may be sold as an entirety or in
separate portions, as the Collateral Agent may, in its sole discretion,
determine. The Collateral Agent shall not be obligated to make any sale of the
Pledged Collateral if it shall determine not to do so, regardless of the fact
that notice of sale of the Pledged Collateral may have been given. The
Collateral Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for sale, and such sale may, without further notice,
be made at the time and place to which the same was so adjourned. In case sale
of all or any part of the Pledged Collateral is made on credit for future
delivery, the Pledged Collateral so sold may be retained by the Collateral Agent
until the sale price is paid by the purchaser or purchasers thereof, but the
Collateral Agent shall not incur any liability in case any such purchaser or
purchasers shall fail to take up and pay for the Pledged Collateral so sold and,
in case of any such failure, such Pledged Collateral may be sold again upon like
notice. As an alternative to exercising the power of sale herein conferred upon
it, the Collateral Agent may proceed by suit or suits at law or in equity to
exercise its remedies regarding the Pledged Collateral and sell the Pledged
Collateral or any portion thereof pursuant to judgment or decree of a court or
courts having competent jurisdiction. If under mandatory requirements of
applicable law, the Collateral Agent shall be required to make disposition of
the Pledged Collateral within a period of time that does not permit the giving
of notice to the Pledgor as hereinbefore provided, the Collateral Agent need
give the Pledgor only such notice of disposition as shall be reasonably
practicable in view of such mandatory requirements of law.
(d) Remedies; Obtaining the Pledged Collateral Upon
Default. The Pledgor agrees that if any Event of Default shall have occurred and
be continuing, then and in every such case, and in addition to the rights and
remedies available to a secured party under any applicable provision of the UCC,
or any other applicable law, the Collateral Agent, subject to the terms of the
New Intercreditor Agreements, may:
(i) personally, or by agents or attorneys,
immediately take possession of the Pledged Collateral or any part thereof from
the Pledgor or any other person who then has possession of any part thereof,
with or without notice or process of law, in accordance with
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<PAGE>
applicable law, and for that purpose may enter upon the Pledgor's premises where
any of the Pledged Collateral is located and remove the same;
(ii) instruct the obligor or obligors on any
agreement, instrument or other obligation constituting Pledged Collateral to
make any payment or render any performance required by the terms of such
agreement, instrument or obligation directly to the Collateral Agent or its
designee;
(iii) sell or otherwise liquidate, or direct
the Pledgor to sell or otherwise liquidate, any or all investments made in whole
or in part with the Pledged Collateral or any part thereof, and take possession
of the proceeds of any such sale or liquidation; and
(iv) take possession of the Pledged
Collateral or any part thereof by directing the Pledgor in writing to deliver
the same to the Collateral Agent at any place or places designated by the
Collateral Agent, in which event the Pledgor shall at its own expense:
(A) forthwith cause the same to be
moved to the place or places so designated by the Collateral Agent and there
delivered to the Collateral Agent;
(B) store and keep any Pledged
Collateral so delivered to the Collateral Agent at such place or places pending
further action by the Collateral Agent as provided in this Section 6(d); and
(C) while any such Pledged
Collateral shall be so stored and kept, provide such guard, security and
maintenance services as shall be necessary to protect the same and to preserve
and maintain such Pledged Collateral in good condition; it being understood that
the Pledgor's obligation so to deliver the Pledged Collateral is of the essence
of this Pledge Agreement and that, accordingly, upon application to a court of
equity having jurisdiction, the Collateral Agent shall be entitled to a decree
requiring specific performance by the Pledgor of such obligation.
(e) Preventing Impairment of the Pledged Collateral.
Regardless of whether or not there shall have occurred any Default or Event of
Default, the Collateral Agent may institute and maintain or cause in the name of
the Pledgor or of the Collateral Agent, or any of them, to be instituted and
maintained, such suits and proceedings as the Collateral Agent may be advised by
counsel shall be necessary or expedient to prevent any impairment of the
security interest in or perfection of the Pledged Collateral in contravention of
the terms of the Indenture. The Pledgor agrees not to knowingly take or permit
to be taken any action which would impair the Pledged Collateral or the
Collateral Agent's rights in the Pledged Collateral.
(f) Requisite Holders. For purposes of this Section
6, "Requisite Holders" means the Holder or Holders of a majority in principal
amount of the outstanding Notes or as otherwise provided in Article Six of the
Indenture.
Section 7. Collateral Agent Appointed Attorney-in-Fact. The
Pledgor hereby constitutes and appoints the Collateral Agent its
attorney-in-fact for the purpose of carrying out the provisions, but subject to
the terms and conditions, of this Pledge Agreement and taking any action and
executing any instrument, including, without limitation, any financing statement
or continuation statement, and taking any other action to maintain the validity,
perfection, priority and enforcement of
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<PAGE>
the security interest intended to be created hereunder, that the Collateral
Agent may reasonably deem necessary or advisable to accomplish the purposes
hereof, which appointment is irrevocable and coupled with an interest; provided,
however, that nothing herein contained shall be construed as requiring or
obligating the Collateral Agent to make any commitment or to make any inquiry as
to the nature or sufficiency of any payment received by it, or to present or
file any claim or notice, or to take any action with respect to the Pledged
Collateral or any part thereof or the monies due or to become due in respect
thereof or any property covered thereby, and no action taken or omitted shall
give rise to any defense, counterclaim or right of action against the Collateral
Agent, unless the Collateral Agents actions are taken or omitted to be taken
with gross negligence or bad faith or constitute willful misconduct.
Section 8. Purchase of Pledged Collateral by Collateral Agent
or Holders. At any sale of the Pledged Collateral, whether pursuant to power of
sale or otherwise hereunder, the Collateral Agent or any Holder may, to the
extent permitted by applicable law, bid for and purchase, free from any right of
redemption, stay or appraisal (all such rights being hereby waived and released
by the Pledgor to the extent permitted by law), the Pledged Collateral or any
part thereof or an interest therein and upon compliance with the terms of such
sale, may hold, retain, exploit, resell or otherwise dispose of such property
without further accountability to the Pledgor for the proceeds of such sale
(except in the event that there is a surplus of such proceeds in excess of the
Pledgor's Obligations under the Indenture and the Notes, in which case, the
Collateral Agent shall account to the Pledgor for such surplus). The Pledgor
will execute and deliver or cause to be executed and delivered, such
instruments, endorsements, assignments, waivers, certificates and other
documents and take such further action as the Collateral Agent shall request in
connection with any such sale.
Section 9. Disposition of Proceeds. The proceeds of any sale
of the whole or any part of the Pledged Collateral, together with any other
monies held by the Collateral Agent under the provisions of this Pledge
Agreement, shall be applied by the Collateral Agent in accordance with the
provisions of the Indenture.
Section 10. Waiver of Claims. Except as otherwise provided in
this Pledge Agreement, THE PLEDGOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NOTICE OF JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL
AGENT'S TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE
PLEDGED COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES AND
HEARINGS FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE
PLEDGOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED
STATES OR OF ANY STATE, and, to the full extent permitted by applicable law, the
Pledgor hereby further waives:
(a) all damages occasioned by such taking of
possession or disposition except any damages which are the direct result of the
Collateral Agent's negligence, bad faith or willful misconduct;
(b) all other requirements as to the time, place and
terms of sale or other requirements, with respect to the enforcement of the
Collateral Agent's rights and powers hereunder; and
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<PAGE>
(c) except as provided in Section 6(c) hereof, all
rights of redemption, appraisement, valuation, stay, marshalling of assets,
extension or moratorium, existing at law or in equity, by statute or otherwise,
now or hereafter in force, in order to prevent or delay the enforcement of this
Pledge Agreement or the sale or other disposition of the Pledged Collateral or
any portion thereof, and the Pledgor, for itself and all who may claim under it,
insofar as it now or hereafter lawfully may, hereby waives all such rights.
Any sale of, or the exercise of any options to purchase, or
any other realization upon, any Pledged Collateral shall operate to divest all
right, title, interest, claim and demand, at law or in equity, of the Pledgor
therein and thereto, and shall be a perpetual bar both at law and in equity
against the Pledgor and against any and all persons claiming or attempting to
claim the Pledged Collateral so sold, optioned or realized upon, or any part
thereof, through and under the Pledgor.
Section 11. Remedies Cumulative; No Waiver. Each right, power
and remedy of the Collateral Agent provided for herein or in the Indenture or in
another agreement pursuant to which a Lien is created in favor of the Collateral
Agent for the benefit of any Holder, or now or hereafter existing at law or in
equity, by statute or otherwise, shall be cumulative and concurrent and shall be
in addition to every other right, power or remedy of the Collateral Agent or any
Holder provided for herein or in the Indenture, the Notes or in another
agreement pursuant to which a Lien is created in favor of the Collateral Agent
for the benefit of any Holder or now or hereafter existing at law or in equity,
by statute or otherwise. No failure on the part of the Collateral Agent or any
Holder to exercise, and no delay in exercising, any right, power or remedy
hereunder or under the Indenture, the Notes or under another agreement pursuant
to which a Lien is created in favor of the Collateral Agent for the benefit of
any Holder or now or hereafter existing at law or in equity, by statute or
otherwise, shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. No notice
to or demand on the Pledgor hereunder shall, of itself, entitle the Pledgor to
any other or further notice or demand in the same, similar or other
circumstances.
Section 12. Additional Pledged Collateral. Without notice or
consent of the Pledgor and without impairment of the security interests and
rights created by this Pledge Agreement, the Collateral Agent may accept from
any Person or Persons additional collateral or other security for the
Obligations of any Pledged Subsidiary or the Pledgor's Obligations under the
Indenture. Neither the creation of the security interests created hereunder nor
the acceptance of any such additional collateral or security shall prevent the
Collateral Agent from resorting to such additional collateral or security or to
the Pledged Collateral, in any order, without affecting the Collateral Agent's
rights hereunder.
Section 13. Further Assurances. The Pledgor agrees that it
shall, at its own expense, promptly file or record such notices, financing
statements, continuation statements or other documents and take all further
action as may be necessary to perfect, maintain and protect the perfection of
the security interests of the Collateral Agent hereunder or to enable the
Collateral Agent to exercise and enforce its rights and remedies hereunder with
respect to the Pledged Collateral, and as the Collateral Agent may reasonably
request, such instruments to be in form and substance satisfactory to the
Collateral Agent, and that it shall, at its own expense, do such further acts
and things and execute and deliver to the Collateral Agent such additional
conveyances, assignments, endorsements, agreements and instruments as the
Collateral Agent may at any time request in connection with the administration
and enforcement of this Pledge Agreement or relative to the
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Pledged Collateral or any part thereof or in order to assure and confirm unto
the Collateral Agent its rights, powers and remedies hereunder.
Section 14. Indemnification and Expenses.
(a) The Pledgor agrees to indemnify the Collateral
Agent from and against any and all claims, losses and liabilities arising or
resulting from or relating to this Pledge Agreement (including, without
limitation, enforcement of this Pledge Agreement), except claims, losses or
liabilities resulting from the Collateral Agent's gross negligence, bad faith or
willful misconduct, as determined by a final judgment of a court of competent
jurisdiction. The indemnification of the Collateral Agent set forth in the
immediately preceding sentence is cumulative and not exclusive of any indemnity
of the Collateral Agent set forth in the Indenture or provided for under the
TIA.
(b) The Pledgor will pay upon demand to the
Collateral Agent the amount of any and all out-of-pocket expenses, including the
reasonable fees and charges of its counsel and of any experts and agents, that
the Collateral Agent may incur in connection with the custody, preservation, use
or operation of, or the sale of, collection from or other realization upon, any
of the Pledged Collateral, the exercise or enforcement of any of the rights of
the Collateral Agent or the Holders hereunder or the failure by the Pledgor to
perform or observe any of the provisions hereof, and all amounts so incurred by
the Collateral Agent shall be entitled to the benefits of Section 7.07 of the
Indenture.
Section 15. Registration Rights, etc.
(a) If the Collateral Agent determines that the
registration of any of the securities included in the Pledged Collateral under,
or other compliance with, the Securities Act or any similar Federal or state law
is desirable, upon or at any time after an Event of Default and acceleration of
the Notes in accordance with Section 6.02 of the Indenture, the Pledgor will use
its best efforts to cause such registration or compliance to be effectively
made, at no expense to the Collateral Agent or to the Holders, and to continue
any such registration effective for such time as may be necessary in the opinion
of the Collateral Agent. The Pledgor will reimburse the Collateral Agent upon
demand for any expenses incurred by the Collateral Agent (including reasonable
attorneys' fees) incurred in connection therewith, which obligation to pay such
expenses shall be secured hereunder.
(b) If the Pledgor is unable to effect a public sale
of any or all of the Pledged Collateral or if the Collateral Agent determines
that it is desirable to sell the Pledged Collateral in one or more private
sales, the Collateral Agent may limit such sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a view to
distribution or resale. The Pledgor acknowledges and agrees that any such
private sale may result in prices and other terms less favorable to the seller
than if such sale were a public sale and, notwithstanding such circumstances,
agrees that any such private sale shall be deemed to have been made in a
commercially reasonable manner. The Collateral Agent shall be under no
obligation to delay a sale of any of the Pledged Collateral for the period of
time necessary to permit the issuer of such securities to register such
securities for public sale under the Securities Act or under applicable state
securities laws even if such issuer would agree to do so.
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<PAGE>
(c) The Pledgor further agrees to do or use all
reasonable efforts to cause to be done, to the extent the Pledgor may legally do
so, all such other acts and things as may be necessary to make such sale or
sales of all or any part of the Pledged Collateral valid and binding and in
compliance with any and all applicable laws, rules and regulations and orders
and decrees of any and all courts having jurisdiction over such sales, all at
the Pledgor's expense. The Pledgor further agrees that a breach of any of the
covenants contained in this Pledge Agreement will cause irreparable injury to
the Collateral Agent, as secured party, for which the Collateral Agent would
have no adequate remedy at law in respect of such breach and, as a consequence,
agrees that each and every covenant contained in this Section 15 shall be
specifically enforceable against the Pledgor and, to the full extent permitted
by applicable law, the Pledgor waives and agrees not to assert as a defense
against an action for specific performance of such covenant that Pledgor's
failure to perform such covenants will not cause irreparable injury to the
Collateral Agent or the Holders or that the Collateral Agent on behalf of the
Holders has an adequate remedy at law in respect of such breach.
Section 16. Pledgor's Indenture Obligations Absolute. The
liability of the Pledgor under this Pledge Agreement shall remain in full force
and effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by: any change in the time, place or manner of
payment of all or any of the Pledgor's Obligations under the Indenture or the
Notes, or in any other term of the Indenture, the Notes or any Collateral
Agreement, any waiver, indulgence, renewal, extension, amendment or modification
of or addition, consent or supplement to or deletion from or any other action or
inaction under or in respect of the Indenture, the Notes or any Collateral
Agreement, or any assignment or transfer thereof; any lack of validity or
enforceability, in whole or in part, of the Indenture, the Notes or any
Collateral Agreement; any furnishing of any additional security for such
Obligations or any acceptance thereof or any release or nonperfection of any
security interest in property; any limitation on any party's liability or
obligations under the Indenture, the Notes or any Collateral Agreement; any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceeding relating to the Pledgor or any Person other
than the Pledgor, or any action taken with respect to this Pledge Agreement by
any trustee or receiver, or by any court, in any such proceeding, whether or not
the Pledgor shall have notice or knowledge of any of the foregoing; or any
exchange, release or amendment or waiver of or consent to departure from any
other agreement pursuant to which a Lien is created in favor of the Collateral
Agent for the benefit of the Holder, pursuant to which a person other than the
Pledgor has granted a security interest.
Section 17. Waiver. To the extent permitted by applicable law,
the Pledgor hereby waives promptness, diligence, notice of acceptance and any
other notice with respect to this Pledge Agreement and any requirement that the
Collateral Agent protect, secure, perfect or insure any security interest or any
property subject thereto or exhaust any right or take any action against the
Pledgor or any other person or entity; provided, however, that the Collateral
Agent shall in any event take such care in the handling of any Pledged
Securities in its possession as it takes with respect to its own property of a
similar nature in its possession.
Section 18. Termination. Upon complete payment and performance
in full and satisfaction of all of the Pledgor's Obligations under the
Indenture, the Notes and the Collateral Agreements (as contemplated by Article
Eight of the Indenture), this Pledge Agreement shall terminate, subject to the
applicable terms of the Indenture, and the Collateral Agent shall assign and
redeliver to the Pledgor all of the Pledged Collateral hereunder that has not
been sold, disposed of, retained or applied by the Collateral Agent in
accordance with the terms hereof and the Indenture. Such reassignment and
redelivery shall be without warranty by, or recourse to, the Collateral Agent,
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<PAGE>
and shall be at the expense of the Pledgor. At such time, this Pledge Agreement
shall no longer constitute a Lien upon or a grant of any security interest in
any of the Pledged Collateral, and the Collateral Agent shall, at the Pledgor's
expense deliver to the Pledgor written acknowledgment thereof and of
cancellation of this Pledge Agreement in a form reasonably requested by the
Pledgor; provided, however, that this Pledge Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Pledgor's Obligations under the Indenture, the Notes or the
Collateral Agreements is rescinded or must otherwise be returned upon the
insolvency, bankruptcy or reorganization of the Pledgor, all as though such
payment had not been made; and provided, further, however, this Pledge Agreement
shall no longer constitute a Lien upon or a grant of any security interest in
any of the Pledged Collateral that has been released in accordance with the
provisions of Section 10.05 of the Indenture.
Section 19. 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 Discovery Zone, Inc.:
--------------------------
Discovery Zone, Inc.
565 Taxter Road, 5th Floor
Elmsford, New York 10523
Attn: Chief Executive Officer
Telephone Number: (914) 345-4500
Telecopy Number: (914) 345-4527
with a copy to attn: General Counsel
Telecopy Number: (914) 345-4516
with a copy to:
--------------
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attn: Douglas P. Bartner, Esq.
Telephone Number: (212) 848-4000
Telecopy Number: (212) 848-7179
if to Discovery Zone Limited:
----------------------------
Discovery Zone, Inc.
565 Taxter Road, 5th Floor
Elmsford, New York 10523
Attn: Chief Executive Officer
Telephone Number: (914) 345-4500
Telecopy Number: (914) 345-4527
with a copy to attn: General Counsel
Telecopy Number: (914) 345-4516
with a copy to:
--------------
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attn: Douglas P. Bartner, Esq.
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<PAGE>
Telephone Number: (212) 848-4000
Telecopy Number: (212) 848-7179
if to Discovery Zone (Puerto Rico), Inc.:
----------------------------------------
Discovery Zone, Inc.
565 Taxter Road, 5th Floor
Elmsford, New York 10523
Attn: Chief Executive Officer
Telephone Number: (914) 345-4500
Telecopy Number: (914) 345-4527
with a copy to attn: General Counsel
Telecopy Number: (914) 345-4516
with a copy to:
--------------
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attn: Douglas P. Bartner, Esq.
Telephone Number: (212) 848-4000
Telecopy Number: (212) 848-7179
if to Discovery Zone Licensing, Inc.:
------------------------------------
Discovery Zone, Inc.
565 Taxter Road, 5th Floor
Elmsford, New York 10523
Attn: Chief Executive Officer
Telephone Number: (914) 345-4500
Telecopy Number: (914) 345-4527
with a copy to attn: General Counsel
Telecopy Number: (914) 345-4516
with a copy to:
--------------
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attn: Douglas P. Bartner, Esq.
Telephone Number: (212) 848-4000
Telecopy Number: (212) 848-7179
if to DZ Party, Inc.:
--------------------
Discovery Zone, Inc.
565 Taxter Road, 5th Floor
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<PAGE>
Elmsford, New York 10523
Attn: Chief Executive Officer
Telephone Number: (914) 345-4500
Telecopy Number: (914) 345-4527
with a copy to attn: General Counsel
Telecopy Number: (914) 345-4516
with a copy to:
--------------
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attn: Douglas P. Bartner, Esq.
Telephone Number: (212) 848-4000
Telecopy Number: (212) 848-7179
if to the Collateral Agent:
--------------------------
Firstar Bank of Minnesota, N.A.
101 East 5th Street
St. Paul, MN 55101
Attn: Corporate Trust
Telephone Number: (651) 229-2600
Telecopy Number: (651) 229-6415
Each of the Pledgor and the Collateral Agent 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 Pledgor or the
Collateral Agent 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 Holder shall be mailed
to such Holder by first class mail or other equivalent means at such Holder's
address as it appears on the registration books of the Registrar and shall be
sufficiently given to such Holder if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 20. Binding Agreement; Assignment. This Pledge
Agreement shall be binding upon and inure to the benefit of the Collateral
Agent, the Pledgor and their respective successors and permitted assigns.
