<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
BIG 5 CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 95-1854273
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
5941
------------------------
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
2525 EAST EL SEGUNDO BOULEVARD, EL SEGUNDO, CALIFORNIA 90245
310/536-0611
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CHARLES P. KIRK
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
BIG 5 CORP.
2525 EL SEGUNDO BOULEVARD
EL SEGUNDO, CALIFORNIA 90245
310/536-0611
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
MILTON B. HYMAN, ESQ. EDMUND M. KAUFMAN, ESQ.
IRELL & MANELLA LLP IRELL & MANELLA LLP
1800 AVENUE OF THE STARS, SUITE 900 333 SOUTH HOPE STREET, SUITE 3300
LOS ANGELES, CALIFORNIA 90067 LOS ANGELES, CALIFORNIA 90017
(310) 277-1010 (213) 620-1555
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
==================================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT MAXIMUM OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) FEE
- --------------------------------------------------------------------------------------------------
Series B 10 7/8% Senior Notes
due 2007.................... $131,000,000 100% $131,000,000 $38,645
==================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457.
----------------------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
BIG 5 CORP.
CROSS-REFERENCE SHEET PURSUANT
TO ITEM 501(B) OF REGULATION S-K
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<CAPTION>
ITEM OF FORM S-4 LOCATION IN THE PROSPECTUS
- --------------------------------------------------------- -----------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
Item 1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus...... Cover of Registration Statement;
Outside Front Cover Page of
Prospectus; Cross-Reference Sheet
Item 2. Inside Front and Outside Back Cover Pages of
Prospectus.................................. Available Information
Item 3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............... Prospectus Summary; Risk Factors;
Unaudited Pro Forma Condensed
Financial Data; Selected Historical
Financial Data; Index to Financial
Statements
Item 4. Terms of the Transaction...................... Prospectus Summary; Risk Factors;
The Exchange Offer; Description of
the Notes; Plan of Distribution;
Use of Proceeds
Item 5. Pro Forma Financial Information............... Prospectus Summary; Unaudited Pro
Forma Condensed Financial Data
Item 6. Material Contacts with the Company Being
Acquired.................................... Not Applicable
Item 7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters................................ Not Applicable
Item 8. Interests of Named Experts and Counsel........ Legal Matters
Item 9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
Item 10. Incorporation with Respect to S-3
Registrants................................. Not Applicable
Item 11. Incorporation of Certain Information by
Reference................................... Not Applicable
Item 12. Information with Respect to S-2 or S-3
Registrants................................. Not Applicable
Item 13. Incorporation of Certain Information by
Reference................................... Not Applicable
Item 14. Information with Respect to Registrants Other
Than S-2 or S-3 Registrants................. Available Information; Summary;
Business; Unaudited Pro Forma
Condensed Financial Data; Selected
Historical Financial Data;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Index to
Financial Statements; The
Recapitalization; Capitalization;
Principal Stockholders; Certain
Relationships and Related
Transactions; Financing
Arrangements
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
Item 15. Information with Respect to S-3 Companies..... Not Applicable
Item 16. Information with Respect to S-2 or S-3
Companies................................... Not Applicable
Item 17. Information with Respect to Companies Other
Than S-3 or S-2 Companies................... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
Item 18. Information if Proxies, Consents or
Authorizations are to be Solicited.......... Not Applicable
Item 19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer........................... The Exchange Offer; Management;
Plan of Distribution
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<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED DECEMBER , 1997
PROSPECTUS
, 199
LOGO
OFFER FOR ANY AND ALL OUTSTANDING SERIES A 10 7/8% SENIOR NOTES DUE 2007 IN
EXCHANGE FOR SERIES B 10 7/8% SENIOR NOTES DUE 2007 WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
BIG 5 CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED.
Big 5 Corp., a Delaware corporation (the "Company" or "Big 5" or the
"registrant") hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal, which
together constitute the "Exchange Offer", to exchange an aggregate principal
amount at maturity of up to $131,000,000 of Series B 10 7/8% Senior Notes due
2007 of the Company (the "New Notes") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for a like principal
amount of the issued and outstanding Series A 10 7/8% Senior Notes due 2007 of
the Company (the "Old Notes" and, together with the New Notes, the "Notes") from
the holders (the "Holders") of the Old Notes. The New Notes are being offered in
order to satisfy certain obligations of the Company under that certain
Registration Rights Agreement dated as of November 13, 1997 among the Company,
and the initial purchasers of the Old Notes, Donaldson, Lufkin & Jenrette
Securities Corporation and Credit Suisse First Boston Corporation (together, the
"Initial Purchasers") (the "Registration Rights Agreement"). See "The Exchange
Offer -- Purpose and Effect of the Exchange Offer." The terms of the New Notes
are identical in all material respects to the terms of the Old Notes except (i)
the offering and sale of the New Notes will have been registered under the
Securities Act and thus will not bear restrictive legends restricting their
transfer pursuant to the Securities Act, and (ii) the Holders of the New Notes
will not be entitled to certain rights of Holders of the Old Notes under the
Registration Rights Agreement. The Old Notes were issued, and the New Notes will
be issued, under the Indenture dated as of November 13, 1997 between the Company
and First Trust National Association, as trustee (the "Trustee") (the
"Indenture"). The Old Notes and the New Notes will constitute a single series of
debt securities under the Indenture. See "Description of the Notes."
The Old Notes and the New Notes will mature on November 15, 2007. Interest
on the New Notes will be payable in cash semi-annually on May 15 and November 15
of each year, commencing on May 15, 1998. The New Notes will be redeemable at
the option of the Company, in whole or in part, on or after November 15, 2002,
at the redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined), if any, to the date of redemption. In addition,
at any time on or before November 15, 2000, the Company may redeem, on one or
more occasions, up to an aggregate of 35% of the original aggregate principal
amount of the Notes with the net proceeds of one or more Public Equity Offerings
(as defined) at a redemption price equal to 110.95% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the
date of redemption. Upon a Change of Control (as defined), the Company will be
required to offer to repurchase all outstanding Notes at 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of repurchase.
The New Notes will be general unsecured obligations of the Company and will
rank senior in right of payment to all existing and future Indebtedness (as
defined) of the Company that is subordinated to the New Notes and will rank pari
passu in right of payment with all current and future unsubordinated
Indebtedness of the Company; provided, however, that certain Indebtedness of the
Company currently is and may in the future be secured by assets held by the
Company, subject to certain restrictions described herein. The New Notes will be
guaranteed (the "Guarantees") on a senior basis by each of the future Subsidiary
Guarantors (as defined). The Guarantees will be general unsecured obligations of
the Subsidiary Guarantors and will rank senior in right of payment to all future
Indebtedness of the Subsidiary Guarantors that is subordinated to the Guarantees
and will rank pari passu in right of payment with all future unsubordinated
Indebtedness of the Subsidiary Guarantors; provided, however, that certain
Indebtedness of the Subsidiary Guarantors may in the future be secured by assets
held by Subsidiary Guarantors, subject to certain restrictions described herein.
As of November 23, 1997, the Company had $63.9 million of long-term Indebtedness
ranking pari passu with the Notes, all of which constituted secured Indebtedness
under the CIT Credit Facility (as defined). The terms of the Indenture pursuant
to which the New Notes will be issued will limit the ability of the Company and
the Subsidiary Guarantors to incur additional Indebtedness.
(Continued on next page)
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF THE OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC" OR THE "COMMISSION") OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 4
The Old Notes were issued by the Company on November 13, 1997 in connection
with the Recapitalization (as defined) of the Company and Big 5 Holdings Corp.,
a Delaware corporation and parent of the Company ("Parent"). The Old Notes were
issued pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. Based on interpretations by the staff of the SEC, as set forth in
no-action letters issued to third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by Holders thereof (other than Holders which are
"affiliates" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such Holder's business and such Holder, other than a
Holder which is a broker-dealer, has no arrangements with any person to engage
in a distribution of such New Notes. However, the SEC has not considered the
Exchange Offer in the context of a no-action letter request by the Company and
there can be no assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer. Each Holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of such New Notes and has no arrangements or
understanding to participate in the distribution of the New Notes. If any Holder
is an affiliate of the Company, or is engaged in or intends to engage in or has
any arrangement with any person to participate in the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, or is a broker-dealer who
purchased Old Notes from the Company, such Holder (i) could not rely on the
applicable interpretations of the staff of the SEC (ii) will not be permitted or
entitled to tender such Old Notes in the Exchange Offer, and (iii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed, under certain
circumstances, that, for a period of up to 180 days after the Expiration Date
(as defined herein), it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. There is no existing trading market for the New Notes, and
there can be no assurance regarding the future development of a market for the
New Notes. The Initial Purchasers have advised the Company that they currently
intend to make a market in the New Notes. The Initial Purchasers are not
obligated to do so, however, and any market-making with respect to the New Notes
may be discontinued at any time without notice. The Company does not intend to
apply for listing or quotation of the New Notes on any securities exchange or
stock market. There can be no assurance that an active market for the New Notes
will develop. To the extent that an active market for the New Notes does
develop, the market value of the New Notes will depend on market conditions
(such as yields on alternative investments), general economic conditions, the
Company's financial condition, and other factors. Such conditions might cause
the New Notes, to the extent that they are actively traded, to trade at a
significant discount from face value. See "Risk Factors -- Lack of Public Market
for the New Notes."
ANY OLD NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN
OUTSTANDING. TO THE EXTENT ANY OLD NOTES ARE TENDERED AND ACCEPTED IN THE
EXCHANGE OFFER, A HOLDER'S ABILITY TO SELL OLD NOTES COULD BE ADVERSELY
AFFECTED, FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS OF OLD NOTES
WILL CONTINUE TO BE SUBJECT TO THE EXISTING RESTRICTIONS UPON TRANSFER THEREOF
AND THE COMPANY WILL HAVE FULFILLED CERTAIN OF ITS OBLIGATIONS UNDER THE
REGISTRATION RIGHTS AGREEMENT. HOLDERS OF OLD NOTES WHO DO NOT TENDER THEIR
NOTES GENERALLY WILL NOT HAVE ANY FURTHER REGISTRATION RIGHTS WITH RESPECT TO
THE OLD NOTES UNDER THE REGISTRATION RIGHTS AGREEMENT OR OTHERWISE. See "The
Exchange Offer -- Consequences of Failure to Exchange."
i
<PAGE> 5
The New Notes issued pursuant to this Exchange Offer generally will be
issued in the form of Global Notes (as defined), which will be deposited with,
or on behalf of, The Depository Trust Company ("DTC") and registered in its name
or in the name of Cede & Co., its nominee. Beneficial interests in the Global
Notes representing the New Notes will be shown on, and transfers thereof will be
effected through, records maintained by DTC and its participants. See "Book
Entry, Delivery and Form."
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NEW NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE NEW NOTES TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
Until , 1998 (90 days after commencement of the
Exchange Offer), all dealers effecting transactions in the New Notes, whether or
not participating in the Exchange Offer, may be required to deliver a Prospectus
in connection with such transaction.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, including the "Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
sections, contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, which can be identified by the
use of forward-looking terminology, such as "may," "intend," "will," "expect,"
"anticipate," "estimate," "seek," or "continue" or the negative thereof or other
variations thereon or comparable terminology. In particular, any statements,
express or implied, concerning future operating results or the ability to
generate revenues, income or cash flow to service the Notes are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, there can be no assurance that
such expectations will prove to have been accurate. All forward-looking
statements are expressly qualified by such cautionary statements and other
information contained in this Prospectus, including "Risk Factors."
AVAILABLE INFORMATION ABOUT THE COMPANY
The Company files annual, quarterly and special reports under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and other
information with the SEC. Holders of the Old Notes may read and copy any
document the Company files at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0300 for further information on the public reference rooms. The
Company's SEC filings are also available to the public from the SEC's web site
at http://www.sec.gov.
ii
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto appearing
elsewhere in this Prospectus.
THE COMPANY
OVERVIEW
The Company is the leading sporting goods retailer in the Western United
States, operating 210 stores under the "Big 5 Sporting Goods" name. Its
principal executive offices are located at 2525 East El Segundo Blvd., El
Segundo, CA 90245 (telephone number (310) 536-0611). The Company's core market
is California, Washington and Nevada and it recently expanded into Arizona,
Idaho, Oregon, New Mexico, Texas and Utah. The Company provides a full-line
product offering of over 25,000 stock keeping units ("SKU's") in a traditional
sporting goods store format that averages 11,000 square feet. Specifically, the
Company's products include athletic shoes and apparel, and tennis, golf, ski,
snowboard, in-line skating, fitness, outdoor and team sports equipment for the
competitive and recreational sporting goods customer. The Company offers
customers attractive values on recognized brand-name merchandise at a wide
variety of price points. The Company augments its value image by emphasizing
branded merchandise produced exclusively for the Company and on a selective
basis, "opportunistic buys" comprising first quality items, including overstock
and close-out merchandise. These merchandise values are communicated weekly
through print advertising created by the Company in order to generate store
traffic and drive sales. For the twelve months ended September 28, 1997, the
Company generated $432.1 million of revenue, $32.9 million of pro forma EBITDA
(as defined) and a same store sales increase of 6.9% over the prior period.
Through the period ended November 23, 1997, the Company has enjoyed 21
consecutive monthly increases in same store sales over the comparable prior
period.
Management attributes the Company's success to its consistent merchandising
strategy, convenient locations, knowledgeable customer service, extensive
advertising and effective cost controls. The Company's merchandising strategy
focuses on: (i) delivering consistent value to consumers; (ii) offering a
customized product assortment that maximizes sales while managing inventory
levels; (iii) maintaining a strong market presence across product categories;
and (iv) supporting its merchandise offering through extensive promotional
advertising. The Company believes that its effective use of a combination of
in-line branded products, branded and private label merchandise produced
exclusively for the Company and opportunistic buys distinguishes its merchandise
mix from that of its competitors. Through its 42 years of operations, the
Company has developed specific expertise in selling this distinctive mix of
products, thereby building the Company's price image, anchoring its weekly print
advertisements and driving retail traffic.
The Company believes that the consistency and reach of Big 5's print
advertising programs have created high customer awareness of Big 5. Through
years of focused advertising, the Company has reinforced its reputation for
providing quality products at attractive prices. The Company attempts to
highlight a broad range of merchandise categories in every advertisement to
maintain customer awareness of its full-line product offering. The Company's
advertising message is reinforced through the distribution of over 10 million
advertisements each week, 52 weeks a year, in the form of newspaper inserts or
mailers. The Company believes that its print advertising consistently reaches
more households in its core market than does the print advertising of any of its
competitors.
The Company is a wholly-owned subsidiary of Parent. As a result of the
Recapitalization, existing management and employees of the Company (and members
of their families) beneficially own the majority of Parent. Chairman and Chief
Executive Officer Robert W. Miller, who co-founded the Company in 1955, and his
son Steven G. Miller, President and Chief Operating Officer, who has been with
the Company for 28 years, significantly increased their ownership in Parent and
control the Board of Directors of Parent. In addition, approximately 60 members
of middle and senior level management increased their stock ownership in Parent.
In total, more than 200 employees own equity in Parent, including over 100 store
managers. The Big 5 management team shares many years of experience, with senior
level management averaging 26 years with the Company and other key groups of
management employees having significant years of experience at Big 5. Management
believes the experience, commitment and longevity with the Company of its
professional staff to be a substantial competitive advantage.
1
<PAGE> 7
BUSINESS STRATEGY
The Company seeks to continuously improve current operations while
expanding into new and existing markets. Specifically, the Company's business
strategy is to operate under a traditional store format, offer outstanding value
on an attractive mix of quality merchandise, promote customer sales through
extensive advertising, control costs and pursue new store growth opportunities.
Through 42 years of operations, this strategy has been refined and enhanced. The
Company believes that continuing to implement this strategy while capitalizing
on its competitive strengths, as described below, will address the Company's
goal of continuing profitable growth.
Market Leader in Core Market Served. The Company has built a recognized
franchise by establishing a strong presence in its core market of California,
Washington and Nevada and by consistently promoting quality brand-name products
at attractive prices. The Company has over triple the number of stores as its
closest full-line sporting goods competitor in such core market. This
concentration of stores provides economies of scale in advertising and
distribution and increased customer awareness of the Big 5 name. The Company was
named the leading place to purchase sporting goods in the greater Los Angeles
area for every category of sporting goods covered by a survey commissioned by
the Company conducted in October 1996 by America's Research Group, an
independent research group. The survey showed that the Company was preferred
over specialty sporting goods stores (e.g. Foot Locker, Nevada Bob's), mass
merchandisers (e.g. K-Mart, Target) and local superstore operators (e.g.
Sportmart, Sport Chalet). This survey also indicated that over 90% of
respondents recognized the Big 5 name and 73% shopped at a Big 5 store in the
past two years.
Favorable Store Format with Superior Locations. The Company has remained
focused on its strategy of operating a traditional, full-line sporting goods
store, averaging 11,000 square feet in size, located primarily in multi-store
shopping centers or free-standing street locations. The Big 5 store size
provides the Company with a large selection of locations for new store placement
which, in turn, allows the Company to open stores conveniently located to the
customer. The Company's store format and convenient locations encourage frequent
customer visits, even for single item or relatively small purchases. This is
illustrated by the fact that the Company processed over 14 million sale
transactions in 1996 with an average customer sale of approximately $30. Due to
its relatively low start-up and overhead costs, the Big 5 store model has been
successful in trade areas with as few as 75,000 people, as well as major
metropolitan areas. These store economics differentiate the Company's sporting
goods stores from superstore concepts (averaging in excess of 35,000 square
feet) which typically require larger trade areas to support higher costs.
Overall, the Company's traditional sporting goods store has competed effectively
against superstore formats. All of the Big 5 stores are making positive
store-level contributions and over its history, the Company has never closed a
store due to poor performance.
Superior Merchandising Capabilities. The Company provides a full-line
product offering of over 25,000 SKU's at a wide variety of price points across
an extensive range of categories. Important brand names offered by the Company
include Nike, Reebok, Wilson, K2, Rollerblade, Coleman, Spalding, Adidas, Fila,
Speedo, Easton and Columbia, among others. A goal of the Company's merchandising
strategy is to offer a customized and selected assortment of products to enable
the consumer to comparison shop within the Big 5 store without being overwhelmed
by a large number of different products in any one category. In addition, the
Company's merchandising strategy is also designed to manage inventory levels.
The Company differentiates its product offerings by tailoring its assortment to
each region's specific needs and buying habits. The Company's 15 buyers, who
average 18 years of experience with the Company, work closely with senior
management to determine the product selection, promotion and pricing of the
merchandise mix. The Company utilizes a $15 million integrated merchandising,
distribution and financial information system. Management uses the information
provided to continually refine its merchandise mix, pricing strategy,
advertising effectiveness and inventory levels.
2
<PAGE> 8
Value Driven Product Offerings Supported by Extensive Advertising. The
Company offers consistent value to consumers by offering a distinctive
combination of in-line branded products, "special make-up" merchandise (produced
exclusively for the Company under a manufacturer's brand-name), private label
merchandise and opportunistic buys. The Company offers this consistent value to
its customers while maintaining strong margins as a result of its ability to
purchase in large quantities and quickly adjust this combination of merchandise
to take advantage of purchasing opportunities. The Company believes it enjoys
significant advantages in the acquisition of opportunistic buys because the
Company is able to combine rapid decision-making, strong vendor relationships,
careful inventory management, and effective advertising along with its extensive
store network. Although management believes opportunistic buys typically
represent only approximately 10% of sales, they are used in conjunction with
special make-up merchandise to enhance weekly advertising and reinforce the
Company's reputation as a retailer that offers outstanding value to its
customers. The Company's in-house advertising department designs its print
advertising, of which over 10 million newspaper inserts and mailers are
distributed each week. The Company's effectiveness in communicating the product
values it offers is evidenced by the fact that typically 40% of sales have been
products included in these weekly advertisements.
Proven Store Growth Strategy. The Company's expansion has been systematic
and designed to take advantage of Big 5's name recognition and to capitalize on
the Company's economical store format and merchandise mix. Throughout the
Company's 42 year history, management has emphasized careful site selection and
controlled growth. Over the past five years, 63 stores have been opened (13 new
stores annually on average), of which 40% were outside the Company's core
market. The Company has identified numerous expansion opportunities to further
penetrate its core market, develop recently entered markets and expand into new
market areas with similar demographic, competitive and economic profiles as its
existing markets. Continuing its controlled growth strategy, the Company plans
on opening approximately 15-20 stores annually over the next five years. The
Company's store format requires a low investment in fixtures and equipment
(approximately $250,000), working capital (approximately $500,000, of which
one-third is typically financed by vendors) and real estate (leased,
"built-to-suit" locations). This expansion plan is designed to take advantage of
the growing economies of the Company's existing markets and to capitalize on
opportunities in fast growing new markets.
RECENT DEVELOPMENTS
THE RECAPITALIZATION
The Company and Parent recently completed the Recapitalization which is
described in detail under "The Recapitalization." The issuance of the Old Notes
by the Company was one of the transactions involved in the Recapitalization.
CHANGE OF CONTROL
As reported by the Company in a Current Report on Form 8-K filed with the
SEC on November 26, 1997 under the Exchange Act, the Recapitalization
facilitated a change in control of the Company and Parent. All of the common
stock of the Company is owned by Parent.
3
<PAGE> 9
THE EXCHANGE OFFER
Securities Offered........ $131 million aggregate principal amount of Series B
10 7/8% Senior Notes due 2007.
The Exchange Offer........ $1,000 principal amount of the New Notes in exchange
for each $1,000 principal amount of Old Notes. As of
the date hereof, $131 million aggregate principal
amount of Old Notes are outstanding. The Company will
issue the New Notes to Holders on or promptly after
the Expiration Date.
Based on an interpretation by the staff of the SEC
set forth in no-action letters issued to third
parties, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and otherwise
transferred by any Holder thereof (other than any
such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the
ordinary course of such Holder's business and that
such Holder does not intend to participate and has no
arrangement or understanding with any person to
participate in the distribution of such New Notes.
Each broker-dealer that receives New Notes for its
own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See
"Plan of Distribution."
Any Holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the New Notes
could not rely on the position of the staff of the
SEC enunciated in Exxon Capital Holdings Corporation
(available May 13, 1988), Morgan Stanley & Co., Inc.
(available June 5, 1991) or similar no-action letters
and, in the absence of an exemption therefrom, must
comply with the registration and prospectus
requirements of the Securities Act in connection with
the resale of the New Notes. Failure to comply with
such requirements in such instance may result in such
Holder incurring liability under the Securities Act
for which the Holder is not indemnified by the
Company.
Expiration Date........... 5:00 p.m., New York City time, on , 1998,
unless the Exchange Offer is extended, in which case
the term "Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Interest on the New Notes
and the Old Notes......... The New Notes will bear interest from their date of
issuance. Interest will accrue on the Old Notes that
are tendered in exchange for the New Notes through
the issue date of the New Notes. Holders of Old Notes
that are accepted for exchange will not receive
interest on the Old Notes that is accrued but unpaid
at the time of exchange, but such interest will be
payable, together with interest on the New Notes, on
the first Interest Payment Date after the Expiration
Date.
Conditions to the
Exchange Offer............ The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
4
<PAGE> 10
Procedures for Tendering
Old Notes................. Each Holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver the Letter of Transmittal, or such facsimile,
together with the Old Notes and any other required
documentation to the Exchange Agent at the address
set forth in the Letter of Transmittal. Persons
holding Old Notes through the Depository Trust
Company ("DTC") and wishing to accept the Exchange
Offer must do so pursuant to the DTC's Automated
Tender Offer Program ("ATOP"), by which each
tendering participant will agree to be bound by the
Letter of Transmittal. By executing or agreeing to be
bound by the Letter of Transmittal, each Holder will
represent to the Company that, among other things,
the Holder or the person receiving such New Notes,
whether or nor such person is the Holder, is
acquiring the New Notes in the ordinary course of
business and that neither the Holder nor any such
other person has any arrangement or understanding
with any person to participate in the distribution of
such New Notes.
Special Procedures for
Beneficial Owners......... Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered Holder promptly
and instruct such registered Holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the
Letter of Transmittal and delivering its Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or
obtain a properly completed bond power from the
registered Holder. The transfer of registered
ownership may take considerable time.
Guaranteed Delivery....... Procedures Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their Old
Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to
the Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date
must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer -- Withdrawals of Tenders."
Acceptance of Old Notes
and Delivery of New Notes. The Company will accept for exchange any and all Old
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to the
Exchange Offer will be delivered promptly following
the Expiration Date. See "The Exchange Offer -- Terms
of the Exchange Offer."
Certain Federal Income
Tax Consequences.......... The exchange of the New Notes for the Old Notes
pursuant to the Exchange Offer should not be taxable
to the Holders thereof for federal income tax
purposes. See "Certain Federal Income Tax
Consequences."
5
<PAGE> 11
Effect on Holders of
Old Notes................. As a result of the making of this Exchange Offer, the
Company will have fulfilled certain of its
obligations under the Registration Rights Agreement,
and Holders of Old Notes who do not tender their Old
Notes will not have any further registration rights
under the Registration Rights Agreement or otherwise.
See "The Exchange Offer -- Purposes and Effect of
Exchange Offer." Such Holders will continue to hold
the untendered Old Notes and will be entitled to all
the rights and subject to all the limitations
applicable thereto under the Indenture, except to the
extent such rights or limitations, by their terms,
terminate or cease to have further effectiveness as a
result of the Exchange Offer. All untendered Old
Notes will continue to be subject to certain
restrictions on transfer because they have not been
registered under the Securities Act. Accordingly, if
any Old Notes are tendered and accepted in the
Exchange Offer, the trading market for the untendered
Old Notes could be adversely affected.
Exchange Agent............ First Trust National Association (the "Exchange
Agent" and the "Trustee").
6
<PAGE> 12
SUMMARY TERMS OF THE NEW NOTES
The form and terms of the New Notes are the same as the form and terms of
the Old Notes (which they replace) except that (i) the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (ii) the Holders of New Notes will not be
entitled to further registration rights under the Registration Rights Agreement,
which rights will be satisfied when the Exchange Offer is consummated and will
not be entitled to any payments of liquidated damages for failure to satisfy
such rights. The New Notes will evidence the same debt as the New Notes and will
be entitled to the benefit of the Indenture. See "Description of Notes."
Issuer.................... Big 5 Corp.
Subsidiary Guarantors..... The New Notes will be guaranteed on a senior basis by
all of the Company's future Subsidiary Guarantors.
Maturity Date............. November 15, 2007.
Interest Payment Dates.... Each May 15 and November 15, commencing on May 15,
1998.
Ranking................... The New Notes will be general unsecured obligations
of the Company and will rank senior in right of
payment to all existing and future Indebtedness of
the Company that is subordinated to the New Notes and
will rank pari passu in right of payment with all
current and future unsubordinated Indebtedness of the
Company; provided, however, that certain Indebtedness
of the Company currently is and may in the future be
secured by assets held by the Company, subject to
certain restrictions described herein. The Guarantees
will be general unsecured obligations of the
Subsidiary Guarantors and will rank senior in right
of payment to all future Indebtedness of the
Subsidiary Guarantors that is subordinated to the
Guarantees and will rank pari passu in right of
payment with all future unsubordinated Indebtedness
of the Subsidiary Guarantors; provided, however, that
certain Indebtedness of the Subsidiary Guarantors may
in the future be secured by assets held by the
Subsidiary Guarantors, subject to certain
restrictions described herein. As of November 23,
1997, the Company had $63.9 million of long-term
Indebtedness ranking pari passu with the New Notes,
all of which constituted secured Indebtedness under
the CIT Credit Facility.
Optional Redemption....... The New Notes will be redeemable, in whole or in
part, at the option of the Company, at any time on or
after November 15, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
redemption. In addition, at any time on or before
November 15, 2000, the Company may redeem, on one or
more occasions, up to an aggregate of 35% of the
original aggregate principal amount of the Notes with
the net proceeds of one or more Public Equity
Offerings at a redemption price equal to 110.95% of
the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date
of redemption; provided, that at least 65% of the
original aggregate principal amount of the Notes must
remain outstanding following each such redemption.
See "Description of the Notes -- Optional
Redemption."
7
<PAGE> 13
Change of Control......... Upon the occurrence of a Change of Control, the
Company will be required to offer to purchase all
outstanding Notes at a price in cash equal to 101% of
the aggregate principal amount thereof plus accrued
and unpaid interest and Liquidated Damages, if any,
to the date of purchase. See "Description of the
Notes -- Certain Covenants -- Repurchase of Notes at
the Option of the Holder Upon a Change of Control."
Certain Covenants......... The Indenture will contain certain covenants that
limit the ability of the Company and its Subsidiaries
to, among other things, (i) incur additional
Indebtedness and issue preferred stock, (ii) pay
dividends or make other distributions, (iii) create
certain liens, (iv) sell certain assets, (v) enter
into certain transactions with affiliates, and (vi)
effect certain mergers and consolidations. See
"Description of the Notes -- Certain Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Notes.
8
<PAGE> 14
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary information set forth below presents historical financial data
and unaudited pro forma condensed financial data for the periods indicated which
have been derived from audited and unaudited financial statements and the notes
thereto of United Merchandising Corp. (which was reincorporated in Delaware as
Big 5 Corp. in connection with the Recapitalization) included elsewhere in this
Prospectus. As used herein, with respect to the summary historical and pro forma
financial data, the Company means United Merchandising Corp. The results for the
interim periods are not necessarily indicative of the results for the full
fiscal year. The summary unaudited pro forma condensed operating data for the
twelve months ended September 28, 1997, the fiscal year ended December 29, 1996,
the nine months ended September 28, 1997 and the nine months ended September 29,
1996, give effect to the Recapitalization as if it had been consummated on the
first day of such period. See "Unaudited Pro Forma Condensed Financial Data" and
the notes thereto. The summary pro forma financial data set forth below may not
necessarily be indicative of the results that would have been achieved had the
Recapitalization been consummated as of the dates indicated or that may be
achieved in the future. The summary historical and pro forma financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Selected Historical Financial
Data" and the financial statements of the Company and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR(a)
-------------------------------------------------------------- NINE MONTHS(a)
PRO FORMA -------------------
1992 1993 1994 1995 1996 1996 1997
--------------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................. $ 312,415 $321,933 $364,109 $370,126 $404,265 $296,356 $324,177
Gross profit............... 90,620(b,c) 97,839(d) 119,332 113,543 127,149 92,936 105,502
Total operating expenses... 86,393(e) 87,075 101,418 107,149 110,631 83,760 88,690
Operating income........... 4,227 10,764 17,914 6,394 16,518 9,176 16,812
OTHER DATA:
EBITDA(f).................. 24,836 24,094 27,094 18,385 26,096 16,285 22,899
EBITDA margin.............. 8.0% 7.5% 7.4% 5.0% 6.5% 5.5% 7.1%
Cash flow provided by (used
in) operating
activities............... 24,397 6,227 14,647 (3,824) 19,798 7,527 (1,953)
Cash flows provided by
(used in) investing
activities............... (152,020) (6,714) (9,342) (7,374) 1,539 3,435 (3,227)
Cash flows provided by
(used in) financing
activities............... 135,932 (4,974) (4,937) 6,728 (19,738) (10,770) 799
Depreciation and
amortization............. 6,317(e) 6,999 9,180 11,991 9,578 7,109 6,087
Capital expenditures....... 8,676 6,010 9,153 6,822 3,453 1,555 3,227
OPERATING DATA:
Comparable store sales
increase/(decrease)(g)... 1.2% (4.0)% 5.7% (4.9)% 3.7% 2.4% 7.1%
End of period stores....... 147 162 175 192 196 193 202
Inventory turns(h)......... 2.0x 1.8x 1.9x 1.8x 2.2x 2.1x 2.2x
</TABLE>
<TABLE>
<CAPTION>
LTM
FISCAL YEAR SEPT. 28,
----------- ---------
1996 1997
----------- ---------
<S> <C> <C>
PRO FORMA DATA:
Net sales....................................................................... $ 404,265 $ 432,086
EBITDA.......................................................................... 26,330 32,944
Cash interest expense........................................................... 19,475 18,800
Ratio of EBITDA to cash interest expense........................................ 1.8x
Net debt/EBITDA................................................................. 5.3x
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 28, 1997
------------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................... $ 416 $ 416
Net working capital(i).......................................................... 79,558 79,558
Total assets.................................................................... 203,856 208,518
Total debt (includes current maturities)........................................ 87,226 176,179
Stockholder's equity (deficit).................................................. 40,369 (43,922)
</TABLE>
9
<PAGE> 15
(Notes to table on previous page)
- ------------------------------
(a) The Company's fiscal year is a 52 or 53 week year ending on the Sunday
closest to the calendar year end. All fiscal years presented consist of 52
weeks except for Fiscal 1992, which consisted of 53 weeks. The nine month
period of 1996 was a 39 week period that ended on September 29, 1996 and the
nine month period of 1997 was a 39 week period that ended on September 28,
1997. The financial data for Pro Forma 1992 is unaudited and combines the
results of operations for the 39 weeks ended September 25, 1992 for the
Company prior to the acquisition of the Company from Pacific Enterprises
("PE")(the "PE Acquisition") and the results of operations of the Company
for the 14 weeks ended January 3, 1993 and gives effect to the PE
Acquisition as though it occurred at the beginning of the 1992 fiscal year.
The unaudited pro forma financial data for Pro Forma 1992 does not purport
to represent the results that actually would have occurred if such
transactions had in fact occurred on such date.
(b) The Company prior to the PE Acquisition recorded inventory on a LIFO basis.
In connection with the PE Acquisition, the Company adopted the FIFO method
for recording inventory. As a result, Pro Forma 1992 is revised to reflect
the FIFO method as of the beginning of the year.
(c) Includes $11,080 decrease related to purchase accounting inventory
revaluation.
(d) Includes $6,332 decrease related to purchase accounting inventory
revaluation.
(e) Includes $3,828 increase in depreciation and amortization expense due to
purchase accounting revaluation of assets.
(f) For purposes of this Prospectus, EBITDA represents net earnings (loss)
before taking into consideration net interest expense, income tax expense,
depreciation expense, amortization expense, and non-cash rent expense, and
where relevant to the period referenced, amortization expense associated
with the write-up of assets related to the PE Acquisition, expense incurred
related to management stock grants related to the PE Acquisition, the LIFO
provision incurred prior to the PE Acquisition and extraordinary loss from
early extinguishment of debt. While EBITDA is not intended to represent
cash flow from operations as defined by generally accepted accounting
principles ("GAAP") and should not be considered as an indicator of
operating performance or an alternative to cash flow (as measured by GAAP)
as a measure of liquidity, it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditure and working capital requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(g) Comparable store sales data for a period reflect stores open throughout that
period and the corresponding period of the prior fiscal year.
(h) Inventory turns equal fiscal year or latest twelve month cost of goods sold,
buying and occupancy costs divided by 4 quarter average FIFO inventory
balances adjusted to exclude the uniform capitalization adjustment to
inventory balances.
(i) Net working capital is defined as current assets less current liabilities
excluding current maturities of long-term debt.
10
<PAGE> 16
RISK FACTORS
In addition to the other matters described in this Prospectus, prospective
investors should carefully consider the following risk factors before deciding
to participate in the Exchange Offer, although certain matters set forth below
are equally applicable to the Old Notes. Holders of the Old Notes should also
refer to the "Disclosure Regarding Forward-Looking Statements" found on page
of this Prospectus when evaluating this "Risk Factors" section and the Company's
financial condition and operations.
HIGH LEVERAGE
The Company is highly leveraged. In addition to the obligations evidenced
by the $131.0 million aggregate principal of the Notes offered hereby, the debt
obligations of the Company will include all existing and future indebtedness of
the Company, including indebtedness outstanding under the CIT Credit Facility.
As of November 23, 1997, the Company had $63.9 million of long-term Indebtedness
ranking pari passu with the Notes, all of which constitutes secured Indebtedness
under the CIT Credit Facility. The CIT Credit Facility, subject to its terms and
conditions, allows secured borrowings of up to $125.0 million. The foregoing
leverage will have important consequences to holders of the Notes, including the
following: (i) the Company's highly leveraged condition could make the
procurement of additional capital resources difficult if that were to become
necessary; (ii) a substantial portion of the Company's cash flow from operations
will be required to be dedicated to the payment of the Company's interest
expense and principal repayment obligations; (iii) the Company's high degree of
leverage could make it more vulnerable to economic downturns and more limited in
its ability to withstand competitive pressures than its competitors that are not
as highly leveraged; and (iv) the Company's interest expense and principal
repayment obligations could limit the amount of internally generated funds
available to fund the Company's expansion and, therefore, could require a
reduction of its expansion plans.
The Company's ability to meet its debt service obligations will be
dependent upon its future performance, which, in turn, will be subject to
general economic conditions and to financial, business and other factors
affecting the operations of the Company, including factors beyond its control.
The Company's earnings were insufficient to cover fixed charges for the 53 weeks
ended January 3, 1993 (on a pro forma basis giving effect to the PE Acquisition)
and the fiscal years ended January 2, 1994 and December 31, 1995 by $7.3
million, $1.7 million and $6.4 million, respectively. On a pro forma basis after
giving effect to the Recapitalization, earnings were insufficient to cover fixed
charges by $4.9 million and $6.9 million for the year ended December 29, 1996
and the nine months ended September 29, 1996, respectively. However, based upon
its current and anticipated level of operations, the Company believes that its
cash flow from operations, together with amounts available under the CIT Credit
Facility, should be adequate to meet its anticipated cash requirements for
working capital, capital expenditures, interest payments and scheduled principal
payments. There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels. If the Company is
unable to generate sufficient cash flows from operations in the future to
service its indebtedness, it may be required to refinance all or a portion of
its indebtedness, including the Notes, or to obtain additional financing or to
dispose of material assets or discontinue certain of its operations. The CIT
Credit Facility and the Indenture will restrict the Company's ability to sell
assets and/or use the proceeds therefrom. There can be no assurance that any
such refinancing or asset sales would be possible under the Company's debt
instruments existing at such time, that the proceeds which the Company could
realize from such refinancing or asset sales would be sufficient to meet the
Company's obligations then due or that any additional financing could be
obtained.
RESTRICTIVE COVENANTS AND ASSET ENCUMBRANCES
The CIT Credit Facility and the Indenture contain numerous restrictive
covenants which will limit the discretion of the Company's management with
respect to certain business matters. These covenants place significant
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, to create liens or other encumbrances, to pay dividends
or make other restricted payments, to make investments, loans and guarantees and
to sell or otherwise dispose of a substantial portion of assets to, or merge or
consolidate with, another entity. The CIT Credit Facility also contains a number
of financial covenants that
11
<PAGE> 17
require the Company to meet certain financial ratios and tests. A failure to
comply with the obligations contained in the CIT Credit Facility or the
Indenture, if not cured or waived, could permit acceleration of the related
indebtedness and acceleration of indebtedness under other instruments that
contain cross-acceleration or cross-default provisions. In addition, the
obligations of the Company under the CIT Credit Facility are secured by the
Company's trade accounts receivable, merchandise inventories and general
intangible assets. In the case of an event of default under the CIT Credit
Facility, the lenders thereunder would be entitled to exercise the remedies
available to a secured lender under applicable law. Other indebtedness of the
Company that may be incurred in the future may contain financial or other
covenants more restrictive than those applicable to the CIT Credit Facility or
the Notes. See "Description of the Notes -- Certain Covenants" and "Financing
Arrangements."
EXPANSION PROGRAM
The Company's continued growth is dependent to a significant degree upon
its ability to open new stores on a profitable basis. During the fiscal year
ended December 29, 1996, the Company opened a total of four new stores, which
represented a reduction in its store growth from an average of 15 new stores per
year during the four year period from 1992 through 1995. See "Business --
Expansion and Store Development." The Company intends to continue opening new
stores and remodeling certain older, existing stores, including plans to open 14
new stores in 1997, at an aggregate cost, including working capital, of
approximately $9.0 million. The Company has met its store opening plan for 1997
as of the date hereof.
The Company's ability to expand will depend, in part, on business
conditions and the availability of suitable sites, acceptable lease terms,
qualified managers and sales associates, and sufficient capital. In addition, a
decline in the Company's overall financial performance, increased rents or any
other adverse effects arising from the commercial real estate market in the
Company's markets may adversely impact the Company's current expansion plan. The
Company expects that the net cash generated from operations, together with
borrowings under the CIT Credit Facility to support working capital
requirements, should enable the Company to finance the expenditures related to
its planned expansion. There can be no assurance, however, that the Company will
possess sufficient funds to finance the expenditures related to its planned
expansion, that new stores can be opened on a timely basis, or that such new
stores can be operated on a profitable basis, or that such expansion will be
manageable. In the event net cash generated from operations together with
working capital reserves and borrowings under the CIT Credit Facility are
insufficient to finance the expenditures related to the Company's planned
expansion, the Company may be required to reduce its expansion plans, which
could have an adverse impact on the Company's financial condition and results of
operations.
COMPETITION
The sporting goods business and the retail environment are highly
competitive, and the Company competes with national, regional and local sporting
goods chains, large retailers, specialty stores and sporting goods superstores.
Sporting goods retailers generally compete on the basis of store location and
image, product selection, quality and price, and customer service. A number of
the Company's competitors are larger and have greater resources than the
Company. See "Business -- Industry and Competition."
ABSENCE OF PUBLIC MARKET
There is no existing market for the New Notes and the Company does not
intend to apply for the listing of the New Notes on any national securities
exchange or for their quotation through the Nasdaq system. There can be no
assurance as to the development of any market for any of the New Notes, or as to
the liquidity of any market that may develop for the New Notes. The market for
"high yield" securities such as the Notes is volatile and unpredictable, which
may have an adverse effect on the liquidity of and prices for the Notes. The
Notes could trade at prices that may be lower than their initial offering price
as a result of many factors, including prevailing interest rates, the Company's
operating results and the markets for similar securities. The Old Notes have not
been registered under the Securities Act. Any Old Notes may only be offered or
sold pursuant to an exemption from or in a transaction not subject to the
registration requirements of the Securities
12
<PAGE> 18
Act or pursuant to an effective registration statement. Accordingly, if any Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
the untendered Old Notes could be adversely affected.
REGIONAL MARKET CONCENTRATION
The Company's stores are located in the Western United States. Accordingly,
the Company is subject to regional risks, such as the economy, weather
conditions, natural disasters and government regulations. If the region were to
suffer an economic downturn or if other adverse regional events were to occur
(e.g., the occurrence of an unusually high number of winter storms caused by the
"El Nino" effect or otherwise), there could be an adverse impact on the
Company's net sales and profitability and its ability to implement its planned
expansion program. Several of the Company's competitors operate stores across
the United States and thus are not as vulnerable as the Company to such regional
risks. See "Business -- Industry and Competition."
FRAUDULENT TRANSFER CONSIDERATIONS
The Company's and each Subsidiary Guarantor's incurrence of the obligations
constituting the Notes and the Guarantees, respectively, could become subject to
challenge under federal or state fraudulent transfer laws if a court were to
determine that the Company or a Subsidiary Guarantor, as the case may be, (i)
incurred such obligations with actual intent to hinder, defraud or delay present
or future creditors, or contemplated insolvency with a design to prefer one or
more creditors to the exclusion in whole or in part of others; or (ii) received
less than a reasonably equivalent value or fair consideration for the
obligations incurred under the Old Notes or a Guarantee, as applicable, and, at
the time of such incurrence, was rendered insolvent, was engaged in a business
or transaction for which its remaining assets were unreasonably small, or
intended to incur or believed or reasonably should have believed that it would
incur debts beyond its ability to pay such debts as they became due.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent and
liquidated debts) is greater than the value of all of its property at a fair
valuation or if the present fair salable value of its assets is less than the
amount that will be required to pay its probable liability on its existing debts
as they become absolute and matured. There can be no assurance as to what
standard a court would apply in order to determine whether the Company would be
insolvent upon the consummation of the Recapitalization or whether a Subsidiary
Guarantor would be insolvent upon the incurrence of obligations under its
Guarantee. The Company disclaims any intent to hinder, defraud or delay its
creditors, or to prefer some creditors over others, and believes that the Old
Notes were incurred for proper purposes and in good faith. The Company further
does not believe that any of the other tests for fraudulent transfer were
satisfied with respect to indebtedness incurred by the Company in connection
with the Recapitalization, based in part on an opinion of a nationally
recognized investment banking firm that specializes in solvency opinions
delivered as a condition to the consummation of the offering of the Old Notes as
to the Company's solvency upon consummation of the Recapitalization, as well as
the adequacy of the Company's remaining assets, and its ability to pay its debts
as they come due, after the Recapitalization. However, if a court were to
determine that the Recapitalization or a Subsidiary Guarantor's incurrence of
obligations under its Guarantee, as the case may be, did constitute a fraudulent
transfer, the court could avoid the obligations represented by the Notes (or
such Guarantee) or take other actions detrimental to the holders of such
obligations (such as equitably subordinating the claims of such holders to the
claims of other creditors of the Company or a Subsidiary Guarantor, as
applicable). In such event, there could be no assurance that any repayment on
the Notes would ever be recovered by the holders of the Notes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a great extent on the management efforts
of its officers and other key personnel and on its ability to retain the
existing senior management in the future. The loss of the services of
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<PAGE> 19
certain members of the existing senior management team could have a material
adverse effect on the Company's business.