Neither this Pledge Agreement nor any interest herein or in the Pledged
Collateral, or any part thereof, may be assigned by the Pledgor without the
prior written consent of the Collateral Agent, except as expressly permitted
herein or in the Indenture. This Pledge Agreement shall be deemed to be
automatically assigned by the Collateral Agent to any person who
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succeeds to the Collateral Agent in accordance with Section 7.08 or Section 7.09
of the Indenture, and its assignee shall have all rights and powers of, and act
as, the Collateral Agent hereunder.
Section 21. Governing Law. This Pledge Agreement shall be
construed in accordance with, and this Pledge Agreement and the transactions
described herein shall be governed by, the laws of the State of New York as to
all issues, including (without limitation) issues of validity, interpretation,
effect, performance and remedies.
Section 22. Amendments. This Pledge Agreement may not be
amended or modified, except in accordance with Article Nine of the Indenture.
Section 23. Severability. In the event that any provisions
contained in this Pledge Agreement shall for any reason be held to be illegal or
invalid under the laws of any jurisdiction, such illegality or invalidity shall
in no way impair the effectiveness of any other provision hereof, or of such
provision under the laws of any other jurisdiction; provided, that in the
construction and enforcement of such provision under the laws of the
jurisdiction in which such holding of illegality or invalidity exists, and to
the extent only of such illegality or invalidity, this Pledge Agreement shall be
construed and enforced as though such illegal or invalid provision had not been
contained herein.
Section 24. Headings. Section headings used herein are
inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Pledge Agreement.
Section 25. Counterparts. This Pledge Agreement may be
executed in any number of counterparts, each of which when so executed and
delivered shall be an original, and all of which shall together constitute but
one and the same instrument. A complete set of counterparts shall be lodged with
the Collateral Agent.
Section 26. Cooperation of Pledged Subsidiaries. The Pledgor
shall cause the Pledged Subsidiaries to take all actions necessary to facilitate
the Pledgor's compliance with the terms hereof. If any entity issues shares of
Capital Stock or other equity securities to a Pledged Subsidiary and, at the
time of such issuance, the entity is, or as a result of such issuance becomes, a
Pledged Subsidiary under the Indenture, the Pledgor shall cause such Pledged
Subsidiary to enter into a supplement hereto, substantially in the form of this
Pledge Agreement, pursuant to which such
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Pledged Subsidiary shall pledge, assign, transfer, set over and deliver unto the
Collateral Agent, and grant unto the Collateral Agent for the ratable benefit of
the Holders and their respective successors and assigns, a continuing security
interest in all of the right, title and interest of the Pledged Subsidiary in,
to and under any and all of such Capital Stock or other equity securities as
collateral security for the indefeasible payment and performance in full of the
Pledgor's Obligations under the Indenture, the Notes and the Collateral
Agreements. Such Capital Stock or equity security shall thereafter be included
as "Pledged Securities" hereunder, such Pledged Subsidiary shall thereafter be
included as a "Pledgor" hereunder, and such entity shall thereafter be included
as one of the "Pledged Subsidiaries" hereunder.
Section 27. Confidentiality. The parties agree that they and
their employees have maintained and will maintain, in confidence, all data,
summaries, reports or information of all kinds, whether oral or written,
provided pursuant to this Pledge Agreement or acquired or delivered in any
manner from the other party's personnel or files (the "Confidential
Information"), and that they have not and will not reveal the same to any
persons not employed by the other party except: at the written direction of such
party; to the extent necessary to comply with applicable law, reporting
requirements imposed by the Securities and Exchange Commission, or the valid
order of a court of competent jurisdiction, in which event the disclosing party
shall so notify the other party as promptly as practicable (and, if possible,
prior to making any disclosure) and shall seek confidential treatment of such
information, or in connection with any arbitration proceeding; as part of its
normal reporting or review procedure to its parent company, its auditors and its
attorneys, and such parent company, auditors and attorneys agree to be bound by
the provisions of this Section; in order to enforce any of its rights pursuant
to, or in any other dispute with respect to, this Agreement; if, at the time of
disclosure to the recipient, the Confidential Information is in the public
domain; if, after disclosure to the recipient, the Confidential Information
becomes part of the public domain by written publication through no fault of the
recipient; or to any one or more Holders and their representatives and agents.
Section 28. No Assumption of Duties; Reasonable Care. The
rights and powers granted to the Collateral Agent hereunder are being granted in
order to preserve and protect the security interest of the Collateral Agent and
the Holders in and to the Pledged Collateral granted hereby and shall not be
interpreted to, and shall not impose any duties on the Collateral Agent in
connection therewith other than those expressly provided herein or imposed under
applicable law and no implied covenants, functions, responsibilities, duties,
obligations, or liabilities shall be read into this Pledge Agreement or
otherwise exist against the Collateral Agent. Except as provided by applicable
law or by the Indenture, the Collateral Agent shall be deemed to have exercised
reasonable care in the custody and preservation of the Pledged Collateral in its
possession if the Pledged Collateral is accorded treatment substantially equal
to that which the Collateral Agent accords similar property held by the
Collateral Agent for similar accounts, it being understood that the Collateral
Agent in its capacity as such shall not have any responsibility for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities or other matters relative to any Pledged Collateral, whether or not
the Collateral Agent has or is deemed to have knowledge of such matters, (b)
taking any necessary steps to preserve rights against any parties with respect
to any Pledged Collateral or (c) investing or reinvesting any of the Pledged
Collateral, provided, however, that nothing contained in this Pledge Agreement
shall relieve the Collateral Agent of any responsibilities as a securities
intermediary under applicable law.
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Section 29. Authority of the Collateral Agent.
(a) The Collateral Agent shall have and be entitled
to exercise all powers hereunder that are specifically granted to the Collateral
Agent by the terms hereof, together with such powers as are reasonably incident
thereto. The Collateral Agent may perform any of its duties hereunder or in
connection with the Pledged Collateral by or through agents or employees and
shall be entitled to retain counsel and to act in reliance upon the advice of
counsel concerning all such matters. Except as otherwise expressly provided in
this Pledge Agreement or the Indenture, neither the Collateral Agent nor any
director, officer, employee, attorney or agent of the Collateral Agent shall be
liable to the Pledgor for any action taken or omitted to be taken by the
Collateral Agent, in its capacity as Collateral Agent, hereunder, except for its
own bad faith, gross negligence or willful misconduct, and the Collateral Agent
shall not be responsible for the validity, effectiveness or sufficiency hereof
or of any document or security furnished pursuant hereto. The Collateral Agent
and its directors, officers, employees, attorneys and agents shall be entitled
to rely on any communication, instrument or document believed by it or them to
be genuine and correct and to have been signed or sent by the proper person or
persons. The Collateral Agent shall have no duty to cause any financing
statement or continuation statement to be filed in respect of the Pledged
Collateral.
(b) The Pledgor acknowledges that the rights and
responsibilities of the Collateral Agent under this Pledge Agreement with
respect to any action taken by the Collateral Agent or the exercise or
non-exercise by the Collateral Agent of any option, right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Pledge Agreement shall, as between the Collateral Agent and the Holders, be
governed by the Indenture and by such other agreements with respect thereto as
may exist from time to time among them, but, as between the Collateral Agent and
the Pledgor, the Collateral Agent shall be conclusively presumed to be acting as
agent for the Holders with full and valid authority so to act or refrain from
acting, and the Pledgor shall not be obligated or entitled to make any inquiry
respecting such authority.
Section 30. Intercreditor Agreements. Notwithstanding any term
hereof to the contrary, the terms and conditions of this Pledge Agreement are in
all respects subject to, and all rights and remedies of the parties hereunder
shall be exercised only in accordance with, the terms, conditions, benefits and
protections contained in the New Intercreditor Agreements.
Section 31. Other Pledgees. The Pledgor hereby acknowledges
and agrees that the certificates evidencing the Pledged Collateral may be held
by the Lender under the Eligible Credit Facility, the collateral agent under the
Existing Notes or any other person who holds or has acquired possession of such
certificates, on behalf of or for the benefit of the Collateral Agent or the
holders of the Notes in connection with this Pledge Agreement, and that at such
time as the indebtedness and obligations to such Lender or collateral agent have
been paid in full, as the case may be, the Pledgor shall immediately deliver,
cause to be delivered and direct such Lender or collateral agent, to deliver, as
the case may be, such certificates to the Collateral Agent or such party
designated thereby, and no other person.
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IN WITNESS WHEREOF, the Pledgor and the Collateral Agent have
caused this Pledge Agreement to be duly executed and delivered by its officer
thereunto duly authorized as of the date first above written.
DISCOVERY ZONE, INC.
By: /s/ Scott W. Bernstein
---------------------------------------------------
Name: Scott W. Bernstein
Title: President and Chief Executive Officer
FIRSTAR BANK OF MINNESOTA, N.A.,
as Collateral Agent
By: /s/ Frank P. Leslie, III
---------------------------------------------------
Name: Frank P. Leslie, III
Title: Vice President
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 17th day of July, 1998 before me personally came Scott
W. Bernstein, to me known, who being by me duly sworn, did depose and say that
he is the President and CEO of DISCOVERY ZONE, INC., the corporation described
in and which executed the foregoing instrument; and that he signed his name
thereto by order of the Board of Directors of said corporation.
/s/ Christine Dionne
-----------------------------------------
Notary Public
<PAGE>
Schedule A
Subsidiary Shares of Capital Stock Pledged
1. Discovery Zone (Canada) Limited 1
2. Discovery Zone (Puerto Rico), Inc. 1
3. DZ Party, Inc. 1
4. Discovery Zone Licensing, Inc. 1,000
========================================
SUBSIDIARY
PLEDGE AGREEMENT
From
DISCOVERY ZONE (CANADA) LIMITED,
DISCOVERY ZONE (PUERTO RICO), INC.,
and
DISCOVERY ZONE LICENSING, INC.
as Pledgors
to
FIRSTAR BANK OF MINNESOTA, N.A.,
as Collateral Agent
Dated as of July 17, 1998
========================================
<PAGE>
SUBSIDIARY PLEDGE AGREEMENT
This SUBSIDIARY PLEDGE AGREEMENT (together with any
amendments, replacements and supplements hereafter entered into, the "Subsidiary
Pledge Agreement"), dated as of July 17, 1998, between Discovery Zone (Canada)
Limited, an entity formed under the laws of Canada ("DZL"), Discovery Zone
(Puerto Rico), Inc., a corporation formed under the laws of Puerto Rico
("DZPR"), Discovery Zone Licensing, Inc., a Nevada corporation (together with
DZL, DZPR and any subsidiaries of the Company that may become Subsidiary
Guarantors after the date hereof and their permitted respective successors and
assigns, the "Pledgors" and, each individually, a "Pledgor"), and Firstar Bank
of Minnesota, N.A., as Trustee under the Indenture (as defined below), acting as
Collateral Agent hereunder (together with its successors and assigns, in such
capacity, the "Collateral Agent"), is made for the ratable benefit of the
Holders. As used herein, all capitalized terms not otherwise defined herein
shall have the meanings set forth in the Indenture, dated as of the date hereof
(together with all amendments and supplements thereto, the "Indenture"), among
Discovery Zone, Inc., a Delaware corporation (the "Company"), Pledgors and the
Collateral Agent, relating to the Company's 13 1/2% Senior Collateralized Notes
due 2002 (the "Initial Notes") and 13 1/2% Senior Collateralized Notes due 2002,
Series B, to be issued in exchange for the Initial Notes pursuant to the
Registration Rights Agreement, the Purchase Agreement and the Indenture
("Exchange Notes" and, together with the Initial Notes, the "Notes"), as amended
from time to time in accordance with the terms thereof.
W I T N E S S E T H:
WHEREAS, the Company has issued or will issue $20 million
aggregate principal amount of Notes pursuant to the Indenture;
WHEREAS, each Pledgor, is or, as of the Issue Date will be
the legal and beneficial owner of the issued and outstanding shares of Capital
Stock set forth under such Pledgor's name on Schedule A attached hereto;
WHEREAS, pursuant to the Indenture or a supplement thereto,
each Pledgor has guaranteed the payment and performance in full of the
Obligations of the Company and the Pledgors under the Indenture and the Notes
(the "Subsidiary Guarantees"); and
WHEREAS, in order to secure the payment and performance of
the Obligations secured by the Subsidiary Guarantees, the parties hereto desire
to set forth their mutual understanding and certain agreements regarding the
terms and conditions of the pledge of the Pledged Collateral (as defined below)
made by the Pledgors to the Collateral Agent for the ratable benefit of the
Holders.
NOW, THEREFORE, in consideration of the premises and other
benefits to the Pledgor, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. Pledge. As collateral security for the complete
payment and performance in full of all the Obligations of the Company and the
Pledgors under the Indenture, the Notes and the Collateral Agreements (as
contemplated by Article Eight of the Indenture), each Pledgor hereby pledges,
assigns, transfers, sets over and delivers unto the Collateral Agent, and
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hereby grants unto the Collateral Agent for the ratable benefit of the Holders
and unto their respective successors and assigns, a continuing security interest
in all of the right, title and interest of each Pledgor in, to and under any and
all of the following described property, rights and interests (collectively, the
"Pledged Collateral"):
(a) all of the issued and outstanding shares of
Capital Stock identified on Schedule A attached hereto as being owned by each
Pledgor in any of its subsidiaries (the "Pledged Subsidiaries");
(b) all other shares of Capital Stock or other
equity securities issued, or in the future issued by the Pledged Subsidiaries
now or hereafter owned or acquired by each Pledgor in any manner, and the
certificates representing such securities, and any present or future options,
warrants or other rights to subscribe for or purchase any property described in
Section 1(a) or any notes, bonds, debentures or other evidences of indebtedness
that are at any time convertible, exchangeable or exercisable into Capital Stock
or other equity securities of the Pledged Subsidiaries or have or at any time
could by their terms have voting rights with respect to any matter affecting the
Pledged Subsidiaries and all securities, certificates and instruments
representing or evidencing ownership of any of the property described in Section
1(a) and this Section 1(b) hereof;
(c) all shares of Capital Stock, other equity
securities of any entity issued to each Pledgor or any other security described
in Section 1(b) if, at the time of issuance, the entity is or as a result of
such issuance becomes a subsidiary under the Indenture (the property described
in Section 1(a), Section 1(b) and this Section 1(c) being referred to herein
collectively as the "Pledged Securities");
(d) any additional property of the kind or type
described in this Section 1 required to be supplied under the terms of this
Subsidiary Pledge Agreement; and
(e) all proceeds and products of the Pledged
Securities, including without limitation dividends, distributions, cash,
instruments and other property or securities, now or hereafter at any time or
from time to time received or receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of the Pledged
Securities;
TO HAVE AND TO HOLD the Pledged Collateral, together with all
rights, titles, interests, powers, privileges and preferences pertaining or
incidental thereto, unto the Collateral Agent for its benefit and the benefit of
the Holders and unto their respective successors and assigns.
Section 2. Representations, Warranties and Covenants of the
Pledgor. Each of the Pledgors hereby represents and warrants (as of the date of
execution hereof as to the Pledged Collateral existing on such date and as of
the date of acquisition as to the Pledged Collateral acquired subsequently),
covenants and agrees that:
(a) As of the Issue Date, each Pledgor will be the
legal and beneficial owner of the Pledged Collateral, will hold the Pledged
Collateral free and clear of all Liens (except for the security interest granted
hereunder to the Collateral Agent for the ratable benefit of Holders and except
for Liens for taxes not yet payable and except for Liens securing the Eligible
Credit Facility and the Existing Notes, and has not made and will not make any
other pledge, assignment, mortgage, hypothecation or transfer of the Pledged
Collateral except for Liens securing the Eligible Credit Facility and the
Existing Notes.
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(b) The Pledged Securities have been or, upon the
Issue Date will be duly authorized and validly issued and are fully paid and
non-assessable.
(c) Upon delivery of physical certificates
evidencing the Pledged Securities to the Collateral Agent, and the continued
possession thereof by the Collateral Agent, or upon written acknowledgement,
confirmation and agreement (a "Pledge Possession Agreement") by the Lender under
the Eligible Credit Facility, the collateral agent under the Existing Notes or
any other person who holds or has acquired possession of any such certificates,
that such person is holding such certificates and related collateral for the
Collateral Agent or holders of the Notes in connection with this Pledge
Agreement, the Collateral Agent will have a continuing perfected security
interest in the Pledged Securities, securing all of the Obligations, subject
only to the New Intercreditor Agreements.
(d) As of the Issue Date, each Pledgor will have the
requisite corporate power and authority to pledge the Pledged Collateral in
accordance herewith and will defend its title thereto against the claims of all
persons whomsoever and shall maintain and preserve the security interest granted
hereunder with respect to the Pledged Collateral as long as this Subsidiary
Pledge Agreement shall remain in full force and effect, subject to the Permitted
Liens.
(e) Neither the execution and delivery of this
Subsidiary Pledge Agreement by any Pledgor, the performance by each Pledgor of
its obligations hereunder, nor the transactions herein contemplated will violate
any Pledgor's or any Pledged Subsidiary's Certificate of Incorporation or
bylaws, each as currently in effect as of the Issue Date, violate the terms of
any agreement, indenture, mortgage, deed of trust, equipment lease, instrument
or other document to which the Pledgor or any Pledged Subsidiary is a party,
violate any law, order, rule or regulation applicable to any Pledgor or any
Pledged Subsidiary of any court or any government, regulatory body or
administrative agency or other governmental body having jurisdiction over any
Pledgor or any Pledged Subsidiary or their properties, or result in or require
the creation or imposition of any Lien (other than the Lien contemplated
hereby), upon or with respect to any of the property now owned or hereafter
acquired by any Pledgor or any Pledged Subsidiary, which violation or conflict
would have a material adverse effect on the financial condition, business,
assets or liabilities of any Pledgor or any Pledged Subsidiary, taken as a
whole, or on the value of the Pledged Collateral or on the security interests
hereunder.
(f) Other than the occurrence of the Issue Date, the
Pledged Securities, described in Schedule A attached hereto, include all of the
issued and outstanding shares of Capital Stock of the Pledged Subsidiaries, and,
as of the date of execution hereof, there are no outstanding options, warrants
or other rights to subscribe for or purchase any property described in Section
1(a) or any notes, bonds, debentures or other evidences of indebtedness that are
at any time convertible into Capital Stock of the Pledged Subsidiaries or have
or at any time could by their terms have voting rights with respect to any
matters affecting the Pledged Subsidiaries.
(g) Other than the occurrence of the Issue Date, no
consent or approval which has not been obtained prior to the date hereof of any
other person or entity, no authorization, approval or other action (other than
delivery of physical certificates evidencing the Pledged Securities or the
execution and delivery of a Pledge Possession Agreement, as the case may be) by,
and no notice to or filing with, any governmental body (other than UCC filings),
regulatory authority or securities exchange, was or is necessary as a condition
to the validity of the pledge hereunder of the Pledged Collateral, and such
pledge is effective to vest in the Collateral Agent the rights of the
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Collateral Agent in the Pledged Collateral as set forth herein. Except under the
Indenture and this Pledge Agreement, there are no restrictions on the
transferability of any of the Pledged Collateral transferred or delivered by any
Pledgor hereunder or, except for restrictions related to federal and state
securities laws governing the sale of "restricted stock" or "control stock,"
with respect to the foreclosure, transfer or disposition thereof by the
Collateral Agent.
(h) Each Pledgor shall deliver to the Collateral
Agent concurrently with the execution of this Subsidiary Pledge Agreement or, to
the extent acquired subsequent to the date of execution hereof, immediately upon
such Pledgor's acquisition thereof, all certificates and instruments
representing the Pledged Securities, and each other item of Pledged Collateral
(including all certificates, instruments and notes representing any such Pledged
Collateral), or an executed Pledge Possession Agreement, in form and substance
satisfactory to the Collateral Agent, as the case may be. Any and all Pledged
Securities so delivered to the Collateral Agent shall be accompanied by undated
duly executed powers in blank and by such other instruments of transfer or
documents as the Collateral Agent may reasonably request. The Collateral Agent
shall hold the certificates representing the Pledged Securities delivered to it
in its own name or in the name of its nominee, all in form and substance
satisfactory to the Collateral Agent. Each Pledgor hereby acknowledges that the
Collateral Agent may, in its discretion, appoint one or more financial
institutions to act as the Collateral Agent's agent in holding in custodial
accounts instruments or other financial assets in which the Collateral Agent is
granted a security interest hereunder, including, without limitation,
certificates of deposit and other instruments evidencing short term obligations.