SEASONALITY
The Company's business is seasonal in nature. As a result, the Company's
results of operations are likely to vary during its fiscal year. Historically,
the Company's revenues and income are highest during its fourth quarter, due to
several factors. The fourth quarter contributed 26.7% in 1996 and 27.0% in 1995
of fiscal year net sales and 37.6% in 1996 and 42.8% in 1995 of fiscal year
EBITDA. Any decrease in sales for such period could have a material adverse
effect on the Company's business, financial condition and operating results for
the entire fiscal year.
MARKET DATA
The market survey referred to herein was conducted by an independent
research group commissioned by the Company. The survey results may vary from
other surveys due in part to the voluntary nature of the data gathering process.
In addition, comparative information regarding the Company's competitors and
other market data contained herein is based on estimates and the good faith
belief of the Company's management. Accordingly, Holders of the Old Notes should
not place undue emphasis on such survey, comparisons or other market data when
considering whether to participate in the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of the Old Notes as set forth in the legend thereon as a consequence
of the issuance of the Old Notes pursuant to exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws. In general, the Old Notes may not be offered
or sold, unless (i) to a person who the seller reasonably believes is a
qualified institutional buyer in a transaction meeting the requirements of Rule
144A, in a transaction meeting the requirements of Rule 144 under the Securities
Act, outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act or in accordance with another
exemption from the registration requirements of the Securities Act (based upon
an opinion of counsel if the Company so requests), (ii) to the Company or (iii)
pursuant to an effective registration statement, and in each case, in accordance
with any applicable securities laws of any State of the United States or any
other applicable jurisdiction. See "Risk Factors -- Absence of Public Market."
The Company does not currently anticipate that it will register the Old Notes
under the Securities Act. Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued to third parties, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such Holder's business and such Holder, other then a broker-dealer,
does not intend to participate, and has no arrangement or understanding with any
person to participate, in the distribution of such New Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter request by the Company and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer.
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<PAGE> 20
THE RECAPITALIZATION
Parent, Robert W. Miller, Steven G. Miller and Green Equity Investors, L.P.
("GEI") agreed to a Plan of Recapitalization and Stock Repurchase Agreement (the
"Recapitalization Agreement"). The following transactions (collectively referred
to as the "Recapitalization") were effected pursuant to the Recapitalization
Agreement: (i) the Company issued the Old Notes ($130.4 million gross proceeds);
(ii) the Company defeased and called for repayment on all of its outstanding
13 5/8% Senior Subordinated Notes due 2002 (the "Old Subordinated Notes"); (iii)
Parent issued its Senior Discount Notes in an aggregate principal amount at
maturity of $48.2 million maturing on November 30, 2008 (the "Parent Discount
Notes") with a warrant to purchase approximately three percent of the Common
Stock of Parent, par value $.01 per share (the "Common Stock") at a nominal
exercise price (the "Warrant") (together, the "Parent Note Financing") ($24.5
million proceeds); (iv) Parent accelerated vesting of substantially all
outstanding options and restricted stock held by management and employees of the
Company; (v) Parent redeemed for cash its existing Series A 9% Cumulative
Redeemable Preferred Stock (the "Parent Old Preferred") for approximately $21.9
million in the aggregate, including accrued dividends; (vi) Parent paid a cash
distribution of $15 per share on its outstanding shares of Common Stock
(approximately $63.2 million in the aggregate); (vii) Parent repurchased from
Pacific Enterprises ("PE") its warrant respecting 397,644 shares of Common Stock
and 16,667 shares of Parent Old Preferred (the "PE Warrant") and approximately
2,737,310 shares of Common Stock from the Selling Stockholders (of which GEI
owned 86.8%) for an aggregate of $17.6 million in cash and $35.0 million of
Parent Senior Exchangeable Preferred Stock (the "Parent New Preferred"); (viii)
Parent sold additional Common Stock to middle and senior level management of the
Company (approximately $2.3 million gross proceeds), increasing the beneficial
ownership of management and employees (and members of their families) from 14.0%
to 55.3% (in each instance on a fully diluted basis); and (ix) other
transactions occurred, including a distribution from the Company to Parent, so
that the above referenced transactions could be effected and the capital
structure of the Company would be as set forth under "Capitalization." The
Recapitalization will be accounted for as a recapitalization transaction for
accounting purposes.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the Exchange Offer. In
consideration for issuing the New Notes in exchange for Old Notes as described
in this Prospectus, the Company will receive Old Notes in like principal amount.
The Old Notes surrendered in exchange for the New Notes will be retired and
cancelled.
THE EXCHANGE OFFER
The following discussion sets forth or summarizes the material terms of the
Exchange Offer, including those set forth in the Letter of Transmittal
distributed with this Prospectus. This summary is qualified in its entirety by
reference to the full text of the documents underlying the Exchange Offer
(including the Indenture and the Registration Rights Agreement), copies of which
are filed as exhibits to the Registration Statement on Form S-4 of which this
Prospectus is a part and are incorporated herein by reference.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company to the Initial Purchasers on
November 13, 1997, and were subsequently resold to qualified institutional
buyers pursuant to Rule 144A under the Securities Act and pursuant to offers and
sales that occurred outside the United States within the meaning of Regulation S
under the Securities Act. In connection with the offering of the Old Notes, the
Company entered into the Registration Rights Agreement, which requires, among
other things, that by January 12, 1998 the Company (i) file with the SEC a
registration statement under the Securities Act with respect to an issue of new
notes of the Company identical in all material respects (other than transfer
restrictions, registration rights and the requirement, under certain
circumstances, to pay liquidated damages) to the Old Notes (which obligation has
been satisfied by the filing of the Registration Statement of which this
Prospectus is a part), (ii) use its
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<PAGE> 21
reasonable best efforts to cause such registration statement to become effective
under the Securities Act and (iii) upon the effectiveness of that registration
statement, offer to the Holders of the Old Notes the opportunity to exchange
their Old Notes for a like principal amount of New Notes, which would be issued
without a restrictive legend and may be reoffered and resold by the Holder
without restrictions or limitations under the Securities Act (other than any
such Holder that is an "affiliate" of either Company within the meaning of Rule
405 under the Securities Act).
Any Old Notes tendered and exchanged in the Exchange Offer will reduce the
aggregate principal amount of Old Notes outstanding. Following the consummation
of the Exchange Offer, Holders of the Old Notes who did not tender their Old
Notes generally will not have any further registration rights under the
Registration Rights Agreement, and such Old Notes will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of the market for
such Old Notes could be adversely affected. The Old Notes are currently eligible
for sale pursuant to Rule 144A through the Portal System(SM) of the National
Association of Securities Dealers, Inc. Because the Company anticipates that
most Holders of Old Notes will elect to exchange such Old Notes for New Notes
due to the absence of restrictions on the resale of New Notes under the
Securities Act, the Company anticipates that the liquidity of the market for any
Old Notes remaining after the consummation of the Exchange Offer may be
substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time on the
Expiration Date. The Company will issue $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of outstanding Old Notes accepted in
the Exchange Offer. Holders may tender some or all of their Old Notes pursuant
to the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (ii) the holders of the New Notes generally will not be entitled to certain
rights under the Registration Rights Agreement or with respect to liquidated
damages, which rights generally will terminate upon consummation of the Exchange
Offer. The New Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the Indenture.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Securities Exchange Act of 1934 and the
rules and regulations of the SEC thereunder, including Rule 14e-1.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "-- Fees and Expenses."
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<PAGE> 22
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "-- Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by a public
announcement thereof. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, the Company will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered Holders, and, depending upon the significance of the amendment
and the manner of disclosure to the registered Holders, the Company will extend
the Exchange Offer for a period of five to ten business days if the Exchange
Offer would otherwise expire during such five to ten business day period.
INTEREST ON NEW NOTES
The New Notes will bear interest from their date of issuance. Interest will
accrue on the Old Notes that are tendered in exchange for the New Notes through
the issue date of the New Notes. Holders of Old Notes that are accepted for
exchange will not receive interest that is accrued but unpaid on the Old Notes
at the time of exchange, but such interest will be payable, together with
interest on the New Notes, on the first Interest Payment Date after the
Expiration Date. Interest on the New Notes will be payable semi-annually on each
May 15 and November 15, commencing on May 15, 1998.
PROCEDURES FOR TENDERING
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a Holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange Agent so as to be
received by the Exchange Agent at the address set forth below prior to 5:00
p.m., New York City time, on the Expiration Date. Delivery of the Old Notes may
be made by book-entry transfer in accordance with the procedures described
below. Confirmation of such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representation set forth below in the second paragraph under the
heading "-- Resale of New Notes."
The tender by a Holder and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVER NIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
LETTERS OF TRANSMITTAL AND NOTES SHOULD NOT BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR
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<PAGE> 23
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934 (as
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Notes not properly tendered or any Old Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify Holders of defects or irregularities with respect to tenders of Old
Notes, none of the Company, the Exchange Agent or any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering Holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
Tender of Old Notes Held Through DTC
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for ATOP, the DTC Automated Tender Offer Program. Accordingly, DTC
participants may, in lieu of physically completing and signing the applicable
Letter of Transmittal and delivering it to the Exchange Agent, electronically
transmit their acceptance of the Exchange Offer by causing DTC to transfer Old
Notes to the Exchange Agent in accordance with DTC's ATOP procedures for
transfer. DTC will then send an Agent's Message to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which states
that DTC has received an express acknowledgement from a participant in DTC that
is tendering Old Notes which are the subject of such Book
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<PAGE> 24
Entry Confirmation, that such participant has received and agrees to be bound by
the terms of the applicable Letter of Transmittal (or, in the case of an Agent's
Message relating to guaranteed delivery, that such participant has received and
agrees to be bound by the applicable Notice of Guaranteed Delivery), and that
the Company may enforce such agreement against such participant.
Book Entry Delivery Procedures
Within two business days after the date hereof, the Exchange Agent will
establish accounts with the respect to the Securities at DTC, the Midwest
Securities Transfer Company ("MSTC") and the Philadelphia Depositary Trust
Company ("Philadep") (each a "Book-Entry Transfer Facility" and, collectively,
the "Book-Entry Transfer Facilities") for purposes of the Exchange Offer. Any
financial institution that is a participant in any of the Book-Entry Transfer
Facilities systems may make book-entry delivery of the Old Notes by causing DTC,
MSTC or Philadep to transfer such Old Notes into the Exchange Agent's account at
such Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for such transfer. Timely book-entry delivery of Old Notes
pursuant to the Exchange Offer, however, requires receipt of a Book-Entry
Confirmation prior to 5:00 p.m., New York City time, on the Expiration Date. In
addition, although delivery of Old Notes may be effected through book-entry
transfer into the Exchange Agent's account at a Book-Entry Transfer Facility,
the Letter of Transmittal (or a manually signed facsimile thereof), together
with any required signature guarantees and any other required documents, or an
Agent's Message in connection with a book-entry transfer, must, in any case, be
delivered or transmitted to and received by the Exchange Agent at its address
set forth on the back cover page of this Prospectus prior to the Expiration Date
to receive New Notes for tendered Old Notes, or the guaranteed delivery
procedure described below must be complied with. Tender will not be deemed made
until such documents are received by the Exchange Agent. Delivery of documents
to a Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof), together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at DTC) and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at DTC) and
all other documents required by the Letter of Transmittal, are received by
the Exchange Agent within three New York Stock Exchange trading days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
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<PAGE> 25
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at the address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number(s)
and principal amount of such Old Notes, or, in the case of notes transferred by
book-entry transfer, the name and number of the account at DTC to be credited),
(iii) be signed by the Holder in the same manner as the original signature on
the Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee register the transfer of such Old Notes into the
name of the person withdrawing the tender and (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time or
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer and
no New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes which have been tendered but
which are not accepted for exchange will be returned to the Holder thereof
without cost to such Holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may
be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange New Notes for any Old Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) in the opinion of counsel to the Company, the Exchange Offer or
any part thereof contemplated herein violates any applicable law, policy or
interpretation of the staff of the SEC;
(b) any action or proceeding shall have been instituted or threatened
in any court or by any governmental agency which might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development shall have occurred in any such existing
action or proceeding with respect to the Company;
(c) any cessation of trading on The Nasdaq Stock Exchange, Inc. or any
exchange, or any banking moratorium, shall have occurred, as a result of
which the Company is unable to proceed with the Exchange Offer; or
(d) a stop order shall have been issued by the SEC or any state
securities authority suspending the effectiveness of the Registration
Statement of which this Prospectus is a part or proceedings shall have been
initiated or, to the knowledge of the Company, threatened for that purpose.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders to withdraw such Old
Notes (see "-- Withdrawals of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Notes which have not been withdrawn. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the registered
Holders, and, depending upon the significance of the waiver and the manner of
disclosure to the registered Holders, the Company will extend the Exchange Offer
for a period of
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<PAGE> 26
five to ten business days if the Exchange Offer would otherwise expire during
such five to ten business-day period.
EXCHANGE AGENT
First Trust National Association will act as Exchange Agent for the
Exchange Offer with respect to the Old Notes.
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Old Notes and requests
for copies of Notice of Guaranteed Delivery should be directed to the Exchange
Agent, addressed as follows:
<TABLE>
<S> <C>
By Mail: By Hand:
First Trust National Association First Trust National Association
180 East Fifth Street 180 East Fifth Street
St. Paul, Minnesota 55101 4th Floor Bond Drop Window
Attention: Specialized Finance Department St. Paul, Minnesota 55101
Attention: Specialized Finance Department
By Facsimile:
(612) 244-1537 or
CONFIRM BY TELEPHONE: First Trust New York
100 Wall Street
(612) 244-1197 20th Floor
New York, New York 10005
</TABLE>
FEES AND EXPENSES
The expenses of soliciting Old Notes for exchange will be borne by the
Company. The principal solicitation is being made by mail by the Exchange Agent
which will be paid a reasonable and customary fee for its solicitation services.
However, additional solicitation may be made by telephone, facsimile or in
person by officers and regular employees of the Company and its affiliates and
by persons so engaged by the Exchange Agent.
The Company will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith and pay other registration expenses, including fees and
expenses of the Trustee, filing fees, blue sky fees and printing and
distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Old Notes pursuant to the Exchange Offer. If, however, certificates
representing the New Notes or the Old Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of the Old Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered Holder or any other person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is the aggregate principal amount of the Old Notes, as reflected in the
Company's accounting records on the date of exchange. Accordingly, no gain or
loss for accounting purposes will be recognized in connection with the Exchange
Offer. The expenses of the Exchange Offer will be amortized over the term of the
New Notes.
21
<PAGE> 27
RESALE OF NEW NOTES
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third parties, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by any Holder of such New Notes (other
than any such Holder which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder does not intend to participate, and has no arrangement or understanding
with any person to participate, in the distribution of such New Notes. Any
Holder who tenders in the Exchange Offer with the intention to participate, or
for the purpose of participating, in a distribution of the New Notes, or any
broker-dealer who purchased Old Notes from the Company may not rely on the
position of the staff of the SEC enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988) and Morgan Stanley & Co., Incorporated
(available June 5, 1991), or similar no-action letters, but rather must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement containing
the selling security holders' information required by Item 507 of Regulation S-K
of the Securities Act. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes.
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the registered
Holder, (ii) neither the Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes and (iii) the Holder and such other person acknowledge that if they
participate in the Exchange Offer for the purpose of distributing the New Notes
(a) they must, in the absence of an exemption therefrom, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the New Notes and cannot rely on the no-action
letters referenced above and (b) failure to comply with such requirements in
such instance could result in such Holder or such other person incurring
liability under the Securities Act for which such Holder or such other person is
not indemnified by the Company. Further, by tendering in the Exchange Offer,
each Holder and such other person that may be deemed an "affiliate" (as defined
under Rule 405 of the Securities Act) of the Company will represent to the
Company that such Holder and such other person understand and acknowledge that
the New Notes may not be offered for resale, resold or otherwise transferred by
that Holder or such other person without registration under the Securities Act
or an exemption therefrom.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled certain of their obligations under the Registration Rights Agreement,
and Holders of Old Notes who do not tender their Notes will not have any further
registration rights under the Registration Rights Agreement or otherwise or
rights to receive liquidated damages for failure to register. If (i) prior to
the consummation of the Exchange Offer, any change in law or in applicable
interpretations of the staff of the SEC do not permit the Company to effect the
Exchange Offer or (ii) for any other reason the Exchange Offer is not
consummated by May 12, 1998, then the Company is required to file with the SEC a
shelf registration statement to cover resales of the Old Notes by the Holders
thereof who satisfy certain conditions relating to the provision of information
in connection with such shelf registration statement. Accordingly, any Holder of
Old Notes that does not exchange that Holder's Old Notes for New Notes will
continue to hold the untendered Old Notes and will be entitled to all the rights
and subject to all the limitations applicable thereto under the Indenture,
except to the extent that such rights or limitations, by their terms, terminate
or cease to have further effectiveness as a result of the Exchange Offer.
22
<PAGE> 28
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to a person who the seller reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of Rule 144A, in a
transaction meeting the requirements of Rule 144 under the Securities Act,
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act or in accordance with another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel if the Company so requests), (ii) to the Company or
(iii) pursuant to an effective registration statement, and, in each case, in
accordance with any applicable securities laws of any State of the United States
or any other applicable jurisdiction. See "Risk Factors -- Restrictions on
Transfer."
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decision on what
action to take.
The Company may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plans to acquire any Old Notes that are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any untendered Old Notes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following sets forth a summary of the material anticipated federal
income tax consequences expected to result to holders from the Exchange Offer
and from the purchase, ownership and disposition of the New Notes. The following
summary is based upon current provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), applicable Treasury regulations, judicial authority and
administrative rulings and practice. Holders should note that this summary is
not binding on the Internal Revenue Service (the "Service") and there can be no
assurance that the Service will take a similar view with respect to the tax
consequences described below. No ruling has been or will be requested by the
Company from the Service on any tax matters relating to the Exchange Offer or
the New Notes. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to holders.
The following summary is for general information only. The tax treatment of
a holder of the New Notes may vary depending upon such holder's particular
situation. Certain holders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations
and persons who are not citizens or residents of the United States) may be
subject to special rules not discussed below. EACH HOLDER OF OLD NOTES SHOULD
CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF
PURCHASING, HOLDING, EXCHANGING AND DISPOSING OF THE NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of the New Notes for the Old Notes pursuant to the Exchange
Offer should not be taxable to the Holders thereof for federal income tax
purposes. An exchanging Holder should continue such Holder's holding period and
basis in the New Notes as if no exchange had occurred.
ORIGINAL ISSUE DISCOUNT AND STATED INTEREST
The New Notes will be issued without original issue discount. Stated
interest on the Old and New Notes will be includable in the holder's income
under such holder's method of accounting.
23
<PAGE> 29
BOND PREMIUM ON THE NEW NOTES
If the New Notes are purchased, or if the Old Notes were purchased, for an
amount in excess of the amount payable at the maturity date (or a call date, if
appropriate) of the New Notes, such excess will be deductible by the holder of
the New Notes as amortizable bond premium over the term of the New Notes (taking
into account earlier call dates, as appropriate), under a yield-to-maturity
formula, only if an election by the holder under Section 171 of the Code is made
or is already in effect. An election under Section 171 is available only if the
New Notes are held as capital assets. This election is revocable only with the
consent of the Service and applies to all obligations owned or subsequently
acquired by the holder. To the extent the excess is deducted as amortizable bond
premium, the holder's adjusted tax basis in the New Notes will be reduced.
Except as may otherwise be provided in Treasury regulations, under the Code the
amortizable bond premium will be treated as an offset to interest income on the
New Notes rather than as a separate deduction item.
MARKET DISCOUNT ON THE NEW NOTES
Holders of the New Notes should be aware that a disposition of the New
Notes may be affected by the market discount provisions of Sections 1276-1278 of
the Code. These rules generally provide that if a holder acquired the Old Notes
or acquires the New Notes (other than in an original issue, which may not
include the issuance of the New Notes pursuant to the Exchange Offer) at a
market discount which equals or exceeds 1/4 of 1% of the stated redemption price
of the New Notes at a maturity multiplied by the number of remaining complete
years to maturity and thereafter recognizes gain upon a disposition (or makes a
gift) of the New Notes, the lesser of (i) such gain (or appreciation, in the
case of a gift) or (ii) the portion of the market discount which accrued while
the Old Notes or New Notes were held by such holder will be treated as ordinary
income at the time of the disposition (or gift). For these purposes, market
discount means the excess (if any) of the stated redemption price at maturity
over the basis of such Old Notes or New Notes immediately after their
acquisition by the holder. A holder of the New Notes may elect to include any
market discount (whether accrued under the Old Notes or the New Notes) in income
currently rather than upon disposition of the New Notes. This election once made
applies to all market discount obligations acquired on or after the first
taxable year to which the election applies, and may not be revoked without the
consent of the Service.
A holder of any New Note who acquired the Old Note or New Note at a market
discount generally will be required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry such
Old Note or New Note until the market discount is recognized upon a subsequent
disposition of such New Note. Such a deferral is not required, however, if the
holder elects to include accrued market discount in income currently.
REDEMPTION OR SALE OF THE NEW NOTES
Generally, any redemption or sale of the New Notes by a holder would result
in taxable gain or loss equal to the difference between the amount of cash and
the fair market value of property received (except to the extent that such cash
or property received is attributable to accrued, but previously untaxed,
interest) and the holder's tax basis in the New Notes. The tax basis of a holder
of the New Notes will generally be equal to the price paid for such New Notes or
the Old Notes exchanged therefor, plus any accrued market discount on the New
Notes (and the Old Notes exchanged therefor) included in the holder's income
prior to sale or redemption of the New Notes, or reduced by any amortizable bond
premium applied against the holder's income prior to sale or redemption of the
New Notes. Such gain or loss generally would be long-term capital gain or loss
if the holding period exceeded one year and the holder holds the New Notes as
capital assets (with the applicable tax rates for an individual taxpayer having
such long-term capital gain generally depending on whether or not the taxpayer's
holding period exceeds eighteen months), except to the extent such gain
constitutes accrued market discount.
24
<PAGE> 30
BACKUP WITHHOLDING AND REPORTING
A holder of the New Notes may be subject to backup withholding at a rate of
31% with respect to interest paid or accrued on, and gross proceeds of a sale
of, the New Notes unless (i) such holder is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A holder of the New Notes who does
not provide the Company with such holder's correct taxpayer identification
number may be subject to penalties imposed by the Service.
The Company will report to the holders of the New Notes and to the Service
the amount of any "reportable payments" and any amount withheld with respect to
the Old Notes and New Notes during the calendar year.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF THE
OLD NOTES SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO SUCH HOLDER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE
NEW NOTES INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
25
<PAGE> 31
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of September 28, 1997 and the capitalization of the Company at that date
after giving pro forma effect to the Recapitalization. This table should be read
in conjunction with "Unaudited Pro Forma Condensed Financial Data" and the
financial statements of the Company and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 28, 1997
-----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
LONG-TERM DEBT:
CIT Credit Facility.......................................... $ 50,776 $ (5,006) $ 45,770
Senior Notes................................................. -- 130,409 130,409
Old Notes.................................................... 36,450 (36,450) --
-------- -------- --------
Total long-term debt................................. 87,226 88,953 176,179
-------- -------- --------
STOCKHOLDER'S EQUITY........................................... 40,369 (84,291) (43,922)
-------- -------- --------
Total capitalization................................. $ 127,595 $ 4,662 $ 132,257
======== ======== ========
</TABLE>
26
<PAGE> 32
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
The following unaudited pro forma condensed financial data have been
prepared by the Company's management from audited and unaudited financial
statements and the notes thereto of United Merchandising Corp. (which was
reincorporated in Delaware as Big 5 Corp. in connection with the
Recapitalization) included elsewhere in this Prospectus. As used herein, with
respect to the unaudited historical and pro forma condensed financial data, the
Company means United Merchandising Corp. The Unaudited Pro Forma Condensed
Statements of Operations for the twelve months ended September 28, 1997, the
fiscal year ended December 29, 1996, the nine months ended September 28, 1997
and the nine months ended September 29, 1996, reflect adjustments as if the
Recapitalization had been consummated and were effective as of the first day of
each such period. The financial effects of the Recapitalization as presented in
the unaudited pro forma condensed financial data are not necessarily indicative
of either the Company's financial position or the results of its operations
which would have been obtained had the Recapitalization actually occurred on the
dates described above nor are they indicative of the results of future
operations. The Unaudited Pro Forma Condensed Financial Data should be read in
conjunction with the notes thereto, which are an integral part thereof, the
financial statements of the Company and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
27
<PAGE> 33
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales...................................................... $ 432,086 $ 432,086
Cost of goods sold, buying and occupancy....................... 292,371 292,371
-------- --------
Gross profit.................................... 139,715 139,715
Operating expenses:
Selling and administrative................................ 107,005 (234)(a) 106,771
Depreciation and amortization............................. 8,556 8,556
-------- ------- --------
Total operating expenses........................ 115,561 (234) 115,327
-------- ------- --------
Operating income................................ 24,154 234 24,388
Interest expense............................................... 10,806 9,130(b) 19,936
-------- ------- --------
Income before income taxes and extraordinary loss......... 13,348 (8,896) 4,452
Income taxes................................................... 1,378 (1,378)(c) --
-------- ------- --------
Income before extraordinary loss.......................... 11,970 (7,518) 4,452
Income tax benefit from early extinguishment of debt........... 937 937
-------- ------- --------
Net income...................................... $ 12,907 (7,518) $ 5,389
======== ======= ========
EBITDA......................................................... $ 32,710 234 $ 32,944
Ratio of earnings to fixed charges(d).......................... 1.7x 1.1x
</TABLE>
YEAR ENDED DECEMBER 29, 1996
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales...................................................... $ 404,265 $ 404,265
Cost of goods sold, buying and occupancy....................... 277,116 277,116
-------- --------
Gross profit.................................... 127,149 127,149
Operating expenses:
Selling and administrative................................ 101,053 (234)(a) 100,819
Depreciation and amortization............................. 9,578 9,578
-------- ------- --------
Total operating expenses........................ 110,631 (234) 110,397
-------- ------- --------
Operating income................................ 16,518 234 16,752
Interest expense............................................... 11,482 9,090(b) 20,572
-------- ------- --------
Income before income taxes and extraordinary loss......... 5,036 (8,856) (3,820)
Income taxes................................................... 970 (970)(c) --
-------- ------- --------
Income before extraordinary loss.......................... 4,066 (7,886) (3,820)
Extraordinary loss from early extinguishment of debt net of
income taxes................................................. (1,285) (1,285)
-------- ------- --------
Net income...................................... $ 2,781 (7,886) $ (5,105)
======== ======= ========
EBITDA......................................................... $ 26,096 234 $ 26,330
Ratio of earnings to fixed charges(d).......................... 1.2x --
</TABLE>
See accompanying notes to the unaudited pro forma condensed statements of
operations.
28
<PAGE> 34
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales...................................................... $ 324,177 $ 324,177
Cost of goods sold, buying and occupancy....................... 218,675 218,675
-------- --------
Gross profit.................................... 105,502 105,502
Operating expenses:
Selling and administrative................................ 82,603 (175)(a) 82,428
Depreciation and amortization............................. 6,087 6,087
-------- ------- --------
Total operating expenses........................ 88,690 (175) 88,515
-------- ------- --------
Operating income................................ 16,812 175 16,987
Interest expense............................................... 7,913 6,859(b) 14,772
-------- ------- --------
Income before income taxes and extraordinary loss......... 8,899 (6,684) 2,215
Income taxes................................................... 408 (408)(c) --
-------- ------- --------
Income before extraordinary loss.......................... 8,491 (6,276) 2,215
Extraordinary loss from early extinguishment of debt net of
income taxes ................................................ -- --
-------- ------- --------
Net income...................................... $ 8,491 (6,276) $ 2,215
======== ======= ========
EBITDA......................................................... $ 22,899 175 $ 23,074
Ratio of earnings to fixed charges(d).......................... 1.6x 1.1x
</TABLE>
NINE MONTHS ENDED SEPTEMBER 29, 1996
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales...................................................... $ 296,356 $ 296,356
Cost of goods sold, buying and occupancy....................... 203,420 203,420
-------- --------
Gross profit.................................... 92,936 92,936
Operating expenses:
Selling and administrative................................ 76,651 (175)(a) 76,476
Depreciation and amortization............................. 7,109 7,109
-------- ------- --------
Total operating expenses........................ 83,760 (175) 83,585
-------- ------- --------
Operating income................................ 9,176 175 9,351
Interest expense............................................... 8,589 6,818(b) 15,407
-------- ------- --------
Income before income taxes and extraordinary loss......... 587 (6,643) (6,056)
Income taxes................................................... -- --(c) --
-------- ------- --------
Income before extraordinary loss.......................... 587 (6,643) (6,056)
Extraordinary loss from early extinguishment of debt net of
income taxes ................................................ (2,222) (2,222)
-------- ------- --------
Net income...................................... $ (1,635) (6,643) $ (8,278)
======== ======= ========
EBITDA......................................................... $ 16,285 175 $ 16,460
Ratio of earnings to fixed charges(d).......................... 1.0x --
</TABLE>
See accompanying notes to the unaudited pro forma condensed statements of
operations.
29
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) Represents a reduction in a management fee historically paid to LGA (as
defined).
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED LTM ENDED
------------- ----------------------- ---------
DECEMBER 29, SEPTEMBER SEPTEMBER SEPTEMBER
1996 1996 1997 1997
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Historical management fee................. $ (567) $ (425) $ (425) $ (567)
New management fee........................ 333 250 250 333
------- ------ ------ ------
Management fee adjustment............... $ (234) $ (175) $ (175) $ (234)
======= ====== ====== ======
</TABLE>
(b) The interest expense adjustment is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED LTM ENDED
------------- ----------------------- ---------
DECEMBER 29, SEPTEMBER SEPTEMBER SEPTEMBER
1996 1996 1997 1997
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
New interest on Notes and CIT Credit
Facility................................ $19,142 $14,324 $13,707 $18,526
Other..................................... 776 584 612 802
------- ------ ------ ------
Total........................... 19,918 14,908 14,319 19,328
Less: amounts in historical statements of
operations.............................. 10,828 8,090 7,460 10,198
------- ------ ------ ------
Adjustment to interest expense............ $ 9,090 $ 6,818 $ 6,859 $ 9,130
======= ====== ====== ======
</TABLE>
(c) Tax benefit arising from additional interest.
(d) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represents income before provisions for income taxes and fixed
charges. Fixed charges consist of interest expense, amortization of debt
financing costs, and one-third of lease expense, which management believes
is representative of the interest component of lease expense. On a pro forma
basis, earnings were insufficient to cover fixed charges by $4,918 and
$6,870 for the year ended December 29, 1996 and the nine months ended
September 29, 1996, respectively.
30
<PAGE> 36
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents:................................ $ 416 $ 416
Trade & other receivables, net of allowance for doubtful
accounts................................................ 2,232 2,232
Merchandise inventories................................... 146,513 146,513
Prepaid expenses.......................................... 865 865
-------- --------
Total current assets............................ 150,026 150,026
-------- --------
Property and equipment:
Land...................................................... 186 186
Building, improvements, furniture and equipment........... 47,064 47,064
Less accumulated depreciation and amortization............ (20,487) (20,487)
-------- --------
Net property and equipment...................... 26,763 26,763
-------- --------
Deferred income taxes, net..................................... 4,995 4,995
Leasehold interest, net of amortization........................ 15,051 15,051
Other assets, at cost, less accumulated amortization........... 1,539 4,662(a) 6,201
Excess of cost over net assets acquired, less accumulated
amortization................................................. 5,482 5,482
-------- -------- --------
Total assets.................................... $ 203,856 $ 4,662 $208,518
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 44,453 $ 44,453
Accrued expenses.......................................... 26,015 26,015
-------- --------
Total current liabilities....................... 70,468 70,468
Deferred rent.................................................. 5,793 5,793
Long-term debt................................................. 87,226 88,953(b) 176,179
-------- -------- --------
Total liabilities............................... 163,487 88,953 252,440
-------- -------- --------
Commitments and contingencies
Stockholder's equity........................................... 40,369 (84,291)(c) (43,922)
-------- -------- --------
Total liabilities and stockholder's equity...... $ 203,856 $ 4,662 $208,518
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed balance sheet.
31
<PAGE> 37
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Represents financing costs associated with the offering of the Notes and the
write-off of $588 of deferred financing fees associated with the Old Notes.
(b) Represents the issuance of Notes for $131,000, less unamortized discount of
$591, partial repayment of the CIT Credit Facility and repayment of Old
Notes.
(c) Represents the net change in stockholder's equity as a result of the
Recapitalization:
<TABLE>
<S> <C>
Cash dividend to Parent........................................ $ 81,575
Premium on repayment of Old Notes.............................. 2,128
Write-off of deferred financing fees on Old Notes.............. 588
-------
$ 84,291
=======
</TABLE>
32
<PAGE> 38
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data have been prepared by the
Company's management from the audited and unaudited financial statements and the
notes thereto of United Merchandising Corp. (which was reincorporated in
Delaware as Big 5 Corp. in connection with the Recapitalization) included
elsewhere in this Prospectus. As used herein, with respect to the selected
historical financial data, the Company means United Merchandising Corp. The
historical financial statements of the Company for the fiscal years 1993, 1994,
1995 and 1996 and as of the end of each such fiscal year have been audited. The
historical financial statements of the Company for pro forma 1992 and the nine
month periods of 1996 and 1997 and as of the end of each such period are
unaudited. The results for the interim period are not necessarily indicative of
the results for the full fiscal year. The selected historical financial data
should be read in conjunction with, and are qualified in their entirety by,
"Unaudited Pro Forma Condensed Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the historical
financial statements of the Company and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR(a)
--------------------------------------------------------- NINE MONTHS(a)
PRO FORMA -------------------
1992 1993 1994 1995 1996 1996 1997
--------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $312,415 $321,933 $364,109 $370,126 $404,265 $296,356 $324,177
Cost of goods sold, buying and
occupancy............................... 221,795 224,094 244,777 256,583 277,116 203,420 218,675
-------- -------- -------- -------- -------- -------- --------
Gross profit............................ 90,620 (b)(c) 97,839(d) 119,332 113,543 127,149 92,936 105,502
Operating expenses:
Selling and administrative.............. 80,076 80,076 92,238 95,158 101,053 76,651 82,603
Depreciation and amortization........... 6,317 (e) 6,999 9,180 11,991 9,578 7,109 6,087
-------- -------- -------- -------- -------- -------- --------
Total operating expenses.................. 86,393 87,075 101,418 107,149 110,631 83,760 88,690
-------- -------- -------- -------- -------- -------- --------
Operating income.......................... 4,227 10,764 17,914 6,394 16,518 9,176 16,812
Interest expense.......................... 10,872 (f) 11,793 11,712 12,347 11,482 8,589 7,913
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary loss...................... (6,645) (1,029) 6,202 (5,953) 5,036 587 8,899
Income taxes.............................. -- -- 1,903 368 970 -- 408
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary loss... (6,645) (1,029) 4,299 (6,321) 4,066 587 8,491
Extraordinary loss from early
extinguishment of debt, net of income
taxes................................... -- -- (2,855) -- (1,285) (2,222) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......................... $ (6,645) $ (1,029) $ 1,444 $ (6,321) $ 2,781 $ (1,635) $ 8,491
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA.................................... $ 24,836 $ 24,094 $ 27,094 $ 18,385 $ 26,096 $ 16,285 $ 22,899
EBITDA margin............................. 8.0 % 7.5% 7.4% 5.0% 6.5% 5.5% 7.1%
Cash flow provided by (used in) operating
activities.............................. 24,397 6,227 14,647 (3,824) 19,798 7,527 (1,953)
Cash flows provided by (used in) investing
activities.............................. (152,020) (6,714) (9,342) (7,374) 1,539 3,435 (3,227)
Cash flows provided by (used in) financing
activities.............................. 135,932 (4,974) (4,937) 6,728 (19,738) (10,770) 799
Capital expenditures...................... $ 8,676 $ 6,010 $ 9,153 $ 6,822 $ 3,453 $ 1,555 $ 3,227
Ratio of earnings to fixed charges(g)..... -- -- 1.3x -- 1.2x 1.0x 1.6x
OPERATING DATA:
Comparable store sales
increase/(decrease)(h).................. 1.2 % (4.0)% 5.7% (4.9)% 3.7% 2.4% 7.1%
End of period stores...................... 147 162 175 192 196 193 202
Inventory turns(i)........................ 2.0 x 1.8x 1.9x 1.8x 2.2x 2.1x 2.2x
BALANCE SHEET DATA END OF PERIOD:
Net working capital(j).................... $ 71,799 $ 67,278 $ 69,064 $ 74,994 $ 70,428 $ 75,045 $ 79,558
Total assets.............................. 202,330 214,291 227,707 207,119 197,869 195,315 203,856
Total debt................................ 104,000 99,000 96,450 103,594 86,450 95,418 87,226
Stockholder's equity...................... 34,790 33,787 35,395 29,074 31,855 27,439 40,369
</TABLE>
33
<PAGE> 39
(Notes to table on previous page)
- ------------------------------
(a) The Company's fiscal year is a 52 or 53 week year ending on the Sunday
closest to the calendar year end. All fiscal years presented consist of 52
weeks except for Fiscal 1992, which consisted of 53 weeks. The nine month
period of 1996 was a 39 week period that ended on September 29, 1996 and the
nine month period of 1997 was a 39 week period that ended on September 28,
1997. The financial information for Pro Forma 1992 are unaudited and combine
the results of operations of the Company prior to the PE Acquisition for the
39 weeks ended September 25, 1992 and the results of operations of the
Company for the 14 weeks ended January 3, 1993 and gives effect to the PE
Acquisition as though it occurred at the beginning of Fiscal 1992. The
unaudited pro forma information for Pro Forma 1992 does not purport to
represent the results that actually would have occurred if such transactions
had in fact occurred on such date.
(b) The Company prior to the PE Acquisition recorded inventory on a LIFO basis.
In connection with the PE Acquisition, the Company adopted the FIFO method
for recording inventory. As a result, Pro Forma 1992 is revised to reflect
the FIFO method as of the beginning of the year.
(c) Includes $11,080 decrease related to purchase accounting inventory
revaluation.
(d) Includes $6,332 decrease related to purchase accounting inventory
revaluation.
(e) Includes $3,828 increase in depreciation and amortization expense due to
purchase accounting revaluation of assets.
(f) Includes (i) $11,291 net increase in interest expense on debt arising from
the PE Acquisition, and (ii) $640 increase in amortization of financing
fees.
(g) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" represents income before provisions for income taxes and fixed
charges. "Fixed charges" consist of interest expense, amortization of debt
financing costs, and one third of lease expense, which management believes
is representative of the interest component of lease expense. Earnings were
insufficient to cover fixed charges by approximately $7,284, $1,668 and
$6,383 for fiscal years 1992, 1993 and 1995, respectively.
(h) Comparable store sales data for a period reflect stores open throughout that
period and the corresponding period of the prior fiscal year.
(i) Inventory turns equal fiscal year or latest twelve month cost of goods sold,
buying and occupancy costs divided by 4 quarter average FIFO inventory
balances adjusted to exclude the uniform capitalization adjustment to
inventory balances.
(j) Net working capital is defined as current assets less current liabilities
excluding current maturities of long-term debt.
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<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "Unaudited Condensed Pro
Forma Financial Data" and the historical financial statements of United
Merchandising Corp. (reincorporated in Delaware as the Company) and the related
notes thereto included elsewhere in this Prospectus. The Company's fiscal year
ends on the Sunday closest to December 31. Accordingly, fiscal years 1994, 1995,
and 1996 ended on January 1, 1995, December 31, 1995 and December 29, 1996,
respectively. Certain information in this Management's Discussion and Analysis
section includes forward-looking statements. Such forward-looking statements
relate to the Company's financial condition, results of operations, expansion
plans, and business. Actual results could differ materially from the
forward-looking statements due to, among other things, the risks and
uncertainties noted under the heading "Disclosure Regarding Forward-Looking
Statements" on page ii and "Risk Factors" in this Prospectus.
RESULTS OF OPERATIONS
The table below sets forth certain statement of operations components as a
percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.................................... 32.8% 30.6% 31.5% 31.4% 32.5%
Selling and administrative expenses............. 25.4% 25.7% 25.0% 25.9% 25.5%
Depreciation and amortization................... 2.5% 3.2% 2.4% 2.4% 1.8%
Operating income................................ 4.9% 1.7% 4.1% 3.1% 5.2%
EBITDA.......................................... 7.4% 5.0% 6.5% 5.5% 7.1%
</TABLE>
NINE MONTHS ENDED SEPTEMBER 28, 1997 VERSUS NINE MONTHS ENDED SEPTEMBER 29, 1996
Net Sales. Net sales increased 9.4% (or $27.8 million) from $296.4 million
for the nine months ended September 29, 1996 to $324.2 million for the nine
months ended September 28, 1997. Same store sales increased 7.1% compared with
the same period last year, reflecting improved economic conditions in the
regions in which the Company operates, together with continuing refinements in
advertising and merchandising programs partially resulting from improved
utilization of the management tools derived from the Company's information
systems. Sales attributable to an increase in store count from 193 at September
29, 1996 to 202 at September 28, 1997 constituted the remainder of the 9.4%
sales increase for the nine month period.
Gross Profit. Gross profit increased 13.6% (or $12.6 million) from $92.9
million for the nine months ended September 29, 1996 to $105.5 million for the
nine months ended September 28, 1997, reflecting increased sales (as discussed
above) and improved gross profit margin. Gross profit margin increased from
31.4% for the nine month period ended September 29, 1996 to 32.5% for the
comparable nine month period this year. The improvement is a result of positive
comparisons of gross profit margins in the majority of the Company's product
categories and improved store inventory shrink results, both of which were aided
by the Company's enhanced information systems.
Operating Expenses. Selling and administrative expenses increased 7.7% (or
$5.9 million) from $76.7 million for the nine months ended September 29, 1996 to
$82.6 million for the nine months ended September 28, 1997. As a percentage of
sales, selling and administrative expenses decreased from 25.9% for the 1996
period to 25.5% of sales in the 1997 period, reflecting management's continued
focus on controlling expenses and its leveraging of fixed costs due to increased
sales.
Depreciation and amortization decreased 14.1% (or $1.0 million) from $7.1
million for the prior year period to $6.1 million for the nine months ended
September 28, 1997. The decrease reflected primarily a reduction in leasehold
improvements amortization resulting from the sale/leaseback of the Company's
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<PAGE> 41
Fontana distribution center in the prior year and an increase in the
amortization term of the Company's leasehold interests.
Interest Expense. Interest expense decreased 8.1% (or $0.7 million) from
$8.6 million for the prior year period to $7.9 million for the nine months ended
September 28, 1997. This decrease reflected lower average borrowing levels on
the Company's revolving credit facility during the current year period resulting
from improved earnings and a continued focus on managing inventory levels. The
Company's revolving debt balance was $50.8 million at September 28, 1997 versus
a balance of $59.0 million at September 29, 1996. The decrease also reflected a
.75% reduction in the rate of interest payable on revolving debt balances
resulting from an amendment to the Company's revolving credit facility effective
August 11, 1997.
Income Taxes. The Company recorded an income tax provision against
operations of $0.4 million for the nine months ended September 28, 1997 versus
no tax provision for the same period last year.
Extraordinary Loss from Early Extinguishment of Debt. During the nine
months ended September 29, 1996, the Company refinanced its indebtedness under a
prior credit facility with borrowings under a new facility with the CIT
Group/Business Credit, Inc. ("CIT"). In connection with the refinancing, the
Company accelerated amortization of $1.0 million of certain fees and paid $1.2
million in prepayment premiums and other fees. Accordingly, a charge of $2.2
million was recorded as an extraordinary loss for the nine months ended
September 29, 1996. No such event occurred during the nine month period this
year.
Net Income (Loss). Net income for the nine months ended September 28, 1997
increased $10.1 million from a net loss of $1.6 million for the nine months
ended September 29, 1996 to a net income of $8.5 million for the nine months
ended September 28, 1997. This improvement reflects the positive sales and gross
profit results achieved during the nine months ended September 28, 1997.
EBITDA. EBITDA increased 40.5% (or $6.6 million) from $16.3 million for
the nine months ended September 29, 1996 to $22.9 million for the nine months
ended September 28, 1997. Increased same store sales, gross margin and operating
efficiencies were the primary factors contributing to the significant
improvement.
FISCAL YEAR 1996 VERSUS FISCAL YEAR 1995
Net Sales. Net sales increased 9.2% (or $34.2 million) from $370.1 million
in Fiscal 1995 to $404.3 million in Fiscal 1996, while the number of stores
increased by four (or 2.1%) from 192 in Fiscal 1995 to 196 in Fiscal 1996. Same
store sales increased 3.7% in Fiscal 1996, reflecting improved economic
conditions in the regions in which the Company operates, together with
continuing refinements in advertising and merchandising programs, partially
resulting from improved utilization of the management tools derived from the
Company's information systems. Sales generated from new stores opened in 1995
and 1996 contributed the remainder of the 9.2% sales increase.
Gross Profit. Gross profit increased 12.0% (or $13.6 million) from $113.5
million in Fiscal 1995 to $127.1 million in Fiscal 1996, reflecting increased
sales and improved gross profit margin. Gross profit margin increased from 30.7%
of sales in the 1995 period to 31.5% of sales in the 1996 period. The
improvement in gross profit margin in Fiscal 1996 reflected the absence of
one-time clearance sales, which negatively impacted prior year gross profit
margins. Results for Fiscal 1995 reflect lower gross profit margins as the
Company implemented a successful campaign focused on inventory reduction with
respect to certain product categories.
Operating Expenses. Selling and administrative expenses increased 6.2% (or
$5.9 million) from $95.2 million in Fiscal 1995 to $101.1 million in Fiscal
1996. As a percentage of sales, selling and administration expenses decreased
from 25.7% of sales in the 1995 period to 25.0% in the 1996 period, reflecting
management's continued focus on controlling expenses and the leveraging of fixed
costs due to increased sales.
Depreciation and amortization expense decreased 20.0% (or $2.4 million)
from $12.0 million in Fiscal 1995 to $9.6 million in Fiscal 1996. This decrease
resulted primarily from a $2.8 million charge related to the
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<PAGE> 42
non-cash portion of rent expense which was recorded in Fiscal 1995. The decrease
is partially offset by expenditures related to the Company's store growth in
1995 and 1996.
Interest Expense. Interest expense for Fiscal 1996 decreased 6.5% (or $0.8
million) from $12.3 million in Fiscal 1995 to $11.5 million in Fiscal 1996. This
decrease reflects lower average borrowing levels on the Company's existing
revolving credit facility during Fiscal 1996 as a result of improved earnings, a
continued focus on inventory reduction, and a slowdown in store growth in Fiscal
1996. The Company's revolving credit facility balance was $50.0 million at
December 29, 1996 versus a balance of $67.1 million at December 31, 1995.
Income Taxes. The Company recorded an income tax provision against
operations of $1.0 million in Fiscal 1996 versus $0.4 million in Fiscal 1995.
However, the $1.0 million provision was offset by a $0.9 million tax benefit
against the extraordinary loss from early extinguishment of debt described below
resulting in a net tax provision of less than $0.1 million for Fiscal 1996.
Extraordinary Loss From Early Extinguishment of Debt. During Fiscal 1996,
the Company refinanced its indebtedness under a prior credit facility with
borrowings under a new revolving credit facility with CIT. In connection with
the refinancing, the Company accelerated amortization of $1.0 million of certain
fees and paid $1.2 million in prepayment premiums and other fees. Accordingly,
an after-tax charge of $1.3 million ($2.2 million before taxes) is recorded as
an extraordinary loss for Fiscal 1996. No such event occurred during Fiscal
1995.
Net Income. Fiscal 1996 net income was $2.8 million versus a net loss of
$6.3 million for Fiscal 1995. This variance reflects the positive sales and
gross profit results achieved in Fiscal 1996, partially offset by the $1.3
million extraordinary loss ($2.2 million before taxes) related to the Company's
revolving debt refinancing in Fiscal 1996. Also impacting this variance was the
$2.8 million charge related to the non-cash portion of rent expense recorded in
Fiscal 1995.
EBITDA. EBITDA increased 41.8% (or $7.7 million) from $18.4 million for
Fiscal 1995 to $26.1 million for Fiscal 1996. Increased same store sales, gross
margin and operating efficiencies were the primary factors contributing to the
improvement.
FISCAL YEAR 1995 VERSUS FISCAL YEAR 1994
Net Sales. Net sales increased 1.6% (or $6.0 million) from $364.1 million
in Fiscal 1994 to $370.1 million in Fiscal 1995, while the number of stores
increased by 17 (or 9.7%) from 175 in Fiscal 1994 to 192 in Fiscal 1995. Same
store sales decreased 4.9% in Fiscal 1995 reflecting a general slowdown in
retail spending by consumers (particularly in the Company's core market), as
well as a relatively high increase in store openings by competitors during 1995
and 1994, heavy rains experienced in early 1995, the impact of reduced
advertising volume in response to a significant increase in print and paper
stock costs, the short-term positive impact of the Northridge earthquake on
sales in Fiscal 1994, and the extremely dry and warm November and December 1995
weather's impact on ski and winter related product sales. Sales generated from
new stores opened in 1994 and 1995 offset the decline in same store sales,
resulting in the 1.6% increase in net sales for the year.
Gross Profit. Gross profit decreased 4.9% (or $5.8 million) from $119.3
million in Fiscal 1994 to $113.5 million in Fiscal 1995. Gross profit margin
decreased from 32.8% of sales in the 1994 period to 30.7% of sales in the 1995
period. Certain gross profit costs, including minimum rent and other occupancy
and distribution costs, are relatively fixed in nature or fluctuate primarily
based on the number of stores. Accordingly, the same store sales decrease in
Fiscal 1995 negatively impacted the Company's gross margin. Gross margin was
also impacted by an inventory overstock position which resulted from a difficult
integration period relating to the implementation of the Company's perpetual
inventory system, combined with a downturn in the economic environment beginning
in the fourth quarter of 1994. Due to this overstock, the Company implemented an
inventory reduction program which successfully reduced per store inventory
levels by almost 18% in Fiscal 1995. However, gross profit declined
approximately $3.0 million as merchandise prices were marked down to accomplish
the Company's inventory reduction goals.
37
<PAGE> 43
Operating Expenses. Selling and administrative expenses increased 3.3% (or
$3.0 million) from $92.2 million in Fiscal 1994 to $95.2 million in Fiscal 1995.
This increase resulted from significant store growth during Fiscal 1995 and an
increase in advertising costs due to substantially higher print and paper stock
costs. These increases were partially offset by the Company's focus on other
variable expense categories in reaction to the general weakness in the economy.
When measured as a percentage of sales, selling and administration expenses
increased from 25.4% of sales in the 1994 period to 25.7% in the 1995 period,
reflecting the relatively fixed nature of many of these costs combined with the
same store sales decrease discussed above and the impact of increased
advertising costs.
Depreciation and amortization expense increased 30.4% (or $2.8 million)
from $9.2 million in Fiscal 1994 to $12.0 million in Fiscal 1995. This increase
reflects the Company's spending on store growth and computer software and
hardware for the Company's new computerized financial and merchandising systems,
along with an increase of $2.8 million related to the non-cash portion of rent
expense.
Interest Expense. Interest expense for 1995 increased 5.1% (or $0.6
million) from $11.7 million in Fiscal 1994 to $12.3 million in Fiscal 1995. This
variance resulted from higher borrowing balances throughout 1995, partially
offset by lower interest rates. The decrease in interest rates resulted from
lower interest rates under the Company's bank facility, coupled with a full year
impact of lower interest expenses resulting from the repurchase of $18.6 million
of higher interest Old Notes, which took place in the fourth quarter of 1994.
Income Taxes. Income taxes were $0.4 million in Fiscal 1995 versus $1.9
million in Fiscal 1994. The $0.4 million in Fiscal 1995 represents a change in
the valuation allowance for deferred taxes. Such change was based upon the
Company's determination that a 100% valuation allowance was appropriate inasmuch
as the Company had incurred taxable losses during two consecutive fiscal years
and could not substantiate that it would be able to generate future taxable
income in order to realize its deferred tax assets.
Net Income (Loss). Fiscal 1995 net loss was $6.3 million compared to net
income of $1.4 million for Fiscal 1994. Approximately $3.3 million of the Fiscal
1995 loss is related to the non-cash portion of rent expense compared to $0.5
million in 1994. This non-cash rent expense declined significantly in Fiscal
1996. Decreases in same store sales and gross margins and increases in
advertising expense were the other primary factors for the earnings decline in
Fiscal 1995.
EBITDA. EBITDA decreased 32.1% (or $8.7 million) from $27.1 million for
Fiscal 1994 to $18.4 million for Fiscal 1995. Decreased same store sales and
gross margin coupled with advertising expense increases were the primary factors
contributing to the decrease. In addition to a difficult retail environment,
sales were impacted by poor weather conditions throughout the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity is cash flow from operations and
borrowings under the Company's five year, non-amortizing, $125.0 million
revolving credit facility (the "CIT Credit Facility"). The Company amended its
then-current Credit Facility effective November 13, 1997, to provide for the CIT
Credit Facility. The CIT Credit Facility is secured by the Company's trade
accounts receivable, merchandise inventories and general intangible assets. The
Company intends to use net cash provided by operating activities and borrowings
under the CIT Credit Facility to fund its anticipated capital expenditures and
working capital requirements. However, if additional cash is required, it may be
difficult for the Company to obtain because the Company is highly leveraged.
As a result of borrowings regarding the Recapitalization, the Company's
interest expense will increase from $10.8 million for the twelve months ended
September 28, 1997 to $19.9 million (on a pro forma basis). The Company believes
that cash flow from operations will be sufficient to cover the interest expense
arising from the CIT Credit Facility and the Notes. However, the Company's
ability to meet its debt service obligations depends upon its future
performance, which, in turn, is subject to general economic conditions and
regional risks, and to financial, business and other factors affecting the
operations of the Company, including factors beyond its control. See "Risk
Factors." Accordingly, there can be no assurance that cash flow from operations
will be sufficient to meet the Company's debt service obligations.
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<PAGE> 44
Net cash provided by operating activities was $19.8 million for Fiscal 1996
versus net cash used of $3.8 million for Fiscal 1995. Net cash used in operating
activities was $2.0 million in the nine months ended September 28, 1997 compared
to net cash provided of $7.5 million in the nine months ended September 29,
1996. Improved earnings combined with continued focus on inventory levels and a
reduction in accounts payable related to reduced inventory purchases late in
Fiscal 1995 were the primary factors in the improvements in cash provided by
operating activities in Fiscal 1996. The Company's year-end inventory levels
were 1.9% (or $2.6 million) lower than Fiscal 1995 levels. This reduction was
accomplished even as the Company grew its store base from 192 at December 31,
1995 to 196 at December 29, 1996, and follows the success of the Company's
Fiscal 1995 inventory reduction program where inventories were reduced $13.5
million, or 9.0%, between Fiscal 1994 and Fiscal 1995 despite a 9.7% (17 stores)
increase in store count. The decreases in net cash provided during the nine
months of 1997 compared to the comparable 1996 period was primarily due to
increased inventory purchases as the Company normalized its inventory purchasing
after the planned inventory reduction program in Fiscal 1995 and Fiscal 1996.
Fiscal 1996 cash flow also benefitted from the receipt of $5.0 million in net
proceeds from the sale/leasebacks of the Company's Fontana, California
distribution center and the Culver City, California store.
Net cash used in financing activities was $19.7 million in Fiscal 1996
reflecting repayment of $17.1 million under the Company's revolving credit
facilities, the payment of $1.2 million related to the retirement of a prior
revolving credit facility and $1.4 million in fees and expenses related to the
establishment of the Company's then-existing revolving credit facility in March,
1996. Net cash provided by financing activities was $0.8 million for the nine
months ended September 28, 1997 reflecting increased borrowings under the
Company's then-existing revolving credit facility. As of December 29, 1996, the
Company had borrowings of $50.0 million and letter of credit commitments of $4.4
million outstanding under the then-existing revolving credit facility, with cash
and cash equivalents of $4.8 million versus $3.2 million at December 31, 1995.
As of September 28, 1997, the Company had borrowings of $50.8 million and letter
of credit commitments of $9.6 million outstanding under the then-existing
revolving credit facility, and cash and cash equivalents of $0.4 million versus
a balance of $3.4 million at September 29, 1996.
Capital expenditures for Fiscal 1996 were $3.5 million reflecting a
temporary planned reduction of the Company's store growth program to four new
stores after average annual growth of 15 new stores during the prior four fiscal
years. Capital expenditures for the nine months ended September 28, 1997 were
$3.2 million. During this period the Company has opened six new stores. Capital
expenditures are expected to be approximately $2.2 million for the remainder of
Fiscal 1997 as the Company returns to its historical new store growth program by
opening a total of 14 new stores in Fiscal 1997. Management expects capital
expenditures for Fiscal 1998 will be approximately $6.0 to $7.5 million and will
be used primarily to fund the opening of approximately 15 to 20 new stores. The
Company's store format requires a low investment in fixtures and equipment
(approximately $250,000), working capital (approximately $500,000, of which
one-third is typically financed by vendors) and real estate (leased,
"built-to-suit" locations).
The CIT Credit Facility and the Indenture contain various covenants which
impose certain restrictions on the Company, including the incurrence of
additional indebtedness, the payment of dividends, and the ability to make
acquisitions. See "Risk Factors." In addition, the CIT Credit Facility requires
compliance with the maintenance of certain financial ratios and other financial
covenants.
The Company is not aware of any material environmental liabilities relating
to either past or current properties owned, operated or leased by it. There can
be no assurance that such liabilities do not currently exist or will not exist
in the future.
SEASONALITY
The Company's business is seasonal in nature. As a result, the Company's
results of operations are likely to vary during its fiscal year. Historically,
the Company's revenues and income are highest during its fourth quarter, due to
several factors. The fourth quarter contributed 26.7% in 1996 and 27.0% in 1995
of fiscal year net sales and 37.5% in 1996 and 42.9% in 1995 of fiscal year
EBITDA. Any decrease in sales for such period
39
<PAGE> 45
could have a material adverse effect on the Company's business, financial
condition and operating results for the entire fiscal year.
IMPACT OF NEW ACCOUNTING STANDARDS
In March 1997 the Financial Accounting Standards Board ("FASB") issued SFAS
128, "Earnings per Share". SFAS 128 specifies new computation, presentation and
disclosure of earnings per share and is effective for financial statements for
both interim and annual periods ending after December 15, 1997. Adoption of SFAS
128 will not impact the financial position or results of the Company.
SFAS 129, "Disclosure of Information about Capital Structure," was issued
in February 1997. SFAS 129 lists required disclosures about capital structure
that had previously been included in a number of separate statements and
opinions. SFAS 129 is effective for fiscal years ending December 15, 1997.
Adoption of SFAS 129 will not impact the financial position or results of the
Company.
SFAS 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Management does not believe that adoption of
SFAS 130 will have an impact on the financial position or results of the
Company.
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for public enterprises to report information
about operating segments in annual and interim financial statements. SFAS 131 is
effective for fiscal years beginning after December 15, 1997. Management does
not believe that adoption of SFAS 131 will have an impact on the financial
position or results of the Company.
40
<PAGE> 46
BUSINESS
GENERAL
The Company is the leading sporting goods retailer in the Western United
States, operating 210 stores under the "Big 5 Sporting Goods" name. The
Company's core market is California, Washington and Nevada and beginning in 1993
it expanded into Arizona, Idaho, Oregon, New Mexico, Texas and Utah. The Company
provides a full-line product offering of over 25,000 SKU's in a traditional
sporting goods store format that averages 11,000 square feet. Specifically, the
Company's products include athletic shoes and apparel, and tennis, golf, ski,
snowboard, in-line skating, fitness, outdoor and team sports equipment for the
competitive and recreational sporting goods customer. The Company offers
customers attractive values on recognized brand-name merchandise at a wide
variety of price points. Important brand-names offered by the Company include
Nike, Reebok, Wilson, K2, Rollerblade, Coleman, Spalding, Adidas, Fila, Speedo,
Easton and Columbia, among others. The Company augments its value image by
emphasizing merchandise produced exclusively for the Company, and on a selective
basis, opportunistic buys comprising first quality items, including overstock
and close-out merchandise. These merchandise values are communicated weekly
through print advertising created by the Company in order to generate store
traffic and drive sales. For the twelve months ended September 28, 1997, the
Company generated $432.1 million of revenue, $32.9 million of pro forma EBITDA
and a same store sales increase of 6.9% over the prior period. Through the
period ended November 23, 1997, the Company has enjoyed 21 consecutive monthly
increases in same store sales over the comparable prior period.
The Company was founded in 1955 by Robert W. Miller, Maurie Liff and Harry
Liff, with the establishment of five retail locations in Los Angeles, Burbank,
Inglewood, Glendale and San Jose. The Company originally sold World War II
surplus items including tents, sleeping bags, air mattresses, housewares, tools
and other merchandise. Other sporting goods gradually entered the product mix
and as a result, in 1963, the Company decided to become a sporting goods
specialist and changed its trade name to "Big 5 Sporting Goods." In 1971, the
Company was acquired by Thrifty Corporation ("Thrifty"), which was subsequently
purchased by PE in 1986. Throughout these changes in ownership, management
remained relatively constant and in 1992, management in conjunction with Leonard
Green & Partners, L.P. ("LGP") bought the Company.
As a result of the Recapitalization, existing management and employees of
the Company (and members of their families) beneficially own the majority of
Parent. Chairman and Chief Executive Officer Robert W. Miller, who co-founded
the Company in 1955, and his son Steven G. Miller, President and Chief Operating
Officer, who has been with the Company for 28 years, significantly increased
their ownership in Parent and control the Board of Directors of Parent. See
"Principal Stockholders." In addition, approximately 60 members of middle and
senior level management increased their stock ownership in Parent. In total,
more than 200 employees own equity in Parent, including over 100 store managers.
The Big 5 team shares many years of experience which management believes have
led to the development of a strong corporate culture and excellent employee
morale.
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<PAGE> 47
MANAGEMENT EXPERIENCE
Management believes the experience, commitment and longevity with the
Company of its professional staff to be a substantial competitive advantage. The
table below describes the tenure of the professional staff in some of the key
functional areas:
EXPERIENCE OF PROFESSIONAL STAFF
<TABLE>
<CAPTION>
NUMBER OF
EMPLOYEES AVERAGE YEARS
IN CATEGORY WITH BIG 5 AVERAGE AGE
----------- ------------- -----------
<S> <C> <C> <C>
Senior Management................................... 5 26 53
Vice Presidents..................................... 7 21 52
Buying Staff........................................ 15 18 44
Store District/Division Supervisors................. 21 18 42
Store Managers...................................... 210 9 35
</TABLE>
STORE FORMAT
The Company has remained focused on its strategy of operating a
traditional, full-line sporting goods store, which typically ranges from 8,000
to 15,000 square feet and averages 11,000 square feet in size. The Company's
stores are located primarily in multi-store shopping centers or free-standing
street locations. The Company's store format and convenient locations encourage
frequent customer visits, even for single item or relatively small purchases.
This is illustrated by the fact that the Company processed over 14 million sale
transactions in 1996 with an average customer sale of approximately $30. Due to
its relatively low start-up and overhead costs, the Big 5 store model is
successful in trade areas with as few as 75,000 people, as well as major
metropolitan areas. These store economics differentiate the Company's sporting
goods stores from superstore concepts (averaging in excess of 35,000 square
feet) which typically require larger trade areas to support higher costs.
Overall, the Company's traditional sporting goods store has competed effectively
against superstore formats. All of the Big 5 stores are making positive
store-level contributions and over its history, the Company has never closed a
store due to poor performance.
MERCHANDISING
Offering approximately 25,000 SKUs, the typical Company store targets the
competitive and recreational sporting goods customer with a full-line product
offering at a wide variety of price points. The Company believes its long
history of success is attributable to its adherence to a consistent
merchandising strategy, the key elements of which are summarized below:
Delivering Consistent Value to Consumers. The Company offers consistent
value to consumers by offering a distinctive combination of in-line products,
"special make-up" merchandise (produced exclusively for the Company under a
manufacturer's brand name), private label merchandise and opportunistic buys.
The Company offers this consistent value to its customers while maintaining
strong margins as a result of its ability to purchase in large quantities and
quickly adjust this combination of merchandise to take advantage of purchasing
opportunities. Through its 42 years of operations, the Company has developed
specific expertise in selling its particular mix of these products, thereby
building the Company's price image, driving its weekly print advertisements and
creating retail traffic. The Company believes it enjoys significant advantages
in the acquisition of opportunistic buys because the Company is able to combine
strong vendor relationships, rapid decision-making, careful inventory management
and effective advertising along with its extensive store network. Although
management believes opportunistic buys typically represent only approximately
10% of sales, they are used in conjunction with special make-up merchandise to
enhance weekly advertising and reinforce the Company's reputation as a retailer
that offers outstanding value to its customers.
42
<PAGE> 48
The Company sources its in-line branded merchandise from an extensive list
of major sporting goods equipment, athletic footwear and apparel manufacturers.
Below is a selection of some of the brands carried by the Company:
<TABLE>
<S> <C> <C> <C> <C>
Adidas Columbia Icon (Proform) Rawlings Side Out
Bauer Daiwa Jansport Reebok Spalding
Brooks Danskin K2 Remington Titleist
Bushnell Discus Nike Rollerblade Wilson
Casio Easton Nordica Russell Athletic Winchester
Coleman Fila Prince Shimano Zebco
</TABLE>
The Company also offers a variety of private label merchandise to
complement its branded product offerings. The Company's private label items
include shoes, apparel, tennis rackets, binoculars, camping equipment and
fishing supplies. They are sold under the labels: Fives, Court Casuals, Sports
Essentials, Rugged Exposure, Hot Voltage, Golden Bear, Body Glove (licensed) and
Pacifica.
Offering a Customized Product Assortment. Through its 42 years of
experience across different demographic, economic and competitive markets, the
Company's management has refined its merchandising strategy to increase sales by
offering a selection of goods that meets customer demands while managing
inventory levels. The Company believes it provides consumers with a merchandise
offering that compares favorably to its competitors, including the superstores,
in terms of category selection. A goal of the Company's merchandising strategy
is to offer a customized and selected assortment of products which enables the
consumer to comparison shop at a Big 5 store without being overwhelmed by a
large number of different products in any one category. The Company tailors its
merchandise selection and quantity on a store-by-store basis in order to satisfy
each region's specific needs and buying habits.
The Company's 15 buyers, who average 18 years of experience with the
Company, work closely with senior management to determine the product selection,
promotion and pricing of the merchandise mix. The Company utilizes a $15 million
integrated merchandising, distribution and financial information system.
Management uses the information provided to continually refine its merchandise
mix, pricing strategy, advertising effectiveness and inventory levels.
The following table illustrates the Company's historical mix of hard and
soft goods as a percent of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
1995 1996
----- -----
<S> <C> <C>
Soft Goods:
Athletic and Sport Apparel................................... 16.2% 17.0%
Athletic and Sport Footwear.................................. 31.4% 31.4%
----- -----
Total Soft Goods..................................... 47.6% 48.4%
Hard Goods..................................................... 52.4% 51.6%
----- -----
Total.......................................................... 100.0% 100.0%
===== =====
</TABLE>
Market Leader in Core Market Served. The Company has built a recognized
franchise by establishing a strong presence in its core market of California,
Washington and Nevada and by consistently promoting quality brand-name products
at attractive prices. The Company has over triple the number of stores as its
closest full-line sporting goods competitor in such core market. This
concentration of stores provides economies of scale in advertising and
distribution and increased customer awareness of the Big 5 name. The Company was
named the leading place to purchase sporting goods in the greater Los Angeles
area for every category of sporting goods covered by a survey commissioned by
the Company conducted in October 1996 by America's Research Group, an
independent research group. The survey showed that the Company was preferred
over specialty sporting goods stores (e.g. Foot Locker, Nevada Bob's), mass
merchandisers (e.g. K-Mart, Target) and local superstore operators (e.g.
Sportmart, Sport Chalet). This survey also indicated that over 90% of
respondents recognized the Big 5 name and 73% shopped at a Big 5 store in the
past two years.
43
<PAGE> 49
ADVERTISING
The Company believes that the consistency and reach of the Company's print
advertising programs have created high customer awareness of Big 5. Through
years of focused advertising, the Company has reinforced its reputation for
providing quality products at attractive prices. The Company attempts to
highlight a broad range of merchandise categories in every advertisement to
maintain customer awareness of its full-line product offering. The Company's
advertising message is reinforced through the distribution of over 10 million
advertisements each week, 52 weeks a year, in the form of newspaper inserts or
mailers. Every week, each Big 5 advertisement, which is typically four standard
pages using color photography, profiles 200 to 250 products across all major
merchandise categories. The Company believes that its print advertising
consistently reaches more households in its core market than does the print
advertising of its competitors. The Company's effectiveness in communicating the
product values it offers is evidenced by the fact that typically 40% of sales
have been products included in these weekly advertisements.
The Company utilizes demographic tools to maximize the effectiveness of its
advertising expenditures. The Company places inserts in over 85 newspapers
weekly throughout its markets, supplemented in many areas by distribution to
newspaper non-subscribers to create market saturation. In select markets, the
Company has determined its most cost effective use of advertising dollars is to
distribute through mailers.
The Company uses its professional in-house advertising staff rather than an
outside advertising agency. The staff centrally handles all of its advertising,
including design, layout, production and media management. This approach has
been in place since its founding. The Company's in-house advertising enables
management the flexibility to react quickly to merchandise trends and maximize
the effectiveness of its weekly inserts and mailers.
EXPANSION AND STORE DEVELOPMENT
The Company's expansion within and beyond its core market has been
systematic and designed to take advantage of Big 5 name recognition and to
capitalize on the Company's economical store format and distinctive merchandise
mix. Throughout the Company's history, management has emphasized careful site
selection and controlled growth. Over the past five fiscal years, 63 stores have
been opened (13 new stores annually on average), of which 38% were outside of
markets in which the Company operated in 1992. The following table sets forth
certain information regarding the Company's expansion program during the periods
indicated:
<TABLE>
<CAPTION>
NEW STORES
----------------------------------------------
NEW EXISTING NO. OF STORES
YEAR TOTAL MARKETS MARKETS ACQUISITIONS CLOSURES AT PERIOD END
--------------------------- ----- ------- ------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
1992....................... 10 -- 10 -- -- 147
1993....................... 15 1 6 8 -- 162
1994....................... 15 4 11 -- (2) 175
1995....................... 19 6 6 7 (2) 192
1996....................... 4 2 2 -- -- 196
1997E...................... 14 7 7 -- -- 210
</TABLE>
The Company has identified numerous expansion opportunities to further
penetrate its core market, develop recently entered markets and expand into new
market areas with similar demographic, competitive and economic profiles as its
existing markets. The typical Big 5 store size provides the Company with a large
selection of locations for new store placement which, in turn, allows the
Company to open stores conveniently located to the customer. Continuing its
controlled growth strategy, the Company plans on opening approximately 15-20
stores annually over the next five years. This expansion plan is designed to
take advantage of the growing economies of the Company's existing and recently
entered markets and to capitalize on opportunities in fast growing new markets.
The Company's store format requires a low investment in fixtures and
equipment (approximately $250,000), working capital (approximately $500,000, of
which one-third is typically financed by vendors) and real estate (leased,
"built-to-suit" locations). The Company's leases generally require the lessor,
rather than the Company, to fund all or a significant portion of the capital
expenditures related to new store construction
44
<PAGE> 50
and costs of improvements. The Company expects that the net cash generated from
operations, together with borrowings under the CIT Credit Facility, will enable
the Company to finance the expenditures related to its planned expansion. See
"Risk Factors -- Expansion Program."
MANAGEMENT INFORMATION SYSTEMS
The Company believes its ability to generate an efficiently stocked
merchandise selection and store inventory level that satisfies customer demands
while effectively managing inventory levels is a critical component of its
merchandising strategy and serves to differentiate the Company from its
competition. The Company is able to execute this strategy as a result of its
effective use of its integrated management information systems, called the COACH
(Customer Oriented Approach for Continued High-Performance) system.
The COACH system is a low maintenance data processing environment capable
of supporting the Company's future growth. The COACH system provides the Company
with valuable inventory tracking information through the implementation of
store-level perpetual inventories. Each store has a unique inventory model that
allows the Company to maximize inventory mix at the store level. The COACH
system also includes a local area network that connects all corporate users to
electronic mail, scheduling and the host AS/400 system. The host system and the
Company's stores are linked in a network that provides satellite communications
for credit card, in-house tender authorization, and daily polling of sales at
the store level. In the Company's distribution center, radio frequency terminals
are used in the areas of receiving, stock putaway, stock movement, order
filling, cycle counting and inventory management. Store processes have been
streamlined by implementing radio frequency, hand-held terminals to assist in
store ordering, receiving, transfers and perpetual inventories. The COACH system
also helps the Company to control shrink. Management believes its use of these
systems is more extensive, disciplined and sophisticated than that of many of
its competitors.
While many computer systems and software products are not designed to
distinguish between 20th Century dates and dates occurring after the year 2000,
management has assessed the Company's management information systems and based
on such assessment presently believes that they do not suffer from such a
deficiency.
DISTRIBUTION
The Company maintains a 440,000 square foot leased distribution center in
Fontana, California that services all 210 of its stores. The Fontana facility is
fully integrated with the COACH management information system that provides
warehousing and distribution capabilities. The information system enhances the
Company's distribution process and aids in controlling distribution costs. The
Company believes that its Fontana distribution facility can readily support the
Company's expansion plans discussed above.
The distribution facility was constructed in 1990 and warehouses the
majority of the merchandise carried in the Company's stores. The Company
estimates that 98% of all store merchandise is received from its distribution
center. The Company distributes merchandise from the facility to its stores at
least once a week, Monday through Saturday, using a fleet of 21 leased tractors,
26 leased trailers, two Company-owned tractors, 37 Company-owned trailers as
well as several contract carriers.
On March 5, 1996, the Company purchased the Fontana facility building and
improvements from MLTC Funding, Inc. ("MLTC"), which previously owned and leased
such property to the Company, and then entered into a sale and leaseback
agreement with regard to the Fontana facility. Prior to this transaction, the
Company owned the land associated with the facility and leased the buildings and
improvements. See "Certain Relationships and Related Transactions."
PROPERTIES
The Company operates 210 stores in nine western states. All but one of the
Company's store sites are leased. Only nine, or less than 5%, of the Company's
leases are due to expire in the next five years without renewal options, and
most of the Company's long-term leases contain renewal options. The average
lease expiration term of the Company's existing leases, taking into account
renewal options, is approximately 20 years. The Company believes that it
benefits from long-term below-market leases in many of its locations.
45
<PAGE> 51
The Company's stores average approximately 11,000 square feet in size and are
located primarily in multi-store shopping centers or as free-standing units.
Specific store locations are selected based on market demographics, competitive
factors and site economics. The Company currently leases its Fontana warehouse
facility from the State of Wisconsin Investment Board. The lease for the
facility has an initial term of ten years commencing on March 5, 1996. The
Company also has the right to exercise three five-year options beyond the
initial ten-year term.
The chart below sets forth information with respect to the Company's
geographic markets:
STORE STATISTICS BY REGION
<TABLE>
<CAPTION>
PERCENTAGE
YEAR NUMBER OF TOTAL
REGIONS ENTERED OF STORES NUMBER OF STORES
- ---------------------------------------------------------- ------- --------- ----------------
<S> <C> <C> <C>
California:
Southern California..................................... 1955 80 38%
Central California...................................... 1974 23 11
Northern California..................................... 1971 47 22
--- ---
Total California................................ 150 71
--- ---
Washington................................................ 1984 27 13
Arizona................................................... 1993 10 5
Oregon.................................................... 1995 8 4
New Mexico................................................ 1995 5 3
Nevada.................................................... 1978 5 3
Texas..................................................... 1995 3 1
Idaho..................................................... 1993 1 --
Utah...................................................... 1997 1 --
--- ---
Total........................................... 210 100%
=== ===
</TABLE>
INDUSTRY AND COMPETITION
Sporting goods are marketed through various retail entities, including
sporting goods stores, department stores, discount retailers, specialty stores
and mail order. According to the National Sporting Goods Association, total U.S.
retail sales of sporting goods were approximately $38.4 billion in 1996. In
general, the Company's competitors tend to fall into four basic categories:
traditional sporting goods stores, mass merchandisers, specialty sporting goods
stores and sporting goods superstores.
Traditional Sporting Goods Stores. This category consists of traditional
sporting goods chains, including the Company. These stores range in size from
5,000 to 20,000 square feet and are frequently located in regional malls and
multi-store shopping centers. The traditional chains typically carry a varied
assortment of merchandise and attempt to position themselves as convenient
neighborhood stores. Sporting goods retailers operating stores within this
category include Oshman's and Copeland's.
Mass Merchandisers. This category includes discount retailers such as
Wal-Mart and Kmart and department stores such as JC Penney and Sears. These
stores range in size from approximately 50,000 to 200,000 square feet and are
primarily located in regional malls, shopping centers or free-standing sites.
Sporting goods merchandise and apparel represent a small portion of the total
merchandise in these stores and the selection is often more limited than in
other sporting goods retailers. Although generally price competitive, discount
and department stores typically have limited customer service in their sporting
goods departments.
Specialty Sporting Goods Stores. This category consists of two groups. The
first group generally includes athletic footwear specialty stores, which are
typically 2,000 to 20,000 square feet in size and are located in shopping malls.
Examples include such retail chains as Foot Locker, Lady Foot Locker and Just
for Feet. These retailers are highly focused, with most of their sales coming
from athletic footwear and team licensed apparel. The second group consists of
pro shops and stores specializing in a particular sport or recreation. This
group includes backpacking and mountaineering specialty stores and specialty
skate shops and golf shops.
46
<PAGE> 52
Typically, prices at specialty stores tend to be higher than prices at the
sporting goods superstores and traditional sporting goods stores.
Sporting Goods Superstores. Stores in this category typically are larger
than 35,000 square feet and tend to be free-standing locations. These stores
emphasize high volume sales and a large number of SKU's. Examples include
Oshman's Super Sports, The Sports Authority, Jumbo Sports (formerly Sports &
Recreation), Sport Chalet and Sportmart.
The Company believes that it competes successfully with each of the
competitors discussed above by focusing on what the Company believes are the
primary factors of competition in the sporting goods industry. These factors
include experienced and knowledgeable personnel, personal attention given to
customers, breadth, depth, price and quality of merchandise offered,
advertising, purchasing and pricing policies, effective sales techniques, direct
involvement of senior officers in monitoring store operations, management
information systems and store location and format.
DESCRIPTION OF SERVICE MARKS AND TRADEMARKS
The Company uses the "Big 5 Sporting Goods" name as a service mark in
connection with its business operations and has registered this name as a
federal service mark. The Company has also registered federally and/or locally
as trademarks and service marks certain private labels under which it sells a
variety of merchandise, including apparel.
EMPLOYEES
As of November 23, 1997, the Company had approximately 5,090 employees. The
General Warehousemen Union, Local 598, International Brotherhood of Teamsters
("Local 598") currently represents 402 hourly employees (or approximately 7.9%)
in the Company's distribution center and certain stores. In September 1997, the
Company negotiated two new contracts with Local 598 covering these employees,
which expire on August 31, 2000. The Company has not had a strike or work
stoppage in the last 18 years. The Company believes that it provides working
conditions and wages that are comparable to those offered by other retailers in
the industry, and that its employee relations are good.
The Company emphasizes friendly and knowledgeable customer service at its
stores. To provide the proper incentives, the Company has established various
advancement and compensation programs. Store managers and first assistant
managers receive a commission based on their store's gross sales. In addition,
full-time employees are given opportunities for career advancement, and
part-time employees are eligible to receive merit-based pay increases. Periodic
store sales contests are held throughout the year.
EMPLOYEE TRAINING
The Company has developed an extensive training program for all store
employees, including salespeople, cashiers and management trainees. An
introductory program for all full-time retail employees stresses excellence in
customer service as well as effective selling skills. The Company's InfoWindow,
an interactive, multimedia training system, provides a cost-effective,
consistent method of training employees, which is designed to improve
performance, customer service and on-the-job safety. Store employees gain
hands-on practice using a touch-screen monitor and simulated keyboard to learn
how to provide high quality customer service and use the Company's in-store
systems. Every Company store employee must complete the training program before
commencing work on the sales floor. In addition, cashiers receive additional
training relating to the Company's point-of-sale system and cash handling.
Management trainees receive additional training throughout their careers,
including seminars that focus on advanced management and sales skills, and store
specific information relating to loss prevention, scheduling and merchandising
strategy.
In addition, the Company conducts a bi-annual "Product Expo," a sporting
goods fair it hosts for its employees. The Company invites key vendors to set up
booths where store employees can learn about various products. Most full-time
store employees attend the exposition and the Company believes the program has
been a success both in training and motivating employees.
47
<PAGE> 53
LITIGATION
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. The Company regularly reviews all pending
litigation matters in which it is involved and establishes reserves deemed
appropriate by management for such litigation matters. The Company believes that
no litigation currently pending against it will have a material adverse effect
on its financial position or results of operations.
48
<PAGE> 54
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the current
executive officers and directors of the Company. The Company's directors are
elected at each annual meeting of shareholders to serve for a period of one year
or until their successors are duly elected and qualified. The Company's
executive officers serve at the discretion of the Company's Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
Robert W. Miller....................... 74 Chief Executive Officer and Chairman of
the Board
Steven G. Miller....................... 45 President, Chief Operating Officer and
Director
Charles P. Kirk........................ 41 Senior Vice President and Chief
Financial Officer
Gary S. Meade.......................... 51 Secretary, Vice President and General
Counsel
Richard A. Johnson..................... 51 Senior Vice President, Store Operations
Thomas J. Schlauch..................... 52 Senior Vice President, Buying
Dr. Michael D. Miller.................. 48 Director
John G. Danhakl........................ 41 Director
Jonathan A. Seiffer.................... 26 Director
</TABLE>
ROBERT W. MILLER became Chairman of the Board in September 1992. Mr. Miller
had been the Company's Chief Executive Officer and President since 1973.
STEVEN G. MILLER became President, Chief Operating Officer and a Director
of the Company in September 1992. Mr. Miller, Robert W. Miller's son, had been
the Company's Executive Vice President, Administration, since 1988.
CHARLES P. KIRK became Senior Vice President and Chief Financial Officer of
the Company in September 1992. Mr. Kirk had been Thrifty's Director of Planning
and Vice President of Planning and Treasury since October 1990. Prior to joining
Thrifty, Mr. Kirk had held various financial positions with Thrifty's former
parent, PE, since 1981.
GARY S. MEADE became Secretary, Vice President and General Counsel of the
Company in August 1997. Mr. Meade had been Thrifty PayLess, Inc.'s Vice
President, Secretary and General Counsel since September 1992 and Thrifty's Vice
President - Legal Affairs since 1979.
RICHARD A. JOHNSON became Senior Vice President, Store Operations, for the
Company in July 1992. Mr. Johnson had been the Company's Vice President, Store
Operations, since 1986.
THOMAS J. SCHLAUCH became Senior Vice President, Buying, for the Company in
July 1992. Mr. Schlauch had been the Company's Head of Buying since 1990 and
Vice President, Buying, since 1982.
MICHAEL D. MILLER, PH.D became a director of the Company in October 1997.
Dr. Miller is a senior mathematician at RAND. Dr. Miller is Robert W. Miller's
son and Steven G. Miller's brother.
JOHN G. DANHAKL became a director of the Company in October 1997. Mr.
Danhakl has been an executive officer and an equity owner of LGP, a merchant
banking firm which manages GEI, since 1995. Mr. Danhakl had previously been a
Managing Director at Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
and had been with DLJ since 1990. Prior to joining DLJ, Mr. Danhakl was a Vice
President at Drexel Burnham Lambert Incorporated. Mr. Danhakl is also a director
of The Arden Group, Inc. and Twinlab Corporation.
49
<PAGE> 55
JONATHAN A. SEIFFER became a director of the Company in October 1997. Since
October 1994, Mr. Seiffer has been an associate at LGP. Prior to October 1994,
Mr. Seiffer was a member of the corporate finance department of DLJ.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the annual and long-term compensation of the
Company's Chief Executive Officer and four additional most highly compensated
executive officers whose annual salary and bonus exceeded $100,000 in total
during the fiscal year ended December 29, 1996.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------------------
-------------------------------- SECURITIES
OTHER UNDERLYING
ANNUAL RESTRICTED STOCK
COMPEN- STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION AWARDS SARS(1) PAYOUTS COMPENSATION
- ------------------------------------- ---- -------- -------- ---------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert W. Miller,.................... 1996 $290,000 $275,000 $-0- $-0- 6,400 $ -0- $-0-
Chief Executive Officer 1995 290,000 -0- -0- -0- -0- -0- -0-
1994 276,000 240,000 -0- -0- 10,000 -0- -0-
Steven G. Miller,.................... 1996 210,000 175,000 -0- -0- 6,400 -0- -0-
President and Chief 1995 210,000 -0- -0- -0- -0- -0- -0-
Operating Officer 1994 200,000 100,000 -0- -0- 10,000 -0- -0-
Thomas J. Schlauch,.................. 1996 150,000 60,000 -0- -0- 3,600 -0- -0-
Senior Vice President, 1995 150,000 25,000 -0- -0- -0- -0- -0-
Buying 1994 142,000 50,000 -0- -0- 6,000 -0- -0-
Richard A. Johnson,.................. 1996 117,000 45,000 -0- -0- 3,600 -0- -0-
Senior Vice-President, 1995 117,000 20,000 -0- -0- -0- -0- -0-
Store Operations 1994 112,000 36,000 -0- -0- 6,000 -0- -0-
Charles P. Kirk,..................... 1996 130,000 35,000 -0- -0- 3,600 -0- -0-
Senior Vice President & 1995 130,000 12,000 -0- -0- -0- -0- -0-
Chief Financial Officer 1994 124,000 24,000 -0- -0- 6,000 -0- -0-
</TABLE>
- ------------------------------
(1) Represents stock options issued under the Parent 1992 Management Equity
Plan. See Note (1) to the "Options/SAR Grants in Fiscal 1996" table for a
description of the plan.
Option/SAR Grants in Fiscal 1996
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS POTENTIAL REALIZABLE
UNDERLYING GRANTED TO VALUE ASSUMING
OPTIONS/SARS EMPLOYEES IN EXERCISE OR EXPIRATION RECAPITALIZATION IS
NAME GRANTED(1) FISCAL YEAR BASE PRICE(2) DATE CONSUMMATED(3)
- ---------------------------------------- ------------ ------------ ------------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
Robert W. Miller........................ 6,400 11.7% $ 12.00 9/25/02 $ 51,200
Steven G. Miller........................ 6,400 11.7% 12.00 9/25/02 51,200
Thomas J. Schlauch...................... 3,600 6.6% 12.00 9/25/02 28,800
Richard A. Johnson...................... 3,600 6.6% 12.00 9/25/02 28,800
Charles P. Kirk......................... 3,600 6.6% 12.00 9/25/02 28,800
</TABLE>
- ------------------------------
(1) The non-qualified stock options to purchase Common Stock were issued under
the Parent 1992 Management Equity Plan (the "Plan"). Options granted under
the Plan have an exercise price equal to the fair market value of the Common
Stock at the date of the grant as determined by Parent's Board of Directors.