(i) The Collateral Agent shall at all times have
full and free access during normal business hours to all of the books,
correspondence and records of each Pledgor relating to the Pledged Collateral
(other than information that is privileged and confidential) and the Collateral
Agent and its representatives may examine the same, make abstracts therefrom and
make photocopies thereof, and each Pledgor agrees to render to the Collateral
Agent, at such Pledgor's costs and expense, such clerical and other assistance
as may be requested by the Collateral Agent with regard thereto.
(j) No Pledgor shall permit any of the Pledged
Subsidiaries to issue any securities of the type required to be pledged
hereunder unless such securities are promptly pledged and delivered hereunder to
the Collateral Agent in accordance with Section 2(h).
(k) If, while this Subsidiary Pledge Agreement is in
effect, subject to the terms and conditions of Section 2(c), any stock dividend,
stock split, reclassification, readjustment, reorganization, merger,
consolidation, exchange offer, tender offer or other change in the capital
structure, including the creation of any subscription or other rights relating
to the Pledged Securities, is declared or made, by any of the Pledged
Subsidiaries or any other issuer of Pledged Collateral, all substituted and
additional securities or interest issued with respect to the Pledged Collateral
and evidenced by certificates shall be endorsed in blank by each Pledgor
promptly upon receipt thereof or otherwise appropriately transferred to the
Collateral Agent in negotiable form, and all certificates or instruments
evidencing such securities shall be delivered to the Collateral Agent to be held
under the terms of this Subsidiary Pledge Agreement in the same manner as, and
as a part of, the Pledged Collateral. All Pledged Securities shall be evidenced
by one or more certificates. Any securities that may be issued upon exercise of
any subscription or other rights relating to the Pledged Securities shall be
endorsed in blank and delivered to the Collateral Agent with any necessary
powers.
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<PAGE>
(l) Each Pledgor shall pay and discharge all taxes,
assessments and governmental charges or levies against any Pledged Collateral
prior to delinquency thereof and shall keep all Pledged Collateral free of all
unpaid charges whatsoever, unless contested in good faith by appropriate
proceedings properly instituted and diligently conducted and adequate reserves
have been set aside in accordance with GAAP.
(m) Each Pledgor shall promptly notify the
Collateral Agent in writing of any material changes in any fact or circumstance
represented or warranted by the Pledgor with respect to any material portion of
the Pledged Collateral, of any impairment of the Pledged Collateral and of any
claim, action or proceeding affecting title to all or any of the Pledged
Collateral.
(n) The chief executive office and principal place
of business of each Pledgor is located at 565 Taxter Road, Elmsford, New York
10523. No Pledgor shall relocate its principal place of business or chief
executive office to another county or state or change its name, identity or
corporate structure unless such Pledgor (i) gives at least thirty (30) days'
prior written notice to the Collateral Agent, which notice shall specify such
new name, identity, corporate structure or new location and provide such other
information as the Collateral Agent may reasonably request and (ii) takes all
action reasonably satisfactory to the Collateral Agent to maintain the security
interest of the Collateral Agent in the Collateral.
(o) Upon any Pledgor acquiring or forming any
subsidiary, such Pledgor shall amend Schedule A attached hereto to include such
subsidiary and such subsidiary shall thenceforth be treated hereunder for all
purposes as a Pledged Subsidiary and all shares of Capital Stock or other equity
securities of such subsidiary issued to such Pledgor shall be treated hereunder
for all purposes as Pledged Collateral.
Section 3. Administration of the Pledged Collateral. The
Collateral Agent shall administer the Pledged Collateral in accordance with the
provisions hereof and of the Indenture.
Section 4. Release and Substitution of Pledged Collateral.
The Pledged Collateral shall not be released from the security interest created
hereunder and no property shall be substituted for any of the Pledged
Collateral, except in accordance with the provisions of Article Ten of the
Indenture and in accordance with the provisions of Section 18 hereof. The
Collateral Agent shall return the physical certificates and related stock powers
evidencing Pledged Collateral in its possession when so permitted by the
Indenture and this Subsidiary Pledge Agreement.
Section 5. Voting Rights, Dividends, Etc.
(a) Until an Event of Default (as defined below)
shall have occurred and be continuing:
(i) except as otherwise provided in
Sections 5(b) and (c) and Section 6 of this Subsidiary Pledge Agreement, each
Pledgor shall be entitled to exercise any and all voting or consensual rights
and powers, including subscription rights, accruing to an owner of the Pledged
Collateral or any part thereof for any purpose not inconsistent with the terms
of this Subsidiary Pledge Agreement or any agreement giving rise to any of the
Indenture Obligations;
(ii) except as otherwise provided in this
Subsidiary Pledge Agreement, each Pledgor shall be entitled to retain and use
any and all dividends, distributions or
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other payments which are permitted by the Indenture and paid in cash or property
(other than securities which are subject to this Subsidiary Pledge Agreement)
and the Collateral Agent, upon receipt of any of the foregoing, shall promptly
pay or distribute the same to such Pledgor; and
(iii) The Collateral Agent shall execute
and deliver to each Pledgor or cause to be executed and delivered to each
Pledgor, all such proxies, powers of attorney, dividend orders and other
instruments as such Pledgor may reasonably request for the purpose of enabling
it to exercise the voting or consensual rights and powers which such Pledgor is
entitled to exercise pursuant to the foregoing Section 5(a)(i) or to receive the
dividends, distributions or other payments which such Pledgor is authorized to
retain pursuant to the foregoing Section 5(a)(ii).
(b) Upon the occurrence and during the continuation
of an Event of Default, (i) upon notice from the Collateral Agent, all rights of
each Pledgor to exercise the voting or consensual rights and powers which the
Pledgor would otherwise be entitled to exercise pursuant to Section 5(a)(i), and
(ii) all rights of each Pledgor to receive the dividends, distributions and
other payments which the Pledgor would otherwise be authorized to receive and
retain pursuant to Section 5(a)(ii), shall automatically cease, and all such
rights shall thereupon become vested in the Collateral Agent, which, subject to
the New Intercreditor Agreements, shall then have the sole and exclusive right
and authority to exercise, in its sole discretion, all such voting and
consensual rights and powers and to receive and retain as Pledged Collateral all
such dividends, distributions and other payments.
(c) Upon the occurrence and during the continuation
of an Event of Default, the Collateral Agent shall have the sole and exclusive
right and authority to receive and retain as Pledged Collateral all dividends,
distributions and other payments which are paid on the Pledged Collateral (other
than dividends, distributions or other payments permitted by the Indenture and
paid on the shares of common stock of the company issuing such shares) in cash
or property. Any and all money and other property paid over to or received by
the Collateral Agent pursuant to the provisions of Section 5(b) or this Section
5(c) shall be retained by the Collateral Agent as additional Pledged Collateral
hereunder and shall be administered and applied in accordance with the
provisions of this Subsidiary Pledge Agreement, the Indenture and the New
Intercreditor Agreements. All dividends and interest payments which are received
by the Pledgor contrary to the provisions of Section 5(b) or this Section 5(c)
shall be received in trust for the benefit of the Collateral Agent, shall be
segregated from other funds of each Pledgor and shall be forthwith paid over to
the Collateral Agent as Pledged Collateral in the same form as so received (with
any necessary endorsement).
Section 6. Default; Remedies.
(a) Defined. For purposes of this Subsidiary Pledge
Agreement, as provided in the preamble of this Subsidiary Pledge Agreement, the
terms "Default" and "Event of Default" shall have the respective meanings
provided in the Indenture.
(b) Exercise of Remedies Under the Subsidiary Pledge
Agreement. If an Event of Default shall have occurred and be continuing, the
Collateral Agent shall commence the taking of such actions (or refrain from
taking actions) toward collection or enforcement of this Subsidiary Pledge
Agreement and the Pledged Collateral (or any portion thereof), including,
without limitation, action toward foreclosure upon any Pledged Collateral, as it
deems appropriate in accordance with and subject to the applicable terms of the
Indenture or within three (3) Business Days after instructions from the
Requisite Holders (as defined in Section 6(f) below), to the extent allowed by
law (and subject to the applicable terms of the Indenture and pursuant to the
terms hereof). If any
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Event of Default that was the basis for the commencement of such action shall
have been cured or waived, and, in the case where there has been an
acceleration, rescission of such acceleration shall have occurred, in each case
in accordance with the terms of the Indenture, any direction to the Collateral
Agent to take any action in connection with the aforementioned notice shall be
deemed rescinded upon notification by that percentage of Holders necessary to
effect such waiver with respect to such Event of Default as provided for in the
Indenture. The Collateral Agent shall have no obligation to take any collection
or enforcement action except upon satisfaction of the conditions set forth in
Section 7.01 and Section 7.02 of the Indenture.
(c) Remedies Generally. If an Event of Default shall
have occurred and be continuing, the Collateral Agent itself or by its agents or
attorneys may exercise any or all of its rights and remedies hereunder or under
the Indenture, or any other instrument or agreement securing, evidencing or
relating to the Obligations, the Notes or under applicable laws (including all
of the rights and remedies of a secured creditor under the Uniform Commercial
Code then in effect in the State of New York, the "UCC"), retain possession of
the Pledged Collateral or sell, assign, transfer, or dispose of, endorse and
deliver the whole or, from time to time, any part of the Pledged Collateral at
public or private sale or sales, at any exchanges, brokers board or at any of
the Collateral Agent's offices or elsewhere, for cash, upon credit or for other
property, for immediate or future delivery, and, to the extent permitted by
applicable law, for such price or prices and on such other terms as the
Collateral Agent may deem commercially reasonable. Upon consummation of any such
sale, the Collateral Agent shall have the right to assign, transfer, endorse and
deliver to the purchaser or purchasers thereof the Pledged Collateral so sold.
Each such purchaser at any such sale shall hold the property sold absolutely
free from any claim or right on the part of the Pledgors, and each Pledgor
hereby waives (to the full extent permitted by law) all rights of redemption,
stay or appraisal which any Pledgor now has or may at any time in the future
have under any rule of law or statute now existing or hereafter enacted. The
Collateral Agent shall give the Pledgors ten (10) days' written notice (which
each Pledgor agrees shall be deemed to be reasonable notification within the
meaning of Section 9-504(3) of the UCC) in accordance with Section 19 of the
Collateral Agent's intention to make any such public or private sale. Any such
sale shall be held at such time or times and at such place or places as the
Collateral Agent may fix. At any such sale, the Pledged Collateral, or portion
thereof to be sold, may be sold as an entirety or in separate portions, as the
Collateral Agent may, in its sole discretion, determine. The Collateral Agent
shall not be obligated to make any sale of the Pledged Collateral if it shall
determine not to do so, regardless of the fact that notice of sale of the
Pledged Collateral may have been given. The Collateral Agent may, without notice
or publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case sale of all or any part of the
Pledged Collateral is made on credit for future delivery, the Pledged Collateral
so sold may be retained by the Collateral Agent until the sale price is paid by
the purchaser or purchasers thereof, but the Collateral Agent shall not incur
any liability in case any such purchaser or purchasers shall fail to take up and
pay for the Pledged Collateral so sold and, in case of any such failure, such
Pledged Collateral may be sold again upon like notice. As an alternative to
exercising the power of sale herein conferred upon it, the Collateral Agent may
proceed by suit or suits at law or in equity to exercise its remedies regarding
the Pledged Collateral and sell the Pledged Collateral or any portion thereof
pursuant to judgment or decree of a court or courts having competent
jurisdiction. If under mandatory requirements of applicable law, the Collateral
Agent shall be required to make disposition of the Pledged Collateral within a
period of time that does not permit the giving of notice to the Pledgor as
hereinbefore provided, the Collateral Agent need give the Pledgor only such
notice of disposition as shall be reasonably practicable in view of such
mandatory requirements of law.
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(d) Remedies; Obtaining the Pledged Collateral Upon
Default. Each Pledgor agrees that if any Event of Default shall have occurred
and be continuing, then and in every such case, and in addition to the rights
and remedies available to a secured party under any applicable provision of the
UCC, or any other applicable law, the Collateral Agent, subject to the New
Intercreditor Agreements, may:
(i) personally, or by agents or
attorneys, immediately take possession of the Pledged Collateral or any part
thereof from the Pledgors or any other person who then has possession of any
part thereof, with or without notice or process of law, in accordance with
applicable law, and for that purpose may enter upon the Pledgors' premises where
any of the Pledged Collateral is located and remove the same;
(ii) instruct the obligor or obligors on
any agreement, instrument or other obligation constituting Pledged Collateral to
make any payment or render any performance required by the terms of such
agreement, instrument or obligation directly to the Collateral Agent or its
designee;
(iii) sell or otherwise liquidate, or
direct the Pledgors to sell or otherwise liquidate, any or all investments made
in whole or in part with the Pledged Collateral or any part thereof, and take
possession of the proceeds of any such sale or liquidation; and
(iv) take possession of the Pledged
Collateral or any part thereof by directing the Pledgors in writing to deliver
the same to the Collateral Agent at any place or places designated by the
Collateral Agent, in which event the Pledgors shall at their own expense:
(A) forthwith cause the same to be
moved to the place or places so designated by the Collateral Agent and there
delivered to the Collateral Agent;
(B) store and keep any Pledged
Collateral so delivered to the Collateral Agent at such place or places pending
further action by the Collateral Agent as provided in this Section 6(d); and
(C) while any such Pledged
Collateral shall be so stored and kept, provide such guard, security and
maintenance services as shall be necessary to protect the same and to preserve
and maintain such Pledged Collateral in good condition; it being understood that
the Pledgors' obligation so to deliver the Pledged Collateral is of the essence
of this Subsidiary Pledge Agreement and that, accordingly, upon application to a
court of equity having jurisdiction, the Collateral Agent shall be entitled to a
decree requiring specific performance by the Pledgors of such obligation.
(e) Preventing Impairment of the Pledged Collateral.
Regardless of whether or not there shall have occurred any Default or Event of
Default, the Collateral Agent may institute and maintain or cause in the name of
the Pledgors or of the Collateral Agent, or any of them, to be instituted and
maintained, such suits and proceedings as the Collateral Agent may be advised by
counsel shall be necessary or expedient to prevent any impairment of the
security interest in or perfection of the Pledged Collateral in contravention of
the terms of the Indenture. Each Pledgor agrees not to knowingly take or permit
to be taken any action which would impair the Pledged Collateral or the
Collateral Agent's rights in the Pledged Collateral.
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(f) Requisite Holders. For purposes of this Section
6, "Requisite Holders" means the Holder or Holders of a majority in principal
amount of the outstanding Notes or as otherwise provided in Article Six of the
Indenture.
Section 7. Collateral Agent Appointed Attorney-in-Fact. Each
Pledgor hereby constitutes and appoints the Collateral Agent its
attorney-in-fact for the purpose of carrying out the provisions, but subject to
the terms and conditions, of this Subsidiary Pledge Agreement and taking any
action and executing any instrument, including, without limitation, any
financing statement or continuation statement, and taking any other action to
maintain the validity, perfection, priority and enforcement of the security
interest intended to be created hereunder, that the Collateral Agent may
reasonably deem necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest; provided, however, that
nothing herein contained shall be construed as requiring or obligating the
Collateral Agent to make any commitment or to make any inquiry as to the nature
or sufficiency of any payment received by it, or to present or file any claim or
notice, or to take any action with respect to the Pledged Collateral or any part
thereof or the monies due or to become due in respect thereof or any property
covered thereby, and no action taken or omitted shall give rise to any defense,
counterclaim or right of action against the Collateral Agent, unless the
Collateral Agents actions are taken or omitted to be taken with gross negligence
or bad faith or constitute willful misconduct.
Section 8. Purchase of Pledged Collateral by Collateral Agent
or Holders. At any sale of the Pledged Collateral, whether pursuant to power of
sale or otherwise hereunder, the Collateral Agent or any Holder may, to the
extent permitted by applicable law, bid for and purchase, free from any right of
redemption, stay or appraisal (all such rights being hereby waived and released
by each Pledgor to the extent permitted by law), the Pledged Collateral or any
part thereof or an interest therein and upon compliance with the terms of such
sale, may hold, retain, exploit, resell or otherwise dispose of such property
without further accountability to the Pledgors for the proceeds of such sale
(except in the event that there is a surplus of such proceeds in excess of the
Company's and the Pledgor's Obligations under the Indenture, the Notes and the
Collateral Agreements, in which case, the Collateral Agent shall account to the
Pledgor for such surplus). Each Pledgor will execute and deliver or cause to be
executed and delivered, such instruments, endorsements, assignments, waivers,
certificates and other documents and take such further action as the Collateral
Agent shall request in connection with any such sale.
Section 9. Disposition of Proceeds. The proceeds of any sale
of the whole or any part of the Pledged Collateral, together with any other
monies held by the Collateral Agent under the provisions of this Subsidiary
Pledge Agreement, shall be applied by the Collateral Agent in accordance with
the provisions of the Indenture.
Section 10. Waiver of Claims. Except as otherwise provided in
this Subsidiary Pledge Agreement, EACH PLEDGOR HEREBY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, NOTICE OF JUDICIAL HEARING IN CONNECTION WITH THE
COLLATERAL AGENT'S TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF
ANY OF THE PLEDGED COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR
NOTICES AND HEARINGS FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT
THAT THE PLEDGOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF
THE UNITED STATES OR OF ANY STATE, and, to the full extent permitted by
applicable law, the Pledgor hereby further waives:
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(a) all damages occasioned by such taking of
possession or disposition except any damages which are the direct result of the
Collateral Agent's negligence, bad faith or willful misconduct;
(b) all other requirements as to the time, place and
terms of sale or other requirements, with respect to the enforcement of the
Collateral Agent's rights and powers hereunder; and
(c) except as provided in Section 6(c) hereof, all
rights of redemption, appraisement, valuation, stay, marshalling of assets,
extension or moratorium, existing at law or in equity, by statute or otherwise,
now or hereafter in force, in order to prevent or delay the enforcement of this
Subsidiary Pledge Agreement or the sale or other disposition of the Pledged
Collateral or any portion thereof, and each Pledgor, for itself and all who may
claim under it, insofar as it now or hereafter lawfully may, hereby waives all
such rights.
Any sale of, or the exercise of any options to purchase, or
any other realization upon, any Pledged Collateral shall operate to divest all
right, title, interest, claim and demand, at law or in equity, of each Pledgor
therein and thereto, and shall be a perpetual bar both at law and in equity
against each Pledgor and against any and all persons claiming or attempting to
claim the Pledged Collateral so sold, optioned or realized upon, or any part
thereof, through and under the Pledgor.
Section 11. Remedies Cumulative; No Waiver. Each right, power
and remedy of the Collateral Agent provided for herein or in the Indenture or in
another agreement pursuant to which a Lien is created in favor of the Collateral
Agent for the benefit of any Holder, or now or hereafter existing at law or in
equity, by statute or otherwise, shall be cumulative and concurrent and shall be
in addition to every other right, power or remedy of the Collateral Agent or any
Holder provided for herein or in the Indenture, the Notes or in another
agreement pursuant to which a Lien is created in favor of the Collateral Agent
for the benefit of any Holder or now or hereafter existing at law or in equity,
by statute or otherwise. No failure on the part of the Collateral Agent or any
Holder to exercise, and no delay in exercising, any right, power or remedy
hereunder or under the Indenture, the Notes or under another agreement pursuant
to which a Lien is created in favor of the Collateral Agent for the benefit of
any Holder or now or hereafter existing at law or in equity, by statute or
otherwise, shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. No notice
to or demand on the Pledgors hereunder shall, of itself, entitle the Pledgors to
any other or further notice or demand in the same, similar or other
circumstances.
Section 12. Additional Pledged Collateral. Without notice or
consent of the Pledgors and without impairment of the security interests and
rights created by this Subsidiary Pledge Agreement, the Collateral Agent may
accept from any Person or Persons additional collateral or other security for
the Obligations of the Company or the Pledgors' under the Indenture or the
Notes. Neither the creation of the security interests created hereunder nor the
acceptance of any such additional collateral or security shall prevent the
Collateral Agent from resorting to such additional collateral or security or to
the Pledged Collateral, in any order, without affecting the Collateral Agent's
rights hereunder.