The options vest and become exercisable in cumulative 20% installments
commencing one year from the date of grant, with full vesting on the fifth
anniversary. Shares of Common Stock acquired pursuant to the exercise of
options are generally subject to terms and conditions comparable to those
contained in various Management Subscription and Stockholders Agreements
pursuant to which members of management have previously acquired Common
Stock. See "Principal Stockholders." Pursuant to the Recapitalization
substantially all of such options became fully vested (see "Management Stock
Purchases") and the restrictions under such agreements (other than those
relating to federal and state securities acts) became inapplicable. The Plan
terminates on September 25, 2002, unless extended. The Plan is administered
by the Board of Directors of Parent or a committee consisting of three or
more directors of Parent to whom administration of the Plan has been duly
delegated by the Board of Directors (the Board of Directors and the
Committee are hereinafter referred to as the "Committee"). The Committee
designates the class of employees who will be granted options and the number
of shares subject to such options. Members of the Committee are not eligible
to receive options. A total of 276,000 shares of Common Stock are reserved
for purchase pursuant to options authorized under the Plan, of which 271,200
were subject to issued and outstanding options as of December 31, 1996.
50
<PAGE> 56
(2) Exercise price is equal to the fair market value of a share of Common Stock
at the date of grant as determined by Parent's Board of Directors.
(3) The potential realizable value of each grant of options (exclusive of the
exercise price) is calculated based on the assumption that the
Recapitalization has been consummated.
Aggregated Option/SAR Exercises in Fiscal 1996 and 1996 Fiscal Year-End Option
Value
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED
SHARES OPTIONS HELD AT FISCAL VALUE OF UNEXERCISED IN THE
ACQUIRED YEAR END MONEY OPTIONS
ON VALUE EXERCISABLE/UNEXERCISABLE AT FISCAL YEAR END
NAME EXERCISE REALIZED (1) EXERCISABLE/UNEXERCISABLE(2)
- ------------------------------------ -------- -------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Robert W. Miller.................... -0- $-0- 14,500/31,400 $83,700/$130,500
Steven G. Miller.................... -0- -0- 14,500/31,400 83,700/130,500
Thomas J. Schlauch.................. -0- -0- 9,400/19,600 55,175/85,438
Richard A. Johnson.................. -0- -0- 9,400/19,600 55,175/85,438
Charles P. Kirk..................... -0- -0- 5,500/14,100 27,875/46,938
</TABLE>
- ------------------------------
(1) Pursuant to the Recapitalization substantially all of the options became
fully vested. See "Management Stock Purchases."
(2) Represents the difference between the fair market value of the Common Stock
at the end of Fiscal 1996 as determined by the Parent's Board of Directors
and the exercise price of the options.
Employment Contracts, Change in Control Arrangements and Other Payment
The Company and each of Steven G. Miller and Robert W. Miller
(collectively, the "Millers") have entered into employment agreements, dated as
of January 1, 1993, whereby Steven G. Miller is to continue to serve as
President and Chief Operating Officer and Robert W. Miller as Chairman of the
Board of Directors (the "Board") and Chief Executive Officer of the Company
until December 31, 1994 and for additional successive one-year periods
thereafter, unless any party gives timely notice to the other that the
employment term shall not be so extended. The agreements require the Company to
provide the Millers with a base salary and those benefits generally available to
the Company's senior executive officers, including health insurance, sick leave,
and profit sharing plan participation, and require the Board to make an annual
determination as to whether each is entitled to receive a bonus for such year
and an increase in base salary for the next year. Robert W. Miller's agreement
also provides for supplemental annual retirement benefits and health insurance
benefits for himself and his surviving spouse upon his retirement.
In connection with the Recapitalization, Parent made a one-time payment to
the Millers in the amount of $750,000. Such payment by Parent facilitated their
Common Stock purchases pursuant to the Management Stock Purchases.
Employment under both agreements is terminable by the Company at any time,
with or without cause, and, under Robert W. Miller's agreement, by him, if for
good reason (as defined in his employment agreement). If Steven G. Miller or
Robert W. Miller is terminated without cause or, in the case of Robert W.
Miller, by him for good reason, each is entitled to receive as severance pay his
base salary through the remainder of the employment term as then in effect. The
agreement of either of the Millers may be terminated if such person becomes
unable to render full services during certain prescribed periods of time. The
agreements contain covenants precluding the Millers from engaging in certain
competition with the Company and from soliciting certain employees of the
Company and its affiliates for a specified period following the termination of
employment, the basis of which depends upon the reason for the termination.
MANAGEMENT STOCK PURCHASES
Pursuant to the Recapitalization, Parent accelerated the vesting periods
under substantially all outstanding employee option and restricted stock
agreements. Parent facilitated the exercise of such stock options by existing
employees by offering to such employees the option to pay the aggregate exercise
price of such outstanding options (in excess of the par value of the shares
being acquired upon exercise) by way of a personal recourse obligation secured
by such employee's existing Common Stock and the Common Stock
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<PAGE> 57
issued pursuant to the exercise of the options, and the proceeds thereof. Option
holders who exercised their stock options at the effective date of the
Recapitalization received the distributions on Common Stock described under the
heading "The Recapitalization." As a result thereof, there were outstanding
4,215,301 shares (or 4,612,945 shares on a fully diluted basis) of Common Stock
immediately prior to the Recapitalization.
As part of the Recapitalization, and pursuant to Parent's newly adopted
1997 Management Equity Plan applicable to employees of Parent and its
subsidiaries, Parent sold to existing middle and senior level management
employees of the Company, 462,009 shares of Common Stock for $5 per share (the
"Management Stock Purchases"). Such shares were not entitled to the distribution
on Common Stock described above under the heading "The Recapitalization,"
although any current employees who owned shares otherwise entitled to such
distribution may pay all or a portion of the purchase price of the shares being
purchased by having Parent offset or withhold such amount from the distribution.
The agreements under the 1997 Management Equity Plan prohibit the transfer of
such Common Stock until the fifth anniversary of the issuance thereof or the
occurrence of any earlier specified event that terminates such prohibition, with
an exception for transfers of vested shares to "related transferees" (as defined
therein). Thereafter, such shares of Common Stock are transferrable subject to a
right of first refusal in favor of Parent. The agreements also contain certain
"call" options as to unvested shares of Common Stock, exercisable, generally,
upon termination of a management employee's employment with the Company. To the
extent any management employee does not purchase the shares of Common Stock
allocated to such person pursuant to the 1997 Management Equity Plan, the
Millers purchased (or arranged for the purchase by other members of senior level
management of) such shares. As a result of the Management Stock Purchases,
immediately after the Recapitalization the continuing management and employees
of the Company (and members of their families) beneficially owned approximately
55.3% of Parent on a fully diluted basis. Senior management (and members of
their families) beneficially own approximately 34.3% of the outstanding Common
Stock on a fully diluted basis. See "Executive Compensation -- Employment
Contracts, Changes in Control Arrangements and Other Payment."
COMPENSATION OF DIRECTORS
Directors of the Company, as such, do not receive any compensation.
However, during the fiscal year ended December 29, 1996, Leonard Green &
Associates L.P., a California limited partnership ("LGA") received as
compensation for management services an annual fee of $567,880 plus
out-of-pocket expenses. The Company also paid LGA an additional $500,000 in fees
for work performed in securing the Company's bank facility in 1994 and 1996. In
addition, as a result of the consummation of the Recapitalization, LGA was paid
a fee of $4.3 million by the Company. After the Recapitalization, Parent and the
Company entered into a new Management Services Agreement with a term of seven
and one-half years and pursuant to which Parent and the Company will pay LGA a
reduced annual fee for management services ($333,333) plus reasonable and
customary fees for financial advisory and investment banking services in
connection with major financial transactions (plus expenses and indemnities, if
any). LGA is an affiliate of LGP. Mr. Danhakl and three former directors of the
Company are executive officers and equity owners of LGP, and Mr. Seiffer is an
associate of LGP. LGA is the sole general partner and manager of GEI, a
stockholder of Parent. The Company believes that the terms of its agreement and
arrangements with LGA are comparable to what could be obtained from unrelated,
but equally qualified, third parties.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The Company's outstanding capital stock is wholly owned by Parent. Prior to
the Recapitalization, Parent's outstanding equity securities consisted of Common
Stock and the Parent Old Preferred. The following table sets forth the ownership
of Common Stock as of November 23, 1997 by any person known to the Company to be
the beneficial owner of more than 5% of either class of Parent's securities, the
Company's directors, executive officers named in the Summary Compensation Table
above, and all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS(1)
OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ----------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Robert W. Miller(2).............................................. 350,509(3) 17.5%
Steven G. Miller(2).............................................. 200,000 10.0%
Dr. Michael D. Miller............................................ (5) (5)
Thomas J. Schlauch............................................... 40,000 2.0%
Richard A. Johnson............................................... 48,000 2.4%
Charles P. Kirk.................................................. 48,000 2.4%
John G. Danhakl.................................................. (6) (6)
Jonathan A. Seiffer.............................................. -0- 0%
Green Equity Investors, L.P.(2).................................. 723,580 36.2%
All Executive Officers and Directors as a Group.................. 1,488,289(7) 74.4%
</TABLE>
- ------------------------------
(1) The address for each stockholder is 2525 East El Segundo Boulevard, El
Segundo, California 90245, except GEI and Messrs. Danhakl and Seiffer for
which the address is 11111 Santa Monica Boulevard, Suite 2000, Los Angeles,
California 90025.
(2) Pursuant to the Stockholders Agreement (as defined), each of GEI and the
Millers has agreed to vote for the directors designated by the other. See
"Parent Equity and Debt."
(3) Includes shares of Common Stock owned by Dr. Miller over which Robert W.
Miller has voting control.
(4) Less than one percent.
(5) Effective as of the Recapitalization, Dr. Miller granted voting control over
his shares to Robert W. Miller, and such shares are included with Robert W.
Miller's shares.
(6) Mr. Danhakl is a general partner of LGP and may be deemed to be a beneficial
owner of the shares of Common Stock and Parent New Preferred owned by GEI
because of his interest in LGP, which is the affiliate of the sole general
partner of GEI. GEI owns 273,423 shares of Parent New Preferred and an
affiliate of GEI owns 35,070 shares of Parent New Preferred to be purchased
from PE.
(7) Includes the shares identified in note (6) above.
REPURCHASE OF COMMON STOCK AND PE WARRANT
Pursuant to the Recapitalization Agreement, Parent redeemed all of the
issued and outstanding Parent Old Preferred, including shares owned by GEI, at
an aggregate redemption price of $15.0 million plus accrued and unpaid dividends
of approximately $6.9 million.
Thereafter Parent made a distribution of $15 per share of Common Stock, or
approximately $63.2 million in the aggregate, to all holders of record of Common
Stock. Such holders included option holders whose vesting periods were
accelerated as described under "Management -- Management Stock Purchases" and
who exercised their outstanding stock options, but did not include shares of
Common Stock sold to existing middle and senior level management as part of the
Recapitalization.
Following such distribution to the holders of Common Stock, Parent
repurchased (i) 2,737,310 shares of Common Stock, which were originally sold
together with shares of Parent Old Preferred, from the holders of such Common
Stock (including GEI) (the "Selling Stockholders"), and (ii) the PE Warrant. The
aggregate purchase price for the PE Warrant and the Common Stock to be
repurchased from the Selling Stockholders was approximately $17.6 million in
cash and $35.0 million of liquidation value of Parent New Preferred.
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<PAGE> 59
As a result of the Recapitalization, the Selling Stockholders' ownership of
Common Stock was reduced significantly. Their percentage ownership was reduced
from 77.4% (based on the number of fully diluted shares of Common Stock
immediately prior to the Recapitalization) to 41.7% (based on the number of
fully diluted shares of Common Stock immediately after the Recapitalization). In
addition, on a fully diluted basis, the 8.6% Common Stock interest of PE in
respect of the PE Warrant was eliminated in its entirety.
PARENT EQUITY AND DEBT
Parent's certificate of incorporation contains restrictions on transfer of
its outstanding stock and grants to Parent, or Parent's assignee, a right of
first refusal in the event of a proposed sale by any stockholder of Parent. In
addition to the Common Stock, Parent has outstanding the Parent New Preferred
and the Warrant issued with the Parent Discount Notes. See "Financing
Arrangements -- Parent Discount Notes; Parent New Preferred." In connection with
the Recapitalization, Parent, the Millers and GEI entered into a stockholders
agreement (the "Stockholders Agreement") which, among other things, generally
provides that GEI will vote its Common Stock (and will cause its affiliates to
vote) in favor of the election of the Millers and an additional person
designated by them to be directors of Parent. Likewise, the Millers agreed to
vote their Common Stock (and will cause their affiliates to vote) in favor of
the election of two persons designated by GEI to be directors of Parent. The
Stockholders Agreement further provides that all such persons will cause Parent
to vote the common stock of the Company in favor of the election of the same
five persons as directors of the Company. The Stockholders Agreement and the
respective certificates of incorporation of Parent and the Company contain a
requirement for a supermajority director vote generally applicable to
transactions not in the ordinary course of business. The Stockholders Agreement
is generally for a term of ten (10) years, subject to earlier termination upon
the occurrence of certain events, including if the Common Stock is listed or
admitted to trading on a national securities exchange or quoted on The Nasdaq
Stock Market's National Market.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH THRIFTY PAYLESS AND RITE AID CORPORATION
Prior to September 1992, the Company was a wholly-owned subsidiary of
Thrifty, which was in turn a wholly-owned subsidiary of PE. In December 1996,
Thrifty was acquired by Rite Aid Corporation. References herein to "Rite Aid" in
this Offering Memorandum include Rite Aid Corporation and its subsidiaries,
including Thrifty PayLess, Inc. and Thrifty.
As a result of the Company's prior relationship with Thrifty and its
affiliates, the Company continues to maintain certain relationships with Rite
Aid and PE. These relationships include continuing indemnification obligations
of PE to the Company for certain environmental matters; agreements between the
Company and PE with respect to various tax matters and obligations under ERISA
(as defined), including the allocation of various tax obligations relating to
the inclusion of the Company and each member of the affiliated group of which
the Company is the common parent in certain consolidated and/or unitary tax
returns of PE; and the subleases described below.
The Company previously subleased the building and improvements of its
Fontana, California distribution center from Thrifty Realty Company, a
California corporation and a wholly-owned subsidiary of Thrifty. See
"Business -- Distribution." On March 5, 1996, as permitted by the terms of such
sublease, the Company purchased the facility from MLTC for a purchase price of
$8.9 million, thereby terminating such sublease. Concurrently with such
purchase, the Company entered into a sale/leaseback transaction with respect to
the distribution center.
The Company subleases certain business equipment and other personal
property from Thrifty, including the Company's point of sale system (the
"Equipment"), pursuant to a Sublease (the "Sublease") dated as of September 25,
1992 between the Company and Thrifty, as subsequently amended. Thrifty currently
holds a leasehold interest in the Equipment pursuant to an Amended and Restated
Master Lease Agreement dated as of April 20, 1994 between MLTC, as lessor, and
Thrifty, as lessee (the "Master Lease"). The Master Lease contains a
non-disturbance and attornment agreement pursuant to which the Company's use and
enjoyment of
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<PAGE> 60
the Equipment will not be disturbed as a result of any default under the Master
Lease provided that the Company is not in default under the Sublease.
The Master Lease provides Thrifty with an option to purchase the Equipment,
and the Sublease provides the Company with the same option. The Company's option
to purchase is exercisable notwithstanding any default under the Master Lease
provided the Company is not otherwise in default under the Sublease; however, in
the event a default exists under the Master Lease, the Company's exercise of its
purchase option requires the payment by the Company of all amounts due and
payable under the Master Lease at the time of the consummation of the purchase
pursuant to the exercise of such option. Such amounts may include rent, fees and
other expenses that are not allocable to the Equipment (the "Excess Fees") if
the same are due and payable but have not otherwise been paid by Thrifty. To the
extent the Company is required to pay such Excess Fees, Thrifty is obligated
under the Sublease to reimburse the Company for the full amount of such Excess
Fees.
The Company believes that all other material terms of the Sublease,
including rent payments, are comparable to what could be obtained from an
unrelated third party.
POTENTIAL CONFLICTS OF INTEREST; PAST TRANSACTIONS WITH AFFILIATES.
Messrs. Danhakl and Seiffer of LGP hold two seats on the Board of Directors
of the Company. Jonathan Sokoloff and Jennifer Holden Dunbar of LGP, who
previously served as directors of the Company, hold two seats on the Board of
Directors of Gart Sports Company ("Gart"). Also, affiliates of LGA have a
controlling interest in Gart, and LGA and LGP are affiliates. Messrs. Danhakl
and Seiffer may have conflicts of interest with respect to certain matters
affecting the Company, such as potential business opportunities and business
dealings between the Company and LGP and its affiliated companies.
Gart recently announced that it signed an agreement to acquire Sportmart.
Gart and Sportmart compete with the Company. Although Gart and Sportmart
currently pursue different business strategies than the Company, they compete in
some of the Company's markets and offer some of the same or similar merchandise,
and there can be no assurance that the Company will not encounter increased
competition from Gart or Sportmart in the future or that actions by either will
not inhibit the Company's growth strategy. In addition, there can be no
assurance that all potential conflicts will be resolved in a manner that is
favorable to the Company, or that the Company will be offered business
opportunities made available to Gart or Sportmart. The Company believes it is
impossible to predict the precise circumstances under which future potential
conflicts may arise and therefore intends to address potential conflicts on a
case-by-case basis. Under Delaware law, directors have a fiduciary duty to act
in good faith and in what they believe to be in the best interest of the
corporation and its stockholders. Such duties include the duty to refrain from
impermissible self-dealing and to deal fairly with respect to transactions in
which the directors, or other companies with which such directors are
affiliated, have an interest.
OWNERSHIP OF OLD SUBORDINATED NOTES BY AFFILIATES
Certain of the Old Subordinated Notes that were defeased and repaid as a
result of the Recapitalization were owned by certain of the Selling Stockholders
and by affiliates of GEI.
CONSULTING FEES
As consideration for the provision of ongoing management and financial
advisory services, the Company pays LGA certain fees. See "Management --
Compensation of Directors."
FINANCING ARRANGEMENTS
CIT CREDIT FACILITY
In connection with the Recapitalization, the lender amended the Company's
then-current credit facility to provide a five year, non-amortizing, $125.0
million revolving credit facility, the CIT Credit Facility, which
55
<PAGE> 61
is the Company's principal senior financing arrangement. Although the Notes are
senior unsecured obligations of the Company, the payment of principal of, and
interest on, the Notes will be effectively subordinated to the prior payment of
the CIT Credit Facility because the latter is secured Indebtedness and the Notes
are unsecured Indebtedness. As of November 23, 1997, there were borrowings of
$63.9 million and letter of credit commitments of $6.4 million outstanding under
the CIT Credit Facility.
Subject to certain terms and conditions, the CIT Credit Facility permits
the Company to obtain revolving loans up to a maximum aggregate principal amount
that, together with the aggregate undrawn amount of all outstanding letters of
credit and of all unreimbursed amounts drawn under letters of credit, does not
exceed the lesser of $125.0 million and the Borrowing Base (as defined therein),
which is generally equal to 70% of the aggregate value of Eligible Inventory (as
defined therein) during November through February and 65% of the aggregate value
of Eligible Inventory during the remaining months of the year. The value of the
Company's Eligible Inventory as of November 23, 1997 was approximately $161.1
million. The Company may elect (provided it is not in default), to have interest
determined under the CIT Credit Facility with reference to LIBOR or Chase
Manhattan Bank's prime lending rate. Loans under the CIT Credit Facility bear
interest based on the Company's performance, with a floor of LIBOR plus 1.5% or
the Chase Manhattan Bank's prime lending rate and a ceiling of LIBOR plus 2.5%
or the Chase Manhattan Bank's prime lending rate plus 0.75%. Loans under the CIT
Credit Facility currently bear interest at a rate of LIBOR plus 2.0% or the
Chase Manhattan Bank prime lending rate plus 0.25%. While an Event of Default
(as defined therein) is continuing, interest is payable at a rate per annum
equal to 2.0% in excess of the otherwise applicable rate.
The CIT Credit Facility requires a monthly payment of an unused line of
credit fee equal to 0.325% per annum on the average daily amount by which the
$125.0 million line of credit exceeds the sum of the average daily outstanding
revolving loans and the average daily undrawn face amount of outstanding letters
of credit.
Subject to certain terms and conditions, the Company may request that the
lenders party to the CIT Credit Facility assist the Company in obtaining letters
of credit in amounts not exceeding $15.0 million in the aggregate. With respect
to letters of credit, in addition to customary fees and charges by the issuing
bank, the Company is required to pay a letter of credit guaranty fee to the
agent on the undrawn amount of such letter of credit at a rate equal to 1.25%
per annum (3.25% per annum while any Event of Default is continuing).
The CIT Credit Facility has an initial term of five years, after which it
is renewable for successive one-year periods unless terminated by either party.
Revolving loans under the CIT Credit Facility are non-amortizing during the term
thereof and become due and payable upon termination. Subject to certain
limitations set forth in the CIT Credit Facility, the Company may borrow, repay
and reborrow the revolving loans throughout the term of the CIT Credit Facility.
Upon notice, the Company may at any time, permanently and irrevocably reduce the
line of credit available under the CIT Credit Facility, without penalty,
provided that each such reduction is for a minimum of $5.0 million. The Company
is obligated to pay an early termination fee if the Company terminates the CIT
Credit Facility in full prior to the end of the initial five-year term.
The CIT Credit Facility is secured by the Company's trade accounts
receivable, merchandise inventories and general intangible assets (including
trademarks and tradenames) of the Company and is also guaranteed by Parent which
guarantee is secured by Parent's pledge of all of the Company's issued and
outstanding Common Stock. The CIT Credit Facility contains covenants restricting
the ability of the Company to, among other things, incur additional debt, merge
or consolidate with or invest in other companies, sell or lease or otherwise
transfer all or substantially all of its properties or assets, make certain
payments with respect to its outstanding capital stock, and engage in certain
transactions with affiliates. The CIT Credit Facility includes covenants that,
among other things, limit the Company's ability to incur debt or make certain
payments with respect to its outstanding capital stock, and require the Company
to comply, during each quarter, with certain financial covenants. In addition,
the CIT Credit Facility contains certain customary representations, warranties
and covenants found in credit agreements of this nature.
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<PAGE> 62
PARENT DISCOUNT NOTES
As part of the Recapitalization, Ares Leveraged Investment Fund, L.P.,
purchased senior discount notes in an aggregate principal amount at maturity of
$48.2 million maturing on November 30, 2008 (the "Parent Discount Notes") from
Parent. The Parent Discount Notes were issued with the Warrant for aggregate
consideration of $24.5 million. The Parent Discount Notes are senior unsecured
obligations of Parent. Cash interest will not accrue on the Parent Discount
Notes prior to November 30, 2002, and the Parent Discount Notes will accrete at
a rate equal to 13.45% per annum (the "Coupon Rate") on a notional principal
amount of $25.0 million. Thereafter, cash interest on the Parent Discount Notes
will accrue at the Coupon Rate per annum and will be payable semiannually in
arrears on each May 31 and November 30, commencing in May 2003.
The Parent Discount Notes are redeemable at the option of Parent, in whole
or in part, on or after November 30, 2002 at the redemption prices set forth in
the Parent Discount Notes indenture. In addition, the Parent Discount Notes
indenture contains covenants that, among other things, limit the ability of
Parent to enter into certain mergers or consolidations or incur certain liens
and of Parent and its subsidiaries to incur additional indebtedness, pay
dividends and make certain other restricted payments and engage in certain
transactions with affiliates. Under certain circumstances, including a change in
control (as defined in the Parent Discount Notes indenture), Parent will be
required to make an offer to purchase the Parent Discount Notes at prices
specified in the Parent Discount Notes indenture. The Parent Discount Notes
indenture contains certain customary events of default, which will include the
failure to pay interest and principal, the failure to comply with certain
covenants in the Parent Discount Notes or certain events occurring under
bankruptcy laws.
PARENT NEW PREFERRED
The Parent New Preferred has a liquidation preference over the Common Stock
equal to the initial liquidation value of the Parent New Preferred plus accrued
and unpaid dividends thereon. Such initial liquidation value is $35.0 million.
The Parent New Preferred is subject to a mandatory redemption on November 13,
2009 at 100% of the liquidation preference plus accrued and unpaid dividends.
Parent may redeem the Parent New Preferred after five years, at its liquidation
preference plus accrued and unpaid dividends and a stated premium. The Parent
New Preferred bears cumulative dividends at the rate of 13.45% per annum.
Dividends may, at the option of the Parent, be paid in cash or by adding to the
liquidation preference of the Parent New Preferred an amount equal to the
dividends then accrued and payable. The Parent New Preferred may, subject to
certain conditions, be exchanged at the option of the Parent into Subordinated
Exchange Debentures, which shall have terms substantially similar to those of
the Parent New Preferred.
DESCRIPTION OF THE NOTES
Set forth below is a summary of certain provisions of the New Notes. The
Old Notes were issued and the New Notes will be issued pursuant to Indenture.
The form and terms of the New Notes are the same as the form and terms of the
Old Notes except that (i) the New Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (ii) the holders of the New Notes generally will not be entitled to certain
rights under the Registration Rights Agreement or with respect to liquidated
damages, which rights generally will terminate upon consummation of the Exchange
Offer. The New Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the Indenture. Where the Indenture requires approval
of or action by a specified percentage of Holders, Holders of New Notes shall be
aggregated with Holders of any Old Notes that are not exchanged for New Notes
pursuant to the Exchange Offer. The following summaries of certain provisions of
the Indenture are summaries only, do not purport to be complete and are
qualified in their entirety by reference to all of the provisions of the
Indenture. Capitalized terms used herein and not otherwise defined shall have
the meanings assigned to them in the Indenture. Wherever particular provisions
of the Indenture are referred to in this summary, such provisions are
incorporated by reference as a part of the statements made and such statements
are qualified in their entirety by such reference. A copy of the form of
Indenture is available upon request.
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<PAGE> 63
GENERAL
The Old Notes are and the New Notes will be general unsecured obligations
of the Company, limited in aggregate principal amount to $131.0 million, and
rank and will rank senior in right of payment to all existing and future
Indebtedness of the Company that is subordinated to the Notes and rank and will
rank pari passu in right of payment with all current and future unsubordinated
Indebtedness of the Company; provided, however, that certain Indebtedness of the
Company currently is and may in the future be secured by assets held by the
Company, subject to certain restrictions described herein. As of November 23,
1997, the Company had $63.9 million of long-term Indebtedness ranking pari passu
with the Old Notes and which would rank pari passu with the New Notes, all of
which constituted secured Indebtedness under the CIT Credit Facility. The Old
Notes are and the New Notes will be jointly and severally irrevocably and
unconditionally guaranteed by each of the Company's future Subsidiaries (the
"Subsidiary Guarantors"). The Guarantees will be general unsecured obligations
of the Subsidiary Guarantors and will rank senior in right of payment to all
future Indebtedness of the Subsidiary Guarantors that is subordinated to the
Guarantees and will rank pari passu in right of payment with all future
unsubordinated Indebtedness of the Subsidiary Guarantors; provided, however,
that certain Indebtedness of the Subsidiary Guarantors may in the future be
secured by assets held by Subsidiary Guarantors, subject to certain restrictions
described herein. The obligations of each Subsidiary Guarantor under its
guarantee, however, will be limited in a manner intended to avoid it being
deemed a fraudulent conveyance under applicable law. See "Certain Bankruptcy
Limitations" and "Risk Factors -- Fraudulent Transfer Considerations." The term
"Subsidiaries" as used herein, however, does not include Unrestricted
Subsidiaries. The Old Notes were issued and the New Notes will be issued only in
fully registered form, without coupons, in denominations of $1,000 and integral
multiples thereof.
The Notes will mature on November 15, 2007. The Notes will bear interest at
the rate per annum stated on the cover page hereof from the date of issuance or
from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually on May 15 and November 15 of each year,
commencing May 15, 1998, to the persons in whose names such Notes are registered
at the close of business on the May 1 or November 1 immediately preceding such
Interest Payment Date. Interest will be calculated on the basis of a 360-day
year consisting of twelve 30-day months.
Principal of, premium, if any, and interest and Liquidated Damages, if any,
on the Notes will be payable, and the Notes may be presented for registration of
transfer or exchange, at the office or agency of the Company maintained for such
purpose, which office or agency shall be maintained in the Borough of Manhattan,
The City of New York. Except as set forth below, at the option of the Company,
payment of interest may be made by check mailed to the Holders of the Notes at
the addresses set forth upon the registry books of the Company. No service
charge will be made for any registration of transfer or exchange of Notes, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Until otherwise designated
by the Company, the Company's office or agency will be the corporate trust
office of the Trustee presently located at the office of the Trustee in the
Borough of Manhattan, The City of New York.
CERTAIN BANKRUPTCY LIMITATIONS
Each Subsidiary Guarantor will guarantee the Company's obligations with
respect to the Notes, as provided under "Future Subsidiary Guarantors" below.
Holders of the Notes will be direct creditors of each Subsidiary Guarantor by
virtue of its guarantee. Nonetheless, in the event of the bankruptcy or
financial difficulty of a Subsidiary Guarantor, such Subsidiary Guarantor's
obligations under its guarantee may be subject to review and avoidance under
state and federal fraudulent transfer laws. Among other things, such obligations
may be avoided if a court concludes that such obligations were incurred for less
than reasonably equivalent value or fair consideration at a time when the
Subsidiary Guarantor was insolvent, was rendered insolvent, or was left with
inadequate capital to conduct its business. A court would likely conclude that a
Subsidiary Guarantor did not receive reasonably equivalent value or fair
consideration to the extent that the aggregate amount of its liability on its
guarantee exceeds the economic benefits it receives in the Offering. The
obligations of each Subsidiary Guarantor under its guarantee will be limited in
a manner intended to cause it
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not to be a fraudulent conveyance under applicable law, although no assurance
can be given that a court would give the holder the benefit of such provision.
See "Risk Factors -- Fraudulent Transfer Considerations."
If the obligations of a Subsidiary Guarantor under its guarantee were
avoided, Holders of Notes would have to look to the assets of any remaining
Subsidiary Guarantors and the Company for payment. There can be no assurance in
that event that such assets would suffice to pay the outstanding principal and
interest on the Notes.
OPTIONAL REDEMPTION
The Company will not have the right to redeem any Notes prior to November
15, 2002 (other than out of the Net Cash Proceeds of a Public Equity Offering of
common stock, as described in the next paragraph). The Notes will be redeemable
for cash at the option of the Company, in whole or in part, at any time on or
after November 15, 2002, upon not less than 30 days nor more than 60 days notice
to each holder of Notes, at the following redemption prices (expressed as
percentages of the principal amount) if redeemed during the 12-month period
commencing November 15 of the years indicated below, in each case (subject to
the right of Holders of record on a Record Date to receive the corresponding
interest due (and the corresponding Liquidated Damages due, if any) on an
Interest Payment Date corresponding to such Record Date that is on or prior to
such Redemption Date) together with accrued and unpaid interest and Liquidated
Damages, if any, thereon to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------------- -------
<S> <C>
2002.................................................... 105.475%
2003.................................................... 103.650%
2004.................................................... 101.825%
2005 and thereafter..................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to November 15,
2000, the Company may redeem, on one or more occasions, up to an aggregate of
35% of the aggregate principal amount of the Notes originally outstanding at a
redemption price equal to 110.95% of the principal amount thereof, (subject to
the right of Holders of record on a Record Date to receive interest due on an
Interest Payment Date that is on or prior to such Redemption Date) together with
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption, with cash from the Net Cash Proceeds to the Company of one or more
Public Equity Offerings; provided, that at least 65% of the aggregate principal
amount of the Notes originally outstanding remain outstanding immediately after
the occurrence of each such redemption; provided, further, that such notice of
redemption shall be sent within 30 days after the date of closing of any such
Public Equity Offering, and such redemption shall occur within 60 days after the
date such notice is sent.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
The Notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30
days and not more than 60 days prior to the date fixed for redemption to the
Holder of each Note to be redeemed to such Holder's last address as then shown
upon the registry books of the Registrar. Any notice which relates to a Note to
be redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after the
date of redemption, interest will cease to accrue on the Notes or portions
thereof called for redemption, unless the Company defaults in the payment
thereof.
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<PAGE> 65
CERTAIN COVENANTS
Repurchase of Notes at the Option of the Holder Upon a Change of Control
The Indenture provides that in the event that a Change of Control has
occurred, each holder of Notes will have the right, at such holder's option,
pursuant to an offer (subject only to conditions required by applicable law, if
any) by the Company (the "Change of Control Offer"), to require the Company to
repurchase all or any part of such holder's Notes (provided, that the principal
amount of such Notes must be $1,000 or an integral multiple thereof) on a date
(the "Change of Control Purchase Date") that is no later than 45 Business Days
after the occurrence of such Change of Control, at a cash price equal to 101% of
the principal amount thereof (the "Change of Control Purchase Price"), together
with accrued and unpaid interest and Liquidated Damages, if any, to the Change
of Control Purchase Date. The Change of Control Offer shall be made within 15
Business Days following a Change of Control and shall remain open for 20
Business Days following its commencement (the "Change of Control Offer Period").
Upon expiration of the Change of Control Offer Period, the Company promptly
shall purchase all Notes properly tendered in response to the Change of Control
Offer.
As used herein, a "Change of Control" means (i) any merger or consolidation
of the Company or Parent with or into any person or any sale, transfer or other
conveyance, whether direct or indirect, of all or substantially all of the
assets of the Company or Parent on a consolidated basis, in one transaction or a
series of related transactions, if, immediately after giving effect to such
transaction(s), any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other
than any Excluded Person or Excluded Persons or Parent, is or becomes the
Beneficial Owner, directly or indirectly, of more than 50% of the total voting
power in the aggregate normally entitled to vote in the election of directors,
managers, or trustees, as applicable, of the transferee(s) or surviving entity
or entities, (ii) any "person" or "group," other than any Excluded Person or
Excluded Persons or Parent, is or becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the total voting power in the aggregate of all
classes of Capital Stock of the Company then outstanding normally entitled to
vote in elections of directors, provided that any "person" or "group" will be
deemed to be the Beneficial Owner of any Capital Stock of the Company held by
Parent so long as such person or group is the Beneficial Owner of, directly or
indirectly, in the aggregate a majority of the Capital Stock of Parent then
outstanding normally entitled to vote in elections of directors, (iii) during
any period of 12 consecutive months after the Issue Date, individuals who at the
beginning of any such 12-month period constituted the Board of Directors of
either the Company or Parent (together, in each case, with any new directors
whose election by such Board of Directors or whose nomination for election by
the shareholders of the Company or Parent was approved by LGP or a Related Party
of LGP or by the Excluded Persons or by a vote of a majority of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
or Parent then in office, as applicable, or (iv) at any time after the Issue
Date, the Company no longer continues, for Federal income tax purposes, to be a
member of the affiliated group of Parent under circumstances that would
accelerate the unrealized gain in respect of Parent's investment account in the
Company.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest and Liquidated Damages, if any), of all Notes so tendered and (iii)
deliver to the Trustee Notes so accepted together with an Officers' Certificate
listing the Notes or portions thereof being purchased by the Company. The Paying
Agent promptly will pay the Holders of Notes so accepted an amount equal to the
Change of Control Purchase Price (together with accrued and unpaid interest and
Liquidated Damages, if any), and the Trustee promptly will authenticate and
deliver to such Holders a new Note equal in principal amount to any unpurchased
portion of the Note surrendered. Any Notes not so accepted will be delivered
promptly by the Company to the Holder thereof. The Company publicly will
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Purchase Date.
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<PAGE> 66
The indenture governing the terms of the Parent Discount Notes provides
that, prior to making an offer to purchase Parent Discount Notes upon a change
of control as defined under such indenture, but in any event within 90 days
following such a change of control, Parent will either repay all outstanding
Indebtedness of its subsidiaries (including the Company and any Subsidiary
Guarantors) or obtain the requisite consents, if any, under the Credit Agreement
and the Notes to permit the repurchase of the Parent Discount Notes as required
by the Parent Discount Note indenture.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company and the removal of incumbent management.
The phrase "all or substantially all" of the assets of the Company will likely
be interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of the
assets of the Company has occurred. In addition, no assurances can be given that
the Company will be able to acquire Notes tendered upon the occurrence of a
Change of Control.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws and any provisions of the Indenture which conflict with such
laws shall be deemed to be superseded by the provisions of such laws.
If the Change of Control Purchase Date hereunder is on or after an interest
payment Record Date and on or before the associated Interest Payment Date, any
accrued and unpaid interest (and Liquidated Damages, if any, due on such
Interest Payment Date) will be paid to the person in whose name a Note is
registered at the close of business on such Record Date, and such interest (and
Liquidated Damages, if applicable) will not be payable to Holders who tender the
Notes pursuant to the Change of Control Offer.
Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock
The Indenture provides that, except as set forth in this covenant, the
Company and the Subsidiary Guarantors will not, and will not permit any of their
Subsidiaries to, directly or indirectly, issue, assume, guaranty, incur, become
directly or indirectly liable with respect to (including as a result of an
Acquisition), or otherwise become responsible for, contingently or otherwise
(individually and collectively, to "incur" or, as appropriate, an "incurrence"),
any Indebtedness or any Disqualified Capital Stock (including Acquired
Indebtedness), other than Permitted Indebtedness. Notwithstanding the foregoing,
if (i) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect on a pro forma basis to, such
incurrence of Indebtedness (including, without duplication, guarantees of
Indebtedness of the Company and the Subsidiary Guarantors otherwise permitted by
the Indenture) or Disqualified Capital Stock and (ii) on the date of such
incurrence (the "Incurrence Date"), the Consolidated Coverage Ratio of the
Company for the Reference Period immediately preceding the Incurrence Date,
after giving effect on a pro forma basis to such incurrence of such Indebtedness
(without duplication) or Disqualified Capital Stock and, to the extent set forth
in the definition of Consolidated Coverage Ratio, the use of proceeds thereof,
would be at least 2.0 to l (the "Debt Incurrence Ratio"), then the Company may
incur such Indebtedness or Disqualified Capital Stock and the Subsidiary
Guarantors may incur such Indebtedness other than Disqualified Capital Stock.
In addition, the foregoing limitations will not apply to:
(a) the incurrence by the Company or any Subsidiary Guarantor of
Purchase Money Indebtedness on or after the Issue Date, provided, that (i)
the aggregate principal amount of such Indebtedness incurred on or after
the Issue Date and outstanding at any time pursuant to this paragraph (a)
(including any Indebtedness issued to refinance, replace or refund such
Indebtedness) shall not exceed $20.0 million, and (ii) in each case, such
Indebtedness as originally incurred shall not constitute more than 100% of
the cost (determined in accordance with GAAP) to the Company or such
Subsidiary Guarantor, as applicable, of the property so purchased or
leased;
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<PAGE> 67
(b) the incurrence by the Company or any Subsidiary Guarantor of
Indebtedness in an aggregate principal amount outstanding at any time
(including Indebtedness incurred to refinance, replace or refund such
Indebtedness) of up to $15.0 million (which may be incurred pursuant to the
Credit Agreement); and
(c) the incurrence by the Company or any Subsidiary Guarantor of
Indebtedness pursuant to the Credit Agreement up to an aggregate principal
amount outstanding at any time (including any Indebtedness incurred to
refinance, replace or refund such Indebtedness) of $125.0 million, minus
the amount of any such Indebtedness retired with the Net Cash Proceeds from
any Asset Sale or assumed by a transferee in an Asset Sale.
Indebtedness or Disqualified Capital Stock of any Person which is
outstanding at the time such Person becomes a Subsidiary of the Company
(including upon designation of any subsidiary or other person as a Subsidiary)
or is merged with or into or consolidated with the Company or a Subsidiary of
the Company shall be deemed to have been incurred at the time such Person
becomes such a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company, as applicable.
Notwithstanding anything to the contrary contained in the Indenture, (i)
the Subsidiary Guarantors each may guaranty Indebtedness of the Company or any
other Subsidiary Guarantor that is permitted to be incurred under the Indenture,
either at the time such Subsidiary Guarantor becomes a Guarantor of the Notes or
if later the time the Company or such other Subsidiary Guarantor incurs such
Indebtedness, and (ii) the Company may guaranty Indebtedness of any Subsidiary
Guarantor permitted to be incurred under the Indenture.
Notwithstanding anything to the contrary contained in the Indenture, the
Company and the Subsidiary Guarantors will not, and will not permit any of their
Subsidiaries to, incur any Indebtedness that is contractually subordinate to any
other Indebtedness of the Company or any Subsidiary Guarantor unless such
Indebtedness is at least as subordinate to the Notes and the Guarantees, as
applicable.
Limitation on Restricted Payments
The Indenture provides that the Company and the Subsidiary Guarantors will
not, and will not permit any of their Subsidiaries to, directly or indirectly,
make any Restricted Payment if, after giving effect to such Restricted Payment
on a pro forma basis, (1) a Default or an Event of Default shall have occurred
and be continuing, (2) the Company is not permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt Incurrence Ratio in the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock," or (3) the aggregate amount of all Restricted Payments made by the
Company and its Subsidiaries, including after giving effect to such proposed
Restricted Payment, from and after the Issue Date, would exceed the sum of (a)
50% of the aggregate Consolidated Net Income of the Company for the period
(taken as one accounting period), commencing on the first day after the Issue
Date, to and including the last day of the fiscal quarter ended immediately
prior to the date of each such calculation (or, in the event Consolidated Net
Income for such period is a deficit, then minus 100% of such deficit), plus (b)
the aggregate Net Cash Proceeds received by the Company as a Capital
Contribution or from the sale of the Company's Qualified Capital Stock (other
than in each case (i) to a Subsidiary of the Company, (ii) to the extent applied
in connection with a Qualified Exchange, (iii) to the extent applied to
repurchase Capital Stock pursuant to clause (g) of the definition of Permitted
Payments and (iv) to the extent received by the Company or any Subsidiary
Guarantor pursuant to clause (c) or (d) of the definition of Permitted Payments)
after the Issue Date.
The provisions of the immediately preceding paragraph will not prohibit or
be violated by (A) a Qualified Exchange; (B) the payment or making of any
Restricted Payment within 60 days after the date of declaration thereof or the
making of any binding commitment in respect thereof, if at said date of
declaration or commitment, such Restricted Payment would have complied with the
provisions contained in clauses (1), (2) and (3) of the immediately preceding
paragraph; and (C) Permitted Payments. The full amount of any Restricted Payment
made pursuant to the foregoing clause (B) (but not pursuant to clauses (A) or
(C)) of
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<PAGE> 68
the immediately preceding sentence, however, will be deducted in the calculation
of the aggregate amount of Restricted Payments available to be made referred to
in clause (3) of the immediately preceding paragraph.
Additionally, the foregoing clause (3) of the first paragraph of this
covenant will not prohibit any payment of cash dividends to Parent on or after
May 15, 2003, in each case (i) made not less than 2 Business Days nor more than
15 Business Days after the then most recent Interest Payment Date, provided the
Company shall have first paid to the Holders all interest (and Liquidated
Damages, if any) due and owing on the Notes on or prior to such Interest Payment
Date, and (ii) the proceeds of which are used by Parent concurrently with such
payment to make a scheduled interest payment on the Parent Discount Notes as
required by the terms of the Parent Discount Notes in effect on the Issue Date.
The full amount of any Restricted Payment made pursuant to this paragraph,
however, will be deducted in the calculation of the aggregate amount of
Restricted Payments available to be made referred to in clause (3) of the first
paragraph of this covenant.