Section 13. Further Assurances. Each Pledgor agrees that it
shall, at its own expense, promptly file or record such notices, financing
statements, continuation statements or other
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documents and take all further action as may be necessary to perfect, maintain
and protect the perfection of the security interests of the Collateral Agent
hereunder or to enable the Collateral Agent to exercise and enforce its rights
and remedies hereunder with respect to the Pledged Collateral, and as the
Collateral Agent may reasonably request, such instruments to be in form and
substance satisfactory to the Collateral Agent, and that it shall, at its own
expense, do such further acts and things and execute and deliver to the
Collateral Agent such additional conveyances, assignments, endorsements,
agreements and instruments as the Collateral Agent may at any time request in
connection with the administration and enforcement of this Subsidiary Pledge
Agreement or relative to the Pledged Collateral or any part thereof or in order
to assure and confirm unto the Collateral Agent its rights, powers and remedies
hereunder.
Section 14. Indemnification and Expenses.
(a) Each Pledgor agrees, jointly and severally, to
indemnify, reimburse and hold the Collateral Agent from and against any and all
claims, losses and liabilities arising or resulting from or relating to this
Subsidiary Pledge Agreement (including, without limitation, enforcement of this
Subsidiary Pledge Agreement), except claims, losses or liabilities resulting
from the Collateral Agent's gross negligence, bad faith or willful misconduct,
as determined by a final judgment of a court of competent jurisdiction. The
indemnification of the Collateral Agent set forth in the immediately preceding
sentence is cumulative and not exclusive of any indemnity of the Collateral
Agent set forth in the Indenture or provided for under the TIA.
(b) Each Pledgor will pay upon demand to the
Collateral Agent the amount of any and all out-of-pocket expenses, including the
reasonable fees and charges of its counsel and of any experts and agents, that
the Collateral Agent may incur in connection with the custody, preservation, use
or operation of, or the sale of, collection from or other realization upon, any
of the Pledged Collateral, the exercise or enforcement of any of the rights of
the Collateral Agent or the Holders hereunder or the failure by any Pledgor to
perform or observe any of the provisions hereof, and all amounts so incurred by
the Collateral Agent shall be entitled to the benefits of Section 7.07 of the
Indenture.
Section 15. Registration Rights, etc.
(a) If the Collateral Agent determines that the
registration of any of the securities included in the Pledged Collateral under,
or other compliance with, the Securities Act or any similar Federal or state law
is desirable, upon or at any time after an Event of Default and acceleration of
the Notes in accordance with Section 6.02 of the Indenture, each Pledgor will
use its best efforts to cause such registration or compliance to be effectively
made, at no expense to the Collateral Agent or to the Holders, and to continue
any such registration effective for such time as may be necessary in the opinion
of the Collateral Agent. The Pledgors will reimburse the Collateral Agent upon
demand for any expenses incurred by the Collateral Agent (including reasonable
attorneys' fees) incurred in connection therewith, which obligation to pay such
expenses shall be secured hereunder.
(b) If any Pledgor is unable to effect a public sale
of any or all of the Pledged Collateral or if the Collateral Agent determines
that it is desirable to sell the Pledged Collateral in one or more private
sales, the Collateral Agent may limit such sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a view to
distribution or resale. Each Pledgor acknowledges
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and agrees that any such private sale may result in prices and other terms less
favorable to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Collateral
Agent shall be under no obligation to delay a sale of any of the Pledged
Collateral for the period of time necessary to permit the issuer of such
securities to register such securities for public sale under the Securities Act
or under applicable state securities laws even if such issuer would agree to do
so.
(c) Each Pledgor further agrees to do or use all
reasonable efforts to cause to be done, to the extent such Pledgor may legally
do so, all such other acts and things as may be necessary to make such sale or
sales of all or any part of the Pledged Collateral valid and binding and in
compliance with any and all applicable laws, rules and regulations and orders
and decrees of any and all courts having jurisdiction over such sales, all at
the Pledgor's expense. Each Pledgor further agrees that a breach of any of the
covenants contained in this Subsidiary Pledge Agreement will cause irreparable
injury to the Collateral Agent, as secured party, for which the Collateral Agent
would have no adequate remedy at law in respect of such breach and, as a
consequence, agrees that each and every covenant contained in this Section 15
shall be specifically enforceable against each Pledgor and, to the full extent
permitted by applicable law, each Pledgor waives and agrees not to assert as a
defense against an action for specific performance of such covenant that
Pledgor's failure to perform such covenants will not cause irreparable injury to
the Collateral Agent or the Holders or that the Collateral Agent on behalf of
the Holders has an adequate remedy at law in respect of such breach.
Section 16. Pledgors' Indenture Obligations Absolute. The
liability of the Pledgors under this Subsidiary Pledge Agreement shall remain in
full force and effect without regard to, and shall not be released, suspended,
discharged, terminated or otherwise affected by: any change in the time, place
or manner of payment of all or any of the Company's or the Pledgors' Obligations
under the Indenture or the Notes, or in any other term of the Indenture, the
Notes or any Collateral Agreement, any waiver, indulgence, renewal, extension,
amendment or modification of or addition, consent or supplement to or deletion
from or any other action or inaction under or in respect of the Indenture, the
Notes or any Collateral Agreement, or any assignment or transfer thereof; any
lack of validity or enforceability, in whole or in part, of the Indenture, the
Notes or any Collateral Agreement; any furnishing of any additional security for
such Obligations or any acceptance thereof or any release or nonperfection of
any security interest in property; any limitation on any party's liability or
obligations under the Indenture, the Notes or any Collateral Agreement; any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceeding relating to the Pledgors or any Person
other than the Pledgors, or any action taken with respect to this Subsidiary
Pledge Agreement by any trustee or receiver, or by any court, in any such
proceeding, whether or not the Pledgor shall have notice or knowledge of any of
the foregoing; or any exchange, release or amendment or waiver of or consent to
departure from any other agreement pursuant to which a Lien is created in favor
of the Collateral Agent for the benefit of the Holder, pursuant to which a
person other than the Pledgors has granted a security interest.
Section 17. Waiver. To the extent permitted by applicable
law, each Pledgor hereby waives promptness, diligence, notice of acceptance and
any other notice with respect to the this Subsidiary Pledge Agreement and any
requirement that the Collateral Agent protect, secure, perfect or insure any
security interest or any property subject thereto or exhaust any right or take
any action against the Pledgors or any other person or entity; provided,
however, that the Collateral Agent shall in any event take such care in the
handling of any Pledged Securities in its possession as it takes with respect to
its own property of a similar nature in its possession.
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Section 18. Termination. Upon complete payment and
performance in full and satisfaction of all of the Company's and Pledgors'
Obligations under the Indenture, the Notes and the Collateral Agreements (as
contemplated by Article Eight of the Indenture), this Subsidiary Pledge
Agreement shall terminate, subject to the applicable terms of the Indenture, and
the Collateral Agent shall assign and redeliver to the Pledgors all of the
Pledged Collateral hereunder that has not been sold, disposed of, retained or
applied by the Collateral Agent in accordance with the terms hereof and the
Indenture. Such reassignment and redelivery shall be without warranty by, or
recourse to, the Collateral Agent, and shall be at the expense of the Pledgors.
At such time, this Subsidiary Pledge Agreement shall no longer constitute a Lien
upon or a grant of any security interest in any of the Pledged Collateral, and
the Collateral Agent shall, at the Pledgors' expense deliver to the Pledgors
written acknowledgment thereof and of cancellation of this Subsidiary Pledge
Agreement in a form reasonably requested by the Pledgors; provided, however,
that this Subsidiary Pledge Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
Company's and the Pledgors' Obligations under the Indenture, the Notes or the
Collateral Agreements is rescinded or must otherwise be returned upon the
insolvency, bankruptcy or reorganization of the Pledgors, all as though such
payment had not been made; and provided, further, however, this Subsidiary
Pledge Agreement shall no longer constitute a Lien upon or a grant of any
security interest in any of the Pledged Collateral that has been released in
accordance with the provisions of Section 10.05 of the Indenture.
Section 19. 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 Discovery Zone (Canada) Limited:
Discovery Zone, Inc.
565 Taxter Road, 5th Floor
Elmsford, New York 10523
Attn: Chief Executive Officer
Telephone Number: (914) 345-4500
Telecopy Number: (914) 345-4527
with a copy to attn: General Counsel
Telecopy Number: (914) 345-4516
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attn: Douglas P. Bartner, Esq.
Telephone Number: (212) 848-4000
Telecopy Number: (212) 848-7179
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if to Discovery Zone (Puerto Rico), Inc.:
Discovery Zone, Inc.
565 Taxter Road, 5th Floor
Elmsford, New York 10523
Attn: Chief Executive Officer
Telephone Number: (914) 345-4500
Telecopy Number: (914) 345-4527
with a copy to attn: General Counsel
Telecopy Number: (914) 345-4516
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attn: Douglas P. Bartner, Esq.
Telephone Number: (212) 848-4000
Telecopy Number: (212) 848-7179
if to Discovery Zone Licensing, Inc.:
Discovery Zone Licensing, Inc.
565 Taxter Road, 5th Floor
Elmsford, New York 10523
Attn: Chief Executive Officer
Telephone Number: (914) 345-4500
Telecopy Number: (914) 345-4527
with a copy to attn: General Counsel
Telecopy Number: (914) 345-4516
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attn: Douglas P. Bartner, Esq.
Telephone Number: (212) 848-4000
Telecopy Number: (212) 848-4527
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if to the Collateral Agent:
Firstar Bank of Minnesota, N.A.
101 East 5th Street
St. Paul, MN 55101
Attn: Corporate Trust
Telephone Number: (651) 229-2600
Telecopy Number: (651) 229-6415
Each of the Pledgors and the Collateral Agent 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 Pledgors or the
Collateral Agent 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 Holder shall be
mailed to such Holder by first class mail or other equivalent means at such
Holder's address as it appears on the registration books of the Registrar and
shall be sufficiently given to such Holder if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 20. Binding Agreement; Assignment. This Subsidiary
Pledge Agreement shall be binding upon and inure to the benefit of the
Collateral Agent, the Pledgors and their respective successors and permitted
assigns. Neither this Subsidiary Pledge Agreement nor any interest herein or in
the Pledged Collateral, or any part thereof, may be assigned by the Pledgors
without the prior written consent of the Collateral Agent, except as expressly
permitted herein or in the Indenture. This Subsidiary Pledge Agreement shall be
deemed to be automatically assigned by the Collateral Agent to any person who
succeeds to the Collateral Agent in accordance with Section 7.08 or Section 7.09
of the Indenture, and its assignee shall have all rights and powers of, and act
as, the Collateral Agent hereunder.
Section 21. Governing Law. This Subsidiary Pledge Agreement
shall be construed in accordance with, and this Subsidiary Pledge Agreement and
the transactions described herein shall be governed by, the laws of the State of
New York as to all issues, including (without limitation) issues of validity,
interpretation, effect, performance and remedies.
Section 22. Amendments. This Subsidiary Pledge Agreement may
not be amended or modified, except in accordance with Article Nine of the
Indenture.
Section 23. Severability. In the event that any provisions
contained in this Subsidiary Pledge Agreement shall for any reason be held to be
illegal or invalid under the laws of any jurisdiction, such illegality or
invalidity shall in no way impair the effectiveness of any other provision
hereof, or of such provision under the laws of any other jurisdiction; provided,
that in the construction and enforcement of such provision under the laws of the
jurisdiction in which such
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holding of illegality or invalidity exists, and to the extent only of such
illegality or invalidity, this Subsidiary Pledge Agreement shall be construed
and enforced as though such illegal or invalid provision had not been contained
herein.
Section 24. Headings. Section headings used herein are
inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Subsidiary Pledge Agreement.
Section 25. Counterparts. This Subsidiary Pledge Agreement
may be executed in any number of counterparts, each of which when so executed
and delivered shall be an original, and all of which shall together constitute
but one and the same instrument. A complete set of counterparts shall be lodged
with the Collateral Agent.
Section 26. Cooperation of Pledged Subsidiaries. Each Pledgor
shall cause the Pledged Subsidiaries to take all actions necessary to facilitate
the Pledgor's compliance with the terms hereof. If any entity issues shares of
Capital Stock or other equity securities to a Pledgor and such entity becomes a
subsidiary of the Pledgor, the Pledgor shall cause such Subsidiary to enter into
a supplement hereto, substantially in the form of this Subsidiary Pledge
Agreement, pursuant to which such Pledged Subsidiary shall pledge, assign,
transfer, set over and deliver unto the Collateral Agent, and grant unto the
Collateral Agent for the ratable benefit of the Holders and their respective
successors and assigns, a continuing security interest in all of the right,
title and interest of the Pledged Subsidiary in, to and under any and all of
such Capital Stock or other equity securities as collateral security for the
indefeasible payment and performance in full of the Company's and the Pledgors'
Obligations under the Indenture, the Notes and the Collateral Agreements. Such
Capital Stock or equity security shall thereafter be included as "Pledged
Securities" hereunder, such Pledged Subsidiary shall thereafter be included as a
"Pledgor" hereunder, and such entity shall thereafter be included as one of the
"Pledged Subsidiaries" hereunder.
Section 27. Confidentiality. The parties agree that they and
their employees have maintained and will maintain, in confidence, all data,
summaries, reports or information of all kinds, whether oral or written,
provided pursuant to this Subsidiary Pledge Agreement or acquired or delivered
in any manner from the other party's personnel or files (the "Confidential
Information"), and that they have not and will not reveal the same to any
persons not employed by the other party except: at the written direction of such
party; to the extent necessary to comply with applicable law, reporting
requirements imposed by the Securities and Exchange Commission, or the valid
order of a court of competent jurisdiction, in which event the disclosing party
shall so notify the other party as promptly as practicable (and, if possible,
prior to making any disclosure) and shall seek confidential treatment of such
information, or in connection with any arbitration proceeding; as part of its
normal reporting or review procedure to its parent company, its auditors and its
attorneys, and such parent company, auditors and attorneys agree to be bound by
the provisions of this Section; in order to enforce any of its rights pursuant
to, or in any other dispute with respect to, this Agreement; if, at the time of
disclosure to the recipient, the Confidential Information is in the public
domain; if, after disclosure to the recipient, the Confidential Information
becomes part of the public domain by written publication through no fault of the
recipient; or to any one or more Holders and their representatives and agents.
Section 28. No Assumption of Duties; Reasonable Care. The
rights and powers granted to the Collateral Agent hereunder are being granted in
order to preserve and protect the security interest of the Collateral Agent and
the Holders in and to the Pledged Collateral granted
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hereby and shall not be interpreted to, and shall not impose any duties on the
Collateral Agent in connection therewith other than those expressly provided
herein or imposed under applicable law and no implied covenants, functions,
responsibilities, duties, obligations, or liabilities shall be read into this
Pledge Agreement or otherwise exist against the Collateral Agent. Except as
provided by applicable law or by the Indenture, the Collateral Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Pledged Collateral in its possession if the Pledged Collateral is accorded
treatment substantially equal to that which the Collateral Agent accords similar
property held by the Collateral Agent for similar accounts, it being understood
that the Collateral Agent in its capacity as such shall not have any
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities or other matters relative to any Pledged
Collateral, whether or not the Collateral Agent has or is deemed to have
knowledge of such matters, (b) taking any necessary steps to preserve rights
against any parties with respect to any Pledged Collateral or (c) investing or
reinvesting any of the Pledged Collateral, provided, however, that nothing
contained in this Pledge Agreement shall relieve the Collateral Agent of any
responsibilities as a securities intermediary under applicable law.
Section 29. Authority of the Collateral Agent.
(a) The Collateral Agent shall have and be entitled
to exercise all powers hereunder that are specifically granted to the Collateral
Agent by the terms hereof, together with such powers as are reasonably incident
thereto. The Collateral Agent may perform any of its duties hereunder or in
connection with the Pledged Collateral by or through agents or employees and
shall be entitled to retain counsel and to act in reliance upon the advice of
counsel concerning all such matters. Except as otherwise expressly provided in
this Pledge Agreement or the Indenture, neither the Collateral Agent nor any
director, officer, employee, attorney or agent of the Collateral Agent shall be
liable to the Pledgor for any action taken or omitted to be taken by the
Collateral Agent, in its capacity as Collateral Agent, hereunder, except for its
own bad faith, gross negligence or willful misconduct, and the Collateral Agent
shall not be responsible for the validity, effectiveness or sufficiency hereof
or of any document or security furnished pursuant hereto. The Collateral Agent
and its directors, officers, employees, attorneys and agents shall be entitled
to rely on any communication, instrument or document believed by it or them to
be genuine and correct and to have been signed or sent by the proper person or
persons. The Collateral Agent shall have no duty to cause any financing
statement or continuation statement to be filed in respect of the Pledged
Collateral.
(b) The Pledgor acknowledges that the rights and
responsibilities of the Collateral Agent under this Pledge Agreement with
respect to any action taken by the Collateral Agent or the exercise or
non-exercise by the Collateral Agent of any option, right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Pledge Agreement shall, as between the Collateral Agent and the Holders, be
governed by the Indenture and by such other agreements with respect thereto as
may exist from time to time among them, but, as between the Collateral Agent and
the Pledgor, the Collateral Agent shall be conclusively presumed to be acting as
agent for the Holders with full and valid authority so to act or refrain from
acting, and the Pledgor shall not be obligated or entitled to make any inquiry
respecting such authority.
Section 30. Intercreditor Agreements. Notwithstanding any
term hereof to the contrary, the terms and conditions of this Subsidiary Pledge
Agreement are in all respects subject to, and all rights and remedies of the
parties hereunder shall be exercised only in accordance with, the terms,
conditions, benefits and protections contained in the New Intercreditor
Agreements.
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<PAGE>
Section 31. Other Pledgees. The Pledgors hereby acknowledge
and agree that the certificates evidencing the Pledged Collateral may be held by
the Lender under the Eligible Credit Facility, the collateral agent under the
Existing Notes or any other person who holds or has acquired possession of such
certificates, on behalf of or for the benefit of the Collateral Agent or the
holders of the Notes in connection with this Pledge Agreement, and that at such
time as the indebtedness and obligations to such Lender or collateral agent have
been paid in full, as the case may be, the Pledgor shall immediately deliver,
cause to be delivered and direct such Lender or collateral agent to deliver, as
the case may be, such certificates to the Collateral Agent or such party
designated thereby, and no other person.
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<PAGE>
IN WITNESS WHEREOF, the Pledgors and the Collateral Agent
have caused this Subsidiary Pledge Agreement to be duly executed and delivered
by its officer thereunto duly authorized as of the date first above written.
DISCOVERY ZONE (CANADA) LIMITED
By: /s/ Scott W. Bernstein
--------------------------------------------
Name: Scott W. Bernstein
Title: President and Chief Executive Officer
DISCOVERY ZONE (PUERTO RICO), INC.
By: /s/ Scott W. Bernstein
--------------------------------------------
Name: Scott W. Bernstein
Title: President and Chief Executive Officer
DISCOVERY ZONE LICENSING, INC.
By: /s/ Scott W. Bernstein
--------------------------------------------
Name: Scott W. Bernstein
Title: President and Chief Executive Officer
FIRSTAR BANK OF MINNESOTA, N.A., as
Collateral Agent
By: /s/ Frank P. Leslie, III
--------------------------------------------
Name: Frank P. Leslie, III
Title: Vice President
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 17th day of July, 1998 before me personally came Scott
Bernstein, to me known, who being by me duly sworn, did depose and say that he
is the President of DISCOVERY ZONE (CANADA) LIMITED, the corporation described
in and which executed the foregoing instrument; and that he signed his name
thereto by order of the Board of Directors of said corporation.
/s/ Christine Dionne
--------------------------------------------
Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 17th day of July, 1998 before me personally came Scott
Bernstein, to me known, who being by me duly sworn, did depose and say that he
is the President of DISCOVERY ZONE (PUERTO RICO), INC., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
/s/ Christine Dionne
--------------------------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 17th day of July, 1998 before me personally came Scott
Bernstein, to me known, who being by me duly sworn, did depose and say that he
is the President of DISCOVERY ZONE LICENSING, INC., the corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the Board of Directors of said corporation.
/s/ Christine Dionne
--------------------------------------------
Notary Public
<PAGE>
Schedule A
Subsidiary Shares of Capital Stock Pledged
- ---------- -------------------------------
================================================================================
INTERCREDITOR AGREEMENT
between
FOOTHILL CAPITAL CORPORATION
and
FIRSTAR BANK OF MINNESOTA, N.A.,
as Trustee and Collateral Agent
Dated as of July 17, 1998
================================================================================
<PAGE>
FORM OF
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT, dated as of July 17, 1998 (this
"Agreement"), is made by and between Foothill Capital Corporation, a California
corporation ("Lender"), as senior secured lender under and pursuant to the
Lender Credit Agreement (as hereinafter defined), and Firstar Bank of Minnesota,
N.A. (the "Subordinated Creditor"), solely in its capacity as trustee and
collateral agent under and pursuant to the Priority Senior Note Indenture (as
hereinafter defined).
RECITALS
A. Discovery Zone, Inc., a Delaware corporation (the "Borrower"),
certain subsidiaries of the Borrower and State Street Bank and Trust Company,
solely in its capacity as trustee and collateral agent (the "Old Notes
Trustee"), entered into the Indenture, dated July 22, 1997 (the "Old Notes
Indenture"), pursuant to which, and upon the terms and conditions stated
therein, indebtedness was incurred by the Borrower (the "Old Notes
Indebtedness"), the repayment of which is secured by priority security interests
in and liens on the assets and properties of the Borrower (the "Collateral")
described in the collateral security documents executed and delivered in
connection therewith (collectively, the "Old Notes Security Agreements" and,
together with the Old Notes Indenture, the "Old Notes Agreements").
B. The Borrower, certain subsidiaries of the Borrower and the
Subordinated Creditor entered into an Indenture (the "New Notes Indenture"),
dated the date hereof, pursuant to which, and upon the terms and conditions
stated therein, indebtedness was incurred by the Borrower (the "New Notes
Indebtedness"), the repayment of which is secured by security interests in and
liens on the assets and properties described in the collateral security
documents executed and delivered in connection therewith (collectively, the "New
Notes Security Agreements" and, together with the New Notes Indenture, the "New
Notes Agreements").
C. Borrower and Lender entered into a Loan and Security Agreement,
dated as of March 31, 1998, as amended by that certain Amendment Number One to
Loan and Security Agreement, dated the date hereof (as amended, the "Lender
Credit Agreement"), pursuant to which Lender agreed, upon the terms and
conditions stated therein, to make loans and advances to or to issue letters of
credit (or guaranties in respect thereof) on account of the Borrower (and
certain of its subsidiaries) in an aggregate principal amount and undrawn
amount, as the case may be, not to exceed in the aggregate $15 million (such
aggregate principal and undrawn amount, together with all interest, fees and
expenses payable thereon or with respect thereto being the "Maximum Senior
Indebtedness"), secured by security interests in and liens on the
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<PAGE>
collateral pursuant to the Lender Credit Agreement and the collateral security
documents executed and delivered in connection therewith (the "Senior Security
Agreements" and, together with the Lender Credit Agreement, the "Senior Loan
Agreements").
D. Lender and the Old Notes Trustee, solely in its capacity as
collateral agent and trustee under the Old Notes Indenture, entered into an
Intercreditor Agreement (the "Old Notes Intercreditor Agreement") concerning the
respective rights of the Old Notes Trustee and Lender with respect to the
priority of their respective security interests in and liens on the Collateral.
E. The Subordinated Creditor, solely in its capacity as collateral
agent and trustee under the New Notes Indenture, and the Old Notes Trustee,
solely in its capacity as collateral agent and trustee under the Old Notes
Indenture, entered into an Intercreditor Agreement (the "Noteholder
Intercreditor Agreement") concerning the respective rights of the Subordinated
Creditor and the Old Notes Trustee with respect to the priority of their
respective security interests in and liens on the Collateral.
F. One of the conditions of the Lender Credit Agreement is that the
priority of the security interests in and liens on the Collateral under the
Senior Loan Agreements be senior to the security interests in and liens on the
Collateral under the New Notes Security Agreements, in the manner and to the
extent provided in this Agreement.
G. Lender and the Subordinated Creditor, solely in its capacity as
trustee and collateral agent under the New Notes Indenture, desire to enter into
this Agreement concerning the respective rights of Lender and the Subordinated
Creditor with respect to the priority of their respective security interests in
and liens on the Collateral.
H. The terms of the New Notes Indenture permit the Borrower to enter
into the Senior Loan Agreements and, in connection therewith, provides for and
directs that the Subordinated Creditor shall enter into a subordination
agreement substantially in the form of this Agreement.
I. The Lender and the Subordinated Creditor agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01. Terms Defined Above and in the Recitals. As
used in this Agreement, the following terms shall have the
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respective meanings indicated in the opening paragraph hereof and
in the above Recitals:
"Agreement"
"Borrower"
"Collateral"
"Lender"
"Lender Credit Agreement"
"Maximum Senior Indebtedness"
"New Notes Agreements"
"New Notes Indebtedness"
"New Notes Indenture"
"New Notes Security Agreements"
"Noteholder Intercreditor Agreement"
"Old Notes Agreements"
"Old Notes Indebtedness"
"Old Notes Indenture"
"Old Notes Intercreditor Agreement"
"Old Notes Security Agreements"
"Old Notes Trustee"
"Senior Loan Agreements"
"Senior Security Agreements"
"Subordinated Creditor"
Section 1.02. Other Definitions. As used in this
Agreement, the following terms shall have the meanings set forth
below:
"Bankruptcy Code" shall mean Title 11 of the United States
Code, 11 U.S.C. ss.ss. 101 et seq, as amended.
"Event of Default" shall have the meaning ascribed thereto in the
Lender Credit Agreement.
"Fully Paid" shall mean the payment in cash in full of all obligations
under each Lender Loan Document at such time when there shall no longer be any
obligation of the Lender to make loans or advances or issue letters of credit
(or guaranties in respect thereof) and there shall no longer be any letter of
credit (or guaranty in respect thereof) outstanding thereunder or such letter of
credit (or guaranty in respect thereof) shall have been cash collateralized in
an amount not less than 105% of the undrawn amount thereof.
"Insolvency Proceeding" shall mean any proceeding for the purposes of
dissolution, winding up, liquidation, arrangement or reorganization of the
Borrower or its Subsidiaries or their respective successors or assigns, whether
in bankruptcy, insolvency, arrangement, reorganization or receivership
proceedings or upon an assignment for the benefit of creditors or any other
marshaling of the assets and liabilities of the Borrower or its Subsidiaries, or
their respective successors or assigns.
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<PAGE>
"Issue Date" shall have the meaning ascribed thereto in the Old Notes
Indenture.
"Lender Loan Documents" shall mean the Senior Loan Agreements, the
collateral documents and instruments executed and delivered in connection
therewith, and such other agreements, instruments and certificates as defined or
referred to in the Lender Credit Agreement, as any or all of the same may be
amended or supplemented from time to time.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction,
excluding true lease and consignment filings).
"Lien Priority" shall mean with respect to any Lien of the Lender or
the Subordinated Creditor in the Collateral, the order of priority of such Lien
as specified in Section 2.01 of this Agreement.
"Loan Documents" shall mean the Lender Loan Documents and
the Subordinated Creditor Loan Documents.
"McDonald's" shall mean the McDonald's Corporation, a
Delaware corporation, and its successors and assigns.
"McDonald's Collateral" shall mean those certain fourteen parcels of
real property and related fixtures, including, without limitation, any proceeds
thereof, which properties and proceeds are subject to McDonald's Senior Liens.
"McDonald's Secured Note" shall mean a secured promissory note issued
on the Issue Date by the Borrower in favor of McDonald's pursuant to the Plan of
Reorganization, which note represents restructured secured claims against the
Borrower in an estimated aggregate principal amount of up to $4,600,000.
"McDonald's Secured Rent Deferral Notes" shall mean secured promissory
notes issued on the Issue Date by the Borrower in favor of McDonald's pursuant
to the Plan of Reorganization, which notes represent restructuring of rent
deferrals which McDonald's granted to the Borrower during bankruptcy proceedings
of the Borrower in an estimated aggregate principal amount of up to $300,000.
"McDonald's Senior Liens" shall mean the first priority liens of
McDonald's on the McDonald's Collateral, as set forth in the first mortgages,
deeds of trust and/or deeds to secure debt, which McDonald's Senior Liens
secure, among other things, the payment of the McDonald's Secured Note, the
McDonald's Secured
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<PAGE>
Rent Deferral Notes and any obligations of the Debtors (as defined in the Plan
of Reorganization) or the Borrower or any of the other Reorganized Debtors (as
defined in the Plan of Reorganization) that may arise under (i) the agreement to
indemnify as set forth in Section 10.3(f) and Section 11.2(a)(iii) of the
Agreement and Plan of Merger, dated as of August 30, 1994, by and among
Discovery Zone, Inc., Discovery Zone International, Inc., Leaps & Bounds, Inc.
and McDonald's and (ii) the Stipulation and Order Between Debtors and McDonald's
Providing for the Resolution, Settlement and Compromise of Disputes and for Rent
Deferrals and Allowance of Certain Claims, entered by the United States
Bankruptcy Court for the District of Delaware on November 18, 1996, which liens
are senior to the subordinate liens on the McDonald's Collateral granted by the
Borrower to Subordinated Creditor as set forth in the Subordination Agreement,
dated as of July 22, 1997, by and between McDonald's and the Subordinated
Creditor.
"Party" shall mean any signatory to this Agreement.
"Plan of Reorganization" shall mean the Third Amended Joint Plan of
Reorganization of the Borrower, dated March 11, 1997, as amended and as
confirmed by order of the United States Bankruptcy Court for the District of
Delaware, dated July 18, 1997.
"Senior Liabilities" shall mean the obligations, contingent or
otherwise, of the Borrower and the Subsidiary Guarantors under the Lender Credit
Agreement to the Lender and the obligations, contingent or otherwise, of the
subsidiaries of the Borrower arising under or pursuant to the Senior Loan
Agreements, including, in each case, interest (including interest after the
commencement of any Insolvency Proceeding at the rate specified in the
applicable Senior Loan Agreements, whether or not such interest is an allowed
claim in any such Insolvency Proceeding), fees and expenses accruing after the
initiation of any Insolvency Proceeding (irrespective of whether allowed as a
claim in such proceeding), and including the secured claims of the Lender in
respect of the Collateral in any Insolvency Proceeding (irrespective of whether
allowed as a claim in such proceeding).
"Subordinated Creditor Enforcement Event" shall mean the occurrence and
continuance of an "Event of Default" under Section 6.01 of the New Notes
Indenture.
"Subordinated Creditor Loan Documents" shall mean the New Notes
Agreements, the Collateral Agreements (as defined in the New Notes Indenture),
the Subordinated Creditor Notes, the real property mortgages referred to in the
New Notes Indenture (now existing or hereafter negotiated, executed, delivered
and recorded), and such other agreements, instruments and certificates as
defined or referred to in the New Notes Indenture, as any or all of the same may
be amended or supplemented from time to time.
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<PAGE>
"Subordinated Creditor Notes" shall mean the notes issued to the
holders thereof pursuant to the New Notes Indenture.
"Subordinated Holders" shall mean the holders of New Notes
Indebtedness under the New Notes Indenture.
"Subordinated Liabilities" shall mean the obligations, contingent or
otherwise, of the Borrower and the Subsidiary Guarantors (as defined in the New
Notes Indenture) to the Subordinated Creditor and the Subordinated Holders, and
the obligators, contingent or otherwise, of the subsidiaries of the Borrower
arising under or pursuant to the New Notes Agreements, including, in each case,
interest (including interest after the commencement of any Insolvency Proceeding
at the rate specified in the applicable Subordinated Creditor Notes, whether or
not such interest is an allowed claim in any such Insolvency Proceeding), fees
and expenses accruing after the initiation of any Insolvency Proceeding
(irrespective of whether allowed as a claim in such proceeding), and including
the secured claims of the Subordinated Creditor in respect of the Collateral in
any Insolvency Proceeding (irrespective of whether allowed as a claim in such
proceeding).
"Trigger Event" shall mean any of (a) the occurrence of an Event of
Default, (b) the acceleration of or demand for payment with respect to the
Senior Liabilities by Lender pursuant to the Lender Credit Agreement, or (c) the
commencement of any action by Lender, whether judicial or otherwise, for the
enforcement of the rights and remedies of Lender under any of the Lender Loan
Documents, including (i) commencement of any receivership or foreclosure
proceedings against or any other sale of, collection on or disposition of any
Collateral, including any notification to third parties to make payment directly
to Lender, (ii) exercise of any right of set-off, (iii) commencement of any
Insolvency Proceeding, and (iv) commencement of any action or proceeding against
the Borrower to recover all or any part of the Senior Liabilities.
Section 1.03. Singular and Plural. All definitions herein (whether set
forth herein directly or by reference to definitions in other documents) shall
be equally applicable to both the singular and the plural forms of the terms
defined.
Section 1.04. Miscellaneous. The words "hereof", "herein" or
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. Article and section references are to articles and sections of this
Agreement unless otherwise specified. The term "including" shall mean
"including, without limitation".
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<PAGE>
ARTICLE II
LIEN PRIORITY
Section 2.01. Agreement to Subordinate. The Subordinated Creditor
hereby agrees that the Liens of the Subordinated Creditor in the Collateral are
and shall be junior to and subordinate in priority to the Liens of the Lender in
the Collateral securing the Senior Liabilities up to and not exceeding the
Maximum Senior Indebtedness; provided, however, that the terms, provisions and
restrictions of this Agreement shall be void and of no further force and effect
in the event, but only to the extent, that the Lender's Liens in the Collateral
are avoided, disallowed, set aside or otherwise invalidated in any judicial
proceeding by a court, tribunal or administrative agency of competent
jurisdiction, to the extent of such Collateral which is the subject of any such
proceeding. The subordination of Liens by the Subordinated Creditor in favor of
the Lender herein shall not be deemed to subordinate the Subordinated Creditor's
Liens to the Liens of any other Person.
Section 2.02. Standstill Period. If a Subordinated Creditor Enforcement
Event has occurred and is continuing, the Subordinated Creditor may give the
Lender written notice thereof, specifying the nature of the Subordinated
Creditor Enforcement Event in reasonable detail. If such Subordinated Creditor
Enforcement Event is continuing for more than 180 days after the delivery of
such notice, and if the Lender has not by the expiration of such 180-day period
notified the Subordinated Creditor that the Lender has commenced one or more
types of enforcement actions described in Section 3.01 or that the Borrower is
the subject of an Insolvency Proceeding, then the Subordinated Creditor may,
subject to the Lien Priority and prior application of proceeds of the Collateral
to the Senior Liabilities, as provided herein, take one or more types of
enforcement actions described in Section 3.01 or otherwise available to the
Subordinated Creditor under the New Notes Indenture and the other Subordinated
Creditor Loan Documents. If the Lender has taken or commenced any such
enforcement action within such 180-day period and thereafter discontinues such
enforcement action or actions, and no Insolvency Proceeding is pending against
the Borrower and no action described in Section 3.01 is then being taken by the
Lender, and if, following the expiration of such 180-day period, such
Subordinated Creditor Enforcement Event is then continuing, then the
Subordinated Creditor may, subject to the Lien Priority and prior application of
proceeds of the Collateral to the Senior Liabilities, as provided herein, take
one or more types of enforcement actions described in Section 3.01 or otherwise
available to the Subordinated Creditor under the New Notes Indenture and the
other Subordinated Creditor Loan Documents.
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<PAGE>
Section 2.03. Exercise of Rights.
(a) Subject to Section 2.02, the Subordinated Creditor may
exercise, and nothing herein shall constitute a waiver of, any right it may have
at law or equity to receive notice of, or to commence or join with any creditor
in commencing any Insolvency Proceeding or, subject to Section 2.02, to join or
participate in, any action or proceeding or other activity described in Section
3.01; provided, however, that exercise of any such right by the Subordinated
Creditor shall be subject to the Lien Priority and prior application of proceeds
of Collateral to the Senior Liabilities as provided herein.
(b) The Subordinated Creditor may make such demands or file
such claims in respect of the Subordinated Liabilities as may be necessary to
prevent the waiver or bar of such claims under applicable statutes of
limitations or other statutes, court orders or rules of procedure, but except as
provided in this Section 2.03, the Subordinated Creditor shall not take any
actions restricted by Section 3.01 in respect of such claims until the Senior
Liabilities up to the amount of the Maximum Senior Indebtedness are Fully Paid.
Section 2.04. Priority of Liens. Irrespective of the order of recording
of mortgages, financing statements, security agreements or other instruments,
and irrespective of the descriptions of Collateral contained in the Loan
Documents, including any financing statements, the Parties agree among
themselves that their respective liens and security interests in the Collateral
shall be governed by the Lien Priority, which shall be controlling in the event
of any conflict between this Agreement and any of the Loan Documents.
Section 2.05. Notice of Trigger Event. The Lender and the Subordinated
Creditor each agree that it will notify the other if it receives actual notice
of the occurrence of a Trigger Event or Subordinated Creditor Enforcement Event,
respectively, not later than 30 days after the date of any such occurrence, in
accordance with Section 5.06. The foregoing to the contrary notwithstanding, the
Lender shall not incur any liability to the Subordinated Creditor for the
failure to provide any such notice so long as the failure to so provide such
notice was not the result of wilful misconduct, bad faith or gross negligence.
ARTICLE III
ACTIONS OF THE PARTIES
Section 3.01. Limitation on Certain Actions. Subject to Section 2.02,
so long as any of the Senior Liabilities up to the amount of the Maximum Senior
Indebtedness are not Fully Paid, the Subordinated Creditor will not, without the
prior written consent of the Lender, take any of the following actions:
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(a) commencement of any action, whether judicial or otherwise,
for the enforcement of the Lender's rights and remedies as a secured creditor
with respect to the Collateral including commencement of any receivership or
foreclosure proceedings against or any other sale of, collection on, or
disposition of any Collateral; or
(b) notifying any third party account debtors of the Borrower
or its subsidiaries to make payment directly to it or any of its agents or other
Persons acting on its behalf.
Section 3.02. Notices. The Lender shall provide the Subordinated
Creditor with written notice at least 15 days prior to the Lender first
exercising any of its secured creditor remedies with respect to the Collateral.
The foregoing to the contrary notwithstanding, the Lender (a) shall not be
obligated to provide such prior written notice in the event that exigent
circumstances require that the Lender act immediately in order to preserve,
protect, or obtain possession or control over the Collateral or any portion
thereof; provided, however, that, in the event any such exigent circumstances do
require the Lender to so act immediately, the Lender agrees promptly to provide
the Subordinated Creditor with written notice as soon as practicable following
the Lender first exercising any of its secured creditor remedies with respect to
the Collateral, and (b) the Lender shall not incur any liability to the
Subordinated Creditor for the failure to provide any such notice so long as the
failure to so provide such notice was not the result of wilful misconduct, bad
faith or gross negligence.
Section 3.03. Perfection of Possessory Security Interests.
(a) For the limited purpose of perfecting the security
interests of the Parties in those types of Collateral in which a security
interest only may be perfected by possession or control, each Party hereby
appoints the other as its representative for the limited purpose of possessing
on its behalf any such Collateral that may come into the possession or control
of such other Party from time to time, and each Party agrees to act as the
other's representative for such limited purpose of perfecting the other's
security interest by possession or control through a representative, provided
that neither Party shall incur any liability to the other by virtue of acting as
the other's representative hereunder, and either Party may relinquish possession
of Collateral in its possession or control without the consent of the other
Party, and without incurring liability to the other Party unless there is an
express written agreement to the contrary in effect between the Parties, subject
to Section 3.03(b).
(b) The Lender acknowledges and agrees that it has been
advised by the Subordinated Creditor that the Subordinated Creditor has a
security interest in and lien on certain pledged collateral pursuant to the
Pledge Agreement by Borrower in favor
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<PAGE>
of the Subordinated Creditor dated the date hereof, and the Subsidiary Pledge
Agreement by the Subsidiary Guarantors in favor of the Subordinated Creditor
dated the date hereof, and that in the event the Lender is holding the physical
certificates evidencing such pledged collateral subject to a pledge in its
favor: (i) the Lender acknowledges and agrees that it is holding such
certificates on behalf of and for the benefit of the Subordinated Creditor,
subject to the Intercreditor Agreement, and (ii) at such time as the Senior
Liabilities are paid in full, and in the event the Subordinated Liabilities are
not satisfied in full, the Lender shall, and is authorized and directed to,
deliver all such certificates and other collateral under such Pledge Agreement
to the possession of the Subordinated Creditor or its designee, with any
necessary endorsements in favor of the Subordinated Creditor.