For purposes of this covenant, the amount of any Restricted Payment, if
other than in cash, shall be the fair market value thereof, as determined in the
good faith reasonable judgment of the Board of Directors of the Company.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company and the Subsidiary Guarantors will
not, and will not permit any of their Subsidiaries to, directly or indirectly,
create, assume or suffer to exist any consensual restriction on the ability of
any Subsidiary of the Company to pay dividends or make other distributions to or
on behalf of, or to pay any obligation to or on behalf of, or otherwise to
transfer assets or property to or on behalf of, or make or pay loans or advances
to or on behalf of, the Company or any Subsidiary of the Company, except (a)
restrictions imposed by the Notes or the Indenture or by other indebtedness of
the Company (which may also be guaranteed by the Subsidiary Guarantors) ranking
pari passu with the Notes or the Guarantees, as applicable, provided such
restrictions are not materially more restrictive than those imposed by the
Indenture and the Notes, (b) restrictions imposed by applicable law, (c)
existing restrictions under Indebtedness outstanding on the Issue Date, (d)
restrictions under any Acquired Indebtedness not incurred in violation of the
Indenture or any agreement relating to any property, asset, or business acquired
by the Company or any of its Subsidiaries, which restrictions in each case
existed at the time of acquisition, were not put in place in connection with or
in anticipation of such acquisition and are not applicable to any person, other
than the person acquired, or to any property, asset or business, other than the
property, assets and business so acquired, (e) any such restriction or
requirement imposed by Indebtedness incurred under the Credit Agreement in
accordance with the Indenture, provided such restriction or requirement is not
materially more restrictive than that imposed by the CIT Credit Facility as of
the Issue Date, (f) restrictions with respect solely to a Subsidiary of the
Company imposed pursuant to a binding agreement which has been entered into for
the sale or disposition of all or substantially all of the Equity Interests or
assets of such Subsidiary, provided such restrictions apply solely to the Equity
Interests or assets of such Subsidiary which are being sold, (g) restrictions on
transfer contained in Purchase Money Indebtedness incurred pursuant to paragraph
(a) of the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock," provided such restrictions relate only to the
transfer of the property acquired with the proceeds of such Purchase Money
Indebtedness, and (h) in connection with and pursuant to permitted Refinancings,
replacements of restrictions imposed pursuant to clauses (a), (c), (d), (e) or
(g) of this paragraph that are not materially more restrictive than those being
replaced and do not apply to any other person or assets than those that would
have been covered by the restrictions in the Indebtedness so refinanced.
Notwithstanding the foregoing, neither (a) customary provisions restricting
subletting or assignment of any lease entered into in the ordinary course of
business, consistent with industry practice, nor (b) Liens permitted under the
terms of the Indenture shall in and of themselves be considered a restriction on
the ability of the applicable Subsidiary to transfer such agreement or assets,
as the case may be.
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Limitation on Liens Securing Indebtedness
The Company and the Subsidiary Guarantors will not, and will not permit any
of their Subsidiaries to, create, incur, assume or suffer to exist, to secure
any Indebtedness, any Lien of any kind, other than Permitted Liens, upon any of
their respective assets now owned or acquired on or after the date of the
Indenture or upon any income or profits therefrom unless the Company provides,
and causes its Subsidiaries to provide, concurrently therewith or immediately
thereafter, that the Notes and the Guarantees, as applicable, are equally and
ratably so secured for so long as such Indebtedness so secured remains
outstanding; provided that, if such Indebtedness is Subordinated Indebtedness,
the Lien securing such Subordinated Indebtedness shall be subordinate and junior
to the Lien securing the Notes with the same relative priority as such
Subordinated Indebtedness shall have with respect to the Notes; provided,
further, that, in the case of Indebtedness of a Subsidiary Guarantor, if such
Subsidiary Guarantor shall cease to be a Subsidiary Guarantor in accordance with
the provisions of the Indenture, such equal and ratable Lien to secure the Notes
shall, without any further action, cease to exist.
Limitation on Sale of Assets and Subsidiary Stock
The Indenture provides that the Company and the Subsidiary Guarantors will
not, and will not permit any of their Subsidiaries to, in one or a series of
related transactions, convey, sell, transfer, assign or otherwise dispose of,
directly or indirectly, any of its property, business or assets (other than cash
or Cash Equivalents), including by merger or consolidation (in the case of a
Subsidiary Guarantor), and including any sale or other transfer or issuance of
any Equity Interests (other than directors qualifying shares) of any Subsidiary
of the Company, whether by the Company or a Subsidiary of the Company, and
including (except as provided in clause (vi) of the third paragraph of this
covenant) any Sale and Leaseback Transaction (any of the foregoing, an "Asset
Sale"), unless (l)(a) within 360 days after the date of such Asset Sale, the Net
Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied to the
optional redemption of the Notes in accordance with the terms of the Indenture
and other Indebtedness of the Company ranking on a parity with the Notes from
time to time outstanding with similar provisions requiring the Company to make
an offer to purchase or to redeem such Indebtedness with the proceeds from asset
sales, pro rata in proportion to the respective principal amounts (or accreted
values in the case of Indebtedness issued with an original issue discount) of
the Notes and such other Indebtedness then outstanding or to the repurchase of
the Notes and such other Indebtedness pursuant to a cash offer (subject only to
conditions required by applicable law, if any) (pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Notes and such other Indebtedness
then outstanding) (the "Asset Sale Offer") at a purchase price of 100% of
principal amount (or accreted value in the case of Indebtedness issued with an
original issue discount) (the "Asset Sale Offer Price") together with accrued
and unpaid interest and Liquidated Damages, if any, to the date of payment, made
within 360 days of such Asset Sale, or (b) within 360 days following such Asset
Sale, the Asset Sale Offer Amount is used (i) to make one or more Acquisitions
or invested in assets and property (other than notes, bonds, obligations and
securities) which in the good faith reasonable judgment of the Board of
Directors of the Company will constitute or be a part of a Related Business of
the Company or such Subsidiary (if it continues to be a Subsidiary) immediately
following such transaction or (ii) to retire permanently Indebtedness incurred
under the Credit Agreement pursuant to paragraph (c) of the covenant "Limitation
on Incurrence of Additional Indebtedness and Disqualified Capital Stock"
(including that in the case of a revolver or similar arrangement that makes
credit available, such commitment is so permanently reduced by such amount), (2)
at least 75% of the consideration for such Asset Sale or series of related Asset
Sales consists of cash or Cash Equivalents, provided that (x) the amount of any
liabilities (as shown on the Company's most recent consolidated balance sheet)
of the Company or any Subsidiary (other than Subordinated Indebtedness) that are
assumed by the transferee in such Asset Sale (provided that the Company and its
Subsidiaries are released from all obligations in respect thereof) and (y) any
notes or other obligations received by the Company or any such Subsidiary
Guarantor from such transferee that are promptly (but in no event more than 90
days after receipt) converted by the Company or such Subsidiary Guarantor into
cash or Cash Equivalents (to the extent of the cash or Cash Equivalents, as the
case may be, received), shall be deemed to be cash or Cash Equivalents, as the
case may be, for purposes of this provision, and such cash and Cash Equivalents
shall be deemed to be Net Cash
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<PAGE> 70
Proceeds received from the Asset Sale of the related property sold for such
notes or other obligations, for purposes of this covenant, and, provided,
further, this clause (2) shall not apply to the sale or disposition of assets as
a result of a foreclosure (or a secured party taking ownership of such assets in
lieu of foreclosure) or as a result of an involuntary proceeding in which the
Company cannot, directly or through its Subsidiaries, direct the type of
proceeds received, and (3) with respect to any Asset Sale or series of related
Asset Sales, the Net Cash Proceeds of which exceed $500,000, the Board of
Directors of the Company determines in good faith that the Company or such
Subsidiary, as applicable, receives fair market value for such Asset Sale.
The Indenture provides that an acquisition of Notes pursuant to an Asset
Sale Offer may be deferred until the accumulated Net Cash Proceeds from Asset
Sales not applied to the uses set forth in clause 1(b) above (the "Excess
Proceeds") exceeds $10 million and that each Asset Sale Offer shall remain open
for 20 Business Days following its commencement (the "Asset Sale Offer Period").
Upon expiration of the Asset Sale Offer Period, the Company shall apply the
Asset Sale Offer Amount plus an amount equal to accrued and unpaid interest and
Liquidated Damages, if any, to the purchase of all Indebtedness properly
tendered (on a pro rata basis if the Asset Sale Offer Amount is insufficient to
purchase all Indebtedness so tendered) at the Asset Sale Offer Price (together
with accrued interest and Liquidated Damages, if any). To the extent that the
aggregate amount of Indebtedness tendered pursuant to an Asset Sale Offer is
less than the Asset Sale Offer Amount, the Company may use any remaining Net
Cash Proceeds for general corporate purposes as otherwise permitted by the
Indenture and following each Asset Sale Offer the Excess Proceeds amount shall
be reset to zero.
Notwithstanding the foregoing provisions of this covenant, the following
transactions shall not be deemed Asset Sales:
(i) the Company and the Subsidiary Guarantors may, in the ordinary
course of business, convey, sell, lease, transfer, assign or otherwise
dispose of property in the ordinary course of business;
(ii) the Company and the Subsidiary Guarantors may (x) convey, sell,
lease, transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the limitation on mergers, sales or consolidations
provisions in the Indenture, (y) make Restricted Payments permitted by the
covenant "Limitation on Restricted Payments" and (z) engage in Exempted
Affiliate Transactions;
(iii) the Company and the Subsidiary Guarantors may convey, sell,
transfer, assign or otherwise dispose of assets or issue Capital Stock to
the Company or any of the Subsidiary Guarantors;
(iv) the Company and the Subsidiary Guarantors may sell or dispose of
damaged, worn out or other obsolete property in the ordinary course of
business so long as such property is no longer necessary for the proper
conduct of the business of the Company or such Subsidiary Guarantor, as
applicable;
(v) the Company and the Subsidiary Guarantors may exchange assets held
by the Company or a Subsidiary Guarantor for assets held by any person or
entity; provided that (i) the assets received by the Company or a
Subsidiary Guarantor in any such exchange in the good faith reasonable
judgment of the Board of Directors of the Company will immediately
constitute, be a part of, or be used in, a Related Business, (ii) the Board
of Directors of the Company has determined that the terms of any exchange
are fair and reasonable, and (iii) any such exchange shall be deemed to be
an Asset Sale to the extent that the Company or any Subsidiary Guarantor
receive cash or Cash Equivalents in such exchange;
(vi) the Company and each of the Subsidiary Guarantors may engage in
Sale and Leaseback Transactions with respect to property acquired after the
Issue Date (other than property acquired in exchange for or with the
proceeds from the sale or other disposition of property held by the Company
or any Subsidiary Guarantor on the Issue Date);
(vii) the Company and each of the Subsidiary Guarantors may liquidate
Cash Equivalents in the ordinary course of business;
(viii) the Company and each of the Subsidiary Guarantors may create or
assume Liens (or permit any foreclosure thereon) not prohibited by the
Indenture;
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(ix) the Company and each of the Subsidiary Guarantors may surrender
or waive contract rights or the settlement, release or surrender of
contract, tort or other claims of any kind; and
(x) the Company and the Subsidiary Guarantors, collectively, may
convey, sell, transfer, assign or otherwise dispose of assets having an
aggregate fair market value not exceeding $2.0 million in any fiscal year.
All Net Cash Proceeds from an Event of Loss (other than the proceeds of any
business interruption insurance) shall be invested or otherwise used as provided
in clause 1 of the first paragraph of this covenant, all within 18 months from
the occurrence of such Event of Loss.
Any Asset Sale Offer will be made in compliance with all applicable laws,
rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws and any provisions of the Indenture which conflict with such
laws shall be deemed to be superseded by the provisions of such laws.
If the payment date in connection with an Asset Sale Offer hereunder is on
or after an interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages
due on such Interest Payment Date, if any) will be paid to the person in whose
name a Note is registered at the close of business on such Record Date, and such
interest (and Liquidated Damages, if applicable) will not be payable to Holders
who tender Notes pursuant to such Asset Sale Offer.
Limitation on Transactions with Affiliates
The Indenture provides that neither the Company nor any of the Subsidiary
Guarantors will be permitted after the Issue Date to enter into any contract,
agreement, arrangement or transaction with any Affiliate (an "Affiliate
Transaction"), or any series of related Affiliate Transactions (other than
Exempted Affiliate Transactions), unless the terms of such Affiliate Transaction
are fair and reasonable to the Company or such Subsidiary Guarantor, as the case
may be, and are at least as favorable as the terms which could reasonably be
expected to be obtained by the Company or such Subsidiary Guarantor, as the case
may be, in a comparable transaction made on an arm's length basis with persons
who are not Affiliates.
Without limiting the foregoing, in connection with any Affiliate
Transaction or series of related Affiliate Transactions (other than Exempted
Affiliate Transactions) (1) involving consideration to either party in excess of
$1.0 million, the Company must deliver an Officers' Certificate to the Trustee,
stating that the terms of such Affiliate Transaction are fair and reasonable to
the Company, and no less favorable to the Company than could reasonably be
expected to have been obtained in an arm's length transaction with a
non-Affiliate, and (2) involving consideration to either party in excess of $5.0
million, the Company must also, prior to the consummation thereof, obtain a
favorable written opinion as to the fairness of such transaction to the Company
from a financial point of view from an independent investment banking firm of
national reputation or, if pertaining to a matter for which such investment
banking firms do not customarily render such opinions, an appraisal or valuation
firm of national reputation; provided, that this sentence shall not apply to the
sale or purchase of products by the Company or its Subsidiaries to or from any
Affiliate of LGP or any Related Party thereof, which sale or purchase is in the
ordinary course of business and in accordance with industry practice.
Limitation on Merger, Sale or Consolidation
The Indenture provides that the Company will not consolidate with or merge
with or into another person or, directly or indirectly, sell, lease, convey or
transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions, to
another Person or group of affiliated Persons or adopt a plan of liquidation,
unless (i) either (a) the Company is the continuing entity or (b) the resulting,
surviving or transferee entity or, in the case of a plan of liquidation, the
entity which receives the greatest value from such plan of liquidation is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by supplemental indenture all of
the obligations of the Company in connection with the Notes and the Indenture;
(ii) no Default or Event of Default shall exist or shall occur immediately after
giving effect on a pro forma basis to such transaction;
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(iii) immediately after giving effect to such transaction on a pro forma basis,
the Consolidated Net Worth of the consolidated surviving or transferee entity
or, in the case of a plan of liquidation, the entity which receives the greatest
value from such plan of liquidation is at least equal to the Consolidated Net
Worth of the Company immediately prior to such transaction; and (iv) immediately
after giving effect to such transaction on a pro forma basis, the consolidated
resulting, surviving or transferee entity or, in the case of a plan of
liquidation, the entity which receives the greatest value from such plan of
liquidation would immediately thereafter be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt Incurrence Ratio set forth in the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock."
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company or consummation of a plan of liquidation in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which such transfer is
made or, in the case of a plan of liquidation, the entity which receives the
greatest value from such plan of liquidation shall succeed to and (except in the
case of a lease) be substituted for, and may exercise every right and power of,
the Company under the Indenture with the same effect as if such successor
corporation had been named therein as the Company, and (except in the case of a
lease) the Company shall be released from the obligations under the Notes and
the Indenture except with respect to any obligations that arise from, or are
related to, such transaction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Company's interest in 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.
Limitation on Lines of Business
The Indenture provides that neither the Company nor any of its Subsidiaries
shall directly or indirectly engage to any substantial extent in any line or
lines of business activity other than that which, in the reasonable good faith
judgment of the Board of Directors of the Company, is a Related Business.
Restriction on Sale and Issuance of Subsidiary Stock
The Indenture provides that the Company will not sell, and the Subsidiary
Guarantors will not issue or sell, any shares of Capital Stock (other than
directors qualifying shares) of any Subsidiary of the Company to any person
other than the Company or a wholly owned Subsidiary of the Company, except for
shares of common stock with no preferences or special rights or privileges and
with no redemption or prepayment provisions. Notwithstanding the foregoing, (a)
the Company and the Subsidiary Guarantors may consummate an Asset Sale of all of
the Capital Stock owned by the Company and the Subsidiary Guarantors of any
Subsidiary and (b) the Company or any Subsidiary Guarantor may pledge,
hypothecate or otherwise grant a Lien on any Capital Stock of any Subsidiary to
the extent not prohibited under the covenant "Limitation on Liens."
Future Subsidiary Guarantors
The Indenture provides that all future Subsidiaries of the Company jointly
and severally will guaranty irrevocably and unconditionally all principal,
premium, if any, and interest and Liquidated Damages, if any, on the Notes on a
basis senior in right of payment to all existing and future subordinated
Indebtedness of such Subsidiaries. The term Subsidiary does not include
Unrestricted Subsidiaries.
Limitation on Merger of Subsidiary Guarantors and Release of Subsidiary
Guarantors
The Indenture provides that no Subsidiary Guarantor shall consolidate or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
person) another person unless (i) subject to the provisions of the following
paragraph and certain other provisions of the Indenture, the person formed by or
surviving any such consolidation or merger (if other than such Subsidiary
Guarantor) assumes all the obligations of such
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Subsidiary Guarantor pursuant to a supplemental indenture in form reasonably
satisfactory to the Trustee, pursuant to which such person shall unconditionally
guarantee, on a basis senior in right of payment to all existing and future
subordinated Indebtedness of such person, all of such Subsidiary Guarantor's
obligations under such Subsidiary Guarantor's guarantee and the Indenture on the
terms set forth in the Indenture; and (ii) immediately before and immediately
after giving effect to such transaction on a pro forma basis, no Default or
Event of Default shall have occurred or be continuing.
Upon the sale or disposition (whether by merger, stock purchase, asset sale
or otherwise) of a Subsidiary Guarantor (or all or substantially all of the
assets of any such Subsidiary Guarantor or 50% or more of the Equity Interests
of any such Subsidiary Guarantor) to an entity which is not a Subsidiary
Guarantor or the designation of a Subsidiary to become an Unrestricted
Subsidiary, which transaction is otherwise in compliance with the Indenture
(including, without limitation, the provisions of the covenant "Limitations on
Sale of Assets and Subsidiary Stock"), such Subsidiary Guarantor will be deemed
released from its obligations under its Guarantee of the Notes; provided,
however, that any such termination shall occur only to the extent that all
obligations of such Subsidiary Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure, any
Indebtedness of the Company or any other Subsidiary of the Company shall also
terminate upon such release, sale or transfer.
Limitation on Status as Investment Company
The Indenture prohibits the Company and its Subsidiaries from being
required to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or from otherwise becoming subject
to regulation under the Investment Company Act.
REPORTS
The Indenture provides that whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall deliver to the Trustee and, to each Holder and to prospective purchasers
of Notes identified to the Company by an Initial Purchaser, within 15 days after
it is or would have been (if it were subject to such reporting obligations)
required to file such with the Commission, annual and quarterly financial
statements substantially equivalent to financial statements that would have been
included in reports filed with the Commission, if the Company were subject to
the requirements of Section 13 or 15(d) of the Exchange Act, including, with
respect to annual information only, a report thereon by the Company's certified
independent public accountants as such would be required in such reports to the
Commission, and, in each case, together with a management's discussion and
analysis of financial condition and results of operations which would be so
required and, unless the Commission will not accept such reports, file with the
Commission the annual, quarterly and other reports which it is or would have
been required to file with the Commission.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will define an Event of Default as (i) the failure by the
Company to pay any installment of interest (or Liquidated Damages, if any) on
the Notes as and when the same becomes due and payable and the continuance of
any such failure for 30 days, (ii) the failure by the Company to pay all or any
part of the principal, or premium, if any, on the Notes when and as the same
becomes due and payable at maturity, redemption, by acceleration or otherwise,
including, without limitation, payment of the Change of Control Purchase Price
or the Asset Sale Offer Price, or otherwise, (iii) the failure by the Company or
any Subsidiary of the Company to observe or perform any other covenant or
agreement contained in the Notes or the Indenture and, subject to certain
exceptions, the continuance of such failure for a period of 30 days after
written notice is given to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in aggregate principal amount of the
Notes outstanding, specifying such Default, (iv) certain events of bankruptcy,
insolvency or reorganization in respect of the Company or any of its Significant
Subsidiaries, (v) a default in any Indebtedness of the Company or any of its
Subsidiaries, with an aggregate principal amount in excess of $15 million (a)
resulting from the failure to pay principal at maturity or (b) as a result of
which the maturity of such Indebtedness has been accelerated prior to its stated
maturity, and (vi) final
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unsatisfied judgments not covered by insurance aggregating in excess of $15
million, at any one time rendered against the Company or any of its Subsidiaries
and not stayed, bonded or discharged within 60 days. The Indenture provides that
if an Event of Default occurs and is continuing, the Trustee must, within 90
days after the occurrence of such Event of Default, give to the Holders notice
of such Event of Default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv), above, relating to the Company or any of its
Significant Subsidiaries), then in every such case, unless the principal of all
of the Notes shall have already become due and payable, either the Trustee or
the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to the Company (and to the Trustee if given by
Holders) (an "Acceleration Notice"), may declare all principal, determined as
set forth below, and accrued interest (and Liquidated Damages, if any) thereon
to be due and payable immediately. If an Event of Default specified in clause
(iv), above, relating to the Company or any of its Significant Subsidiaries
occurs, all principal and accrued interest (and Liquidated Damages, if any)
thereon will be immediately due and payable on all outstanding Notes without any
declaration or other act on the part of Trustee or the Holders. The Holders of a
majority in aggregate principal amount of Notes generally are authorized to
rescind such acceleration if all existing Events of Default, other than the
non-payment of the principal of, premium, if any, and interest on the Notes
which have become due solely by such acceleration and except on default with
respect to any provision requiring a supermajority approval to amend, which
default may only be waived by such a supermajority, have been cured or waived.
The Holders of a majority in aggregate principal amount of the Notes at the
time outstanding may waive on behalf of all the Holders any default, except a
default with respect to any provision requiring a supermajority approval to
amend, which default may only be waived by such a supermajority, and except a
default in the payment of principal of or interest on any Note not yet cured or
a default with respect to any covenant or provision which cannot be modified or
amended without the consent of the Holder of each outstanding Note affected.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, the Trustee will be under no obligation to exercise any of its rights
or powers under the Indenture at the request, order or direction of any of the
Holders, unless such Holders have offered to the Trustee reasonable security or
indemnity. Subject to all provisions of the Indenture and applicable law, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option, elect to have
its obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented, and the Indenture shall cease to be of further effect
as to all outstanding Notes and Guarantees, except as to (i) rights of Holders
to receive payments in respect of the principal of, premium, if any, and
interest (and Liquidated Damages, if any) on such Notes when such payments are
due from the trust funds; (ii) the Company's obligations with respect to such
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes, and the maintenance of an office or agency for
payment and money for security payments held in trust; (iii) the rights, powers,
trust, duties, and immunities of the Trustee, and the Company's obligations in
connection therewith; and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and the Subsidiary Guarantors released with respect
to certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, guarantees,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, U.S. legal tender,
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U.S. Government Obligations or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on such
Notes on the stated date for payment thereof or on the redemption date of such
principal or installment of principal of, premium, if any, or interest on such
Notes, and the holders of Notes must have a valid, perfected, exclusive security
interest in such trust; (ii) in the case of Legal Defeasance before the date
that is one year prior to the Stated Maturity, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that (A) the Company has received from, or there has
been published by the Internal Revenue Service, a ruling or (B) since the date
of the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of such Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance before the
date that is one year prior to the Stated Maturity, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to such Trustee confirming that the holders of such Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit; (v) such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under the Indenture or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an Officers' Certificate stating
that the deposit was not made by the Company with the intent of preferring the
holders of such Notes 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; and (vii) the Company shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that the
conditions precedent provided for in, in the case of the Officers' Certificate,
(i) through (vi) and, in the case of the opinion of counsel, clauses (i), (with
respect to the validity and perfection of the security interest) (ii), (iii) and
(v) of this paragraph have been complied with.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company, the Subsidiary
Guarantors and the Trustee to enter into a supplemental indenture for certain
limited purposes without the consent of the Holders. With the consent of the
Holders of not less than a majority in aggregate principal amount of the Notes
at the time outstanding, the Company, the Subsidiary Guarantors and the Trustee
are permitted to amend or supplement the Indenture or any supplemental indenture
or modify the rights of the Holders; provided that no such modification may,
without the consent of holders of at least 66 2/3% in aggregate principal amount
of Notes at the time outstanding, modify the provisions (including the defined
terms used therein) of the covenant "Repurchase of Notes at the Option of the
Holder Upon a Change of Control" or the guarantee provisions of the Indenture in
a manner adverse to the holders; and provided, that no such modification may,
without the consent of each Holder affected thereby: (i) change the Stated
Maturity on any Note, or reduce the principal amount thereof or the rate (or
extend the time for payment) of interest thereon or any premium payable upon the
redemption at the option of the Company thereof, or change the place of payment
where, or the coin or currency in which, any Note or any premium or the interest
thereon is payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the case of
redemption at the option of the Company, on or after the Redemption Date), or
reduce the Change of Control Purchase Price or the Asset Sale Offer Price or
alter the provisions (including the defined terms used therein) regarding the
right of the Company to redeem the Notes at its option in a manner adverse to
the Holders, or (ii) reduce the percentage in principal amount of the
outstanding Notes, the consent of whose Holders is required for any such
amendment, supplemental indenture or waiver provided for in the Indenture, or
(iii) modify any of the waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the Holder of each
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outstanding Note affected thereby, or (iv) cause the Notes or any Guarantee to
become subordinate in right of payment to any other Indebtedness.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company, the
Subsidiary Guarantors or any successor entity shall have any personal liability
in connection with the Indenture or the Notes solely by reason of his or its
status as such stockholder, employee, officer or director. Each Holder of Notes
by accepting a Note waives and releases all such liability, and acknowledges and
consents to the transactions described under "Recapitalization." The waiver and
release are part of the consideration for the issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
Notwithstanding the foregoing, nothing in this paragraph shall in any way limit
the obligation of any Subsidiary Guarantor pursuant to any guarantee of the
Notes.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock of
any person existing at the time such person becomes a Subsidiary of the Company,
including by designation, or is merged or consolidated into or with the Company
or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any person
(including, without limitation, the acquisition of more than 50% of the Equity
Interests of any person) or all or substantially all the assets of any person by
any other person, whether by purchase, stock purchase, merger, consolidation, or
other transfer, and whether or not for consideration.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided, that, with respect to ownership interest in the Company
and its Subsidiaries, a Beneficial Owner of 10% or more of the total voting
power normally entitled to vote in the election of directors, managers or
trustees, as applicable, shall for such purposes be deemed to constitute
control.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of the
products (a) of the number of months from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Beneficial Owner" or "beneficial owner" for purposes of the definition of
Change of Control and Affiliate has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or
not applicable.
"Board of Directors" means, with respect to any person, the board of
directors of such person or any committee of the Board of Directors of such
person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Contribution" means a contribution of cash or Cash Equivalents by
Parent to the consolidated stockholders' equity of the Company solely in
exchange for, if anything, shares of the Company's common stock with no
preferences or special rights or privileges and with no redemption or prepayment
provisions.
"Capitalized Lease Obligation" means, as to any person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of
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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.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation.
"Cash Equivalent" means (a) securities issued or directly and fully
guaranteed or insured by the United States Government, or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (b) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (c) certificates of deposit, time deposits, eurodollar
time deposits, overnight bank deposits or bankers' acceptances having maturities
of not more than one year from the date of acquisition thereof of any domestic
commercial bank, the long-term debt of which is rated at the time of acquisition
thereof at least A or the equivalent thereof by Standard & Poor's Ratings Group,
or A or the equivalent thereof by Moody's Investors Service, Inc. and having
capital and surplus in excess of $500,000,000; (d) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clauses (a), (b) and (c) above entered into with any bank meeting
the qualifications specified in clause (c) above; (e) commercial paper rated at
the time of acquisition thereof at least A-2 or the equivalent thereof by
Standard & Poor's Ratings Group or P-2 or the equivalent thereof by Moody's
Investors Service, Inc., or carrying an equivalent rating by a nationally
recognized rating agency, if both of the two named rating agencies cease
publishing ratings of investments, and in either case maturing within 270 days
after the date of acquisition thereof; and (f) interests in any investment
company which invests solely in instruments of the type specified in clauses (a)
through (e) above.
"Consolidated Coverage Ratio" of any person on any date of determination
(the "Transaction Date") means the ratio, on a pro forma basis, of (a) the
aggregate amount of Consolidated EBITDA of such person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Fixed Charges of such person
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations giving
rise to such Consolidated Fixed Charges would no longer be obligations
contributing to such person's Consolidated Fixed Charges subsequent to the
Transaction Date) during the Reference Period; provided, that for purposes of
calculating Consolidated EBITDA and Consolidated Fixed Charges for this
definition, (i) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date shall
be assumed to have occurred on the first day of the Reference Period, (ii)
transactions giving rise to the need to calculate the Consolidated Coverage
Ratio shall be assumed to have occurred on the first day of the Reference
Period, (iii) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall be
assumed to have occurred on the first day of the Reference Period, and (iv) the
Consolidated Fixed Charges of such person attributable to interest on any
Indebtedness or dividends on any Disqualified Capital Stock bearing a floating
interest (or dividend) rate shall be computed on a pro forma basis as if the
average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless such
Person or any of its Subsidiaries is a party to an Interest Swap or Hedging
Obligation (which shall remain in effect for the 12-month period immediately
following the Transaction Date) that has the effect of fixing the interest rate
on the date of computation, in which case such rate (whether higher or lower)
shall be used.
"Consolidated EBITDA" means, with respect to any person, for any period,
the Consolidated Net Income of such person for such period adjusted to add
thereto (to the extent deducted from net revenues in determining Consolidated
Net Income), without duplication, the sum of (i) Consolidated income tax
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expense, (ii) Consolidated depreciation and amortization expense (including
amortization of debt discount and deferred financing costs in connection with
any Indebtedness of such person and its Subsidiaries), (iii) Consolidated Fixed
Charges and (iv) all other non-cash charges; provided that Consolidated income
tax expense, depreciation and amortization expense of a Subsidiary of such
person that is less than wholly owned shall only be added to the extent of the
equity interest of such person in such Subsidiary.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, excluding amortization of debt
issuance costs incurred in connection with the Notes or the Credit Agreement but
including (i) original issue discount and non-cash interest payments or accruals
on any Indebtedness, (ii) the interest portion of all deferred payment
obligations, and (iii) all commissions, discounts and other fees and charges
owed with respect to bankers' acceptances and letters of credit financings and
currency and Interest Swap and Hedging Obligations, in each case to the extent
attributable to such period, and (b) the amount of cash dividends paid by such
person or any of its Consolidated Subsidiaries in respect of Preferred Stock
(other than by Subsidiaries of such person to such person or such person's
wholly owned Subsidiaries). For purposes of this definition, (x) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP and (y) to the extent such
expense would result in a liability upon the consolidated balance sheet of such
person in accordance with GAAP, interest expense attributable to any
Indebtedness represented by the guaranty by such person or a Subsidiary of such
person of an obligation of another person shall be deemed to be the interest
expense attributable to the Indebtedness guaranteed. Notwithstanding the
foregoing, Consolidated Fixed Charges shall not include (A) costs, fees and
expenses incurred in connection with the Recapitalization, (B) interest expense
on the Old Notes incurred after the Issue Date, provided that on the Issue Date
the Company's obligations under the Old Notes shall have been released to the
extent provided in Article Nine of the indenture governing the Old Notes, and
within 45 days after the Issue Date the Old Notes are redeemed or otherwise
acquired by the Company in compliance with the Old Note indenture and the
Indenture, and (C) any one-time non-cash charge or expense associated with the
write-off of deferred debt issuance costs associated with the Credit Agreement
or the Notes.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains and losses which are either
extraordinary (as determined in accordance with GAAP) or are either unusual or
nonrecurring (including any gain from the sale or other disposition of assets
outside the ordinary course of business or from the issuance or sale of any
capital stock), (b) the net income, if positive, of any person, other than a
Consolidated Subsidiary, in which such person or any of its Consolidated
Subsidiaries has an interest, except to the extent of the amount of any
dividends or distributions actually paid in cash to such person or a
Consolidated Subsidiary of such person during such period, but in any case (i)
not in excess of such person's pro rata share of such person's net income for
such period and (ii) excluding any such payments made to the Company or any
Subsidiary Guarantor pursuant to clause (c) or (d) of the definition of
Permitted Payments, (c) the net income or loss of any person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition, (d) the net income, if positive, of any of such person's
Consolidated Subsidiaries in the event and solely to the extent that the
declaration or payment of dividends or similar distributions is not at the time
permitted by operation of the terms of its charter or bylaws or any other
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Consolidated Subsidiary, (e) the effects of
changes in accounting principles, (f) any non-cash compensation expense in
connection with the exercise of, grant to or repurchase from officers, directors
and employees of stock, stock options or stock equivalents, (g) any one-time
non-cash charge or expense associated with the write-off of deferred debt
issuance costs associated with the Credit Agreement or the Notes, (h) costs,
fees and expenses incurred in connection with the Recapitalization, and (i)
interest expense on the Old Notes incurred after the Issue Date, provided that
on the Issue Date the
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Company's obligations under the Old Notes shall have been released to the extent
provided in Article Nine of the indenture governing the Old Notes, and within 45
days after the Issue Date the Old Notes are redeemed or otherwise acquired by
the Company in compliance with the Old Note indenture and the Indenture.
"Consolidated Net Worth" of any person at any date means the aggregate
consolidated stockholders' equity of such person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would be
shown on the consolidated balance sheet of such person prepared in accordance
with GAAP, adjusted to exclude (to the extent included in calculating such
equity), (a) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock or treasury stock of such person and its Consolidated
Subsidiaries, (b) all upward revaluations and other write-ups in the book value
of any asset of such person or a Consolidated Subsidiary of such person
subsequent to the Issue Date, and (c) all investments in subsidiaries that are
not Consolidated Subsidiaries and in persons that are not Subsidiaries.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
"Consolidation" means, with respect to the Company, the consolidation of
the accounts of its Subsidiaries with those of the Company, all in accordance
with GAAP; provided that "consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary with the accounts of the Company. The
term "consolidated" has a correlative meaning to the foregoing.
"Credit Agreement" means the one or more credit agreements (including,
without limitation, the CIT Credit Facility) entered into by and among the
Company, certain of its subsidiaries (if any) and certain financial
institutions, which provide for in the aggregate one or more term loans and/or
revolving credit facilities, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, as such
credit agreement and/or related documents may be amended, restated,
supplemented, renewed, replaced or otherwise modified from time to time whether
or not with the same agent, trustee, representative lenders or holders, and,
subject to the proviso to the next succeeding sentence, irrespective of any
changes in the terms and conditions thereof. Without limiting the generality of
the foregoing, the term "Credit Agreement" shall include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to any such credit agreement and all refundings, refinancings and
replacements of any such credit agreement, including any agreement (i) extending
the maturity of any Indebtedness incurred thereunder or contemplated thereby,
(ii) adding or deleting borrowers or guarantors thereunder, so long as borrowers
and issuers include one or more of the Company and its Subsidiaries and their
respective successors and assigns, (iii) increasing the amount of Indebtedness
incurred thereunder or available to be borrowed thereunder, provided that on the
date such Indebtedness is incurred it would not be prohibited by the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock," or (iv) otherwise altering the terms and conditions thereof in a manner
not prohibited by the terms hereof.
"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any person, Equity Interests of such person that, by its terms or by
the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time or
both would be, required to be redeemed or repurchased (including at the option
of the holder thereof) by such person or any of its Subsidiaries, in whole or in
part, on or prior to the Stated Maturity of the Notes and (b) with respect to
any Subsidiary of such person (including with respect to any Subsidiary of the
Company), any Equity Interests other than any common equity with no preference,
privileges, or redemption or repayment provisions.
"Equity Interest" of any Person means any shares, interests, participations
or other equivalents (however designated) in such Person's equity, and shall in
any event include any Capital Stock issued by, or partnership or membership
interests in, such Person.
"Event of Loss" means, with respect to any property or asset, any (i) loss,
destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
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"Excluded Person" means Green Equity Investors, L.P., Robert Miller, Steven
Miller, Michael Miller and their respective Related Parties.
"Exempted Affiliate Transaction" means (a) compensation, indemnification
and other benefits paid or made available (x) pursuant to the employment
agreements between the Company and members of its senior management, or (y) for
or in connection with services actually rendered and comparable to those
generally paid or made available by entities engaged in the same or similar
businesses (including reimbursement or advancement of reasonable out-of-pocket
expenses, loans to officers, directors and employees in the ordinary course of
business consistent with past practice and directors' and officers' liability
insurance), (b) transactions, expenses and payments in connection with the
Recapitalization, (c) any Restricted Payments or other payments or transactions
expressly permitted under the covenant "Limitation on Restricted Payments," (d)
payments to LGA for management services under the Management Services Agreement
in an amount not to exceed $1.0 million in any fiscal year, plus reimbursement
of reasonable out-of-pocket costs and expenses, (e) payments to LGA for
reasonable and customary fees and expenses for financial advisory and investment
banking services provided to the Company in connection with major financial
transactions, and (f) transactions between or among the Company and its
Subsidiaries or between or among Subsidiaries of the Company, provided that any
ownership interest in any such Subsidiary which is not beneficially owned
directly or indirectly by the Company or any of its Subsidiaries is not
beneficially owned by an Affiliate of the Company or Parent other than by virtue
of the direct or indirect ownership interest in such Subsidiary held (in the
aggregate) by the Company and/or one or more of its Subsidiaries.
"GAAP" means United States 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 in the United States as in effect on the Issue Date.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of such any person, to the
extent such liabilities and obligations would appear as a liability upon the
consolidated balance sheet of such person in accordance with GAAP, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors; (b) all liabilities
and obligations, contingent or otherwise, of such person (i) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (ii)
relating to any Capitalized Lease Obligation, or (iii) evidenced by a letter of
credit or a reimbursement obligation of such person with respect to any letter
of credit; (c) all net obligations of such person under Interest Swap and
Hedging Obligations; (d) all liabilities and obligations of others of the kind
described in the preceding clauses (a), (b) or (c) that such person has
guaranteed or that is otherwise its legal liability or which are secured by one
or more Liens on any assets or property of such person; provided that if the
liabilities or obligations which are secured by a Lien have not been assumed in
full by such person or are not such person's legal liability in full, the amount
of such Indebtedness for the purposes of this definition shall be limited to the
lesser of the amount of such Indebtedness secured by such Lien or the fair
market value of the assets or property securing such Lien; (e) any and all
deferrals, renewals, extensions, refinancing and refundings (whether direct or
indirect) of, or amendments, modifications or supplements to, any liability of
the kind described in any of the preceding clauses (a), (b), (c) or (d), or this
clause (e), whether or not between or among the same parties; and (f) all
Disqualified Capital Stock of such Person (measured at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends). For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital Stock, such Fair Market Value to be
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determined in good faith by the board of directors of the issuer (or managing
general partner of the issuer) of such Disqualified Capital Stock.
"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person or any agreement to make any such acquisition; (b) the making by such
person of any deposit with, or advance, loan or other extension of credit to,
such other person (including the purchase of property from another person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other person) or any commitment to make any such advance,
loan or extension (but excluding accounts receivable, endorsements for
collection or deposits arising in the ordinary course of business); (c) other
than guarantees of Indebtedness of the Company or any Subsidiary Guarantor to
the extent permitted by the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," the entering into by such person
of any guarantee of, or other credit support or contingent obligation with
respect to, Indebtedness or other liability of such other person; (d) the making
of any capital contribution by such person to such other person; and (e) the
designation by the Board of Directors of the Company of any person to be an
Unrestricted Subsidiary. The Company shall be deemed to make an Investment in an
amount equal to the fair market value of the net assets of any subsidiary (or,
if neither the Company nor any of its Subsidiaries has theretofore made an
Investment in such subsidiary, in an amount equal to the Investments being
made), at the time that such subsidiary is designated an Unrestricted
Subsidiary, and any property transferred to an Unrestricted Subsidiary from the
Company or a Subsidiary of the Company shall be deemed an Investment valued at
its fair market value at the time of such transfer. The amount of any such
Investment shall be reduced by any liabilities or obligations of the Company or
any of its Subsidiaries to be assumed or discharged in connection with such
Investment by an entity other than the Company or any of its Subsidiaries. For
purposes of clarification and greater certainty, the designation of a newly
formed subsidiary as an Unrestricted Subsidiary and the initial capitalization
thereof under clause (d) of the definition of Permitted Payment shall not
constitute an Investment.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Management Services Agreement" means the management services agreement,
dated as of the Issue Date, between Parent, the Company and LGA substantially as
in effect on the Issue Date.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale of Qualified Capital Stock or a
Capital Contribution and by the Company and its Subsidiaries in respect of an
Asset Sale plus, in the case of an issuance of Qualified Capital Stock upon any
exercise, exchange or conversion of securities (including options, warrants,
rights and convertible or exchangeable debt) of the Company that were issued for
cash on or after the Issue Date, the amount of cash originally received by the
Company upon the issuance of such securities (including options, warrants,
rights and convertible or exchangeable debt) less, in each case, the sum of all
payments, fees, commissions and (in the case of Asset Sales, reasonable and
customary) expenses (including, without limitation, the fees and expenses of
legal counsel and investment banking fees and expenses) incurred in connection
with such Asset Sale or sale of Qualified Capital Stock, and, in the case of an
Asset Sale only, less (i) the amount (estimated
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reasonably and in good faith by the Company) of income, franchise, sales and
other applicable taxes required to be paid by the Company or any of its
respective Subsidiaries in connection with such Asset Sale, (ii) the amounts of
any repayments of Indebtedness secured, directly or indirectly, by Liens on the
assets which are the subject of such Asset Sale or Indebtedness associated with
such assets which is due by reason of such Asset Sale (i.e., such disposition is
permitted by the terms of the instruments evidencing or applicable to such
Indebtedness, or by the terms of a consent granted thereunder, on the condition
that the proceeds (or portion thereof) of such disposition be applied to such
Indebtedness), and other fees, expenses and other expenditures, in each case,
reasonably incurred as a consequence of such repayment of Indebtedness (whether
or not such fees, expenses or expenditures are then due and payable or made, as
the case may be); (iii) all amounts deemed appropriate by the Company (as
evidenced by a signed certificate of the Chief Financial Officer of the Company
delivered to the Trustee) to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the subject of
such Asset Sale; and (iv) with respect to Asset Sales by Subsidiaries of the
Company, the portion of such cash payments attributable to Persons holding a
minority interest in such Subsidiary.
"Permitted Indebtedness" means any of the following:
(a) that the Company and the Subsidiary Guarantors may incur
Indebtedness evidenced by the Notes and represented by the Indenture up to
the amounts specified therein as of the date thereof;
(b) that the Company and the Subsidiary Guarantors, as applicable, may
incur Refinancing Indebtedness with respect to any Indebtedness or
Disqualified Capital Stock, as applicable, that was permitted by the
Indenture to be incurred and any Indebtedness of the Company outstanding on
the Issue Date (except the Old Notes) after giving effect to the
Recapitalization;
(c) the Company and the Subsidiary Guarantors may incur Indebtedness
solely in respect of bankers's acceptances and letters of credit (in
addition to any such Indebtedness incurred under the Credit Agreement in
accordance with the Indenture) (to the extent that such incurrence does not
result in the incurrence of any obligation to repay any obligation relating
to borrowed money of others), all in the ordinary course of business in
accordance with customary industry practices, in amounts and for the
purposes customary in the Company's industry; provided, that the aggregate
principal amount outstanding of such Indebtedness (including any
Indebtedness issued to refinance, refund or replace such Indebtedness)
shall not exceed $5.0 million;
(d) the Company and the Subsidiary Guarantors may incur Indebtedness
arising from tender, bid, performance or government contract bonds, other
obligations of like nature, or warranty or contractual service obligations
of like nature, in any case, incurred by the Company or the Subsidiary
Guarantors in the ordinary course of business;
(e) the Company and the Subsidiary Guarantors may incur Interest Swap
and Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate or currency risk with respect to any fixed or
floating rate Indebtedness that is permitted by the Indenture to be
outstanding or any receivable or liability the payment of which is
determined by reference to a foreign currency; provided, that the notional
amount of any such Interest Swap and Hedging Obligation does not exceed the
principal amount of Indebtedness to which such Interest Swap and Hedging
Obligation relates; and
(f) the Company may incur Indebtedness to any Subsidiary Guarantor,
and any Subsidiary Guarantor may incur Indebtedness to any other Subsidiary
Guarantor or to the Company; provided, that, in the case of Indebtedness of
the Company, such obligations shall be unsecured and subordinated in all
respects to the Company's obligations pursuant to the Notes and the date of
any event that causes such Subsidiary Guarantor no longer to be a
Subsidiary Guarantor shall be an Incurrence Date.