ARTICLE IV
ENFORCEMENT OF PRIORITIES
Section 4.01. In Furtherance of Lien Priorities. The
Lender and the Subordinated Creditor agree as follows:
(a) Upon any distribution of all or any of the assets of the
Borrower or its Subsidiaries to creditors of the Borrower or its Subsidiaries
(whether in cash, securities or other property) in connection with any
Insolvency Proceeding, which otherwise would be payable or deliverable upon or
with respect to the Collateral, such assets shall be paid or delivered by the
Subordinated Creditor directly to the Lender for application (in the case of
cash) to or as collateral (in the case of securities or other non-cash property)
for the payment or prepayment of the Senior Liabilities until the Senior
Liabilities up to the Maximum Senior Indebtedness shall have been Fully Paid.
(b) If any Insolvency Proceeding is commenced by or against
the Borrower or its Subsidiaries, the Subordinated Creditor, to the extent party
to any such Insolvency Proceeding, and to the extent it has commenced any action
described in Section 3.01, shall (i) use its commercially reasonable efforts to
duly and promptly take such action as the Lender may reasonably request to
collect the proceeds of Collateral for account of the Lender at Lender's
reasonable cost and expense and to file appropriate claims or proofs of claim in
respect of the Subordinated Liabilities and (ii) receive any and all payments or
distributions which may be payable or deliverable upon or with respect to the
Collateral and to hold such payments or distributions in trust for the Lender to
the extent set forth herein; provided, however, that Subordinated Creditor shall
have no liability to the Lender regarding the adequacy of any such proceeds or
for any action taken pursuant to Lender's request under clause (i) hereof except
for liabilities resulting from
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Subordinated Creditor's wilful misconduct, bad faith or gross negligence.
(c) All payments or distributions upon or with respect to the
Subordinated Liabilities which are received by the Subordinated Creditor
contrary to the provisions of this Agreement shall be segregated from other
funds and property held by the Subordinated Creditor and shall be held in trust
for the Lender and shall forthwith pay over such remaining proceeds to the
Lender in the same form as so received (with any necessary endorsement without
recourse or warranty) to be applied (in the case of cash) to or held as
Collateral (in the case of non-cash property or securities) for the payment or
prepayment of up to the Maximum Senior Indebtedness in accordance with the terms
of the Lender Credit Agreement; provided, however, that if, after such
application of proceeds, the Senior Liabilities up the Maximum Senior
Indebtedness are Fully Paid, the balance of any amounts received by the Lender
from the Subordinated Creditor shall be segregated by the Lender from the
Lender's other funds and properties, and the Lender shall hold such surplus
amounts in trust for the Subordinated Creditor and shall forthwith pay over such
amounts to the Subordinated Creditor in the same form as so received (with any
necessary endorsement without recourse or warranty) to be applied (in the case
of cash) to or held as Collateral (in the case of non-cash property or
securities) for the payment or prepayment of the Subordinated Liabilities in
accordance with the terms of the New Notes Indenture.
(d) Each of the Lender and the Subordinated Creditor is hereby
authorized to demand specific performance of this Agreement, whether or not the
Borrower shall have complied with any of the provisions hereof applicable to it,
at any time when the other shall have failed to comply with any of the
provisions of this Agreement applicable to it, provided, however, the remedy of
specific performance shall not be available, and the asserting party shall be
free to assert any and all legal defenses it may possess, if such remedy would
result in, or otherwise constitute, a violation of the Employee Retirement
Income Security Act of 1974, as amended. Each of the Lender and the Subordinated
Creditor hereby irrevocably waives any defense based on the adequacy of a remedy
at law, which might be asserted as a bar to such remedy of specific performance.
(e) This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the Senior
Liabilities is, other than as a result of any wilful misconduct, bad faith or
gross negligence of the Lender, rescinded or must otherwise be returned by the
Lender upon the insolvency, bankruptcy or reorganization of the Borrower or
otherwise, all as though such payment had not been made.
Section 4.02 Control of Dispositions of Collateral
and Effect thereof on Junior Liens. Except to the extent, if
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any, expressly prohibited by the terms and conditions of Section 4.15 or Section
5.01 of the New Notes Indenture:
(a) each Party hereby agrees that if the Party with the senior
security interest in such Collateral shall have agreed with the Borrower (or its
subsidiary, as applicable) that the Borrower (or its subsidiary, as applicable)
may sell or otherwise dispose of such Collateral, then the security interest of
the other Party in such Collateral shall be released by such other Party
concurrently with such sale or other disposition and the net cash proceeds
therefrom may, at the sole election of the Party with the senior security
interest therein, be applied to the claims of the Parties in the manner provided
for herein, or be used by the Borrower (or its subsidiary, as applicable) for
its lawful general corporate purposes;
(b) each Party hereby further agrees that any UCC collection,
sale, or other disposition of Collateral by the Lender shall be free and clear
of any lien of the Subordinated Creditor in such Collateral, provided that the
Subordinated Creditor shall retain a Lien (having the same priority as the lien
it previously had on the item of Collateral that was sold or otherwise disposed
of) on the proceeds of such collection, sale, or other disposition (except to
the extent such proceeds are applied to the Senior Liabilities, as provided
herein, or are used by the Borrower (or its subsidiary, as applicable) for
general corporate purposes as set forth in subsection (a) of this Section 4.02);
and
(c) to the extent reasonably requested by either Party, the
other Party will cooperate in providing any necessary or appropriate releases to
permit a collection, sale, or other disposition of Collateral, as provided in
subsections (a) or (b) of this Section 4.02, by the Party holding the senior
lien therein free and clear of the other Party's junior Lien.
ARTICLE V
MISCELLANEOUS
Section 5.01. Rights of Subrogation. The Subordinated Creditor
agrees that no payment or distribution to the Lender pursuant to the provisions
of this Agreement shall entitle the Subordinated Creditor to exercise any rights
of subrogation in respect thereof until the Senior Liabilities up to the Maximum
Senior Indebtedness shall have been Fully Paid.
Section 5.02. Further Assurances. The Parties will, at their
own expense and at any time and from time to time, promptly execute and deliver
all further instruments and documents, and take all further action, that may be
necessary or desirable, or that either Party may reasonably request, in order to
protect any right or interest granted or purported to be granted hereby or to
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enable the Lender or the Subordinated Creditor to exercise and enforce its
rights and remedies hereunder; provided, however, that neither Party shall be
required to pay over any payment or distribution, execute any instruments or
documents, or take any other action referred to in this Section 5.02 to the
extent that such action would contravene any law, order or other legal
requirement binding upon such Party, and in the event of a controversy or
dispute, either Party may interplead any payment or distribution in any court of
competent jurisdiction, without further responsibility in respect of such
payment or distribution under this Section 5.02.
Section 5.03. Defenses Similar to Suretyship Defenses. All
rights and interests of the Lender hereunder, and all agreements and obligations
of the Subordinated Creditor under this Agreement, shall remain in full force
and effect irrespective of:
(a) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Senior Liabilities, or any other
amendment or waiver of or any consent to departure from the Senior Loan
Agreements, provided, however, that this clause (a) shall not apply to, and the
Subordinated Creditor's Liens and security interests in the Collateral shall not
be subordinated in priority by virtue of this Agreement to the Lender's liens
and security interests therein to the extent that the Senior Liabilities exceed
the Maximum Senior Indebtedness without the express written consent of the
Subordinated Creditor; or
(b) any release or non-enforcement of the Lender's Liens with
respect to any Collateral, or any release, amendment or waiver of or consent to
departure from any guaranty for all or any of the Senior Liabilities.
Section 5.04. Waiver. Except as otherwise provided herein, to
the maximum extent permitted by applicable law, the Subordinated Creditor hereby
waives, with respect to the Collateral to which the Lien Priority hereunder
relates (i) any failure, omission, delay or lack on the part of the Lender to
enforce, assert or exercise any right, power or remedy conferred on the Lender
in any of the Lender Loan Documents or this Agreement or the inability of the
Lender to enforce any provision of the Lender Loan Documents or this Agreement,
and (ii) without limiting the generality of the foregoing, any requirement that
the Lender protect, secure, perfect or insure any Liens or other lien or any
property subject thereto or exhaust any right or take any action against the
Borrower or any other Person or any Collateral; provided, however, that the
foregoing shall not be deemed to conflict with the proviso to Section 2.01.
Section 5.05. Amendments, Etc. No amendment or waiver
of any provision of this Agreement nor consent to any departure
by any Party shall in any event be effective unless the same
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shall be in writing and signed by the each Party, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
Section 5.06. Addresses for Notices. All demands, notices and
other communications provided for hereunder shall be in writing and, if to the
Subordinated Creditor, mailed or sent by telecopy or delivered to it, addressed
to it as follows:
Firstar Bank of Minnesota, N.A.
101 East 5th Street
St. Paul, MN 55101
Attn: Corporate Trust
Telephone Number: (651) 229-2600
Telecopy Number: (651) 229-6415
and if to the Lender, mailed, sent or delivered thereto,
addressed to it as follows:
Foothill Capital Corporation
1111 Santa Monica Boulevard, Suite 1500
Los Angeles, California 90025
Attn: Business Finance Division Manager
Telephone Number:
Telecopy Number: (310) 575-9623
or as to any party at such other address as shall be designated by such party in
a written notice to the other parties complying as to delivery with the terms of
this Section 5.06. All such demands, notices and other communications shall be
effective, when mailed, two business days after deposit in the mails, postage
prepaid, when sent by telecopy, when receipt is acknowledged by the receiving
telecopy equipment (or at the opening of the next business day if receipt is
after normal business hours), or when delivered, as the case may be, addressed
as aforesaid.
Section 5.07. No Waiver, Remedies. No failure on the part of
any Party to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
Section 5.08. Continuing Agreement, Transfer of Senior
Liabilities. This Agreement is a continuing agreement and shall (i) remain in
full force and effect until the Senior Liabilities and, solely for the purposes
of Section 5.14, the Subordinated Liabilities shall have been Fully Paid, (ii)
be binding upon the Parties and their successors and assigns, and (iii) inure to
the benefit of and be enforceable by the Parties and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (iii), the Lender or the
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Subordinated Creditor may assign or otherwise transfer the Senior Liabilities or
the Subordinated Liabilities, as applicable, to any other Person (other than
Borrower or an Affiliate of the Borrower), and such other Person shall thereupon
become vested with all the rights in respect thereof granted to the Lender or
Subordinated Creditor, as the case may be, herein or otherwise.
Section 5.09. Governing Law: Entire Agreement. This Agreement
shall be governed by, and construed in accordance with, the laws of the State of
New York except as otherwise preempted by applicable federal law. This Agreement
constitutes the entire agreement and understanding among the Parties with
respect to the subject matter hereof and supersedes any prior agreements,
written or oral, with respect thereto.
Section 5.10. Counterparts. This Agreement may be executed in
any number of counterparts, and it is not necessary that the signatures of all
Parties be contained on any one counterpart hereof, each counterpart will be
deemed to be an original, and all together shall constitute one and the same
document.
Section 5.11. No Third Party Beneficiary. This Agreement is
solely for the benefit of the Parties (and their successors and assignees). No
other Person (including Borrower or any Subsidiary or Affiliate of Borrower)
shall be deemed to be a third party beneficiary of this Agreement.
Section 5.12. Headings. The headings of the articles
and sections of this Agreement are inserted for purposes of
convenience only and shall not be construed to affect the meaning
or construction of any of the provisions hereof.
Section 5.13. Severability. If any of the provisions in this
Agreement shall, for any reason, be held invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement and shall not invalidate the Lien Priority
or any other priority set forth in this Agreement.
Section 5.14. Payment in Full of Senior Liabilities. From and
after the date on which the Senior Liabilities (up to the Maximum Senior
Indebtedness) have been Fully Paid:
(a) all payments or distributions from the Borrower or with
respect to the Collateral received by the Lender shall be segregated from other
funds and property held by the Lender and held in trust by the Lender for the
Subordinated Creditor and shall be promptly paid over to the Subordinated
Creditor in the same form as received (with any necessary endorsement without
recourse or warranty) to be applied to or held for the payment or prepayment of
the Subordinated Liabilities in accordance with the terms of the New Notes
Indenture; and
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<PAGE>
(b) the Lender will promptly execute and deliver all further
instruments and documents, and take all further acts that may be necessary or
desirable, or that the Subordinated Creditor may reasonably request, to permit
the Subordinated Creditor to enforce the Subordinated Liabilities or recover any
proceeds of the Collateral; provided, however, that the Lender shall not be
required to pay over any payment or distribution, execute any instruments or
documents, or take any other action referred to in this Section 5.14 to the
extent that such action would contravene any law, order or other legal
requirement binding upon the Lender, and in the event of a controversy or
dispute, the Lender may interplead any payment or distribution in any court of
competent jurisdiction, without further responsibility in respect of such
payment or distribution under this Section 5.14.
Section 5.15. Other Non-Subordinated Encumbered Assets.
(a) Notwithstanding any term herein to the contrary, it is
hereby acknowledged and agreed that the subordination set forth in this
Agreement (and the term "Collateral" as defined in this Agreement) does not
include or apply to (i) cash, securities, instruments and/or certificates in an
escrow account established with and pledged to the Old Notes Trustee under and
pursuant to a certain Escrow and Security Agreement between the Borrower and the
Old Notes trustee dated July 22, 1997, (ii) McDonald's rights in the McDonald's
Collateral encumbered by the McDonald's Senior Liens.
(b) Notwithstanding any term herein to the contrary, it is
hereby further acknowledged and agreed that the subordination set forth in this
agreement (and the term "Collateral" as defined in this agreement) does not
include or apply to cash, securities, instruments and/or certificates held
pursuant to the Escrow and Security Agreement dated the date hereof, among
Borrower, Subordinated Creditor and Jefferies & Company, Inc. (the "Escrow
Agreement"), and the Pledged Securities, the Escrowed Funds (as each such term
is defined in Escrow Agreement) or any other property or assets, held in the
Escrowed Interest Account (as defined in the Escrow Agreement); that Lender
hereby acknowledges and agrees that it has no security interest in or Lien on
any such cash, securities, instruments and/or certificates, Pledged Securities,
Escrowed Funds or other property or assets held in the Escrowed Interest
Account, nor any other right, title or interest therein and hereby acknowledges
Subordinated Creditor's security interest in and Lien on such cash, securities,
instruments and/or certificates, Pledged Securities, Escrowed Funds or other
property or assets held in the Escrowed Interest Account, and hereby forever
discharges and releases any claim to such cash, securities, instruments and/or
certificates, Pledged Securities, Escrowed Funds or other property or assets
held in the Escrowed Interest Account.
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Section 5.16. Subordinated Creditor Trustee Status. Notwithstanding any
term herein to the contrary, it is hereby expressly agreed and acknowledged that
the subordination and related agreements set forth herein by the Subordinated
Creditor are made solely in its capacity as trustee and collateral agent under
the New Notes Indenture and with respect to the Subordinated Creditor Notes (and
not in its individual commercial capacity, except to the extent that it is or
becomes the holder of any such Subordinated Creditor Note). The Subordinated
Creditor shall not have any duties, obligations, or responsibilities to the
Lender under this Agreement except as expressly set forth herein. Nothing in
this Agreement shall be construed to operate as a waiver by the Subordinated
Creditor, with respect to the Borrower or any Subordinated Holder, of the
benefit of any exculpatory provisions, presumptions, indemnities, or reliance
rights contained in the New Notes Indenture, and the Borrower expressly agrees
that as between itself and the Subordinated Creditor, the Subordinated Creditor
shall have such benefit with respect to all actions or omissions by the
Subordinated Creditor pursuant to this Agreement. For all purposes of this
Agreement, Subordinated Creditor may (a) rely in good faith, as to matters of
fact, on any representation of fact believed by Subordinated Creditor to be true
(without any duty of investigation) and that is contained in a written
certificate of any authorized representative of Borrower, of the Lender, or of
any Subordinated Holder, (b) rely in good faith, as to matters of law, on any
advice received from its legal counsel, and shall have no liability for any
action or omission taken in reliance thereon, and (c) assume in good faith
(without any duty of investigation), and rely upon, the genuineness, due
authority, validity, and accuracy of any certificate, instrument, notice, or
other document believed by it in good faith to be genuine and presented by the
proper person.
Section 5.17. Acknowledgement of Priority Liens. The Subordinated
Creditor acknowledges the rights and interests of Lender as a senior secured
lender (i) pursuant to the terms and provisions of the Lender Credit Agreement,
and (ii) pursuant to the terms and provisions of the Old Notes Intercreditor
Agreement pursuant to which the Old Notes Trustee agreed that, subject to the
terms of the Old Notes Intercreditor Agreement, the Liens (as defined in the Old
Notes Intercreditor Agreement) of the Old Notes Trustee shall be subordinate in
priority to the liens and security interests of Lender in the Collateral. The
Lender acknowledges that it has been advised by the Subordinated Creditor that
the rights and interests of the Subordinated Creditor as (i) a secured lender
pursuant to the terms and provisions of the New Notes Indenture, and (ii) a
senior secured lender pursuant to the terms and provisions of the Noteholder
Intercreditor Agreement pursuant to which the Old Notes Trustee agreed that,
subject to the terms of the Noteholder Intercreditor Agreement, the Liens (as
defined in the Noteholder Intercreditor Agreement) of the Old Notes Trustee
shall be subordinate in
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priority to the liens and security interests of the Subordinated
Creditor in the Collateral.
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* * * * *
IN WITNESS WHEREOF, the Lender and the Subordinated Creditor
each has caused this Agreement to be duly executed and delivered as of the date
first above written.
LENDER: FOOTHILL CAPITAL CORPORATION
By: /s/ Bruce Rivers
-----------------------------------------
Name: Bruce Rivers
Title: Account Executive
SUBORDINATED FIRSTAR BANK OF MINNESOTA, N.A.,
CREDITOR: solely in its capacity as Trustee (and
not individually)
By: /s/ Frank P. Leslie, III
-----------------------------------------
Name: Frank P. Leslie, III
Title: Vice President
<PAGE>
ACKNOWLEDGMENT
The undersigned ("Borrower"), hereby acknowledges that it has
received a copy of the foregoing Intercreditor Agreement and consents thereto,
and agrees to recognize all rights granted thereby to the parties thereto, and
will not do any act or perform any obligation which is not in accordance with
the agreements set forth in such Intercreditor Agreement. Borrower further
acknowledges that it is not an intended beneficiary or third party beneficiary
under the Intercreditor Agreement.
Dated as of July 17, 1998.
DISCOVERY ZONE, INC.,
a Delaware corporation
By: /s/ Scott W. Bernstein
-------------------------------
Name: Scott W. Bernstein
Title: President and Chief
Executive Officer
==============================
INTERCREDITOR AGREEMENT
between
FIRSTAR BANK OF MINNESOTA, N.A.,
as Collateral Agent
and
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
Dated as of July 17, 1998
==============================
<PAGE>
FORM OF
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT dated as of July 17, 1998 (this
"Agreement") is made by and between State Street Bank and Trust Company (the
"Subordinated Creditor"), solely in its capacity as trustee and collateral agent
under and pursuant to the Subordinated Creditor Indenture (as hereinafter
defined), and Firstar Bank of Minnesota, N.A. (the "Senior Creditor"), solely in
its capacity as trustee and collateral agent under and pursuant to the Priority
Senior Note Indenture (as hereinafter defined).
RECITALS
A. Discovery Zone, Inc., a Delaware corporation (the "Borrower"),
certain subsidiaries of the Borrower and the Subordinated Creditor entered into
an Indenture, dated July 22, 1997 (as amended by the First Supplemental
Indenture, defined below, the "Subordinated Creditor Indenture"), pursuant to
which, and upon the terms and conditions stated therein, indebtedness was
incurred by the Borrower (the "Subordinated Indenture Indebtedness"), the
repayment of which is secured by priority security interests in and liens on the
assets and properties of the Borrower (the "Collateral") described in the
Security Agreement (the "Security Agreement") and the Collateral Assignment of
Trademarks (the "Trademark Assignment" and, together with the Security Agreement
and the Subordinated Creditor Indenture, the "Subordinated Indenture
Agreements"), each dated the date of the Subordinated Creditor Indenture, by and
between the Borrower and the Subordinated Creditor.
B. Borrower and Foothill Capital Corporation, a California corporation
("Foothill"), entered into a Loan and Security Agreement, dated as of March 31,
1998, as amended by that certain Amendment Number One to Loan and Security
Agreement, dated as of the date hereof (as amended, the "Lender Credit
Agreement"), pursuant to which Foothill agreed, upon the terms and conditions
stated therein, to make loans and advances to or to issue letters of credit (or
guaranties in respect thereof) on account of the Borrower (and certain of its
subsidiaries) in an aggregate principal amount and undrawn amount, as the case
may be, not to exceed in the aggregate $15 million, secured by security
interests in and liens on the assets and properties described therein and in the
collateral security documents executed and delivered in connection therewith.
C. On March 31, 1998, Foothill and the Subordinated Creditor, solely in
its capacity as collateral agent and trustee under the Subordinated Creditor
Indenture, entered into an Intercreditor Agreement (the "Subordinated Creditor
Intercreditor Agreement") which was acknowledged by the Borrower and concerning
the respective rights of the Subordinated Creditor and Foothill with respect to
the priority of their respective security interests in and liens on the
Collateral.
D. As of the date hereof, the Borrower and the Subordinated Creditor
have entered into a first supplemental indenture (the "First Supplemental
Indenture").
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E. As of the date hereof, the Borrower, certain subsidiaries of the
Borrower and the Senior Creditor entered into an Indenture (the "Priority Senior
Note Indenture"), pursuant to which, and upon the terms and conditions stated
therein, indebtedness was incurred by the Borrower (the "Priority Indenture
Indebtedness") in an aggregate principal amount not to exceed $20 million (such
aggregate principal amount, together with all interest, fees and expenses
payable thereon or with respect thereto being the "Maximum Senior
Indebtedness"), the repayment of which is secured by security interests in and
liens on the Collateral pursuant to the terms and conditions of the Priority
Senior Note Indenture and the collateral security documents executed and
delivered in connection therewith (collectively, the "Priority Security
Agreements" and, together with the Priority Senior Note Indenture, the "Senior
Loan Agreements").
F. One of the conditions of the Priority Senior Note Indenture is that
the priority of the security interests in and liens on the Collateral under the
Senior Loan Agreements be senior to the security interests in and liens on the
Collateral under the Subordinated Indenture Agreements, in the manner and to the
extent provided in this Agreement.
G. The Senior Creditor and the Subordinated Creditor desire to enter
into this Agreement concerning the respective rights of the Senior Creditor and
the Subordinated Creditor with respect to the priority of their respective
security interests in and liens on the Collateral.
H. The terms of the Subordinated Creditor Indenture (as amended by the
First Supplemental Indenture) permit, subject to compliance with certain
conditions, the Borrower to enter into the Senior Loan Agreements and, in
connection therewith, provides for and directs that the Subordinated Creditor
shall enter into a subordination agreement substantially in the form of this
Agreement.
I. The Senior Creditor and the Subordinated Creditor hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01. Terms Defined Above and in the Recitals. As used in this
Agreement, the following terms shall have the respective meanings indicated in
the opening paragraph hereof and in the above Recitals:
"Agreement"
"Borrower"
"Collateral"
"First Supplemental Indenture"
"Foothill"
"Lender Credit Agreement"
"Maximum Senior Indebtedness"
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"Priority Indenture Indebtedness"
"Priority Senior Note Indenture"
"Priority Security Agreements"
"Senior Creditor"
"Senior Loan Agreements"
"Subordinated Creditor"
"Subordinated Creditor Indenture"
"Subordinated Creditor Intercreditor Agreement"
"Subordinated Indenture Indebtedness"
"Subordinated Indenture Agreements"
"Trademark Assignment"
Section 1.02. Other Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Bankruptcy Code" shall mean Title 11 of the United States Code, 11
U.S.C. ss.ss. 101 et seq, as amended.
"Event of Default" shall have the meaning ascribed thereto in the
Priority Senior Note Indenture.
"Fully Paid" shall mean the payment in cash in full of all obligations
under each Senior Creditor Loan Document at such time when there shall no longer
be any obligation of the Senior Creditor to make loans or advances or issue
letters of credit (or guaranties in respect thereof).
"Insolvency Proceeding" shall mean any proceeding for the purposes of
dissolution, winding up, liquidation, arrangement or reorganization of the
Borrower or its Subsidiaries (as defined in the Indenture) or their respective
successors or assigns, whether in bankruptcy, insolvency, arrangement,
reorganization or receivership proceedings or upon an assignment for the benefit
of creditors or any other marshaling of the assets and liabilities of the
Borrower or its Subsidiaries or their respective successors or assigns.
"Issue Date" shall have the meaning ascribed thereto in the
Subordinated Creditor Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction,
excluding true lease and consignment filings).
"Lien Priority" shall mean with respect to any Lien of the Senior
Creditor or the Subordinated Creditor in the Collateral, the order of priority
of such Lien as specified in Section 2.01 of this Agreement.
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"Loan Documents" shall mean the Senior Creditor Loan Documents and the
Subordinated Creditor Loan Documents.
"McDonald's" shall mean the McDonald's Corporation, a Delaware
corporation, and its successors and assigns.
"McDonald's Collateral" shall mean those certain fourteen parcels of
real property and related fixtures, including, without limitation, any proceeds
thereof, which properties and proceeds are subject to McDonald's Senior Liens.
"McDonald's Secured Note" shall mean a secured promissory note issued
on the Issue Date by the Borrower in favor of McDonald's pursuant to the Plan of
Reorganization, which note represents restructured secured claims against the
Borrower in an estimated aggregate principal amount of up to $4,600,000.
"McDonald's Secured Rent Deferral Notes" shall mean secured promissory
notes issued on the Issue Date by the Borrower in favor of McDonald's pursuant
to the Plan of Reorganization, which notes represent restructuring of rent
deferrals which McDonald's granted to the Borrower during bankruptcy proceedings
of the Borrower in an estimated aggregate principal amount of up to $300,000.
"McDonald's Senior Liens" shall mean the first priority liens of
McDonald's on the McDonald's Collateral, as set forth in the first mortgages,
deeds of trust and/or deeds to secure debt, which McDonald's Senior Liens
secure, among other things, the payment of the McDonald's Secured Note, the
McDonald's Secured Rent Deferral Notes and any obligations of the Debtors (as
defined in the Plan of Reorganization) or the Borrower or any of the other
Reorganized Debtors (as defined in the Plan of Reorganization) that may arise
under (i) the agreement to indemnify as set forth in Section 10.3(f) and Section
11.2(a)(iii) of the Agreement and Plan of Merger, dated as of August 30, 1994,
by and among Discovery Zone, Inc., Discovery Zone International, Inc., Leaps &
Bounds, Inc. and McDonald's and (ii) the Stipulation and Order Between Debtors
and McDonald's Providing for the Resolution, Settlement and Compromise of
Disputes and for Rent Deferrals and Allowance of Certain Claims, entered by the
United States Bankruptcy Court for the District of Delaware on November 18,
1996, which liens are senior to the subordinate liens on the McDonald's
Collateral granted by the Borrower to Subordinated Creditor as set forth in the
Subordination Agreement, dated as of July 22, 1997, by and between McDonald's
and the Subordinated Creditor.
"Party" shall mean any signatory to this Agreement.
"Plan of Reorganization" shall mean the Third Amended Joint Plan of
Reorganization of the Borrower, dated March 11, 1997, as amended, and as
confirmed by order of the United States Bankruptcy Court for the District of
Delaware, dated July 18, 1997.
"Senior Creditor Intercreditor Agreement" shall mean that certain
Intercreditor Agreement, dated as of the date hereof, between the Senior
Creditor and Foothill.
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"Senior Creditor Loan Documents" shall mean the Senior Loan Agreements,
the collateral documents and instruments executed and delivered in connection
therewith, the Senior Creditor Notes, and such other agreements, instruments and
certificates as defined or referred to in the Priority Senior Note Indenture, as
any or all of the same may be amended or supplemented from time to time.
"Senior Creditor Notes" shall mean the promissory notes issued to the
holders thereof pursuant to the Priority Senior Note Indenture.
"Senior Holders" shall mean the holders of Priority Indenture
Indebtedness under the Priority Senior Note Indenture.
"Senior Liabilities" shall mean the obligations, contingent or
otherwise, of the Borrower and the Subsidiary Guarantors under the Priority
Senior Note Indenture to the Senior Creditor and/or the Senior Note Holders, and
the obligations, contingent or otherwise, of the subsidiaries of the Borrower
arising under or pursuant to the Senior Loan Agreements, including, in each
case, interest (including interest after the commencement of any Insolvency
Proceeding at the rate specified in the applicable Senior Creditor Notes,
whether or not such interest is an allowed claim in any such Insolvency
Proceeding), fees and expenses accruing after the initiation of any Insolvency
Proceeding, and including the secured claims of the Senior Creditor in respect
of the Collateral in any Insolvency Proceeding (irrespective of whether allowed
as a claim in such proceeding).
"Subordinated Creditor Enforcement Event" shall mean the occurrence and
continuance of an "Event of Default" under Section 6.01 of the Subordinated
Creditor Indenture.
"Subordinated Creditor Loan Documents" shall mean the Subordinated
Indenture Agreements, the Collateral Agreements (as defined in the Subordinated
Creditor Indenture), the Subordinated Creditor Notes, the real property
mortgages referred to in the Subordinated Creditor Indenture (now existing or
hereafter negotiated, executed, delivered and recorded), and such other
agreements, instruments and certificates as defined or referred to in the
Subordinated Creditor Indenture, as any or all of the same may be amended or
supplemented from time to time.
"Subordinated Creditor Notes" shall mean the promissory notes issued to
the holders thereof pursuant to the Subordinated Creditor Indenture.
"Subordinated Holders" shall mean the holders of Subordinated Indenture
Indebtedness under the Subordinated Creditor Indenture.
"Subordinated Liabilities" shall mean the obligations, contingent or
otherwise, of the Borrower and the Subsidiary Guarantors under the Subordinated
Creditor Indenture to the Subordinated Creditor and/or the Subordinated Holders,
including, in each case, interest (including interest after the commencement of
any Insolvency Proceeding at the rate specified in the applicable Senior
Creditor Notes, whether or not such interest is an allowed claim in
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any such Insolvency Proceeding), fees and expenses accruing after the initiation
of any Insolvency Proceeding, and including the secured claims of the
Subordinated Creditor in respect of the Collateral in any Insolvency Proceeding
(irrespective of whether allowed as a claim in such proceeding).
"Trigger Event" shall mean any of (a) the occurrence of an Event of
Default, (b) the acceleration of or demand for payment on the Senior Creditor
Notes by the Senior Creditor pursuant to the Priority Senior Note Indenture, or
(c) the commencement of any action by the Senior Creditor, whether judicial or
otherwise, for the enforcement of the rights and remedies of the Senior Creditor
under any of the Loan Documents, including (i) commencement of any receivership
or foreclosure proceedings against or any other sale of, collection on or
disposition of any Collateral, including any notification to third parties to
make payment directly to the Senior Creditor, (ii) exercise of any right of
set-off, (iii) commencement of any Insolvency Proceeding, and (iv) commencement
of any action or proceeding against the Borrower to recover all or any part of
the Senior Liabilities.
Section 1.03. Singular and Plural. All definitions herein (whether set
forth herein directly or by reference to definitions in other documents) shall
be equally applicable to both the singular and the plural forms of the terms
defined.
Section 1.04. Miscellaneous. The words "hereof", "herein" or
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. Article and section references are to articles and sections of this
Agreement unless otherwise specified. The term "including" shall mean
"including, without limitation".
ARTICLE II
LIEN PRIORITY
Section 2.01. Agreement to Subordinate. The Subordinated Creditor
hereby agrees that the Liens of the Subordinated Creditor in the Collateral are
and shall be junior to and subordinate in priority to the Liens of the Senior
Creditor in the Collateral securing the Senior Liabilities up to and not
exceeding the Maximum Senior Indebtedness; provided, however, that the terms,
provisions and restrictions of this Agreement shall be void and of no further
force and effect in the event, but only to the extent, that the Senior
Creditor's Liens in the Collateral are avoided, disallowed, set aside or
otherwise invalidated in any judicial proceeding by a court, tribunal or
administrative agency of competent jurisdiction, to the extent of such
Collateral which is the subject of any such proceeding. The subordination of
Liens by the Subordinated Creditor in favor of the Senior Creditor herein shall
not be deemed to subordinate the Subordinated Creditor's Liens to the Liens of
any other Person.
Section 2.02. Standstill Period. If a Subordinated Creditor Enforcement
Event has occurred and is continuing, the Subordinated Creditor may give the
Senior Creditor written notice thereof, specifying the nature of the
Subordinated Creditor Enforcement Event in
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reasonable detail. If such Subordinated Creditor Enforcement Event is continuing
for more than 240 days after the delivery of such notice, and if the Senior
Creditor has not by the expiration of such 240-day period notified the
Subordinated Creditor that the Senior Creditor has commenced one or more types
of enforcement actions described in Section 3.01 or that the Borrower is the
subject of an Insolvency Proceeding, then the Subordinated Creditor may, subject
to the Lien Priority and prior application of proceeds of the Collateral to the
Senior Liabilities, as provided herein, take one or more types of enforcement
actions described in Section 3.01 or otherwise available to the Subordinated
Creditor under the Subordinated Creditor Indenture and the other Subordinated
Creditor Loan Documents. If the Senior Creditor has taken or commenced any such
enforcement action within such 240-day period and thereafter discontinues such
enforcement action or actions, and no Insolvency Proceeding is pending against
the Borrower and no action described in Section 3.01 is then being taken by the
Senior Creditor, and if, following the expiration of such 240-day period, such
Subordinated Creditor Enforcement Event is then continuing, then the
Subordinated Creditor may, subject to the Lien Priority and prior application of
proceeds of the Collateral to the Senior Liabilities, as provided herein, take
one or more types of enforcement actions described in Section 3.01 or otherwise
available to the Subordinated Creditor under the Subordinated Creditor Indenture
and the other Subordinated Creditor Loan Documents. Notwithstanding anything to
the contrary in this Section 2.02, if the Senior Creditor Intercreditor
Agreement is at any time terminated or expires in accordance with its terms, and
the Senior Creditor is no longer subject to a subordination or similar agreement
with a lender under an Eligible Credit Facility (as defined in the Subordinated
Creditor Indenture), the 240-day period referred to in this Section 2.02 shall
be 180 days.
Section 2.03. Exercise of Rights.
(a) Subject to Section 2.02, the Subordinated Creditor may
exercise, and nothing herein shall constitute a waiver of, any right it may have
at law or equity to receive notice of, or to commence or join with any creditor
in commencing any Insolvency Proceeding or, subject to Section 2.02, to join or
participate in, any action or proceeding or other activity described in Section
3.01; provided, however, that exercise of any such right by the Subordinated
Creditor shall be subject to the Lien Priority and prior application of proceeds
of Collateral to the Senior Liabilities as provided herein.
(b) The Subordinated Creditor may make such demands or file
such claims in respect of the Subordinated Liabilities as may be necessary to
prevent the waiver or bar of such claims under applicable statutes of
limitations or other statutes, court orders or rules of procedure, but except as
provided in this Section 2.03, the Subordinated Creditor shall not take any
actions restricted by Section 3.01 in respect of such claims until the Senior
Liabilities up to the amount of the Maximum Senior Indebtedness are Fully Paid.
Section 2.04. Priority of Liens. Irrespective of the order of recording
of mortgages, financing statements, security agreements or other instruments,
and irrespective of the descriptions of Collateral contained in the Loan
Documents, including any financing statements, the Parties agree among
themselves that their respective liens and security
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interests in the Collateral shall be governed by the Lien Priority, which shall
be controlling in the event of any conflict between this Agreement and any of
the Loan Documents.
Section 2.05. Notice of Trigger Event. The Senior Creditor and the
Subordinated Creditor each agree that it will notify the other if it receives
actual notice of the occurrence of a Trigger Event or Subordinated Creditor
Enforcement Event, respectively, not later than 30 days after the date of any
such occurrence, in accordance with Section 5.06. The foregoing to the contrary
notwithstanding, the Subordinated Creditor and the Senior Creditor shall not
incur any liability to the other for the failure to provide any such notice so
long as the failure to so provide such notice was not the result of wilful
misconduct, bad faith or gross negligence.
ARTICLE III
ACTIONS OF THE PARTIES
Section 3.01. Limitation on Certain Actions. Subject to Section 2.02,
so long as any of the Senior Liabilities up to the amount of the Maximum Senior
Indebtedness are not Fully Paid, the Subordinated Creditor will not, without the
prior written consent of the Senior Creditor, take any of the following actions:
(a) commencement of any action, whether judicial or otherwise,
for the enforcement of the Senior Creditor's rights and remedies as a secured
creditor with respect to the Collateral including commencement of any
receivership or foreclosure proceedings against or any other sale of, collection
on, or disposition of any Collateral; or
(b) notifying any third party account debtors of the Borrower
or its subsidiaries to make payment directly to it or any of its agents or other
Persons acting on its behalf.
Section 3.02. Notices. The Senior Creditor shall provide the
Subordinated Creditor with written notice at least 15 days prior to the Senior
Creditor first exercising any of its secured creditor remedies with respect to
the Collateral. The foregoing to the contrary notwithstanding, the Senior
Creditor (a) shall not be obligated to provide such prior written notice in the
event that exigent circumstances require that the Senior Creditor act
immediately in order to preserve, protect, or obtain possession or control over
the Collateral or any portion thereof; provided, however, that, in the event any
such exigent circumstances do require the Senior Creditor to so act immediately,
the Senior Creditor agrees promptly to provide the Subordinated Creditor with
written notice as soon as practicable following the Senior Creditor first
exercising any of its secured creditor remedies with respect to the Collateral,
and (b) the Senior Creditor shall not incur any liability to the Subordinated
Creditor for the failure to provide any such notice so long as the failure to so
provide such notice was not the result of wilful misconduct, bad faith or gross
negligence.
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Section 3.03. Perfection of Possessory Security Interests.
(a) For the limited purpose of perfecting the security
interests of the Parties in those types of Collateral in which a security
interest only may be perfected by possession or control, each Party hereby
appoints the other as its representative for the limited purpose of possessing
on its behalf any such Collateral that may come into the possession or control
of such other Party from time to time, and each Party agrees to act as the
other's representative for such limited purpose of perfecting the other's
security interest by possession or control through a representative, provided
that neither Party shall incur any liability to the other by virtue of acting as
the other's representative hereunder, and either Party may relinquish possession
of Collateral in its possession or control without the consent of the other
Party, and without incurring liability to the other Party unless there is an
express written agreement to the contrary in effect between the Parties, subject
to Section 3.03(b).
(b) The Subordinated Creditor acknowledges and agrees that the
Senior Creditor has a security interest in and lien on certain pledged
collateral pursuant to the Pledge Agreement by Borrower in favor of the Senior
Creditor dated the date hereof, and the Subsidiary Pledge Agreement by the
Subsidiary Guarantors in favor of the Senior Creditor dated the date hereof, and
that in the event the Lender is holding the physical certificates evidencing
such pledged collateral subject to a pledge in its favor: (i) the Subordinated
Creditor acknowledges and agrees that it is holding such certificates on behalf
of and for the benefit of the Senior Creditor, subject to this Intercreditor
Agreement, and (ii) at such time as the Subordinated Liabilities are paid in
full, and in the event the Senior Liabilities are not satisfied in full, the
Subordinated Creditor shall, and is authorized and directed to, deliver all such
certificates and other collateral under such Pledge Agreement to the possession
of the Senior Creditor or its designee, with any necessary endorsements in favor
of the Senior Creditor.
Section 3.04. Adequate Protection Payments.
(a) The Subordinated Creditor, for and on behalf of the
Subordinated Holders, covenants and agrees (but does not represent or warrant)
that, as of the date hereof, assuming the collateral securing the Priority
Senior Notes is substantially the same collateral as that securing the
Subordinated Indenture Indebtedness, the value of the collateral securing the
Priority Senior Notes exceeds the amount of all obligations owing by the
Borrower to the Senior Holders thereunder.