"Permitted Investment" means Investments in (a) any of the Notes; (b) Cash
Equivalents; (c) intercompany notes to the extent permitted under clause (f) of
the definition of "Permitted Indebtedness," provided that Indebtedness under any
such notes of a Subsidiary Guarantor shall be deemed to be a Restricted
Investment if such person ceases to be a Subsidiary Guarantor; (d) Investments
in the form of promissory notes of members of the Company's or Parent's
management not to exceed $2.0 million in
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principal amount at any time outstanding solely in consideration of the purchase
by such persons of Qualified Capital Stock of the Company or Parent; (e)
Investments by the Company or any Subsidiary Guarantor in any person that is or
immediately after such Investment becomes a Subsidiary Guarantor, or immediately
after such Investment merges or consolidates into the Company or any Subsidiary
Guarantor in compliance with the terms of the Indenture, provided that such
Person is engaged in all material respects in a Related Business; (f)
Investments in the Company by any Subsidiary Guarantor, provided that in the
case of Indebtedness constituting any such Investment, such Indebtedness shall
be unsecured and subordinated in all respects to the Company's obligations under
the Notes; (g) Investments in securities of trade creditors or customers
received in settlement of obligations that arose in the ordinary course of
business or pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers; (h)
Investments by the Company outstanding on the Issue Date; (i) transactions or
arrangements with officers or directors of the Company or any Subsidiary
Guarantor entered into in the ordinary course of business (including
compensation or employee benefit arrangements with any officer or director of
the Company or any Subsidiary Guarantor permitted under the covenant "Limitation
on Transactions with Affiliates"); (j) Investments in Persons (other than
Affiliates of the Company) received as consideration from Asset Sales to the
extent not prohibited by the covenant "Limitation on Sale of Assets and
Subsidiary Stock"; and (k) additional Investments at any time outstanding not to
exceed the sum of (i) $4.0 million and (ii) the cumulative gain (net of taxes
and all payments, fees, commissions and expenses incurred in such sale or
disposition) realized by the Company and the Subsidiary Guarantors in cash or
Cash Equivalents on the sale or other disposition after the Issue Date of
Investments (including Permitted Investments and Restricted Investments) made
after the Issue Date in accordance with the Indenture (but only to the extent
that such gain is excluded from the net income of the Company and the
Consolidated Subsidiaries by the definition of Consolidated Net Income).
"Permitted Lien" means (a) Liens existing on the Issue Date; (b) Liens
imposed by governmental authorities for taxes, assessments or other charges not
yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (c) statutory
liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen or
other like Liens arising by operation of law in the ordinary course of business
provided that (i) the underlying obligations are not overdue for a period of
more than 60 days, or (ii) such Liens are being contested in good faith and by
appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (d) Liens
securing the performance of bids, trade contracts (other than borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property subject thereto (as such
property is used by the Company or any of its Subsidiaries) or interfere with
the ordinary conduct of the business of the Company or any of its Subsidiaries;
(f) Liens arising by operation of law in connection with judgments, only to the
extent, for an amount and for a period not resulting in an Event of Default with
respect thereto; (g) pledges or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security legislation; (h) Liens securing the Notes; (i) Liens securing
Indebtedness of a Person existing at the time such Person becomes a Subsidiary
or is merged with or into the Company or a Subsidiary or Liens securing
Indebtedness incurred in connection with an Acquisition, provided that such
Liens were in existence prior to the date of such acquisition, merger or
consolidation, were not incurred in anticipation thereof, and do not extend to
any other assets; (j) Liens arising from Purchase Money Indebtedness permitted
to be incurred under paragraph (a) of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock" provided such Liens
relate solely to the property which is subject to such Purchase Money
Indebtedness; (k) leases or subleases granted to other persons in the ordinary
course of business not materially interfering with the conduct of the business
of the Company or any of its Subsidiaries or materially detracting from the
value of the relative assets of the Company or any Subsidiary; (l) Liens arising
from precautionary Uniform Commercial Code financing statement filings regarding
operating leases entered into by the Company or any of its Subsidiaries in the
ordinary course of business; (m) Liens securing Refinancing Indebtedness
incurred to
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refinance any Indebtedness that was previously so secured in accordance with the
Indenture; (n) Liens securing Indebtedness incurred under the Credit Agreement
in accordance with the Indenture; (o) Liens securing Indebtedness incurred under
paragraph (b) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock"; and (p) any interest or title of a
lessor under any lease, whether or not characterized as capital or operating,
provided that such Liens do not extend to any property or assets which is not
leased property subject to such lease.
"Permitted Payments" means, without duplication, (a) payments to Parent in
an aggregate amount not to exceed $500,000 in any fiscal year in an amount
sufficient to permit Parent to pay reasonable and necessary operating expenses
and other general corporate expenses to the extent such expenses relate or are
fairly allocable to the Company and its Subsidiaries (including any reasonable
professional fees and expenses, but excluding all expenses payable to or to be
paid to or on behalf of an Excluded Person except in a transaction constituting
an Exempted Affiliate Transaction); (b) payments to Parent to enable Parent to
pay foreign, federal, state or local tax liabilities, not to exceed the amount
of any tax liabilities that would be otherwise payable by the Company and its
Subsidiaries and Unrestricted Subsidiaries to the appropriate taxing authorities
if they filed separate tax returns to the extent that Parent has an obligation
to pay such tax liabilities relating to the operations, assets or capital of the
Company or its Subsidiaries and Unrestricted Subsidiaries, provided such payment
shall either be used by Parent to pay such tax liabilities within 90 days of
Parent's receipt of such payment or refunded to the payee; (c) payments to
Parent by the Company made concurrently with and in an amount equal to or less
than payments to Company (directly or indirectly through one or more Subsidiary
Guarantors) by an Unrestricted Subsidiary, provided that in each case the
Company distributes the same property as that so received by the Company from
such Unrestricted Subsidiary; (d) payments to an Unrestricted Subsidiary by the
Company (directly or indirectly through one or more Subsidiary Guarantors) made
concurrently with and in an amount equal to or less than payments to Company by
Parent, provided that in each case the Company distributes the same property as
that so received by the Company from Parent; (e) payments to redeem or otherwise
acquire the Old Notes after the Issue Date solely with funds used to defease the
Old Notes on the Issue Date in connection with the Recapitalization; (f)
payments to Parent to enable Parent to pay, or the payment by the Company
directly of, the payments provided for by clauses (a), (d) and (e) of the
definition of "Exempted Affiliated Transaction"; (g) cash dividends paid to
Parent to the extent necessary to permit Parent to repurchase common stock,
stock options and stock equivalents of Parent held by former directors, officers
or employees of Parent, the Company or any of the Subsidiary Guarantors, in an
aggregate amount not to exceed in any fiscal year $1,000,000 plus (x) the
cumulative amount by which (1) the product of $1,000,000 times the number of
preceding fiscal years subsequent to the Issue Date exceeds (2) the aggregate
amount of such payments made during such fiscal years, plus (y) the aggregate
net cash consideration received by Parent, after the Issue Date (excluding any
such consideration received by Parent in connection with the Recapitalization)
and prior to or substantially concurrently with the date of such repurchase,
from the sale or issuance of common stock of Parent to directors, officers and
employees of Parent, the Company and the Subsidiary Guarantors (including, to
the extent not otherwise included in the amount of such cash consideration, cash
repayments of principal received by Parent on loans made to such persons to
enable them to purchase such stock) to the extent such cash consideration was
contributed to the Company as a Capital Contribution less any payments made in
such fiscal year under clause (j) of this definition; (h) payments to Parent in
amounts sufficient to permit Parent to pay amounts required to be paid under the
Tax Indemnity Agreement dated September 25, 1992 among Parent, PE, Thrifty and
TCH Corporation; (i) Restricted Payments in an aggregate amount not to exceed
$4.0 million; and (j) cash dividends paid to Parent in an aggregate amount not
to exceed $1.0 million to the extent necessary to permit Parent to repurchase
common stock, stock options and stock equivalents of Parent held by former
directors, officers or employees of Thrifty.
"Public Equity Offering" means an underwritten offering of common stock of
the Company or Parent for cash pursuant to an effective registration statement
under the Securities Act, provided at the time of or upon consummation of such
offering, such common stock of the Company or Parent is listed on a national
securities exchange or quoted on the national market system of the Nasdaq Stock
Market.
79
<PAGE> 85
"Purchase Money Indebtedness" of any person means any Indebtedness of such
person to any seller or other person incurred to finance the acquisition or
construction (including in the case of a Capitalized Lease Obligation, the
lease) of any business or real or personal tangible property (or, in each case,
any interest therein) acquired or constructed after the Issue Date which, in the
reasonable good faith judgment of the Board of Directors of the Company, is
related to a Related Business of the Company and which is incurred concurrently
with, or within 180 days of, such acquisition or the completion of such
construction and, if secured, is secured only by the assets so financed.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
issued on or after the Issue Date with the Net Cash Proceeds received by the
Company from the substantially concurrent sale of its Qualified Capital Stock or
any exchange of Qualified Capital Stock of the Company for any Capital Stock or
Indebtedness of the Company issued on or after the Issue Date.
"Reference Period" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of the amount of fees, consents, premiums, prepayment penalties and
reasonable expenses incurred in connection with such Refinancing) the lesser of
(i) the principal amount or, in the case of Disqualified Capital Stock,
liquidation preference, of the Indebtedness or Disqualified Capital Stock so
Refinanced and (ii) if such Indebtedness being Refinanced was issued with an
original issue discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such Refinancing; provided, that (A) such Refinancing
Indebtedness of any Subsidiary of the Company shall only be used to Refinance
outstanding Indebtedness or Disqualified Capital Stock of such Subsidiary, (B)
such Refinancing Indebtedness shall (x) not have an Average Life shorter than
the Indebtedness or Disqualified Capital Stock to be so refinanced at the time
of such Refinancing and (y) in all respects, be no less subordinated or junior,
if applicable, to the rights of Holders of the Notes than was the Indebtedness
or Disqualified Capital Stock to be refinanced, (C) such Refinancing
Indebtedness shall have a final stated maturity or redemption date, as
applicable, no earlier than the final stated maturity or redemption date, as
applicable, of the Indebtedness or Disqualified Capital Stock to be so
refinanced, and (D) such Refinancing Indebtedness shall be secured (if secured)
in a manner no more adverse to the Holders of the Notes than the terms of the
Liens (if any) securing such refinanced Indebtedness, including, without
limitation, the amount of Indebtedness secured shall not be increased (except by
the amount of fees, consents, premiums, prepayment penalties and reasonable
expenses incurred in connection with such Refinancing). For purposes of
clarification and greater certainty, if Indebtedness permitted by the terms of
this Indenture (including clauses (a), (b) and (c) of the second paragraph of
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock") is repaid, redeemed, defeased, refunded, refinanced, discharged or
otherwise retired for value from the proceeds of Refinancing Indebtedness, the
maximum amount of such Refinancing Indebtedness shall be determined in
accordance with the provisions of this definition, and the amount of such
Refinancing Indebtedness in excess of the amount of such Indebtedness (as
permitted by this definition) shall not reduce the amount of Indebtedness
permitted by the terms of this Indenture (including, without limitation, not
reducing or counting towards the amounts set forth in such clauses (a), (b) and
(c)).
"Related Business" means the business conducted (or proposed to be
conducted, including the activities referred to as being contemplated by the
Company, as described or referred to in this Offering Memorandum) by the Company
as of the Issue Date and any and all businesses that in the good faith judgment
of the Board
80
<PAGE> 86
of Directors of the Company are reasonably related businesses, including
reasonably related extensions thereof.
"Related Party" means (i) with respect to any Excluded Person, (A) any
controlling stockholder, 80% or more owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Excluded Person or (B) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or persons beneficially holding an 80% or more
controlling interest of which consist of such Excluded Person and/or such other
persons referred to in the immediately preceding clause (A), and (ii) only with
respect to GEI (and in addition to the persons described in the foregoing clause
(i)) any partnership or corporation which is managed by or controlled by LGP or
any affiliate thereof.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than investments in Cash Equivalents and other Permitted
Investments; provided, however, that a merger of another person with or into the
Company or a Subsidiary Guarantor in accordance with the terms of the Indenture
shall not be deemed to be a Restricted Investment so long as the surviving
entity is the Company or a direct wholly owned Subsidiary Guarantor.
"Restricted Payment" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Equity Interests
of such person or any Subsidiary of such person, (b) any payment on account of
the purchase, redemption or other acquisition or retirement for value of Equity
Interests of such person or any Subsidiary of such person, (c) other than with
the proceeds from the substantially concurrent sale of, or in exchange for,
Refinancing Indebtedness, any purchase, redemption, or other acquisition or
retirement for value of, any payment in respect of any amendment of the terms of
or any defeasance of, any Subordinated Indebtedness, directly or indirectly, by
such person or any Subsidiary of such person prior to the scheduled maturity,
any scheduled repayment of principal, or scheduled sinking fund payment, as the
case may be, of such Indebtedness and (d) any Restricted Investment by such
person; provided, however, that the term "Restricted Payment" does not include
(i) any dividend, distribution or other payment on or with respect to Equity
Interests of the Company to the extent payable solely in shares of Qualified
Capital Stock of the Company; (ii) any dividend, distribution or other payment
to the Company, or to any of the Subsidiary Guarantors, by the Company or any of
its Subsidiaries; (iii) payments made pursuant to the Recapitalization
(including, without limitation, bonuses not to exceed $750,000 in the aggregate
payable to certain members of the Company's senior management at the time of or
promptly after the Recapitalization); (iv) Permitted Investments; or (v) pro
rata dividends and other distributions on Equity Interests of any Subsidiary
Guarantor by such Subsidiary Guarantor.
"Sale and Leaseback Transaction" means any transaction by which the Company
or a Subsidiary Guarantor, directly or indirectly, becomes liable as a lessee or
as a guarantor or other surety with respect to any lease of any property
(whether real or personal or mixed), whether now owned or hereafter acquired
that the Company or any Subsidiary Guarantor has sold or transferred or is to
sell or transfer to any other Person in a substantially concurrent transaction
with such assumption of liability.
"Significant Subsidiary" shall have the meaning provided under Regulation
S-X of the Securities Act, as in effect on the Issue Date.
"Stated Maturity," when used with respect to any Note, means November 15,
2007.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is subordinated in right of payment by its terms or
the terms of any document or instrument or instrument relating thereto to the
Notes or such Guarantee, as applicable, in any respect or has a final stated
maturity after the Stated Maturity.
"Subsidiary," with respect to any person, means (i) a corporation a
majority of whose Equity Interests with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such person, by such person and one or more Subsidiaries of such person or by
one or more Subsidiaries of such person, (ii) any other person (other than a
corporation) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest,
or (iii) a partnership in which such person or
81
<PAGE> 87
a Subsidiary of such person is, at the time, a general partner. Notwithstanding
the foregoing, an Unrestricted Subsidiary shall not be a Subsidiary of the
Company or of any Subsidiary of the Company. Unless the context requires
otherwise, Subsidiary means each direct and indirect Subsidiary of the Company.
"Unrestricted Subsidiary" means any subsidiary of the Company that does not
own any Capital Stock of, or own or hold any Lien on any property of, the
Company or any other Subsidiary of the Company and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company); provided, that (i) such subsidiary shall not
engage, to any substantial extent, in any line or lines of business activity
other than a Related Business, (ii) neither immediately prior thereto nor after
giving pro forma effect to such designation would there exist a Default or Event
of Default and (iii) immediately after giving pro forma effect thereto, the
Company could incur at least $1.00 of Indebtedness pursuant to the Debt
Incurrence Ratio of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" (provided, however, that this
clause (iii) will not apply in the case of a newly formed subsidiary being
designated an Unrestricted Subsidiary, with the initial capitalization thereof
to be effected under clause (d) of the definition of Permitted Payments). The
Board of Directors of the Company may designate any Unrestricted Subsidiary to
be a Subsidiary, provided that (i) no Default or Event of Default is existing or
will occur as a consequence thereof and (ii) immediately after giving effect to
such designation, on a pro forma basis, the Company could incur at least $1.00
of Indebtedness pursuant to the Debt Incurrence Ratio of the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock." Each such designation shall be evidenced by filing with the Trustee a
certified copy of the resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"U.S. Government Obligations" means direct non-callable obligations of, or
noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the United
States of America is pledged.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form without interest coupons.
Old Notes sold in reliance on Regulation S will initially be represented by
one or more temporary global Notes in definitive, fully registered form without
interest coupons (each a "Regulation S Global Note") and will be deposited with
the Trustee as custodian for, and registered in the name of, a nominee of DTC
for the accounts of Euroclear and Cedel. Prior to the commencement of the
Exchange Offer or the effectiveness of the shelf registration statement with
respect to the Old Notes, if applicable, beneficial interests in the Regulation
S Global Notes may only be held through Euroclear or Cedel, and any resale or
transfer of such interests to U.S. persons shall not be permitted during such
period unless such resale or transfer is made pursuant to Rule 144A or
Regulation S.
Old Notes sold in reliance on Rule 144A and the New Notes will be
represented by one or more permanent global Notes in definitive, fully
registered form without interest coupons (each a "Restricted Global Note" and
together with the Regulation S Global Note, the "Global Notes") and will be
deposited with the Trustee as custodian for, and registered in the name of, a
nominee of DTC.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Qualified institutional buyers may hold their
interests in a Restricted Global Note directly through DTC if they are
participants in such system, or indirectly through organizations which are
participants in such system.
Investors may hold their interests in a Regulation S Global Note directly
through Cedel or Euroclear, if they are participants in such systems, or
indirectly through organizations that are participants in such system.
82
<PAGE> 88
Investors may also hold such interests through organizations other than Cedel or
Euroclear that are participants in the DTC system. Cedel and Euroclear will hold
interests in the Regulation S Global Notes on behalf of their participants
through DTC.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or Holder represented by such Global Note for all purposes under the
Indenture and the Notes. No beneficial owner of an interest in a Global Note
will be able to transfer that interest except in accordance with DTC's
applicable procedures, in addition to those provided for under the Indenture
and, if applicable, those of Euroclear and Cedel.
Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof. None
of the Company, the Trustee nor any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in a Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in, accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Cedel will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
The Company expects that DTC will take any action permitted to be taken by
a holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in a Global Note is credited and only in respect of such portion
of the aggregate principal amount of Notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default under the Notes, DTC will exchange the applicable Global Note for
Certificated Notes, which it will distribute to its participants and which may
be legended if required by applicable law.
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "Banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in a Global Note among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Trustee nor any Paying Agent
will have any responsibility for the performance by DTC, Euroclear or Cedel or
their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Notes. If DTC is at any time unwilling or unable to continue
as a depositary for the Global Notes and a successor depositary is not appointed
by the Company within 90 days, the Company will issue Certificated Notes, in
exchange for the Global Notes. Holders of an interest in a Restricted Global
Note may
83
<PAGE> 89
receive Certificated Notes, which may bear the legend in accordance with the
DTC's rules and procedures in addition to those provided for under the
Indenture.
PLAN OF DISTRIBUTION
This Prospectus, as it may be amended or supplemented from time-to-time,
may be used by a broker-dealer in connection with resales of the New Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. Each
broker-dealer that receives New Notes for its own account must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Company has agreed that, under certain circumstances it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale for a period of up to 180 days after the
Expiration Date.
The Company will not receive any proceeds from the sale of the New Notes by
broker-dealers. New Notes received by broker-dealers for their own accounts in
connection with the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the forth of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
acquired Old Notes as a result of market making activities (and not directly
from the Company) and that resells New Notes that were received by it pursuant
to the Exchange Offer, and any broker or dealer that participates in a
distribution of such New Notes, may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any such resale of New Notes
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
Irell & Manella LLP will pass upon certain legal matters regarding the
legality of the New Notes for the Company. Certain partners of the law firm of
Irell & Manella LLP own an aggregate of 10,426 shares of Common Stock and 1,200
shares of the Parent New Preferred.
EXPERTS
The financial statements of the Company as of December 29, 1996 and
December 31, 1995 and for the three fiscal years ended December 29, 1996
included herein and elsewhere in the Registration Statement have been included
herein and elsewhere in the Prospectus in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
84
<PAGE> 90
UNITED MERCHANDISING CORP.
(REINCORPORATED IN DELAWARE AS BIG 5 CORP.)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INDEX TO FINANCIAL STATEMENTS............................................................. F-1
REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS..................................... F-2
FINANCIAL STATEMENTS
Balance Sheets at December 31, 1995 and December 29, 1996............................... F-3
Statements of Operations for the Fiscal Years Ended January 1, 1995, December 31, 1995
and December 29, 1996................................................................ F-4
Statements of Stockholder's Equity for the Fiscal Years Ended January 1, 1995, December
31, 1995 and December 29, 1996....................................................... F-5
Statements of Cash Flows for the Fiscal Years Ended January 1, 1995, December 31, 1995
and December 29, 1996................................................................ F-6
Notes to Financial Statements........................................................... F-7
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheets at December 29, 1996 (audited) and September 28, 1997.......... F-16
Condensed Statements of Operations for the three and nine month periods ended September
29, 1996 and September 28, 1997...................................................... F-17
Condensed Statements of Cash Flows for the three and nine month periods ended September
29, 1996 and September 28, 1997...................................................... F-18
Notes to Unaudited Condensed Financial Statements....................................... F-19
</TABLE>
F-1
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
United Merchandising Corp.:
We have audited the accompanying balance sheets of United Merchandising
Corp. as of December 31, 1995 and December 29, 1996 and the related statements
of operations, stockholder's equity and cash flows for each of the years ended
January 1, 1995, December 31, 1995 and December 29, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of United Merchandising Corp.
as of December 31, 1995 and December 29, 1996 and the results of its operations
and its cash flows for each of the years ended January 1, 1995, December 31,
1995 and December 29, 1996 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
February 26, 1997
F-2
<PAGE> 92
UNITED MERCHANDISING CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 3,198 $ 4,797
Trade and other receivables, net of allowance for doubtful accounts
of $267 and $464, respectively...................................... 3,377 4,054
Merchandise inventories.............................................. 137,512 134,886
Prepaid expenses..................................................... 1,106 1,031
-------- --------
Total current assets....................................... 145,193 144,768
-------- --------
Property and equipment:
Land................................................................. 3,341 186
Buildings and improvements........................................... 13,261 13,776
Furniture and equipment.............................................. 27,937 30,647
Less accumulated depreciation and amortization....................... (12,023) (17,079)
-------- --------
Net property and equipment................................. 32,516 27,530
-------- --------
Deferred income taxes, net................................................ -- 1,700
Leasehold interest, net of accumulated amortization of $10,202 and
$12,117, respectively................................................... 21,130 16,375
Other assets, at cost, less accumulated amortization of $652 and $713,
respectively............................................................ 2,365 1,829
Goodwill, less accumulated amortization of $630 and $878, respectively.... 5,915 5,667
-------- --------
$207,119 $197,869
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable..................................................... $ 42,812 $ 44,239
Accrued expenses..................................................... 27,387 28,368
Income taxes payable................................................. -- 1,733
-------- --------
Total current liabilities.................................. 70,199 74,340
Deferred rent............................................................. 4,252 5,224
Long-term debt............................................................ 103,594 86,450
-------- --------
Total liabilities.......................................... 178,045 166,014
-------- --------
Commitments and contingencies
Stockholder's equity:
Common stock, no par value. Authorized 2,500 shares; issued and
outstanding 1,300 shares............................................ 35,080 35,080
Accumulated deficit.................................................. (6,006) (3,225)
-------- --------
Net stockholder's equity............................................. 29,074 31,855
-------- --------
$207,119 $197,869
======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 93
UNITED MERCHANDISING CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED YEAR ENDED DECEMBER
JANUARY 1, DECEMBER 31, 29,
1995 1995 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Net sales...................................................... $ 364,109 $370,126 $404,265
Cost of goods sold, buying and occupancy....................... 244,777 256,583 277,116
-------- -------- --------
Gross profit.................................... 119,332 113,543 127,149
-------- -------- --------
Operating expenses:
Selling and administrative................................ 92,238 95,158 101,053
Depreciation and amortization............................. 9,180 11,991 9,578
-------- -------- --------
Total operating expenses........................ 101,418 107,149 110,631
-------- -------- --------
Operating income................................ 17,914 6,394 16,518
Interest expense............................................... 11,712 12,347 11,482
-------- -------- --------
Income (loss) before income taxes and extraordinary
loss.................................................... 6,202 (5,953) 5,036
Income taxes................................................... 1,903 368 970
-------- -------- --------
Income (loss) before extraordinary loss................... 4,299 (6,321) 4,066
Extraordinary loss from early extinguishment of debt, net of
income tax benefit........................................... (2,855) -- (1,285)
-------- -------- --------
Net income (loss)............................... $ 1,444 $ (6,321) $ 2,781
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 94
UNITED MERCHANDISING CORP.
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED JANUARY 1, 1995, DECEMBER 31, 1995 AND DECEMBER 29, 1996
<TABLE>
<CAPTION>
RETAINED EARNINGS
(ACCUMULATED
COMMON STOCK DEFICIT)
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
Balance at January 2, 1994...................................... $ 34,916 $ (1,129)
Contribution of capital......................................... 185 --
Distribution of capital......................................... (21) --
Net income for the year ended January 1, 1995................... -- 1,444
------ ------
Balance at January 1, 1995...................................... 35,080 315
Net loss for the year ended December 31, 1995................... -- (6,321)
------ ------
Balance at December 31, 1995.................................... 35,080 (6,006)
Net income for the year ended December 29, 1996................. -- 2,781
------ ------
Balance at December 29, 1996.................................... $ 35,080 $ (3,225)
====== ======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 95
UNITED MERCHANDISING CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 1, DECEMBER 31, DECEMBER 29
1995 1995 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 1,444 $ (6,321) $ 2,781
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 9,180 11,991 9,578
Amortization of deferred finance charges........ 538 429 621
Deferred tax provision (benefit)................ (178) 368 (1,700)
Extraordinary loss from early extinguishment of
debt.......................................... 4,758 -- 2,222
Change in assets and liabilities:
Merchandise inventories.................... (17,972) 13,539 2,626
Trade accounts receivable, net............. (912) 803 (677)
Prepaid expenses and other assets.......... (198) 122 342
Income taxes............................... 888 (178) 1,733
Accounts payable........................... 17,743 (21,165) 1,427
Accrued expenses........................... (644) (3,412) 845
------- ------- ---------
Net cash provided by (used in)
operating activities................ 14,647 (3,824) 19,798
------- ------- ---------
Cash flows from investing activities:
Purchases of property and equipment.................. (9,153) (6,822) (3,453)
Purchase of assets pending sale and leaseback
(note 12).......................................... -- -- (8,910)
Proceeds from sale of property and equipment......... -- -- 13,902
Acquisition of business.............................. -- (1,000) --
Other assets......................................... (189) 448 --
------- ------- ---------
Net cash provided by (used in)
investing activities................ (9,342) (7,374) 1,539
------- ------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit
facilities......................................... 60,000 7,144 (17,144)
Repayments of term loan.............................. (44,000) -- --
Repayment of long-term debt, net..................... (18,550) -- --
Debt issuance costs.................................. (1,060) (416) (1,434)
Debt prepayment premiums............................. (1,491) -- (1,160)
Contribution of capital.............................. 164 -- --
------- ------- ---------
Net cash provided by (used in)
financing activities................ (4,937) 6,728 (19,738)
------- ------- ---------
Net increase (decrease) in cash and
cash equivalents.................... 368 (4,470) 1,599
Cash and cash equivalents at beginning of year............ 7,300 7,668 3,198
------- ------- ---------
Cash and cash equivalents at end of year.................. $ 7,668 $ 3,198 $ 4,797
======= ======= =========
Supplemental disclosures of cash flow information:
Interest paid........................................ $ 11,817 $ 12,300 $ 11,285
Income taxes paid.................................... -- -- --
======= ======= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 96
UNITED MERCHANDISING CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND DECEMBER 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
(1) BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The accompanying financial statements represent the financial position and
results of operations of United Merchandising Corp. (the Company). The Company
operates as a specialty sporting goods retailer under the Big 5 Sporting Goods
name carrying a broad range of hardlines, softlines and footwear, operating 196
stores at December 29, 1996 in California, Washington, Oregon, New Mexico,
Arizona, Nevada, Idaho (Western states) and Texas.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reporting Period
The Company reports on a 52-53 week fiscal year ending on the Sunday
nearest December 31. All years presented had a 52-week year.
Revenue Recognition
The Company's revenue is received from retail sales of merchandise through
the Company's stores. Revenue is recognized when merchandise is received by the
customer and is shown net of returns. The costs of distribution center
operations are included in cost of sales, buying and occupancy.
Earnings (Loss) per Share
Earnings (loss) per share data are not presented as they are not meaningful
to the financial statements.
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Merchandise Inventories
The Company values its merchandise inventories using the lower of average
cost (which approximates the first-in, first-out cost) or market method.
Property and Equipment
Property and equipment are stated at cost and depreciated over the
estimated useful lives or lease terms, using the straight-line method.
The estimated useful lives are 40 years for buildings, 7 years for fixtures
and equipment and the shorter of the lease term or 10 years for leasehold
improvements. Maintenance and repairs are charged to expense as incurred.
Leasehold Interest
Upon acquisition of the Company, certain assets were recorded for the net
fair value of favorable operating lease agreements. The leasehold interest asset
is being amortized over an average of ten years on a straight-line basis. The
unamortized balance attributable to leases terminated since the acquisition has
been reflected as a component of the gain or loss upon disposition of the
underlying properties.
F-7
<PAGE> 97
UNITED MERCHANDISING CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over periods ranging
from 15 to 30 years.
Other Assets
Other assets consist principally of deferred financing costs and such costs
are amortized straight line over the terms of the respective debt.
Self-Insurance Reserves
The Company maintains self-insurance programs for workers' compensation and
general liability risks. The Company is self-insured up to specified
per-occurrence limits and maintains insurance coverage for losses in excess of
specified amounts. Estimated costs under these programs, including incurred but
not reported claims, are recorded as expenses based upon actuarially determined
historical experience and trends of paid and incurred claims.
Preopening Expenses
New store preopening expenses are charged against operations as incurred.
Advertising Expenses
The Company recognizes advertising costs the first time the advertising
takes place. Advertising expenses amounted to $20,423 for the year ended January
1, 1995, $22,621 for the year ended December 31, 1995 and $23,209 for the year
ended December 29, 1996. Advertising expense is included in selling and
administrative.
Income Taxes
The Company accounts for income taxes under the asset and liability method
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The realizability of deferred tax assets is
assessed throughout the year and a valuation allowance is established
accordingly.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from these estimates.
Concentration of Credit Risk
Customer purchases are generally transacted using cash or credit cards. In
certain instances, the Company grants credit to schools and youth-oriented
organizations, under normal trade terms. Trade accounts receivable were
approximately $200 and $355 at December 31, 1995 and December 29, 1996,
respectively. Credit losses have historically been within management's
expectations.
F-8
<PAGE> 98
UNITED MERCHANDISING CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Impairment of Long-Lived Assets
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," in the first quarter of
fiscal 1996. The statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position, results of operations or liquidity.
Stock Compensation
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income disclosures for employee stock option grants made
in 1995 and future years as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and to provide the pro forma disclosure
provisions of SFAS No. 123.
Reclassifications
Certain reclassifications of the prior year financial statements have been
made to conform to the 1996 presentation.
(3) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash and cash equivalents, trade and other receivables, trade accounts
payable and accrued expenses: The carrying amounts approximate the fair values
of these instruments due to their short-term nature.
The fair value of the Company's senior subordinated notes at December 29,
1996 approximated $37,540 based on recent market prices. The carrying amount of
the revolving credit facility reflects the fair value based on current rates
available to the Company for debt of the same remaining maturities. See note 4
for interest rates on outstanding long-term debt.
(4) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
<S> <C> <C>
Revolving credit facility....................... $ 67,144 $ 50,000
Senior subordinated debt........................ 36,450 36,450
-------- -------
Total long-term debt.................. $103,594 $ 86,450
======== =======
</TABLE>
Effective March 8, 1996, the Company entered into a credit agreement (the
CIT Credit Agreement) among the Company and the CIT Group, which provided the
Company with a three-year nonamortizing
F-9
<PAGE> 99
UNITED MERCHANDISING CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
$100,000 revolving debt facility (the CIT Facility). Proceeds from the initial
funding under the CIT Facility were used to repay in full all of the Company's
outstanding obligations under its then existing revolving credit facility with
General Electric Capital Corporation (the GECC Facility).
Pursuant to the refinancing, the Company incurred a charge of $2,222,
consisting of $1,160 in prepayment penalties and $1,062 related to a write-off
of deferred finance costs related to the GECC Facility. The total charge is
reflected as an extraordinary loss from early extinguishment of debt, net of
income taxes of $937, in the statement of operations for the year ended December
29, 1996.
Prior to March 8, 1996, the Company operated under a credit agreement dated
October 20, 1994 as amended among the Company, General Electric Capital
Corporation as Agent and Wells Fargo Bank, which provided the Company with a
five-year nonamortizing $100,000 revolving debt facility. Proceeds from the
initial funding under the GECC Facility were used to repay in full all of the
Company's outstanding obligations under its then existing revolving debt
facility and term debt loan with Union Bank of Switzerland, as agent and lender
(the UBS Facility). Additionally, the GECC Facility allowed the Company to use
up to $22,000 to repurchase the Company's senior subordinated debt (the Senior
Debt). In 1994, the Company had repurchased $18,550 in the principal amount of
the Senior Debt, utilizing $14,550 in borrowings under the GECC Facility. The
Company paid a premium of $1,491 related to the repurchase of Senior Debt during
1994 and recorded a charge of $3,267 reflecting acceleration of the financing
fees related to the retired UBS Facility and Senior Debt which were being
amortized over the respective terms of the two facilities. The total charge of
$4,758 is reflected as an extraordinary loss from early extinguishment of debt,
net of income taxes of $1,903, in the statement of operations for the year ended
January 1, 1995.
The CIT Facility bears interest at various rates based on the adjusted
Eurorate (5.875% at December 29, 1996) plus 2.5% (LIBOR Borrowings) or the prime
lending rate (8.25% at December 29, 1996) plus .75% (Base Rate Borrowings) and
was secured by the trade accounts receivable, merchandise inventory and general
intangible assets (as defined) of the Company. A fee of 3/8% is assessed on the
unused portion of the facility. On December 29, 1996, the Company had $50,000 in
LIBOR Borrowings and Letters of Credit of $4,368 outstanding. The Company's
maximum eligible borrowing available under the facility is limited to 65% of
eligible inventory. Available borrowings on the CIT Facility amounted to $27,632
at December 29, 1996.
The unsecured senior subordinated debt is due 2002 and bears interest at
13.625%. The notes require mandatory sinking fund payments of 25% at September
15, 2000 and 2001. The notes may be redeemed in whole or from time to time in
part at any time on and after September 15, 1997, at the option of the Company,
at the redemption price set forth below with respect to the indicated redemption
date, together with any accrued but unpaid interest to such redemption date.
If redeemed during the 12-month period beginning September 15:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
1997................................... 105.839%
1998................................... 103.893
1999................................... 101.946
2000 and thereafter.................... 100.000
=======
</TABLE>
The various debt agreements contain restrictions on working capital,
acquisition of treasury stock and payment of cash dividends. In addition, the
agreements restrict liens on assets and the acquisition or sale of subsidiaries.
F-10
<PAGE> 100
UNITED MERCHANDISING CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
The aggregate mandatory sinking fund requirements and annual maturities of
long-term debt for each of the five years subsequent to December 29, 1996 are as
follows:
<TABLE>
<S> <C>
1997.................................... $ --
1998.................................... --
1999.................................... 50,000
2000.................................... 9,113
2001.................................... 9,113
Thereafter.............................. 18,224
======
</TABLE>
(5) LEASES
The Company currently leases certain stores, distribution facilities,
vehicles and equipment under noncancelable operating leases that expire through
the year 2018. These leases generally contain renewal options for periods
ranging from 5 to 15 years and require the Company to pay all executory costs
such as maintenance and insurance. Certain leases contain options to purchase
the leased assets.
Certain leases contain escalation clauses and provide for contingent
rentals based on percentages of sales. The Company recognizes rental expense on
a straight-line basis over the terms of the underlying leases, without regard to
when rentals are paid. The accrual of the noncash portion of this rental expense
has been included in depreciation and amortization in the accompanying
statements of operations and cash flows and deferred rent in the accompanying
balance sheets.
Rental expense for operating leases consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 1 DECEMBER 31, DECEMBER 29,
1995 1995 1996
<S> <C> <C> <C>
Cash rental payments................................ $ 18,482 21,003 23,670
Noncash rentals..................................... 496 3,344 973
Contingent rentals.................................. 1,275 989 1,038
------- ------- -------
Rental expense............................ $ 20,253 25,336 25,681
======= ======= =======
</TABLE>
Future minimum lease payments (cash rentals) under noncancelable operating
leases (with initial or remaining lease terms in excess of one year) as of
December 29, 1996 are:
<TABLE>
<S> <C>
Year ending:
1997.............................. $ 22,811
1998.............................. 22,478
1999.............................. 21,522
2000.............................. 20,370
2001.............................. 19,822
Thereafter........................ 155,336
--------
$262,339
========
</TABLE>
F-11
<PAGE> 101
UNITED MERCHANDISING CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
(6) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
<S> <C> <C>
Payroll and related expenses.......................... $ 7,545 $ 8,849
Self-insurance reserves............................... 6,011 4,503
Sales tax............................................. 4,427 4,821
Other................................................. 9,404 10,195
------- -------
$ 27,387 $ 28,368
======= =======
</TABLE>
(7) INCOME TAXES
Income tax expense, excluding tax benefit of extraordinary loss, consists
of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
<S> <C> <C> <C>
1994:
Federal..................................... $ 1,769 $ (151) $ 1,618
State....................................... 312 (27) 285
------ ------- ------
2,081 (178) 1,903
------ ------- ------
1995:
Federal..................................... -- 313 313
State....................................... -- 55 555
------ ------- ------
-- 368 368
------ ------- ------
1996:
Federal..................................... 2,273 (1,445) 828
State....................................... 397 (255) 142
------ ------- ------
$ 2,670 $ (1,700) $ 970
====== ======= ======
</TABLE>
The extraordinary losses in 1994 and 1996 are reported net of tax benefits
of $1,903 and $937, respectively (note 4). Accordingly, the 1996 tax provision
including the tax benefit of the extraordinary loss is $33. The 1994 tax
provision including the tax benefit of the extraordinary loss is zero.
The provision for income taxes differs from the amounts computed by
applying the Federal statutory tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate... $ 2,171 $ (2,084) $ 1,763
State taxes, net of Federal benefit....... 364 (363) 307
Increase (decrease) in valuation
allowance, net of IRS adjustment........ 433 2,990 (1,215)
MIS migration fees........................ (1,190) -- --
Other..................................... 125 (175) 115
------- ------- -------
$ 1,903 $ 368 $ 970
======= ======= =======
</TABLE>
F-12
<PAGE> 102
UNITED MERCHANDISING CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Deferred tax assets and liabilities consist of the following tax-effected
temporary differences:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
<S> <C> <C>
Deferred assets:
Self-insurance reserves................................... $2,050 $1,849
Employee benefits......................................... 1,167 1,577
State taxes............................................... 1,065 73
Net operating loss carryforward........................... 2,427 --
Noncash rentals........................................... 1,488 2,150
Amortization of tangible and intangible assets............ -- 1,292
Other..................................................... 770 1,103
------ ------
Gross deferred tax assets......................... 8,967 8,044
Valuation allowance....................................... (7,475) (4,094)
------ ------
Net deferred tax assets........................... $1,492 $3,950
====== ======
Deferred liabilities:
Basis in fixed assets..................................... $1,252 $2,250
Amortization of tangible and intangible assets............ 240 --
------ ------
Total deferred tax liabilities.................... $1,492 $2,250
====== ======
</TABLE>
In 1996, the Company reduced the valuation allowance to reflect
realizability of its deferred tax assets. In doing so, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversals of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. At December 29, 1996,
management's assessment indicated that net deferred tax assets of $1,700 were
recoverable. The valuation allowance decrease of $3,381 from the December 31,
1995 balance includes an adjustment for the IRS matter described below.
During 1996, the Company resolved certain audit issues with the IRS which
resulted in the elimination and reclassification of certain temporary
differences. The Company had established a valuation allowance against such
temporary differences in previous years. Accordingly, the impact of resolving
these audit issues was offset in 1996 by a corresponding decrease in the
valuation allowance for those temporary differences eliminated.
For the year ended December 31, 1995, management performed a similar
assessment of the realizability of deferred taxes and concluded that a valuation
allowance for the entire net deferred tax assets was required given the history
of income tax losses experienced by the Company at the time. Accordingly, the
valuation allowance was increased by $2,990 from the January 1, 1995 balance.
(8) EMPLOYEE BENEFIT PLANS
Effective January 4, 1993, the Company established a 401(k) plan to cover
all eligible employees. All employees' contributions may be supplemented by
Company contributions. The Company contributed $1,060 for the year ended January
1, 1995, $667 for the year ended December 31, 1995 and $1,017 for the year ended
December 29, 1996, in employer matching and profit sharing contributions.
Certain employees of the Company participate in a stock option plan of the
parent company's stock. Options are granted by the Board of Directors with
exercise prices equal to the fair market value of the parent company's stock, as
determined by valuation models prepared by the Board. There were no stock
options
F-13
<PAGE> 103
UNITED MERCHANDISING CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
granted in 1995. For 1996, options to purchase 54,700 shares were granted on
December 31, 1996 at an exercise price of $12 per share. The options vest and
become exercisable in cumulative 20% installments commencing one year from the
date of grant, with full vesting on the fifth anniversary. The plan terminates
on September 25, 2002. Pro forma disclosures as defined by SFAS 123 are not
applicable for the options granted in 1996 as vesting begins in 1997.
The Company has no significant postretirement or postemployment benefits.
(9) RELATED PARTY TRANSACTIONS
The Company received certain administrative support services from a related
party for which the Company pays a negotiated fee based on services provided.
The services were terminated April 1995. These charges totaled $1,099 for the
year ended January 1, 1995 and $61 for the year ended December 31, 1995.
In addition, the Company leases certain property and equipment from a
related party who leases this property and equipment from an outside party.
Charges related to these leases totaled $1,738 for the year ended January 1,
1995 $1,857 for the year ended December 31, 1995 and $1,008 for the year ended
December 29, 1996.
The Company has an agreement to pay $568, plus expenses, annually to an
advisor group of its investor. Certain individuals of the investor advisor group
are members of the Company's Board of Directors. In 1994 and 1996, the Company
paid this advisor group an additional $500 for services related to securing of
the CIT and GECC facilities.
Affiliates of the Company own $250 of the senior subordinated notes.
(10) CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
(11) BUSINESS CONCENTRATIONS
The Company operates specialty sporting goods retail stores located
principally in the Western states of the United States. The retail industry is
impacted by the general economy. Changes in the marketplace may significantly
affect management's estimates and the Company's performance.
(12) SALE LEASEBACK
On March 5, 1996, the Company entered into a sale and leaseback agreement
(the transaction) with regard to its warehouse facility located in Fontana,
California. Prior to this transaction, the Company owned the land associated
with the facility and leased the buildings and improvements. In contemplation of
the transaction, the Company purchased the building and improvements at a
purchase price of $8,910. The transaction was then completed with the sale of
the land, building and improvements at a sale price of $13,900. The gain on the
transaction was insignificant and will be amortized on a straight-line basis
over the related lease term. The net cash proceeds after expenses totaled $4,728
which was used to repay a portion of the GECC Facility (note 4).
Under the leaseback agreement, the Company has committed to lease the
facility for ten years under a noncancelable operating lease. The future minimum
lease payments are reflected in the future minimum lease payments under
noncancelable operating leases (note 5).
F-14
<PAGE> 104
UNITED MERCHANDISING CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
On October 31, 1996, the Company entered into a sale and leaseback
agreement with regard to its store located in Culver City, California. The sale
amount of the property was $817 resulting in a $214 loss for the Company which
is included in the statements of operations. The Company has committed to lease
the property for 15 years under a noncancelable operating lease. The future
minimum lease payments are reflected in the future minimum lease payments under
noncancelable leases (note 5).
F-15
<PAGE> 105
UNITED MERCHANDISING CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 29, SEPTEMBER 28,
1996 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 4,797 $ 416
Trade and other receivables, net of allowance for doubtful
accounts of $464 and $397, respectively.......................... 4,054 2,232
Merchandise inventories........................................... 134,886 146,513
Prepaid expenses.................................................. 1,031 865
-------- --------
Total current assets.................................... 144,768 150,026
-------- --------
Property and equipment:
Land.............................................................. 186 186
Buildings, improvements, furniture and equipment.................. 44,423 47,064
Less accumulated depreciation and amortization.................... (17,079) (20,487)
-------- --------
Net property and equipment.............................. 27,530 26,763
-------- --------
Deferred income taxes, net............................................. 1,700 4,995
Leasehold interest, net of amortization of $12,117 and $13,441,
respectively......................................................... 16,375 15,051
Other assets, at cost, less accumulated amortization of $713 and
$1,208, respectively................................................. 1,829 1,539
Excess of cost over net assets acquired, less accumulated amortization
of $878 and $1,063, respectively..................................... 5,667 5,482
-------- --------
$197,869 $ 203,856
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.................................................. $ 44,239 $ 44,453
Accrued expenses.................................................. 30,101 26,015
-------- --------
Total current liabilities............................... 74,340 70,468
Deferred rent.......................................................... 5,224 5,793
Long-term debt......................................................... 86,450 87,226
-------- --------
Total liabilities....................................... 166,014 163,487
-------- --------
Commitments and contingencies
Stockholder's equity
Common stock, no par value. Authorized 2,500 shares; issued and
outstanding 1,300 shares......................................... 35,080 35,103
Retained Earnings (accumulated deficit)........................... (3,225) 5,266
-------- --------
Total stockholder's equity.............................. 31,855 40,369
-------- --------
$197,869 $ 203,856
======== ========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-16
<PAGE> 106
UNITED MERCHANDISING CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------ ------------------------------------
SEPTEMBER 29, 1996 SEPTEMBER 28, 1997 SEPTEMBER 29, 1996 SEPTEMBER 28, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales......................... $106,523 $117,079 $296,356 $324,177
Cost of goods sold, buying and
occupancy....................... 73,310 80,274 203,420 218,675
------ ------ ------- ------
Gross profit....... 33,213 36,805 92,936 105,502
------ ------ ------- ------
Operating expenses:
Selling and administrative... 25,953 28,532 76,651 82,603
Depreciation and
amortization............... 2,310 2,089 7,109 6,087
------ ------ ------- ------
Total operating
expenses......... 28,263 30,621 83,760 88,690
------ ------ ------- ------
Operating income... 4,950 6,184 9,176 16,812
Interest expense.................. 2,700 2,495 8,589 7,913
------ ------ ------- ------
Income before income taxes
and extraordinary loss..... 2,250 3,689 587 8,899
Income taxes...................... -- 408 -- 408
------ ------ ------- ------
Net income before
extraordinary loss......... 2,250 3,281 587 8,491
Extraordinary loss from early
extinguishment of debt.......... -- -- (2,222) --
------ ------ ------- ------
Net income
(loss)........... $ 2,250 $ 3,281 $ (1,635) $ 8,491
====== ====== ======= ======
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-17
<PAGE> 107
UNITED MERCHANDISING CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 29, 1996 SEPTEMBER 28, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ (1,635) $ 8,491
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 7,109 6,087
Extraordinary loss from early extinguishment of debt... 2,222 --
Amortization of deferred finance charges............... 454 495
Deferred tax benefit................................... -- (3,295)
Change in assets and liabilities:
Merchandise inventories........................... 1,139 (11,627)
Trade & other receivables......................... 1,855 1,822
Prepaid expenses and other assets................. (153) (54)
Accounts payable.................................. (679) 214
Accrued expenses.................................. (2,785) (4,086)
-------- --------
Net cash (used in) provided by operating
activities................................ 7,527 (1,953)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment......................... (1,555) (3,227)
Purchases of assets held pending sale and leaseback......... (8,910) --
Proceeds from sale of property and equipment................ 13,900 --
-------- --------
Net cash (used in) provided by investing
activities................................ 3,435 (3,227)
-------- --------
Cash flows from financing activities:
Net borrowings under revolving credit facilities............ (8,176) 776
Debt issuance costs......................................... (1,434) --
Debt prepayments............................................ (1,160) --
Other....................................................... -- 23
-------- --------
Net cash provided by (used in) financing
activities................................ (10,770) 799
-------- --------
Net (decrease) increase in cash and cash
equivalents............................... 192 (4,381)
Cash and cash equivalents at beginning of period................. 3,198 4,797
-------- --------
Cash and cash equivalents at end of period....................... $ 3,390 $ 416
======== ========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-18
<PAGE> 108
UNITED MERCHANDISING CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FINANCIAL INFORMATION
1. In the opinion of management of United Merchandising Corp. (the "Company"),
the accompanying unaudited condensed financial statements contain all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly and in accordance with generally accepted accounting
principles the financial position, results of operations and cash flows as of
and for the period ended September 28, 1997.
2. These unaudited condensed financial statements should be read in conjunction
with the Company's 1996 audited financial statements included herein.
3. In October 1997, Big 5 Corporation (the "Parent"), the senior managers of the
Company and the principal stockholder agreed to enter into a Plan of
Recapitalization and Stock Repurchase Agreement (the "Recapitalization"). The
following transactions directly affecting the Company will result from the
Recapitalization: (i) the Company will offer $131.0 million of senior notes;
(ii) the Company will defease and repay its existing senior subordinated
notes (the "Old Notes"); (iii) the Company will amend its revolving credit
facility; and (iv) the Company will dividend approximately $81.6 million to
its Parent.
The Company expects to incur transaction fees of approximately $5.0 million
related to the offering of the $131.0 million of senior notes and $0.3
million related to the amendment of its revolving credit facility. The
Company will incur a write-off of approximately $0.6 million of deferred
financing fees related to the defeasance and repayment of the Old Notes.
4. The Company is being reincorporated in Delaware as Big 5 Corp.
F-19
<PAGE> 109
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 110
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY BIG 5 CORP. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR THE SOLICITATION OF ANY OFFER TO BUY, ANY SECURITIES OFFERED
HEREBY TO ANY PERSON IN OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPRESSION THAT
THERE HAS NOT BEEN A CHANGE IN THE INFORMATION SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF BIG 5 CORP. SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. ii
Summary............................... 1
Risk Factors.......................... 11
The Recapitalization.................. 15
Use of Proceeds....................... 15
The Exchange Offer.................... 15
Capitalization........................ 26
Unaudited Pro Forma Condensed
Financial Data...................... 27
Selected Historical Financial Data.... 33
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 35
Business.............................. 41
Management............................ 49
Principal Stockholders................ 53
Certain Relationships and Related
Transactions........................ 54
Financing Arrangements................ 55
Description of the Notes.............. 57
Plan of Distribution.................. 84
Legal Matters......................... 84
Experts............................... 84
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
$131 MILLION
LOGO
BIG 5 CORP.
SERIES B 10 7/8% SENIOR NOTES
DUE 2007
------------------------------
PROSPECTUS
------------------------------
, 1998
======================================================
<PAGE> 111
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation or
is or was serving at its request in such capacity in another corporation or
business association, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
or (iv) for any transaction from which the director derived an improper personal
benefit.
As permitted by Section 102(b)(7) of the DGCL, the registrant's Restated
Certificate of Incorporation, as amended, includes a provision that limits a
director's personal liability to such registrant or its stockholders for
monetary damages for breaches of his or her fiduciary duty as a director.
Article SEVENTH of the registrant's Restated Certificate of Incorporation, as
amended, provides that no director of the registrant shall be personally liable
to the registrant or its stockholders for monetary damages for breach of
fiduciary duty to the fullest extent permitted by the DGCL.
As permitted by Section 145 of the DGCL, the registrant's Restated
Certificate of Incorporation, as amended, and Bylaws, as amended, provide that,
to the fullest extent permitted by the DGCL, directors, officers and certain
other persons who are made, or are threatened to be made, parties to, or are
involved in, any action, suit or proceeding will be indemnified by the
registrant with respect thereto.
The registrant maintains insurance policies under which its directors and
officers are insured, within the limits and subject to the limitations of the
policies, against expenses in connection with the defense of actions, suits or
proceedings, and certain liabilities that might be imposed as a result of such
actions, suits or proceedings, to which they are parties by reason of being or
having been directors or officers of the registrant.
ITEM 21. EXHIBITS
A list of exhibits included as part of the registration statement is set
forth below:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------------------
<S> <C>
3(i)* Restated Certificate of Incorporation of the Company
3(ii)* By-Laws of the Company, as amended October 27, 1997
4.1 Indenture dated as of November 13, 1997 between the Company and First
Trust National Association, as trustee
4.2 Form of the Company's Series B 10 7/8% Senior Notes due 2007 (included in
Exhibit 4.1)
5 Opinion of Irell & Manella LLP (includes consent) (filed herewith)
</TABLE>
II-1
<PAGE> 112
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------------------
<S> <C>
10.1(a)** Employment Agreement between the Company and Robert W. Miller dated as of
January 1, 1993
10.1(b)** Employment Agreement between the Company and Steve G. Miller dated as of
January 1, 1993
10.1(c)** Sublease between the Company and Thrifty dated as of September 25, 1992
10.2(a)*** Amended and Restated Indemnification Implementation Agreement between the
Company (formerly known as United Merchandising Corp.) and Thrifty Payless
Holdings, Inc. dated as of April 20, 1994
10.2(b)*** Agreement and Release among Pacific Enterprises, Thrifty Payless Holdings,
Inc., Thrifty Payless, Inc., Thrifty and the Company (formerly known as
United Merchandising Corp.) dated as of March 11, 1994
10.3(a)**** Financing Agreement dated March 8, 1996 between The CIT Group/Business
Credit, Inc. and the Company
10.3(b)**** Grant of Security Interest in and Collateral Assignment of Trademarks and
Licenses dated as of March 8, 1996 by the Company in favor of The CIT
Group/Business Credit, Inc.
10.3(c)**** Guarantee dated March 8, 1996 by Big 5 Corporation (now known as Big 5
Holdings Corp.) in favor of The CIT Group/Business Credit, Inc.
10.4(a)**** Agreement on Purchase and Sale among the Company and the State of
Wisconsin dated as of February 13, 1996
10.4(b)**** Lease among the Company (Lessee) and the State of Wisconsin Investment
Board (Lessor) dated as of March 5, 1996
10.5 Purchase Agreement, dated as of November 13, 1997, by and among the
Company and the Initial Purchasers named therein.
10.6 Registration Rights Agreement, dated as of November 13, 1997, by and among
the Company and the Initial Purchasers named therein.
10.7 Management Services Agreement, dated as of November 13, 1997, by and
between the Company, Big 5 Holdings Corp. and Leonard Green & Associates,
L.P.
10.8 Letter from The CIT Group/Business Credit, Inc. to the Company dated
November 13, 1997, amending the Financing Agreement, dated March 8, 1996
between the Company (formerly known as United Merchandising Corp.) and The
CIT Group/Business Credit, Inc.
23.1 Consent of KPMG Peat Marwick LLP (filed herewith)
23.2 Consent of Irell & Manella LLP (filed herewith as part of Exhibit 5)
24 Powers of Attorney of officers and directors of registrant (filed
herewith)
25 Statement Regarding Eligibility of Trustee
99.1 Form of Letter of Transmittal
99.2 Notice of Guaranteed Delivery
</TABLE>
- ---------------
* Incorporated by reference to the Company's Current Report on Form 8-K filed
November 26, 1997.
** Incorporated by reference to the Company's Registration Statement on Form
S-4 (file no. 33-61096) effective as of June 29, 1993.
*** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended January 1, 1995.
**** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
II-2
<PAGE> 113
ITEM 22. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(d) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of an action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in
II-3
<PAGE> 114
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
(f) The undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee
to act under subsection (a) of Section 310 of the Trust Indenture Act in
accordance with the rules and regulations prescribed by the Commission
under Section 305(b)(2) of the Trust Indenture Act.
II-4
<PAGE> 115
POWER OF ATTORNEY
Each person whose signature to the Registration Statement appears below
hereby appoints Gary S. Meade and Charles P. Kirk and each of them, either one
of whom may act without joinder of the other, as his attorney-in-fact to sign on
his behalf individually and in the capacity stated below and to file all
amendments and post-effective amendments to this Registration Statement, which
amendments may make such changes in and additions to this Registration Statement
as such attorney-in-fact may deem appropriate or necessary.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on December 23, 1997.
BIG 5 CORP.,
a Delaware corporation
By: /s/ ROBERT W. MILLER
------------------------------------
Robert W. Miller
Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<C> <C> <S>
/s/ ROBERT W. MILLER Chairman of the Board and December 23, 1997
- --------------------------------------------- Chief Executive Officer
Robert W. Miller (Principal Executive
Officer)
/s/ STEVEN G. MILLER President, Chief Operating December 23, 1997
- --------------------------------------------- Officer and Director
Steven G. Miller
/s/ DR. MICHAEL D. MILLER Director December 23, 1997
- ---------------------------------------------
Dr. Michael D. Miller
/s/ JOHN G. DANHAKL Director December 23, 1997
- ---------------------------------------------
John G. Danhakl
Director December 23, 1997
/s/ JONATHAN A. SEIFFER
- ---------------------------------------------
Jonathan A. Seiffer
/s/ CHARLES P. KIRK Chief Financial Officer December 23, 1997
- --------------------------------------------- (Principal Financial Officer
Charles P. Kirk and Principal Accounting
Officer)
</TABLE>
II-5
<PAGE> 1
====================================
BIG 5 CORP.,
AS ISSUER
AND
FIRST TRUST NATIONAL ASSOCIATION,
AS TRUSTEE
-------------------
INDENTURE
Dated as of November 13, 1997
-------------------
$131,000,000
10 7/8% Senior Notes due 2007
===================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions................................................................................1
SECTION 1.2. Incorporation by Reference of TIA.........................................................23
SECTION 1.3. Rules of Construction.....................................................................24
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating...........................................................................24
SECTION 2.2. Execution and Authentication..............................................................25
SECTION 2.3. Registrar and Paying Agent................................................................26
SECTION 2.4. Paying Agent to Hold Assets in Trust......................................................27
SECTION 2.5. Securityholder Lists......................................................................27
SECTION 2.6. Transfer and Exchange.....................................................................27
SECTION 2.7. Replacement Securities....................................................................33
SECTION 2.8. Outstanding Securities....................................................................34
SECTION 2.9. Treasury Securities.......................................................................34
SECTION 2.10. Temporary Securities......................................................................35
SECTION 2.11. Cancellation..............................................................................35
SECTION 2.12. Defaulted Interest........................................................................35
SECTION 2.13. CUSIP Numbers.............................................................................36
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption.......................................................................37
SECTION 3.2. Notices to Trustee........................................................................37
SECTION 3.3. Selection of Securities to Be Redeemed....................................................38
SECTION 3.4. Notice of Redemption......................................................................38
SECTION 3.5. Effect of Notice of Redemption............................................................39
SECTION 3.6. Deposit of Redemption Price...............................................................40
SECTION 3.7. Securities Redeemed in Part...............................................................40
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Securities.....................................................................40
SECTION 4.2. Maintenance of Office or Agency...........................................................41
SECTION 4.3. Limitation on Restricted Payments.........................................................41
SECTION 4.4. Corporate and Partnership Existence.......................................................42
SECTION 4.5. Payment of Taxes and Other Claims.........................................................43
SECTION 4.6. Maintenance of Properties and Insurance...................................................43
SECTION 4.7. Compliance Certificate; Notice of Default.................................................44
SECTION 4.8. Reports...................................................................................44
SECTION 4.9. Limitation on Status as Investment Company................................................45
SECTION 4.10. Limitation on Transactions with Affiliates................................................45
SECTION 4.11. Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock................................................................46
SECTION 4.12. Limitations on Dividends and Other Payment Restric
tions Affecting Subsidiaries..............................................................47
SECTION 4.13. Reserved..................................................................................48
SECTION 4.14. Limitation on Sales of Assets and Subsidiary Stock........................................48
SECTION 4.15. Waiver of Stay, Extension or Usury Laws...................................................53
SECTION 4.16. Limitation on Liens Securing Indebtedness.................................................53
SECTION 4.17. Rule 144A Information Requirement.........................................................53
SECTION 4.18. Limitations on Lines of Business..........................................................54
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation...............................................54
SECTION 5.2. Successor Corporation Substituted.........................................................55
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default.........................................................................55
SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment...................................56
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by Trustee...........................58
SECTION 6.4. Trustee May File Proofs of Claim..........................................................58
SECTION 6.5. Trustee May Enforce Claims Without Possession of Securities...............................59
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 6.6. Priorities................................................................................59
SECTION 6.7. Limitation on Suits.......................................................................60
SECTION 6.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest......................................................................61
SECTION 6.9. Rights and Remedies Cumulative............................................................61
SECTION 6.10. Delay or Omission Not Waiver..............................................................61
SECTION 6.11. Control by Holders........................................................................61
SECTION 6.12. Waiver of Existing or Past Default........................................................62
SECTION 6.13. Undertaking for Costs.....................................................................62
SECTION 6.14. Restoration of Rights and Remedies........................................................63
ARTICLE VII
TRUSTEE
SECTION 7.1. Duties of Trustee.........................................................................63
SECTION 7.2. Rights of Trustee.........................................................................64
SECTION 7.3. Individual Rights of Trustee..............................................................65
SECTION 7.4. Trustee's Disclaimer......................................................................66
SECTION 7.5. Notice of Default.........................................................................66
SECTION 7.6. Reports by Trustee to Holders.............................................................66
SECTION 7.7. Compensation and Indemnity................................................................66
SECTION 7.8. Replacement of Trustee....................................................................67
SECTION 7.9. Successor Trustee by Merger, Etc..........................................................68
SECTION 7.10. Eligibility; Disqualification.............................................................69
SECTION 7.11. Preferential Collection of Claims Against Company.........................................69
ARTICLE VIII
DISCHARGE; LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Discharge; Option to Effect Legal Defeasance or Covenant Defeasance.......................69
SECTION 8.2. Legal Defeasance and Discharge............................................................69
SECTION 8.3. Covenant Defeasance.......................................................................70
SECTION 8.4. Conditions to Legal or Covenant Defeasance................................................70
SECTION 8.5. Deposited Cash and U.S. Government Obligations to be
Held in Trust; Other Miscellaneous Provisions.............................................71
SECTION 8.6. Repayment to the Company..................................................................72
SECTION 8.7. Reinstatement.............................................................................72
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of Holders........................................73
SECTION 9.2. Amendments, Supplemental Indentures and Waivers
with Consent of Holders...................................................................74
SECTION 9.3. Compliance with TIA.......................................................................75
SECTION 9.4. Revocation and Effect of Consents.........................................................75
SECTION 9.5. Notation on or Exchange of Securities.....................................................76
SECTION 9.6. Trustee to Sign Amendments, Etc...........................................................76
ARTICLE X
RIGHT TO REQUIRE REPURCHASE
SECTION 10.1. Repurchase of Securities at Option of the Holder Upon a
Change of Control.........................................................................77
ARTICLE XI
GUARANTEE
SECTION 11.1. Guarantee.................................................................................80
SECTION 11.2. Execution and Delivery of Guarantee.......................................................82
SECTION 11.3. Certain Bankruptcy Events.................................................................82
SECTION 11.4. Limitation on Merger of Subsidiary Guarantors and
Release of Subsidiary Guarantors..........................................................82
ARTICLE XII
RESERVED
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. TIA Controls..............................................................................83
SECTION 13.2. Notices...................................................................................83
SECTION 13.3. Communications by Holders with Other Holders..............................................85
SECTION 13.4. Certificate and Opinion as to Conditions Precedent........................................85
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 13.5. Statements Required in Certificate or Opinion.............................................85
SECTION 13.6. Rules by Trustee, Paying Agent, Registrar.................................................86
SECTION 13.7. Legal Holidays............................................................................86
SECTION 13.8. Governing Law.............................................................................86
SECTION 13.9. No Adverse Interpretation of Other Agreements.............................................86
SECTION 13.10. No Recourse Against Others................................................................87
SECTION 13.11. Successors................................................................................87
SECTION 13.12. Duplicate Originals.......................................................................87
SECTION 13.13. Severability..............................................................................87
SECTION 13.14. Table of Contents, Headings, Etc..........................................................87
SECTION 13.15. Qualification of Indenture................................................................88
SECTION 13.16. Registration Rights.......................................................................88
EXHIBIT A [FORM OF SECURITY].......................................................................A-1
</TABLE>
v
<PAGE> 7
CROSS-REFERENCE TABLE
TIA INDENTURE
SECTION SECTION
- ------- -------
310(a)(1).............................................. 7.10
(a)(2).............................................. 7.10
(a)(3).............................................. N.A.
(a)(4).............................................. N.A.
(a)(5).............................................. 7.10
(b)................................................. 7.8; 7.10; 13.2
(c)................................................. N.A.
311(a)................................................. 7.11
(b)................................................. 7.11
(c)................................................. N.A.
312(a)................................................. 2.5
(b)................................................. 13.3
(c)................................................. 13.3
313(a)................................................. 7.6
(b)(1).............................................. 7.6
(b)(2).............................................. 7.6
(c)................................................. 7.6;13.2
(d)................................................. 7.6
314(a)................................................. 4.7(a); 4.8;
(b)................................................. N.A.
(c)(1).............................................. 2.2; 7.2; 13.4
(c)(2).............................................. 7.2; 13.4
(c)(3).............................................. N.A.
(d)................................................. N.A.
(e)................................................. 13.5
(f)................................................. N.A.
315(a)................................................. 7.1(b)
(b)................................................. 7.5; 7.6; 13.2
(c)................................................. 7.1(a)
(d)................................................. 6.11; 7.1(b), (c)
(e)................................................. 6.13
316(a)(last sentence).................................. 2.9
(a)(1)(A)........................................... 6.11
(a)(1)(B)........................................... 6.12
(a)(2).............................................. N.A.
(b)................................................. 6.12; 6.7; 6.8
317(a)(1).............................................. 6.3
vi
<PAGE> 8
TIA INDENTURE
SECTION SECTION
- ------- -------
(a)(2).............................................. 6.4
(b)................................................. 2.4
- ----------
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
vii
<PAGE> 9
INDENTURE, dated as of November 13, 1997, by and between Big 5
Corp., a Delaware corporation (the "Company"), and First Trust National
Association, as trustee (the "Trustee").
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's
10 7/8% Series A Senior Notes due 2007 and the class of 10 7/8% Series B Senior
Notes due 2007 to be exchanged for the 10 7/8% Series A Senior Notes due 2007:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
"Acquired Indebtedness" means Indebtedness or Disqualified Capital
Stock of any person existing at the time such person becomes a Subsidiary of the
Company, including by designation, or is merged or consolidated into or with the
Company or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any person
(including, without limitation, the acquisition of more than 50% of the Equity
Interests of any person) or all or substantially all the assets of any person by
any other person, whether by purchase, stock purchase, merger, consolidation, or
other transfer, and whether or not for consideration.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided that, with respect to ownership interest in the Company
and its Subsidiaries, a Beneficial Owner of 10% or more of the total voting
power normally entitled to vote in the election of directors, managers or
trustees, as applicable, shall for such purposes be deemed to constitute
control.
"Affiliate Transaction" shall have the meaning specified in Section
4.10.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Asset Sale" shall have the meaning specified in Section 4.14.
"Asset Sale Offer" shall have the meaning specified in Section 4.14.
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"Asset Sale Offer Amount" shall have the meaning specified in
Section 4.14.
"Asset Sale Offer Period" shall have the meaning specified in
Section 4.14.
"Asset Sale Offer Price" shall have the meaning specified in Section
4.14.
"Average Life" means, as of the date of determination, with respect
to any security or instrument, the quotient obtained by dividing (i) the sum of
the products (a) of the number of months from the date of determination to the
date or dates of each successive scheduled principal (or redemption) payment of
such security or instrument and (b) the amount of each such respective principal
(or redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal,
state or foreign law for the relief of debtors.
"Beneficial Owner" or "beneficial owner" for purposes of the
definition of Change of Control and Affiliate has the meaning attributed to it
in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the Issue
Date), whether or not applicable.
"Board of Directors" means, with respect to any person, the board of
directors of such person or any committee of the Board of Directors of such
person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York
are authorized or obligated by law or executive order to close.
"Capital Contribution" means a contribution of cash or Cash
Equivalents by Parent to the consolidated stockholder's equity of the Company
solely in exchange for, if anything, shares of the Company's common stock with
no preferences or special rights or privileges and with no redemption or
prepayment provisions.
"Capitalized Lease Obligation" means, as to any person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
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.
"Capital Stock" means, with respect to any corporation, any and all
shares, interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself
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otherwise capital stock), warrants, options, participations or other equivalents
of or interests (however designated) in stock issued by that corporation.
"Cash" or "cash" 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 or private debts.
"Cash Equivalent" means (a) securities issued or directly and fully
guaranteed or insured by the United States Government, or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (b) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either S&P or Moody's; (c) certificates of deposit,
time deposits, eurodollar time deposits, overnight bank deposits or bankers'
acceptances having maturities of not more than one year from the date of
acquisition thereof of any domestic commercial bank, the long-term debt of which
is rated at the time of acquisition thereof at least A or the equivalent thereof
by S&P, or A or the equivalent thereof by Moody's and having capital and surplus
in excess of $500 million; (d) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (a),
(b) and (c) above entered into with any bank meeting the qualifications
specified in clause (c) above; (e) commercial paper rated at the time of
acquisition thereof at least A-2 or the equivalent thereof by S&P or P-2 or the
equivalent thereof by Moody's, or carrying an equivalent rating by a nationally
recognized rating agency, if both of the two named rating agencies cease
publishing ratings of investments, and in either case maturing within 270 days
after the date of acquisition thereof; and (f) interests in any investment
company which invests solely in instruments of the type specified in clauses (a)
through (e) above.
"Change of Control" means (i) any merger or consolidation of the
Company or Parent with or into any person or any sale, transfer or other
conveyance, whether direct or indirect, of all or substantially all of the
assets of the Company or Parent on a consolidated basis, in one transaction or a
series of related transactions, if, immediately after giving effect to such
transaction(s), any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other
than any Excluded Person or Excluded Persons or Parent, is or becomes the
Beneficial Owner, directly or indirectly, of more than 50% of the total voting
power in the aggregate normally entitled to vote in the election of directors,
managers, or trustees, as applicable, of the transferee(s) or surviving entity
or entities, (ii) any "person" or "group," other than any Excluded Person or
Excluded Persons or Parent, is or becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the total voting power in the aggregate of all
classes of Capital Stock of the Company then outstanding normally entitled to
vote in elections of directors, provided that any "person" or "group" shall be
deemed to be the Beneficial Owner of any Capital Stock of the Company held by
Parent so long as such person or group is the Beneficial Owner of, directly or
indirectly, in the aggregate a majority of the Capital Stock of Parent then
outstanding normally entitled to vote in elections of directors, (iii) during
any period of 12 consecutive months after the Issue Date, individuals who at the
beginning
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of any such 12-month period constituted the Board of Directors of either the
Company or Parent (together, in each case, with any new directors whose election
by such Board of Directors or whose nomination for election by the shareholders
of the Company or Parent was approved by LGP or a Related Party of LGP or by the
Excluded Persons or by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company or
Parent then in office, as applicable, or (iv) at any time after the Issue Date,
the Company no longer continues, for Federal income tax purposes, to be a member
of the affiliated group of Parent under circumstances that would accelerate the
unrealized gain in respect of Parent's investment account in the Company.
"Change of Control Offer" shall have the meaning specified in
Section 10.1.
"Change of Control Offer Period" shall have the meaning specified in
Section 10.1.
"Change of Control Purchase Date" shall have the meaning specified
in Section 10.1.
"Change of Control Purchase Price" shall have the meaning specified
in Section 10.1.
"CIT Credit Facility" means that certain Financing Agreement by and
between The CIT Group/Business Credit, Inc., as Agent and as Lender, and United
Merchandising Corp. (as Borrower) dated as of March 8, 1996, as amended by those
certain letter amendments dated April 17, 1996 and August 11, 1997, and as
further amended by that certain letter amendment dated November 13, 1997 and all
notes, instruments, guarantees and other documents and agreements entered into
in connection therewith.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture, and thereafter means such
successor.
"Consolidated Coverage Ratio" of any person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis, of
(a) the aggregate amount of Consolidated EBITDA of such person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Fixed Charges of such person
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations giving
rise to such Consolidated Fixed Charges would no longer be obligations
contributing to such person's Consolidated Fixed Charges subsequent to the
Transaction Date) during the Reference Period; provided, that for purposes of
calculating Consolidated EBITDA and Consolidated Fixed Charges for this
definition, (i)
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Acquisitions which occurred during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date shall be assumed to
have occurred on the first day of the Reference Period, (ii) transactions giving
rise to the need to calculate the Consolidated Coverage Ratio shall be assumed
to have occurred on the first day of the Reference Period, (iii) the incurrence
of any Indebtedness or issuance of any Disqualified Capital Stock during the
Reference Period or subsequent to the Reference Period and on or prior to the
Transaction Date (and the application of the proceeds therefrom to the extent
used to refinance or retire other Indebtedness) shall be assumed to have
occurred on the first day of the Reference Period, and (iv) the Consolidated
Fixed Charges of such person attributable to interest on any Indebtedness or
dividends on any Disqualified Capital Stock bearing a floating interest (or
dividend) rate shall be computed on a pro forma basis as if the average rate in
effect from the beginning of the Reference Period to the Transaction Date had
been the applicable rate for the entire period, unless such Person or any of its
Subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall
remain in effect for the 12-month period immediately following the Transaction
Date) that has the effect of fixing the interest rate on the date of
computation, in which case such rate (whether higher or lower) shall be used.
"Consolidated EBITDA" means, with respect to any person, for any
period, the Consolidated Net Income of such person for such period adjusted to
add thereto (to the extent deducted from net revenues in determining
Consolidated Net Income), without duplication, the sum of (i) Consolidated
income tax expense, (ii) Consolidated depreciation and amortization expense
(including amortization of debt discount and deferred financing costs in
connection with any Indebtedness of such person and its Subsidiaries), (iii)
Consolidated Fixed Charges and (iv) all other non-cash charges; provided that
consolidated income tax expense, depreciation and amortization expense of a
Subsidiary of such person that is less than wholly owned shall only be added to
the extent of the equity interest of such person in such Subsidiary.
"Consolidated Fixed Charges" of any person means, for any period,
the aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid, accrued, or
scheduled to be paid or accrued (including, in accordance with the following
sentence, interest attributable to Capitalized Lease Obligations) of such person
and its Consolidated Subsidiaries during such period, excluding amortization of
debt issuance costs incurred in connection with the Securities or the Credit
Agreement but including (i) original issue discount and non-cash interest
payments or accruals on any Indebtedness, (ii) the interest portion of all
deferred payment obligations, and (iii) all commissions, discounts and other
fees and charges owed with respect to bankers' acceptances and letters of credit
financings and currency and Interest Swap and Hedging Obligations, in each case
to the extent attributable to such period, and (b) the amount of cash dividends
paid by such person or any of its Consolidated Subsidiaries in respect of
Preferred Stock (other than by Subsidiaries of such person to such person or
such person's wholly owned Subsidiaries). For purposes of this definition, (x)
interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by the Company to be the rate of interest
implicit in such Capitalized Lease Obligation in accordance with GAAP and (y) to
the extent such expense would result in a liability upon the
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consolidated balance sheet of such person in accordance with GAAP, interest
expense attributable to any Indebtedness represented by the guaranty by such
person or a Subsidiary of such person of an obligation of another person shall
be deemed to be the interest expense attributable to the Indebtedness
guaranteed. Notwithstanding the foregoing, Consolidated Fixed Charges shall not
include (A) costs, fees and expenses incurred in connection with the
Recapitalization, (B) interest expense on the Old Notes incurred after the Issue
Date, provided that on the Issue Date the Company's obligations under the Old
Notes shall have been released to the extent provided in Article Nine of the
indenture governing the Old Notes, and within 45 days after the Issue Date the
Old Notes are redeemed or otherwise acquired by the Company in compliance with
the indenture governing the Old Notes and this Indenture, and (C) any one-time
non-cash charge or expense associated with the write-off of deferred debt
issuance costs associated with the Credit Agreement or the Securities.
"Consolidated Net Income" means, with respect to any person for any
period, the net income (or loss) of such person and its Consolidated
Subsidiaries (determined on a consolidated basis in accordance with GAAP) for
such period, adjusted to exclude (only to the extent included in computing such
net income (or loss) and without duplication): (a) all gains and losses which
are either extraordinary (as determined in accordance with GAAP) or are either
unusual or nonrecurring (including any gain from the sale or other disposition
of assets outside the ordinary course of business or from the issuance or sale
of any capital stock), (b) the net income, if positive, of any person, other
than a Consolidated Subsidiary, in which such person or any of its Consolidated
Subsidiaries has an interest, except to the extent of the amount of any
dividends or distributions actually paid in cash to such person or a
Consolidated Subsidiary of such person during such period, but in any case (i)
not in excess of such person's pro rata share of such person's net income for
such period and (ii) excluding any such payments made to the Company or any
Subsidiary Guarantor pursuant to clause (c) or (d) of the definition of
Permitted Payments, (c) the net income or loss of any person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition, (d) the net income, if positive, of any of such person's
Consolidated Subsidiaries in the event and solely to the extent that the
declaration or payment of dividends or similar distributions is not at the time
permitted by operation of the terms of its charter or bylaws or any other
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Consolidated Subsidiary, (e) the effects of
changes in accounting principles, (f) any non-cash compensation expense in
connection with the exercise of, grant to or repurchase from officers, directors
and employees of stock, stock options or stock equivalents, (g) any one-time
non-cash charge or expense associated with the write-off of deferred debt
issuance costs associated with the Credit Agreement or the Securities, (h)
costs, fees and expenses incurred in connection with the Recapitalization, and
(i) interest expense on the Old Notes incurred after the Issue Date, provided
that on the Issue Date the Company's obligations under the Old Notes shall have
been released to the extent provided in Article Nine of the indenture governing
the Old Notes, and within 45 days after the Issue Date the Old Notes are
redeemed or otherwise acquired by the Company in compliance with the indenture
governing the Old Notes and this Indenture.
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"Consolidated Net Worth" of any person at any date means the
aggregate consolidated stockholders' equity of such person (plus amounts of
equity attributable to preferred stock) and its Consolidated Subsidiaries, as
would be shown on the consolidated balance sheet of such person prepared in
accordance with GAAP, adjusted to exclude (to the extent included in calculating
such equity), (a) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock or treasury stock of such person and its Consolidated
Subsidiaries, (b) all upward revaluations and other write-ups in the book value
of any asset of such person or a Consolidated Subsidiary of such person
subsequent to the Issue Date, and (c) all investments in subsidiaries that are
not Consolidated Subsidiaries and in persons that are not Subsidiaries.
"Consolidated Subsidiary" means, for any person, each Subsidiary of
such person (whether now existing or hereafter created or acquired) the
financial statements of which are consolidated for financial statement reporting
purposes with the financial statements of such person in accordance with GAAP.
"Consolidation" means, with respect to the Company, the
consolidation of the accounts of its Subsidiaries with those of the Company, all
in accordance with GAAP; provided that "consolidation" shall not include
consolidation of the accounts of any Unrestricted Subsidiary with the accounts
of the Company. The term "consolidated" has a correlative meaning to the
foregoing.
"Corporate Trust Office" means the office of the Trustee in the
Borough of Manhattan, The City of New York.
"Covenant Defeasance" shall have the meaning specified in Section
8.3.
"Credit Agreement" means the one or more credit agreements
(including, without limitation, the CIT Credit Facility) entered into by and
among the Company, certain of its subsidiaries (if any) and certain financial
institutions, which provide for in the aggregate one or more term loans and/or
revolving credit facilities, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, as such
credit agreement and/or related documents may be amended, restated,
supplemented, renewed, replaced or otherwise modified from time to time whether
or not with the same agent, trustee, representative lenders or holders, and,
subject to the proviso to the next succeeding sentence, irrespective of any
changes in the terms and conditions thereof. Without limiting the generality of
the foregoing, the term "Credit Agreement" shall include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to any such credit agreement and all refundings, refinancings and
replacements of any such credit agreement, including any agreement (i) extending
the maturity of any Indebtedness incurred thereunder or contemplated thereby,
(ii) adding or deleting borrowers or guarantors thereunder, so long as borrowers
and issuers include one or more of the Company and its Subsidiaries and their
respective successors and assigns, (iii) increasing the amount of Indebtedness
incurred thereunder or available to be borrowed thereunder, provided that on the
date such Indebtedness is incurred
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it would not be prohibited by Section 4.11 or (iv) otherwise altering the terms
and conditions thereof in a manner not prohibited by the terms hereof.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event or condition the occurrence of which is,
or with the lapse of time or the giving of notice (by the Trustee or the Holders
in accordance with the provisions of this Indenture) or both would be, an Event
of Default.
"Defaulted Interest" shall have the meaning specified in Section
2.12.
"Definitive Securities" means Securities that are in the form of
Security attached hereto as Exhibit A that do not include the information called
for by footnotes 3 and 6 thereof.
"Depositary" means, with respect to the Securities issuable or
issued in whole or in part in global form, the person specified in Section 2.3
as the Depositary with respect to the Securities, until a successor shall have
been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Disqualified Capital Stock" means (a) except as set forth in (b),
with respect to any person, Equity Interests of such person that, by its terms
or by the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time or
both would be, required to be redeemed or repurchased (including at the option
of the holder thereof) by such person or any of its Subsidiaries, in whole or in
part, on or prior to the Stated Maturity of the Securities and (b) with respect
to any Subsidiary of such person (including with respect to any Subsidiary of
the Company), any Equity Interests other than any common equity with no
preference, privileges, or redemption or repayment provisions.
"Equity Interest" of any Person means any shares, interests,
participations or other equivalents (however designated) in such Person's
equity, and shall in any event include any Capital Stock issued by, or
partnership or membership interests in, such Person.
"Event of Default" shall have the meaning specified in Section 6.1.
"Event of Loss" means, with respect to any property or asset, any
(i) loss, destruction or damage of such property or asset or (ii) any
condemnation, seizure or taking, by exercise of the power of eminent domain or
otherwise, of such property or asset, or confiscation or requisition of the use
of such property or asset.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
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"Exchange Securities" means the 10 7/8% Series B Senior Notes due
2007, as supplemented from time to time in accordance with the terms hereof, to
be issued pursuant to this Indenture in connection with the offer to exchange
Exchange Securities for the Initial Securities that may be made by the Company
pursuant to the Registration Rights Agreement that contain the information
referred to in footnotes 1, 2 and 8 to the form of Security attached hereto as
Exhibit A.
"Excluded Person" means GEI, Robert W. Miller, Steven G. Miller,
Michael D. Miller and their respective Related Parties.
"Exempted Affiliate Transaction" means (a) compensation,
indemnification and other benefits paid or made available (x) pursuant to the
employment agreements between the Company and members of its senior management,
or (y) for or in connection with services actually rendered and comparable to
those generally paid or made available by entities engaged in the same or
similar businesses (including reimbursement or advancement of reasonable
out-of-pocket expenses, loans to officers, directors and employees in the
ordinary course of business consistent with past practice and directors' and
officers' liability insurance), (b) transactions, expenses and payments in
connection with the Recapitalization, (c) any Restricted Payments or other
payments or transactions expressly permitted under Section 4.3, (d) payments to
LGA for management services under the Management Services Agreement in an amount
not to exceed $1 million in any fiscal year, plus reimbursement of reasonable
out-of-pocket costs and expenses, (e) payments to LGA for reasonable and
customary fees and expenses for financial advisory and investment banking
services provided to the Company in connection with major financial
transactions, and (f) transactions between or among the Company and its
Subsidiaries or between or among Subsidiaries of the Company, provided that any
ownership interest in any such Subsidiary which is not beneficially owned
directly or indirectly by the Company or any of its Subsidiaries is not
beneficially owned by an Affiliate of the Company or Parent other than by virtue
of the direct or indirect ownership interest in such Subsidiary held (in the
aggregate) by the Company and/or one or more of its Subsidiaries.
"GAAP" means United States 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 in the United States as in effect on the Issue Date.
"GEI" means Green Equity Investors, L.P.
"Global Security" means a Security that contains the information
referred to in footnotes 3 and 6 to the form of Security attached hereto as
Exhibit A.
"Guarantee" shall have the meaning provided in Section 11.1.
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"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"Incur" or "incur" shall have the meaning specified in Section 4.11.
"Incurrence Date" shall have the meaning specified in Section 4.11.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such person, to the
extent such liabilities and obligations would appear as a liability upon the
consolidated balance sheet of such person in accordance with GAAP, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, or (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors; (b) all liabilities
and obligations, contingent or otherwise, of such person (i) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (ii)
relating to any Capitalized Lease Obligation, or (iii) evidenced by a letter of
credit or a reimbursement obligation of such person with respect to any letter
of credit; (c) all net obligations of such person under Interest Swap and
Hedging Obligations; (d) all liabilities and obligations of others of the kind
described in the preceding clauses (a), (b) or (c) that such person has
guaranteed or that is otherwise its legal liability or which are secured by one
or more Liens on any assets or property of such person; provided that if the
liabilities or obligations which are secured by a Lien have not been assumed in
full by such person or are not such person's legal liability in full, the amount
of such Indebtedness for the purposes of this definition shall be limited to the
lesser of the amount of such Indebtedness secured by such Lien or the fair
market value of the assets or property securing such Lien; (e) any and all
deferrals, renewals, extensions, refinancing and refundings (whether direct or
indirect) of, or amendments, modifications or supplements to, any liability of
the kind described in any of the preceding clauses (a), (b), (c) or (d), or this
clause (e), whether or not between or among the same parties; and (f) all
Disqualified Capital Stock of such Person (measured at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends). For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value to be determined in good faith by the
board of directors of the issuer (or managing general partner of the issuer) of
such Disqualified Capital Stock.
"Indenture" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
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"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
Corporation and Credit Suisse First Boston Corporation, severally, and not
jointly.
"Initial Securities" means the 10 7/8% Series A Senior Notes due
2007, as supplemented from time to time in accordance with the terms hereof,
issued under this Indenture that contain the information referred to in
footnotes 4, 5 and 7 to the form of Security attached hereto as Exhibit A.
"Interest Payment Date" means the stated due date of an installment
of interest on the Securities.
"Interest Swap and Hedging Obligation" means any obligation of any
person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other agreement or arrangement designed to
protect against fluctuations in interest rates or currency values, including,
without limitation, any arrangement whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without
duplication) (a) the acquisition (whether by purchase, merger, consolidation or
otherwise) by such person (whether for cash, property, services, securities or
otherwise) of capital stock, bonds, notes, debentures, partnership or other
ownership interests or other securities, including any options or warrants, of
such other person or any agreement to make any such acquisition; (b) the making
by such person of any deposit with, or advance, loan or other extension of
credit to, such other person (including the purchase of property from another
person subject to an understanding or agreement, contingent or otherwise, to
resell such property to such other person) or any commitment to make any such
advance, loan or extension (but excluding accounts receivable, endorsements for
collection or deposits arising in the ordinary course of business); (c) other
than guarantees of Indebtedness of the Company or any Subsidiary Guarantor to
the extent permitted by Section 4.11, the entering into by such person of any
guarantee of, or other credit support or contingent obligation with respect to,
Indebtedness or other liability of such other person; (d) the making of any
capital contribution by such person to such other person; and (e) the
designation by the Board of Directors of the Company of any person to be an
Unrestricted Subsidiary. The Company shall be deemed to make an Investment in an
amount equal to the fair market value of the net assets of any subsidiary (or,
if neither the Company nor any of its Subsidiaries has theretofore made an
Investment in such subsidiary, in an amount equal to the Investments being
made), at the time that such subsidiary is designated an Unrestricted
Subsidiary, and any property transferred to an Unrestricted Subsidiary from the
Company or a Subsidiary of the Company shall be deemed an Investment valued at
its fair market value at the time of such transfer. The amount of any such
Investment shall be reduced by any liabilities or obligations of the Company or
any of its Subsidiaries to be assumed or discharged in connection with such
Investment by an entity other
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than the Company or any of its Subsidiaries. For purposes of clarification and
greater certainty, the designation of a newly formed subsidiary as an
Unrestricted Subsidiary and the initial capitalization thereof under clause (d)
of the definition of Permitted Payments shall not constitute an Investment.