(b) In the event that an Insolvency Proceeding is filed by or
against the Borrower, the Subordinated Creditor, for and on behalf of the
Subordinated Holders, hereby covenants and agrees not to file, cause to be
filed, or otherwise support an objection on any grounds to any application for
"adequate protection" (as such term is contemplated in, among other statutes,
Sections 361 and 362 of the Bankruptcy Code) made by or on behalf of the Senior
Holders. The Subordinated Creditor, for and on behalf of the Subordinated
Holders, further agrees that all such adequate protection payments and/or
payments deemed "in lieu" of adequate protection provided for the benefit of the
Senior Holders, shall be deemed proceeds of the collateral securing the Priority
Senior Notes and shall be applied by the
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trustee under the Priority Senior Note Indenture, subject to the provisions of
Section 2.01 of the Subordinated Creditor Indenture, as affected by the First
Supplemental Indenture, concerning payment of the Subordinated Creditor's fees
and expenses: (A) first to the payment of any interest upon the principal amount
of the Priority Senior Notes, including interest after the commencement of an
Insolvency Proceeding at the rate specified in the applicable Priority Senior
Notes, whether or not such interest is an allowed claim in such Insolvency
Proceeding, (B) second, for the reasonable costs and expenses incurred or
accrued, directly or indirectly, by the Senior Holders in connection with the
Insolvency Proceeding, and (C) third, to the payment of outstanding principal
and all remaining obligations under the Priority Senior Notes.
ARTICLE IV
ENFORCEMENT OF PRIORITIES
Section 4.01. In Furtherance of Lien Priorities. The Senior Creditor
and the Subordinated Creditor agree as follows:
(a) Upon any distribution of all or any of the assets of the
Borrower or its Subsidiaries to creditors of the Borrower or its Subsidiaries
(whether in cash, securities or other property) in connection with any
Insolvency Proceeding, which otherwise would be payable or deliverable upon or
with respect to the Collateral Liabilities, such assets shall be paid or
delivered by the Subordinated Creditor directly to the Senior Creditor for
application (in the case of cash) to or as collateral (in the case of securities
or other non-cash property) for the payment or prepayment of the Senior
Liabilities until the Senior Liabilities up to the Maximum Senior Indebtedness
shall have been Fully Paid.
(b) If any Insolvency Proceeding is commenced by or against
the Borrower or its Subsidiaries, the Subordinated Creditor, to the extent party
to any such Insolvency Proceeding, and to the extent it has commenced any action
described in Section 3.01, shall (i) use its commercially reasonable efforts to
duly and promptly take such action as the Senior Creditor may reasonably request
to collect the proceeds of Collateral for account of the Senior Creditor at
Senior Creditor's reasonable cost and expense and to file appropriate claims or
proofs of claim in respect of the Subordinated Liabilities and (ii) receive any
and all payments or distributions which may be payable or deliverable upon or
with respect to the Collateral and to hold such payments or distributions in
trust for the Senior Creditor to the extent set forth herein; provided, however,
that Subordinated Creditor shall have no liability to the Senior Creditor
regarding the adequacy of any such proceeds or for any action taken pursuant to
Senior Creditor's request under clause (i) hereof except for liabilities
resulting from Subordinated Creditor's wilful misconduct, bad faith or gross
negligence.
(c) All payments or distributions upon or with respect to the
Subordinated Liabilities which are received by the Subordinated Creditor
contrary to the provisions of this Agreement shall be segregated from other
funds and property held by the Subordinated Creditor and shall be held in trust
for the Senior Creditor and shall forthwith pay over such
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remaining proceeds to the Senior Creditor in the same form as so received (with
any necessary endorsement without recourse or warranty) to be applied (in the
case of cash) to or held as Collateral (in the case of non-cash property or
securities) for the payment or prepayment of the Senior Liabilities up to the
Maximum Senior Indebtedness in accordance with the terms of the Priority Senior
Note Indenture; provided, however, that if, after such application of proceeds,
the Senior Liabilities up the Maximum Senior Indebtedness are Fully Paid, the
balance of any amounts received by the Senior Creditor from the Subordinated
Creditor shall be segregated by the Senior Creditor from the Senior Creditor's
other funds and properties, and the Senior Creditor shall hold such surplus
amounts in trust for the Subordinated Creditor and shall forthwith pay such
amounts to the Subordinated Creditor in the same form as so received (with any
necessary endorsement without recourse or warranty) to be applied (in the case
of cash) to or held as Collateral (in the case of non-cash property or
securities) for the payment or prepayment of the Subordinated Liabilities in
accordance with the terms of the Subordinated Creditor Indenture.
(d) Each of the Senior Creditor and the Subordinated Creditor
is hereby authorized to demand specific performance of this Agreement, whether
or not the Borrower shall have complied with any of the provisions hereof
applicable to it, at any time when the other shall have failed to comply with
any of the provisions of this Agreement applicable to it, provided, however, the
remedy of specific performance shall not be available, and the asserting party
shall be free to assert any and all legal defenses it may possess, if such
remedy would result in, or otherwise constitute, a violation of the Employee
Retirement Income Security Act of 1974, as amended. Each of the Senior Creditor
and the Subordinated Creditor hereby irrevocably waives any defense based on the
adequacy of a remedy at law, which might be asserted as a bar to such remedy of
specific performance.
(e) This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the Senior
Liabilities is, other than as a result of any wilful misconduct, bad faith or
gross negligence of the Senior Creditor, rescinded or must otherwise be returned
by the Senior Creditor upon the insolvency, bankruptcy or reorganization of the
Borrower or otherwise, all as though such payment had not been made.
Section 4.02 Control of Dispositions of Collateral and Effect thereof
on Junior Liens. Except to the extent, if any, expressly prohibited by the terms
and conditions of Section 4.15 or Section 5.01 of the Subordinated Creditor
Indenture:
(a) each Party hereby agrees that if the Party with the senior
security interest in such Collateral shall have agreed with the Borrower (or its
subsidiary, as applicable) that the Borrower (or its subsidiary, as applicable)
may sell or otherwise dispose of such Collateral, then the security interest of
the other Party in such Collateral shall be released by such other Party
concurrently with such sale or other disposition and the net cash proceeds
therefrom may, at the sole election of the Party with the senior security
interest therein, be applied to the claims of the Parties in the manner provided
for herein, or be used by the Borrower (or its subsidiary, as applicable) for
its lawful general corporate purposes;
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(b) each Party hereby further agrees that any UCC collection,
sale, or other disposition of Collateral by the Senior Creditor shall be free
and clear of any lien of the Subordinated Creditor in such Collateral, provided
that the Subordinated Creditor shall retain a Lien (having the same priority as
the lien it previously had on the item of Collateral that was sold or otherwise
disposed of) on the proceeds of such collection, sale, or other disposition
(except to the extent such proceeds are applied to the Senior Liabilities, as
provided herein, or are used by the Borrower (or its subsidiary, as applicable)
for general corporate purposes as set forth in subsection (a) of this Section
4.02); and
(c) to the extent reasonably requested by either Party, the
other Party will cooperate in providing any necessary or appropriate releases to
permit a collection, sale, or other disposition of Collateral, as provided in
subsections (a) or (b) of this Section 4.02, by the Party holding the senior
lien therein free and clear of the other Party's junior Lien.
ARTICLE V
MISCELLANEOUS
Section 5.01. Rights of Subrogation. The Subordinated Creditor agrees
that no payment or distribution to the Senior Creditor pursuant to the
provisions of this Agreement shall entitle the Subordinated Creditor to exercise
any rights of subrogation in respect thereof until the Senior Liabilities up to
the Maximum Senior Indebtedness shall have been Fully Paid.
Section 5.02. Further Assurances. The Parties will, at their own
expense and at any time and from time to time, promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that either Party may reasonably request, in order to
protect any right or interest granted or purported to be granted hereby or to
enable the Senior Creditor or the Subordinated Creditor to exercise and enforce
its rights and remedies hereunder; provided, however, that neither Party shall
be required to pay over any payment or distribution, execute any instruments or
documents, or take any other action referred to in this Section 5.02 to the
extent that such action would contravene any law, order or other legal
requirement binding upon such Party, and in the event of a controversy or
dispute, either Party may interplead any payment or distribution in any court of
competent jurisdiction, without further responsibility in respect of such
payment or distribution under this Section 5.02.
Section 5.03. Defenses Similar to Suretyship Defenses. All rights and
interests of the Senior Creditor hereunder, and all agreements and obligations
of the Subordinated Creditor under this Agreement, shall remain in full force
and effect irrespective of:
(a) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Senior Liabilities, or any other
amendment or waiver of or any consent to departure from the Senior Creditor
Notes or the Priority Senior Note Indenture,
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provided, however, that this clause (a) shall not apply to, and the Subordinated
Creditor's Liens and security interests in the Collateral shall not be
subordinated in priority by virtue of this Agreement to the Senior Creditor's
liens and security interests therein to the extent that the Senior Liabilities
exceed the Maximum Senior Indebtedness without the express written consent of
the Subordinated Creditor; or
(b) any release or non-enforcement of the Senior Creditor's
Liens with respect to any Collateral, or any release, amendment or waiver of or
consent to departure from any guaranty for all or any of the Senior Liabilities.
Section 5.04. Waiver. Except as otherwise provided herein, to the
maximum extent permitted by applicable law, and except to the extent caused in
whole or in part by the gross negligence, bad faith or willful misconduct of the
Senior Creditor, the Subordinated Creditor hereby waives, with respect to the
Collateral to which the Lien Priority hereunder relates (i) any failure,
omission, delay or lack on the part of the Senior Creditor to enforce, assert or
exercise any right, power or remedy conferred on the Senior Creditor in any of
the Senior Creditor Loan Documents or this Agreement or the inability of the
Senior Creditor to enforce any provision of the Senior Creditor Loan Documents
or this Agreement, and (ii) without limiting the generality of the foregoing,
any requirement that the Senior Creditor protect, secure, perfect or insure any
Liens or other lien or any property subject thereto or exhaust any right or take
any action against the Borrower or any other Person or any Collateral; provided,
however, that the foregoing shall not be deemed to conflict with the proviso to
Section 2.01.
Section 5.05. Amendments, Etc. No amendment or waiver of any provision
of this Agreement nor consent to any departure by any Party shall in any event
be effective unless the same shall be in writing and signed by the each Party,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
Section 5.06. Addresses for Notices. All demands, notices and other
communications provided for hereunder shall be in writing and, if to the
Subordinated Creditor, mailed or sent by telecopy or delivered to it, addressed
to it as follows:
State Street Bank and Trust
Two International Place
Boston, MA 02110
Attn: Corporate Trust Department
Telephone Number: (617) 664-5326
Telecopy Number: (617) 664-5371
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and if to the Senior Creditor, mailed, sent or delivered thereto, addressed to
it as follows:
Firstar Bank of Minnesota, N.A.
101 East 5th Street
St. Paul, MN 55101
Attn: Corporate Trust
Telephone Number: (651) 229-2600
Telecopy Number: (651) 229-6415
or as to any party at such other address as shall be designated by such party in
a written notice to the other parties complying as to delivery with the terms of
this Section 5.06. All such demands, notices and other communications shall be
effective, when mailed, two business days after deposit in the mails, postage
prepaid, when sent by telecopy, when receipt is acknowledged by the receiving
telecopy equipment (or at the opening of the next business day if receipt is
after normal business hours), or when delivered, as the case may be, addressed
as aforesaid.
Section 5.07. No Waiver, Remedies. No failure on the part of any Party
to exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
Section 5.08. Continuing Agreement, Transfer of Senior Creditor Notes.
This Agreement is a continuing agreement and shall (i) remain in full force and
effect until the Senior Liabilities and, solely for the purposes of Section
5.14, the Subordinated Liabilities shall have been Fully Paid, (ii) be binding
upon the Parties and their successors and assigns, and (iii) inure to the
benefit of and be enforceable by the Parties and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(iii), the Senior Holders or the Subordinated Holders may assign or otherwise
transfer the Senior Creditor Notes or the Subordinated Creditor Notes, as
applicable, to any other Person (other than Borrower or an Affiliate of the
Borrower), and such other Person shall thereupon become vested with all the
rights in respect thereof granted to the Senior Creditor or Subordinated
Creditor, as the case may be, herein or otherwise.
Section 5.09. Governing Law: Entire Agreement. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New York
except as otherwise preempted by applicable federal law. This Agreement
constitutes the entire agreement and understanding among the Parties with
respect to the subject matter hereof and supersedes any prior agreements,
written or oral, with respect thereto.
Section 5.10. Counterparts. This Agreement may be executed in any
number of counterparts, and it is not necessary that the signatures of all
Parties be contained on any one counterpart hereof, each counterpart will be
deemed to be an original, and all together shall constitute one and the same
document.
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Section 5.11. No Third Party Beneficiary. This Agreement is solely for
the benefit of the Parties (and their successors and assignees). No other Person
(including Borrower or any Subsidiary or Affiliate of Borrower) shall be deemed
to be a third party beneficiary of this Agreement.
Section 5.12. Headings. The headings of the articles and sections of
this Agreement are inserted for purposes of convenience only and shall not be
construed to affect the meaning or construction of any of the provisions hereof.
Section 5.13. Severability. If any of the provisions in this Agreement
shall, for any reason, be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement and shall not invalidate the Lien Priority or any
other priority set forth in this Agreement.
Section 5.14. Payment in Full of Senior Liabilities. From and after the
date on which the Senior Liabilities (up to the Maximum Senior Indebtedness)
have been Fully Paid:
(a) all payments or distributions from the Borrower or any of
its Subsidiaries or with respect to the Collateral received by the Senior
Creditor shall be segregated from other funds and property held by the Senior
Creditor and held in trust by the Senior Creditor for the Subordinated Creditor
and shall be promptly paid over to the Subordinated Creditor in the same form as
received (with any necessary endorsement without recourse or warranty) to be
applied to or held for the payment or prepayment of the Subordinated Liabilities
in accordance with the terms of the Subordinated Creditor Indenture; and
(b) the Senior Creditor will promptly execute and deliver all
further instruments and documents, and take all further acts that may be
necessary or desirable, or that the Subordinated Creditor may reasonably
request, to permit the Subordinated Creditor to enforce the Subordinated
Liabilities or recover any proceeds of the Collateral;
provided, however, that the Senior Creditor shall not be required to pay over
any payment or distribution, execute any instruments or documents, or take any
other action referred to in this Section 5.14 to the extent that such action
would contravene any law, order or other legal requirement, and in the event of
a controversy or dispute, the Senior Creditor may interplead any payment or
distribution in any court of competent jurisdiction, without further
responsibility in respect of such payment or distribution under this Section
5.14.
(c) the Senior Creditor agrees promptly to notify the
Subordinated Creditor after the Senior Liabilities have been fully paid up to
the Maximum Senior Indebtedness.
Section 5.15. Other Non-Subordinated Encumbered Assets. Notwithstanding
any term herein to the contrary, it is hereby acknowledged and agreed that the
subordination set forth in this Agreement (and the term "Collateral" as defined
in this Agreement) does not include or apply to (i) cash, securities,
instruments and/or certificates in an escrow account
-15-
<PAGE>
established with and pledged to the Subordinated Creditor under and pursuant to
a certain Escrow and Security Agreement between the Borrower and the
Subordinated Creditor dated July 22, 1997 (the "Subordinated Creditor Escrow
Agreement"), (ii) McDonald's rights in the McDonald's Collateral encumbered by
the McDonald's Senior Liens or (iii) cash, securities, instruments and/or
certificates in an escrow account established with and pledged to the Senior
Creditor under and pursuant to a certain Escrow and Security Agreement between
the Borrower, the Senior Creditor and Jefferies & Company, Inc. dated the date
hereof (the "Senior Creditor Escrow Agreement"). It is further acknowledged and
agreed by the Subordinated Creditor that it has no security interest in or Lien
on any cash, securities and/or certificates, Pledged Securities, Escrowed Funds
or any other assets or properly held in the Escrowed Interest Account (as each
such capitalized term is defined in the Senior Creditor Escrow Agreement) nor
any other right, title or interest therein and Subordinated Creditor hereby
forever discharges and releases any claim to such cash, securities and/or
certificates, the Pledged Securities, Escrowed Funds and other property and
assets held in the Escrowed Interest Account and Subordinated Creditor hereby
acknowledges Senior Creditor's security interest in and Lien on such cash,
securities and/or certificates, the Pledged Securities, Escrowed Funds and other
property and assets held in the Escrowed Interest Account; provided, however,
that, upon the termination of the Escrow and Security Agreement in accordance
with its terms, any cash, securities and/or certificates, Pledged Securities,
Escrowed Funds or any other assets or property held in the Escrowed Interest
Account when the same are reassigned and redelivered to the Borrower, which have
not been sold, disposed of, retained or applied by the collateral agent under
the Escrow and Security Agreement in accordance with the terms thereof, will be
subject in all respects to the valid and existing security interests and Liens
under each of the Subordinated Indenture Agreements and Senior Loan Agreements
and subject to the terms of this Agreement (other than the provisions in this
Section excluding such property from Subordinated Creditor's security interest
and Lien).
Section 5.16. Subordinated Creditor Trustee Status. Notwithstanding any
term herein to the contrary, it is hereby expressly agreed and acknowledged that
the subordination and related agreements set forth herein by the Subordinated
Creditor are made solely in its capacity as trustee and collateral agent under
the Subordinated Creditor Indenture and with respect to the Subordinated
Creditor Notes (and not in its individual commercial capacity, except to the
extent that it is or becomes the holder of any such Subordinated Creditor Note).
The Subordinated Creditor shall not have any duties, obligations, or
responsibilities to the Senior Creditor under this Agreement except as expressly
set forth herein. Nothing in this Agreement shall be construed to operate as a
waiver by the Subordinated Creditor, with respect to the Borrower or any
Subordinated Holder, of the benefit of any exculpatory provisions, presumptions,
indemnities, or reliance rights contained in the Subordinated Creditor
Indenture, and the Borrower expressly agrees that as between itself and the
Subordinated Creditor, the Subordinated Creditor shall have such benefit with
respect to all actions or omissions by the Subordinated Creditor pursuant to
this Agreement. For all purposes of this Agreement, Subordinated Creditor may
(a) rely in good faith, as to matters of fact, on any representation of fact
believed by Subordinated Creditor to be true (without any duty of investigation)
and that is contained in a written certificate of any authorized representative
of Borrower, of the Senior Creditor, or of any Subordinated Holder, (b) rely
-16-
<PAGE>
in good faith, as to matters of law, on any advice received from its legal
counsel, and shall have no liability for any action or omission taken in
reliance thereon, and (c) assume in good faith (without any duty of
investigation), and rely upon, the genuineness, due authority, validity, and
accuracy of any certificate, instrument, notice, or other document believed by
it in good faith to be genuine and presented by the proper person.
Section 5.17. Acknowledgement of Foothill Capital as Senior Lender.
Each of the Senior Creditor and the Subordinated Creditor acknowledge the rights
and interests of Foothill as a senior secured lender (i) pursuant to the terms
and provisions of the Lender Credit Agreement, and (ii) pursuant to the terms
and provisions of each of the Senior Creditor Intercreditor Agreement and the
Subordinated Creditor Intercreditor Agreement pursuant to which the Senior
Creditor and the Subordinated Creditor, respectively, have agreed that, subject
to the terms of the Senior Creditor Intercreditor Agreement and the Subordinated
Creditor Intercreditor Agreement, the Liens (as defined in the Senior Creditor
Intercreditor Agreement) of the Senior Creditor and the Liens (as defined in the
Subordinated Creditor Intercreditor Agreement) of the Subordinated Creditor
shall be, in each case, subordinate in priority to the liens and security
interests of Foothill in the Collateral.
<PAGE>
IN WITNESS WHEREOF, the Senior Creditor and the Subordinated
Creditor each has caused this Agreement to be duly executed and delivered as of
the date first above written.
SENIOR CREDITOR: FIRSTAR BANK OF MINNESOTA, N.A.,
solely in its capacity as Trustee (and
not individually)
By: /s/ Frank P. Leslie, III
--------------------------------------------------
Name: Frank P. Leslie, III
Title: Vice President
SUBORDINATED STATE STREET BANK AND TRUST COMPANY,
CREDITOR: solely in its capacity as Trustee (and not individually)
By: /s/ Mary Lee Storrs
--------------------------------------------------
Name: Mary Lee Storrs
Title: Vice President
<PAGE>
ACKNOWLEDGMENT
The undersigned ("Borrower"), hereby acknowledges that it has
received a copy of the foregoing Intercreditor Agreement and consents thereto,
and agrees to recognize all rights granted thereby to the parties thereto, and
will not do any act or perform any obligation which is not in accordance with
the agreements set forth in such Intercreditor Agreement. Borrower further
acknowledges that it is not an intended beneficiary or third party beneficiary
under the Intercreditor Agreement.
Dated as of July 17th, 1998.
DISCOVERY ZONE, INC.,
a Delaware corporation
By: /s/ Scott W. Bernstein
--------------------------------------
Name: Scott W. Bernstein
Title: President and Chief
Executive Officer
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