"Issue Date" means the date of first issuance of the Securities
under this Indenture.
"Legal Defeasance" shall have the meaning specified in Section 8.2.
"Legal Holiday" shall have the meaning specified in Section 13.7.
"LGA" means Leonard Green & Associates, L.P.
"LGP" means Leonard Green & Partners, L.P.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation or other encumbrance
upon or with respect to any property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired.
"Liquidated Damages" shall have the meaning specified in the
Registration Rights Agreement.
"Management Services Agreement" means the management services
agreement, dated as of the Issue Date, between Parent, the Company and LGA
substantially as in effect on the Issue Date.
"Maturity Date" means, when used with respect to any Security, the
date specified on such Security as the fixed date on which the final installment
of principal of such Security is due and payable (in the absence of any
acceleration thereof pursuant to the provisions of this Indenture regarding
acceleration of Indebtedness or any Change of Control Offer or Asset Sale
Offer).
"Moody's" means Moody's Investors Services, Inc. and its successors.
"Net Cash Proceeds" means the aggregate amount of cash or Cash
Equivalents received by the Company in the case of a sale of Qualified Capital
Stock or a Capital Contribution and by the Company and its Subsidiaries in
respect of an Asset Sale plus, in the case of an issuance of Qualified Capital
Stock upon any exercise, exchange or conversion of securities (including
options, warrants, rights and convertible or exchangeable debt) of the Company
that were issued for cash on or after the Issue Date, the amount of cash
originally received by the Company upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable debt) less,
in each case, the sum of all payments, fees, commissions and (in the case of
Asset Sales, reasonable and customary) expenses (including, without limitation,
the fees
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<PAGE> 21
and expenses of legal counsel and investment banking fees and expenses) incurred
in connection with such Asset Sale or sale of Qualified Capital Stock, and, in
the case of an Asset Sale only, less (i) the amount (estimated reasonably and in
good faith by the Company) of income, franchise, sales and other applicable
taxes required to be paid by the Company or any of its respective Subsidiaries
in connection with such Asset Sale, (ii) the amounts of any repayments of
Indebtedness secured, directly or indirectly, by Liens on the assets which are
the subject of such Asset Sale or Indebtedness associated with such assets which
is due by reason of such Asset Sale (i.e., such disposition is permitted by the
terms of the instruments evidencing or applicable to such Indebtedness, or by
the terms of a consent granted thereunder, on the condition that the proceeds
(or portion thereof) of such disposition be applied to such Indebtedness), and
other fees, expenses and other expenditures, in each case, reasonably incurred
as a consequence of such repayment of Indebtedness (whether or not such fees,
expenses or expenditures are then due and payable or made, as the case may be);
(iii) all amounts deemed appropriate by the Company (as evidenced by a signed
certificate of the Chief Financial Officer of the Company delivered to the
Trustee) to be provided as a reserve, in accordance with GAAP, against any
liabilities associated with such assets which are the subject of such Asset
Sale; and (iv) with respect to Asset Sales by Subsidiaries of the Company, the
portion of such cash payments attributable to Persons holding a minority
interest in such Subsidiary.
"Offering Memorandum" means the final Offering Memorandum of the
Company dated November 8, 1997, relating to the offering of the Initial
Securities in a transaction exempt from the requirements of Section 5 of the
Securities Act.
"Officer" means, with respect to the Company or any Subsidiary
Guarantor, the Chief Executive Officer, the President, any Vice President, the
Chief Financial Officer, the Treasurer, the Controller, or the Secretary of the
Company.
"Officers' Certificate" means, with respect to the Company or any
Subsidiary Guarantor, a certificate signed by two Officers or by an Officer and
an Assistant Secretary of the Company and otherwise complying with the
requirements of Sections 13.4 and 13.5.
"Old Notes" means the Company's 13 5/8% Senior Subordinated Notes
due 2002.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee complying with the requirements of
Sections 13.4 and 13.5.
"Parent" means Big 5 Holdings Corp., a Delaware corporation.
"Parent Discount Notes" means Parent's Senior Discount Notes due
2008 issued under an indenture dated as of the date hereof between Parent and
First Trust National Association, as trustee.
"Paying Agent" shall have the meaning specified in Section 2.3.
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<PAGE> 22
"PE" means Pacific Enterprises.
"Permitted Indebtedness" means any of the following:
(a) the Company and the Subsidiary Guarantors may incur
Indebtedness evidenced by the Securities and represented by this Indenture up to
the amounts specified therein as of the date thereof;
(b) the Company and the Subsidiary Guarantors, as applicable,
may incur Refinancing Indebtedness with respect to any Indebtedness or
Disqualified Capital Stock, as applicable, that was permitted by this Indenture
to be incurred and any Indebtedness of the Company outstanding on the Issue Date
(except the Old Notes) after giving effect to the Recapitalization;
(c) the Company and the Subsidiary Guarantors may incur
Indebtedness solely in respect of bankers's acceptances and letters of credit
(in addition to any such Indebtedness incurred under the Credit Agreement in
accordance with this Indenture) (to the extent that such incurrence does not
result in the incurrence of any obligation to repay any obligation relating to
borrowed money of others), all in the ordinary course of business in accordance
with customary industry practices, in amounts and for the purposes customary in
the Company's industry; provided, that the aggregate principal amount
outstanding of such Indebtedness (including any Indebtedness issued to
refinance, refund or replace such Indebtedness) shall not exceed $5 million;
(d) the Company and the Subsidiary Guarantors may incur
Indebtedness arising from tender, bid, performance or government contract bonds,
other obligations of like nature, or warranty or contractual service obligations
of like nature, in any case, incurred by the Company or the Subsidiary
Guarantors in the ordinary course of business;
(e) the Company and the Subsidiary Guarantors may incur
Interest Swap and Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate or currency risk with respect to any fixed or
floating rate Indebtedness that is permitted by this Indenture to be outstanding
or any receivable or liability the payment of which is determined by reference
to a foreign currency; provided, that the notional amount of any such Interest
Swap and Hedging Obligation does not exceed the principal amount of Indebtedness
to which such Interest Swap and Hedging Obligation relates; and
(f) the Company may incur Indebtedness to any Subsidiary
Guarantor, and any Subsidiary Guarantor may incur Indebtedness to any other
Subsidiary Guarantor or to the Company; provided, that, in the case of
Indebtedness of the Company, such obligations shall be unsecured and
subordinated in all respects to the Company's obligations pursuant to the
Securities and the date of any event that causes such Subsidiary Guarantor no
longer to be a Subsidiary Guarantor shall be an Incurrence Date.
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<PAGE> 23
"Permitted Investment" means Investments in (a) any of the
Securities; (b) Cash Equivalents; (c) intercompany notes to the extent permitted
under clause (f) of the definition of "Permitted Indebtedness," provided that
Indebtedness under any such notes of a Subsidiary Guarantor shall be deemed to
be a Restricted Investment if such person ceases to be a Subsidiary Guarantor;
(d) Investments in the form of promissory notes of members of the Company's or
Parent's management not to exceed $2 million in principal amount at any time
outstanding solely in consideration of the purchase by such persons of Qualified
Capital Stock of the Company or Parent; (e) Investments by the Company or any
Subsidiary Guarantor in any person that is or immediately after such Investment
becomes a Subsidiary Guarantor, or immediately after such Investment merges or
consolidates into the Company or any Subsidiary Guarantor in compliance with the
terms of this Indenture, provided that such Person is engaged in all material
respects in a Related Business; (f) Investments in the Company by any Subsidiary
Guarantor, provided that in the case of Indebtedness constituting any such
Investment, such Indebtedness shall be unsecured and subordinated in all
respects to the Company's obligations under the Securities; (g) Investments in
securities of trade creditors or customers received in settlement of obligations
that arose in the ordinary course of business or pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers; (h) Investments by the Company outstanding on the
Issue Date; (i) transactions or arrangements with officers or directors of the
Company or any Subsidiary Guarantor entered into in the ordinary course of
business (including compensation or employee benefit arrangements with any
officer or director of the Company or any Subsidiary Guarantor permitted under
Section 4.10); (j) Investments in Persons (other than Affiliates of the Company)
received as consideration from Asset Sales to the extent not prohibited by
Section 4.14; and (k) additional Investments at any time outstanding not to
exceed the sum of (i) $4 million and (ii) the cumulative gain (net of taxes and
all payments, fees, commissions and expenses incurred in such sale or
disposition) realized by the Company and the Subsidiary Guarantors in cash or
Cash Equivalents on the sale or other disposition after the Issue Date of
Investments (including Permitted Investments and Restricted Investments) made
after the Issue Date in accordance with this Indenture (but only to the extent
that such gain is excluded from the net income of the Company and its
Consolidated Subsidiaries by the definition of Consolidated Net Income).
"Permitted Lien" means (a) Liens existing on the Issue Date; (b)
Liens imposed by governmental authorities for taxes, assessments or other
charges not yet subject to penalty or which are being contested in good faith
and by appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (c) statutory
liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen or
other like Liens arising by operation of law in the ordinary course of business
provided that (i) the underlying obligations are not overdue for a period of
more than 60 days, or (ii) such Liens are being contested in good faith and by
appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (d) Liens
securing the performance of bids, trade contracts (other than borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of business;
(e) easements, rights-of-way, zoning, similar
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<PAGE> 24
restrictions and other similar encumbrances or title defects which, singly or in
the aggregate, do not in any case materially detract from the value of the
property subject thereto (as such property is used by the Company or any of its
Subsidiaries) or interfere with the ordinary conduct of the business of the
Company or any of its Subsidiaries; (f) Liens arising by operation of law in
connection with judgments, only to the extent, for an amount and for a period
not resulting in an Event of Default with respect thereto; (g) pledges or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security
legislation; (h) Liens securing the Securities; (i) Liens securing Indebtedness
of a Person existing at the time such Person becomes a Subsidiary or is merged
with or into the Company or a Subsidiary or Liens securing Indebtedness incurred
in connection with an Acquisition, provided that such Liens were in existence
prior to the date of such acquisition, merger or consolidation, were not
incurred in anticipation thereof, and do not extend to any other assets; (j)
Liens arising from Purchase Money Indebtedness permitted to be incurred under
clause (a) of the second paragraph of Section 4.11, provided such Liens relate
solely to the property which is subject to such Purchase Money Indebtedness; (k)
leases or subleases granted to other persons in the ordinary course of business
not materially interfering with the conduct of the business of the Company or
any of its Subsidiaries or materially detracting from the value of the relative
assets of the Company or any Subsidiary; (l) Liens arising from precautionary
Uniform Commercial Code financing statement filings regarding operating leases
entered into by the Company or any of its Subsidiaries in the ordinary course of
business; (m) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in accordance with this Indenture;
(n) Liens securing Indebtedness incurred under the Credit Agreement in
accordance with this Indenture; (o) Liens securing Indebtedness incurred under
clause (b) of the second paragraph of Section 4.11; and (p) any interest or
title of a lessor under any lease, whether or not characterized as capital or
operating, provided that such Liens do not extend to any property or assets
which is not leased property subject to such lease.
"Permitted Payments" means, without duplication, (a) payments to
Parent in an aggregate amount not to exceed $500,000 in any fiscal year in an
amount sufficient to permit Parent to pay reasonable and necessary operating
expenses and other general corporate expenses to the extent such expenses relate
or are fairly allocable to the Company and its Subsidiaries as they relate to
other subsidiaries of Parent, if any (including any reasonable professional fees
and expenses, but excluding all expenses payable to or to be paid to or on
behalf of an Excluded Person except in a transaction constituting an Exempted
Affiliate Transaction); (b) payments to Parent to enable Parent to pay foreign,
federal, state or local tax liabilities, not to exceed the amount of any tax
liabilities that would be otherwise payable by the Company and its Subsidiaries
and Unrestricted Subsidiaries to the appropriate taxing authorities if they
filed separate tax returns to the extent that Parent has an obligation to pay
such tax liabilities relating to the operations, assets or capital of the
Company or its Subsidiaries and Unrestricted Subsidiaries, provided such payment
shall either be used by Parent to pay such tax liabilities within 90 days of
Parent's receipt of such payment or refunded to the payee; (c) payments to
Parent by the Company made concurrently with and in an amount equal to or less
than payments to Company (directly or indirectly through one or more Subsidiary
Guarantors) by an Unrestricted Subsidiary, provided
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<PAGE> 25
that in each case the Company distributes the same property as that so received
by the Company from such Unrestricted Subsidiary; (d) payments to an
Unrestricted Subsidiary by the Company (directly or indirectly through one or
more Subsidiary Guarantors) made concurrently with and in an amount equal to or
less than payments to Company by Parent, provided that in each case the Company
distributes the same property as that so received by the Company from Parent;
(e) payments to redeem or otherwise acquire the Old Notes after the Issue Date
solely with funds used to defease the Old Notes on the Issue Date in connection
with the Recapitalization; (f) payments to Parent to enable Parent to pay, or
the payment by the Company directly of, the payments provided for by clauses
(a), (d) and (e) of the definition of "Exempted Affiliated Transaction"; (g)
cash dividends paid to Parent to the extent necessary to permit Parent to
repurchase common stock, stock options and stock equivalents of Parent held by
former directors, officers or employees of Parent, the Company or any of the
Subsidiary Guarantors, in an aggregate amount not to exceed in any fiscal year
$1 million plus (x) the cumulative amount by which (1) the product of $1 million
times the number of preceding fiscal years subsequent to the Issue Date exceeds
(2) the aggregate amount of such payments made during such fiscal years, plus
(y) the aggregate net cash consideration received by Parent, after the Issue
Date (excluding any such consideration received by Parent in connection with the
Recapitalization) and prior to or substantially concurrently with the date of
such repurchase, from the sale or issuance of common stock of Parent to
directors, officers and employees of Parent, the Company and the Subsidiary
Guarantors (including, to the extent not otherwise included in the amount of
such cash consideration, cash repayments of principal received by Parent on
loans made to such persons to enable them to purchase such stock) to the extent
such cash consideration was contributed to the Company as a Capital Contribution
less any payments made under clause (j) of this definition; (h) payments to
Parent in amounts sufficient to permit Parent to pay amounts required to be paid
under the Tax Indemnity Agreement dated September 25, 1992 among Parent, PE,
Thrifty and TCH Corporation; (i) Restricted Payments in an aggregate amount not
to exceed $4 million; and (j) cash dividends paid to Parent in an aggregate
amount not to exceed $1 million to the extent necessary to permit Parent to
repurchase common stock, stock options and stock equivalents of Parent held by
former directors, officers or employees of Thrifty.
"Person" or "person" means any corporation, individual, limited
liability company, joint stock company, joint venture, partnership, limited
liability company, unincorporated association, governmental regulatory entity,
country, state or political subdivision thereof, trust, municipality or other
entity.
"Preferred Stock" means an Equity Interest of any class or classes
of a Person (however designated) which is preferred as to payments of dividends,
or as to distributions upon any liquidation or dissolution, over Equity
Interests of any other class of such Person.
"principal" of any Indebtedness means the principal of such
Indebtedness.
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"property" means any right or interest in or to property or assets
of any kind whatsoever, whether real, personal or mixed and whether tangible,
intangible, contingent, direct or indirect.
"Public Equity Offering" means an underwritten offering of common
stock of the Company or Parent for cash pursuant to an effective registration
statement under the Securities Act, provided at the time of or upon consummation
of such offering, such common stock of the Company or Parent is listed on a
national securities exchange or quoted on the national market system of the
Nasdaq Stock Market.
"Purchase Agreement" means the Purchase Agreement dated November 7,
1997 by and between the Company and the Initial Purchasers, as such agreement
may be amended, modified or supplemented from time to time in accordance with
the terms thereof.
"Purchase Money Indebtedness" of any person means any Indebtedness
of such person to any seller or other person incurred to finance the acquisition
or construction (including in the case of a Capitalized Lease Obligation, the
lease) of any business or real or personal tangible property (or, in each case,
any interest therein) acquired or constructed after the Issue Date which, in the
reasonable good faith judgment of the Board of Directors of the Company, is
related to a Related Business of the Company and which is incurred concurrently
with, or within 180 days of, such acquisition or the completion of such
construction and, if secured, is secured only by the assets so financed.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption,
retirement, repurchase or other acquisition of Capital Stock or Indebtedness of
the Company issued on or after the Issue Date with the Net Cash Proceeds
received by the Company from the substantially concurrent sale of its Qualified
Capital Stock or any exchange of Qualified Capital Stock of the Company for any
Capital Stock or Indebtedness of the Company issued on or after the Issue Date.
"Recapitalization" shall have the meaning provided in the
Recapitalization Agreement.
"Recapitalization Agreement" means the Plan of Recapitalization and
Stock Repurchase Agreement dated as of October 31, 1997 among Parent, Robert W.
Miller, Steven G. Miller and GEI.
"Record Date" means a Record Date specified in the Securities
whether or not such Record Date is a Business Day, or, if applicable, as
specified in Section 2.12.
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"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to Article III of
this Indenture and Paragraphs 5 and 6 in the form of Security attached hereto as
Exhibit A.
"Redemption Price," when used with respect to any Security to be
redeemed, means the redemption price for such redemption pursuant to Paragraph 5
in the form of Security attached hereto as Exhibit A, which shall include,
without duplication, in each case, accrued and unpaid interest and Liquidated
Damages, if any, to the Redemption Date.
"Reference Period" with regard to any person means the four full
fiscal quarters (or such lesser period during which such person has been in
existence) ended immediately preceding any date upon which any determination is
to be made pursuant to the terms of the Securities or this Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified
Capital Stock (a) issued in exchange for, or the proceeds from the issuance and
sale of which are used substantially concurrently to repay, redeem, defease,
refund, refinance, discharge or otherwise retire for value, in whole or in part,
or (b) constituting an amendment, modification or supplement to, or a deferral
or renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of the amount of fees, consents, premiums, prepayment penalties and
reasonable expenses incurred in connection with such Refinancing) the lesser of
(i) the principal amount or, in the case of Disqualified Capital Stock,
liquidation preference, of the Indebtedness or Disqualified Capital Stock so
Refinanced and (ii) if such Indebtedness being Refinanced was issued with an
original issue discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such Refinancing; provided, that (A) such Refinancing
Indebtedness of any Subsidiary of the Company shall only be used to Refinance
outstanding Indebtedness or Disqualified Capital Stock of such Subsidiary, (B)
such Refinancing Indebtedness shall (x) not have an Average Life shorter than
the Indebtedness or Disqualified Capital Stock to be so refinanced at the time
of such Refinancing and (y) in all respects, be no less subordinated or junior,
if applicable, to the rights of Holders of the Securities than was the
Indebtedness or Disqualified Capital Stock to be refinanced, (C) such
Refinancing Indebtedness shall have a final stated maturity or redemption date,
as applicable, no earlier than the final stated maturity or redemption date, as
applicable, of the Indebtedness or Disqualified Capital Stock to be so
refinanced, and (D) such Refinancing Indebtedness shall be secured (if secured)
in a manner no more adverse to the Holders of the Securities than the terms of
the Liens (if any) securing such refinanced Indebtedness, including, without
limitation, the amount of Indebtedness secured shall not be increased (except by
the amount of fees, consents, premiums, prepayment penalties and reasonable
expenses incurred in connection with such Refinancing). For purposes of
clarification and greater certainty, if Indebtedness permitted by the terms of
this Indenture (including clauses (a), (b) and (c) of the second paragraph of
Section 4.11) is repaid, redeemed, defeased, refunded, refinanced, discharged or
otherwise retired for value from the proceeds of Refinancing Indebtedness, the
maximum amount of such Refinancing Indebtedness
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shall be determined in accordance with the provisions of this definition, and
the amount of such Refinancing Indebtedness in excess of the amount of such
Indebtedness (as permitted by this definition) shall not reduce or increase the
amount of Indebtedness permitted by the terms of this Indenture (including,
without limitation, not reducing or counting towards or increasing the amounts
set forth in such clauses (a), (b) and (c)).
"Registrar" shall have the meaning specified in Section 2.3.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the date hereof by and between the Initial Purchasers and
the Company, as such agreement may be amended, modified or supplemented from
time to time in accordance with the terms thereof.
"Related Business" means the business conducted (or proposed to be
conducted, including the activities referred to as being contemplated by the
Company, as described or referred to in the Offering Memorandum) by the Company
as of the Issue Date and any and all businesses that in the good faith judgment
of the Board of Directors of the Company are reasonably related businesses,
including reasonably related extensions thereof.
"Related Party" means (i) with respect to any Excluded Person, (A)
any controlling stockholder, 80% or more owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of such Excluded Person
or (B) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or persons beneficially holding an 80% or more
controlling interest of which consist of such Excluded Person and/or such other
persons referred to in the immediately preceding clause (A), and (ii) only with
respect to GEI (and in addition to the persons described in the foregoing clause
(i)) any partnership or corporation which is managed by or controlled by LGP or
any affiliate thereof.
"Restricted Investment" means, in one or a series of related
transactions, any Investment, other than investments in Cash Equivalents and
other Permitted Investments; provided, however, that a merger of another person
with or into the Company or a Subsidiary Guarantor in accordance with the terms
of this Indenture shall not be deemed to be a Restricted Investment so long as
the surviving entity is the Company or a direct wholly owned Subsidiary
Guarantor.
"Restricted Payment" means, with respect to any person, (a) the
declaration or payment of any dividend or other distribution in respect of
Equity Interests of such person or any Subsidiary of such person, (b) any
payment on account of the purchase, redemption or other acquisition or
retirement for value of Equity Interests of such person or any Subsidiary of
such person, (c) other than with the proceeds from the substantially concurrent
sale of, or in exchange for, Refinancing Indebtedness, any purchase, redemption,
or other acquisition or retirement for value of, any payment in respect of any
amendment of the terms of or any defeasance of, any Subordinated Indebtedness,
directly or indirectly, by such person or any Subsidiary of such person
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<PAGE> 29
prior to the scheduled maturity, any scheduled repayment of principal, or
scheduled sinking fund payment, as the case may be, of such Indebtedness and (d)
any Restricted Investment by such person; provided, however, that the term
"Restricted Payment" does not include (i) any dividend, distribution or other
payment on or with respect to Equity Interests of the Company to the extent
payable solely in shares of Qualified Capital Stock of the Company; (ii) any
dividend, distribution or other payment to the Company, or to any of the
Subsidiary Guarantors, by the Company or any of its Subsidiaries; (iii) payments
made pursuant to the Recapitalization (including, without limitation, bonuses
not to exceed $750,000 in the aggregate payable to certain members of the
Company's senior management at the time of or promptly after the
Recapitalization); (iv) Permitted Investments; or (v) pro rata dividends and
other distributions on Equity Interests of any Subsidiary Guarantor by such
Subsidiary Guarantor.
"Restricted Security" means a Security, unless or until it has been
(i) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering it or (ii) distributed to
the public pursuant to Rule 144 (or any similar provision then in force) under
the Securities Act; provided, that in no case shall an Exchange Security issued
in accordance with this Indenture and the terms and provisions of the
Registration Rights Agreement be a Restricted Security.
"Sale and Leaseback Transaction" means any transaction by which the
Company or a Subsidiary Guarantor, directly or indirectly, becomes liable as a
lessee or as a guarantor or other surety with respect to any lease of any
property (whether real or personal or mixed), whether now owned or hereafter
acquired that the Company or any Subsidiary Guarantor has sold or transferred or
is to sell or transfer to any other Person in a substantially concurrent
transaction with such assumption of liability.
"S&P" means Standard & Poor's, a division of The McGraw Hill
Companies, and its successors.
"SEC" means the Securities and Exchange Commission.
"Securities" means, collectively, the Initial Securities and, when
and if issued as provided in the Registration Rights Agreement, the Exchange
Securities.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian with respect
to the Securities in global form, or any successor entity thereto.
"Securityholder" or "Holder" means the Person in whose name a
Security is registered on the Registrar's books.
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"Significant Subsidiary" shall have the meaning provided under
Regulation S-X of the Securities Act, as in effect on the Issue Date.
"Special Record Date" for payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 2.12.
"Stated Maturity," when used with respect to any Security, means
November 15, 2007.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is subordinated in right of payment by its terms or
the terms of any document or instrument or instrument relating thereto to the
Securities or such Guarantee, as applicable, in any respect or has a final
stated maturity after the Stated Maturity.
"Subsidiary," with respect to any person, means (i) a corporation a
majority of whose Equity Interests with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such person, by such person and one or more Subsidiaries of such person or by
one or more Subsidiaries of such person, (ii) any other person (other than a
corporation) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest,
or (iii) a partnership in which such person or a Subsidiary of such person is,
at the time, a general partner. Notwithstanding the foregoing, an Unrestricted
Subsidiary shall not be a Subsidiary of the Company or of any Subsidiary of the
Company. Unless the context requires otherwise, Subsidiary means each direct and
indirect Subsidiary of the Company.
"Subsidiary Guarantors" shall have the meaning provided in Section
11.1.
"Thrifty" means Thrifty Corporation.
"TIA" means the Trust Indenture Act of 1939, as amended, (15 U.S.
Code SectionSection 77aaa-77bbbb) as in effect on the date of the execution of
this Indenture, except as provided in Section 9.3.
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.6.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer within the corporate trust
division (or any successor group) of the Trustee or any other officer of the
Trustee customarily performing functions similar to those performed by the
Persons who at that time shall be such officers, and
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also means, with respect to a particular corporate trust matter, any other
officer of the Trustee to whom such trust matter is referred because of his
knowledge of and familiarity with the particular subject.
"Unrestricted Subsidiary" means any subsidiary of the Company that
does not own any Capital Stock of, or own or hold any Lien on any property of,
the Company or any other Subsidiary of the Company and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company); provided, that (i) such subsidiary shall not
engage, to any substantial extent, in any line or lines of business activity
other than a Related Business, (ii) neither immediately prior thereto nor after
giving pro forma effect to such designation would there exist a Default or Event
of Default and (iii) immediately after giving pro forma effect thereto, the
Company could incur at least $1.00 of Indebtedness pursuant to the Debt
Incurrence Ratio in Section 4.11 (provided, however, that this clause (iii)
shall not apply in the case of a newly formed subsidiary being designated an
Unrestricted Subsidiary, with the initial capitalization thereof to be effected
solely under clause (d) of the definition of Permitted Payments). The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be a
Subsidiary, provided that (i) no Default or Event of Default is existing or will
occur as a consequence thereof and (ii) immediately after giving effect to such
designation, on a pro forma basis, the Company could incur at least $1.00 of
Indebtedness pursuant to the Debt Incurrence Ratio in Section 4.11. Each such
designation shall be evidenced by filing with the Trustee a certified copy of
the resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
"U.S. Government Obligations" means direct non-callable obligations
of, or noncallable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
SECTION 1.2. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture securityholder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
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"obligor" on the indenture securities means the Company, each
Subsidiary Guarantor and any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them thereby.
SECTION 1.3. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(7) references to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating.
The Securities and the Trustee's certificate of authentication, in
respect thereof, shall be substantially in the form of Exhibit A hereto, which
Exhibit is part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. The Company shall
approve the form of the Securities and any notation, legend or endorsement on
them. Any such notations, legends or endorsements not contained in the form of
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Security attached as Exhibit A hereto shall be delivered in writing to the
Trustee. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the forms of Securities 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.
Each Global Security shall represent such of the outstanding
Securities as shall be specified therein and each shall represent the aggregate
amount of outstanding Securities that may from time to time be reduced or
increased, as appropriate, to reflect exchanges, repurchases and redemptions.
Any endorsement of a Global Security to reflect the amount of any increase or
decrease in the amount of outstanding Securities represented thereby shall be
made by the Trustee or the Securities Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as required
by Section 2.6.
SECTION 2.2. Execution and Authentication.
Two Officers shall sign, or one Officer shall sign and one Officer
shall attest to, the Security for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless and the
Company shall nevertheless be bound by the terms of the Securities and this
Indenture.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security but
such signature shall be conclusive evidence that the Security has been
authenticated pursuant to the terms of this Indenture.
The Trustee shall authenticate Initial Securities for original issue
in the aggregate principal amount of up to $131,000,000 and shall authenticate
Exchange Securities for original issue in the aggregate principal amount of up
to $131,000,000, in each case upon a written order of the Company in the form of
an Officers' Certificate; provided that such Exchange Securities shall be
issuable only upon the valid surrender for cancellation of Initial Securities of
a like aggregate principal amount in accordance with the Registration Rights
Agreement. The Officers' Certificate shall specify the amount of Securities to
be authenticated and the date on which the Securities are to be authenticated.
The aggregate principal amount of Securities outstanding at any time may not
exceed $131,000,000, except as provided in Section 2.7. Upon the written order
of the Company in the form of an Officers' Certificate, the Trustee shall
authenticate Securities in substitution of Securities originally issued to
reflect any name change of the Company.
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The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company, any Affiliate of the Company,
or any of their respective Subsidiaries.
Securities shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiples thereof.
SECTION 2.3. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where Securities may be presented for
registration of transfer or for exchange ("Registrar"), and an office or agency
where Securities may be presented for payment ("Paying Agent"), and where
notices and demands to or upon the Company in respect of the Securities may be
served. The Company and Affiliates of the Company may act as Registrar or Paying
Agent, except that, for the purposes of Articles III, VIII, X, and Section 4.14
hereof and as otherwise specified in this Indenture, neither the Company nor any
Affiliate of the Company shall act as Paying Agent. The Registrar shall keep a
register of the Securities and of their transfer and exchange. The Company may
have one or more co-Registrars and one or more additional Paying Agents. The
term "Registrar" includes any co-registrar and the term "Paying Agent" includes
any additional Paying Agent. The Company hereby initially appoints the Trustee
as Registrar and Paying Agent, and by its acknowledgment and acceptance on the
signature page hereto, the Trustee hereby initially agrees so to act.
The Company shall enter into an appropriate written agency agreement
with any Agent (including the Paying Agent) not a party to this Indenture, which
agreement shall implement the provisions of this Indenture that relate to such
Agent, and shall furnish a copy of each such agreement to the Trustee. The
Company shall promptly notify the Trustee in writing of the name and address of
any such Agent. If the Company fails to maintain a Registrar or Paying Agent,
the Trustee shall act as such.
The Company initially appoints The Depositary Trust Company ("DTC"),
to act as Depositary with respect to the Global Securities.
The Company initially appoints the Trustee to act as Securities
Custodian with respect to the Global Securities.
Upon the occurrence of an Event of Default described in Section
6.1(iv) or (v) hereof, the Trustee shall, or upon the occurrence of any other
Event of Default by notice to the Company, the Registrar and the Paying Agent,
the Trustee may assume the duties and obligations of the Registrar and the
Paying Agent hereunder.
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\ SECTION 2.4. Paying Agent to Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that each such Paying Agent shall hold in trust for the
benefit of Holders or the Trustee all assets held by such Paying Agent for the
payment of principal of, premium, if any, or interest (or Liquidated Damages, if
any) on, the Securities (whether such assets have been distributed to it by the
Company or any other obligor on the Securities), and shall notify the Trustee in
writing of any Default in making any such payment. If either of the Company or a
Subsidiary of the Company acts as Paying Agent, it shall segregate such assets
and hold them as a separate trust fund for the benefit of the Holders or the
Trustee. 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 or any
Event of 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 (if
other than the Company) shall have no further liability for such assets.
SECTION 2.5. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA Section 312(a). If the Trustee or
any Paying Agent is not the Registrar, the Company shall furnish to the Trustee
on or before the third Business Day preceding each Interest Payment Date and at
such other times as the Trustee or any such Paying Agent may request in writing
a list in such form and as of such date as the Trustee or any such Paying Agent
reasonably may require of the names and addresses of Holders and the Company
shall otherwise comply with TIA Section 312(a).
SECTION 2.6. Transfer and Exchange.
(b) Transfer and Exchange of Definitive Securities. When
Definitive Securities are presented to the Registrar with a request:
(x) to register the transfer of such Definitive Securities; or
(y) to exchange such Definitive Securities for an equal
principal amount of Definitive Securities of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its reasonable requirements for such transaction are met; provided, however,
that the Definitive Securities surrendered for registration of transfer or
exchange:
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(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company and
the Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing; and
(ii) in the case of Transfer Restricted Securities that are
Definitive Securities, shall be accompanied by the following additional
information and documents, as applicable:
(A) if such Transfer Restricted Security is being delivered to
the Registrar 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 set forth on the reverse of the
Security); or
(B) if such Transfer Restricted Security is being transferred
to a "qualified institutional buyer" (within the meaning of Rule
144A promulgated under the Securities Act) that is aware that any
sale of Securities to it will be made in reliance on Rule 144A under
the Securities Act and that is acquiring such Transfer Restricted
Security for its own account or for the account of another such
"qualified institutional buyer," a certification from such Holder to
that effect (in substantially the form set forth on the reverse of
the Security); or
(C) if such Transfer Restricted Security is being transferred
pursuant to an exemption from registration in accordance with Rule
144, or outside the United States in an offshore transaction in
compliance with Rule 904 under the Securities Act, or pursuant to an
effective registration statement under the Securities Act, a
certification from such Holder to that effect (in substantially the
form set forth on the reverse of the Security); or
(D) if such Transfer Restricted Security is being transferred
in reliance on another exemption from the registration requirements
of the Securities Act and with all applicable securities laws of the
States of the United States, a certification from such Holder to
that effect (in substantially the form set forth on the reverse of
the Security) and an Opinion of Counsel reasonably acceptable to the
Company and to the Registrar to the effect that such transfer is in
compliance with the Securities Act.
(b) Restrictions on Transfer of a Definitive Security for a
Beneficial Interest in a Global Security. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee of
a Definitive Security, duly endorsed or accompanied by appropriate instruments
of transfer, in form satisfactory to the Trustee, together with:
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(i) if such Definitive Security is a Transfer Restricted
Security, certification, substantially in the form set forth on the
reverse of the Security, that such Definitive Security 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) whether or not such Definitive Security is a Transfer
Restricted Security, written instructions directing the Trustee to make,
or to direct the Securities Custodian to make, an endorsement on the
Global Security to reflect an increase in the aggregate principal amount
of the Securities represented by the Global Security,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly. If no Global Securities are then outstanding, the
Company shall issue and the Trustee shall authenticate a new Global Security in
the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depositary, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the procedures
of the Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global Security for
a Definitive Security.
(i) Any Person having a beneficial interest in a Global
Security may upon request exchange such beneficial interest for a
Definitive Security. Upon receipt by the Trustee 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 Security, and upon receipt by the Trustee
of a written instruction 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 in a Transfer Restricted Security only,
the following additional information and documents (all of which may be
submitted by facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the beneficial owner, a
certification from the transferor to that effect (in substantially
the form set forth on the reverse of the Security); or
(B) if such beneficial interest is being transferred to a
"qualified institutional buyer" (within the meaning of Rule 144A
promulgated under the
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Securities Act), that is aware that any sale of Securities to it
will be made in reliance on Rule 144A under the Securities Act and
that is acquiring such beneficial interest in the Transfer
Restricted Security for its own account or the account of another
such "qualified institutional buyer", a certification to that effect
from the transferor (in substantially the form set forth on the
reverse of the Security); or
(C) if such beneficial interest is being transferred pursuant
to an exemption from registration in accordance with Rule 144, or
outside the United States in an offshore transaction in compliance
with Rule 904 under the Securities Act, or pursuant to an effective
registration statement under the Securities Act, a certification
from the transferor to that effect (in substantially the form set
forth on the reverse of the Security); or
(D) if such beneficial interest is being transferred in
reliance on another exemption from the registration requirements of
the Securities Act and in accordance with all applicable securities
laws of the States of the United States, a certification to that
effect from the transferor (in substantially the form set forth on
the reverse of the Security) and an Opinion of Counsel from the
transferee or transferor reasonably acceptable to the Company and to
the Registrar to the effect that such transfer is in compliance with
the Securities Act,
then the Trustee or the Securities Custodian, at the direction of the
Trustee, will cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian,
the aggregate principal amount of the Global Security to be reduced and,
following such reduction, the Company will execute and, upon receipt of an
authentication order in the form of an Officers' Certificate, the
Trustee's authenticating agent will authenticate and deliver to the
transferee a Definitive Security in the appropriate principal amount.
(ii) Definitive Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this Section 2.6(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 Trustee. The Trustee shall
deliver such Definitive Securities to the persons in whose names such
Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global
Securities. Notwithstanding any other provisions of this Indenture (other than
the provisions set forth in subsection (f) of this Section 2.6), a Global
Security 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.
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(f) Authentication of Definitive Securities in Absence of
Depositary. If at any time:
(i) the Depositary for the Securities notifies the Company
that the Depositary is unwilling or unable to continue as Depositary for
the Global Securities and a successor Depositary for the Global Securities
is not appointed by the Company within ninety days after delivery of such
notice; or
(ii) the Company, in its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of Definitive Securities
under this Indenture, then the Company will execute, and the Trustee, upon
receipt of an Officers' Certificate requesting the authentication and
delivery of Definitive Securities, will, or its authenticating agent
will, authenticate and deliver Definitive Securities, in an aggregate
principal amount equal to the principal amount of the Global Securities,
in exchange for such Global Securities.
(g) Legends.
(i) Except as permitted by the following paragraphs (ii) and
(iii) each Security certificate evidencing the Global Securities and the
Definitive Securities (and all Securities issued in exchange therefor or
substitution thereof) shall bear a legend in substantially the following
form:
"THE NOTES (OR THEIR PREDECESSORS) EVIDENCED HEREBY WERE
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE NOTES EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THE NOTES EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
NOTES EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) SUCH NOTES MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS
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OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR
(d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE,
IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE NOTES EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Act or an effective
registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security that is a
Definitive Security, the Registrar shall permit the Holder thereof
to exchange such Transfer Restricted Security for a Definitive
Security that does not bear the legend set forth above and rescind
any restriction on the transfer of such Transfer Restricted
Security; and
(B) any such Transfer Restricted Security represented by a
Global Security shall not be subject to the provisions set forth in
(i) above (such sales or transfers being subject only to the
provisions of Section 2.6(c) hereof); provided, however, that with
respect to any request for an exchange of a Transfer Restricted
Security that is represented by a Global Security for a Definitive
Security that does not bear a legend, which request is made in
reliance upon Rule 144, the Holder thereof shall certify in writing
to the Registrar that such request is being made pursuant to Rule
144 (such certification to be substantially in the form set forth on
the reverse of the Security).
(ii) Any Exchange Securities issued in connection with the
Exchange Offer shall not bear the legend set forth in (i) above and the
Trustee shall rescind any restriction on the transfer of such Exchange
Securities.
(h) Cancellation and/or Adjustment of Global Security. At such
time as all beneficial interests in a Global Security have either been exchanged
for Definitive Securities, redeemed, repurchased or cancelled, such Global
Security shall be returned to or retained and cancelled by the Trustee. At any
time prior to such cancellation, if any beneficial interest in a Global Security
is exchanged for Definitive Securities, redeemed, repurchased or cancelled, the
principal amount of Securities represented by such Global Security shall be
reduced
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and an endorsement shall be made on such Global Security, by the Trustee or the
Securities Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) Obligations with respect to Transfers and Exchanges of
Definitive Securities.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee or any authenticating agent of the
Trustee shall authenticate Definitive Securities and Global Securities at
the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax, assessments, or similar
governmental charge payable in connection therewith (other than any such
transfer taxes, assessments, or similar governmental charge payable upon
exchanges or transfers pursuant to Section 2.2 (fourth paragraph), 2.10,
3.7, 4.14 (clause 8 of the fifth paragraph), 9.5, or 10.1 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange of (a) any Definitive Security selected for
redemption in whole or in part pursuant to Article III, except the
unredeemed portion of any Definitive Security being redeemed in part, or
(b) any Security for a period beginning 15 Business Days before the
mailing of a notice of an offer to repurchase pursuant to Article X or
Section 4.14 hereof or redemption of Securities pursuant to Article III
hereof and ending at the close of business on the day of such mailing.
(iv) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers between
or among Depositary participants or beneficial owners of interests in any
Global Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do so
if and when expressly required by the terms of, this Indenture, and to
examine the same to determine substantial compliance as to form with the
express requirements thereof.
(j) Prior to due presentment for the registration of a
transfer of any Security, the Trustee, any Agent and the Company may deem and
treat the Person in whose name any Security is registered as the absolute owner
of such Security for all purposes, and none of the Trustee, any Agent or the
Company shall be affected by notice to the contrary.
SECTION 2.7. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims and submits an affidavit or other evidence,
satisfactory to the Trustee, to the Trustee to the
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effect that the Security has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Security if
the Trustee's requirements are met. If required by the Trustee or the Company,
such Holder must provide an indemnity bond or other indemnity, sufficient in the
judgment of both the Company and the Trustee, to protect the Company, the
Trustee or any Agent from any loss which any of them may suffer if a Security is
replaced. The Company may charge such Holder for its reasonable, out-of-pocket
expenses in replacing a Security.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.8. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee (including any Security represented by a
Global Security) except those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Security effected by
the Trustee hereunder and those described in this Section 2.8 as not
outstanding. A Security does not cease to be outstanding because the Company or
an Affiliate of the Company holds the Security, except as provided in Section
2.9 hereof.
If a Security is replaced pursuant to Section 2.7 hereof (other than
a mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section 2.7
hereof.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than the Company or an Affiliate of the Company) holds cash sufficient to pay
all of the principal and interest and premium, if any, due on the Securities
payable on that date and payment of the Securities called for redemption is not
otherwise prohibited, then on and after that date such Securities cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.9. Treasury Securities.
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, amendment, supplement, waiver or
consent, Securities owned by the Company or Affiliates of the Company shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, amendment, supplement,
waiver or consent, only Securities that a Trust Officer of the Trustee knows are
so owned shall be disregarded.
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SECTION 2.10. Temporary Securities.
Until Definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of Definitive Securities but may
have variations that the Company reasonably and in good faith consider
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall, upon receipt of a written order of the
Company in the form of an Officers' Certificate, authenticate Definitive
Securities in exchange for temporary Securities. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as permanent Securities authenticated and delivered
hereunder.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration, transfer, exchange or
payment. The Trustee, or at the direction of the Trustee, the Registrar or the
Paying Agent (other than the Company or an Affiliate of the Company), and no one
else, shall cancel and, without the written direction of the Company to the
contrary, shall dispose of all Securities surrendered for transfer, exchange,
payment or cancellation. Subject to Section 2.7 hereof, the Company may not
issue new Securities to replace Securities that have been paid or delivered to
the Trustee for cancellation. No Securities shall be authenticated in lieu of or
in exchange for any Securities cancelled as provided in this Section 2.11
hereof, except as expressly permitted in the form of Securities and as permitted
by this Indenture.
SECTION 2.12. Defaulted Interest.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Security (or one or more predecessor Securities) is registered
at the close of business on the Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date plus any interest
payable on the defaulted interest at the rate and in the manner provided in
Section 4.1 hereof and the Security (herein called "Defaulted Interest"), shall
forthwith cease to be payable to the registered holder on the relevant Record
Date, or, as applicable, the Special Record Date (as defined below), and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the persons in whose names the Securities (or their respective
predecessor Securities) are registered at the close of business on a
Special Record Date for the payment
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of such Defaulted Interest, which shall be fixed in the following manner.
The Company shall notify the Trustee and the Paying Agent in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Paying Agent an amount of cash equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest or shall
make arrangements satisfactory to the Paying Agent for such deposit prior
to the date of the proposed payment, such cash when deposited to be held
in trust for the benefit of the persons entitled to such Defaulted
Interest as provided in this clause (1). Thereupon the Paying Agent shall
fix a special record date for the payment of such Defaulted Interest (a
"Special Record Date"), which shall be not more than 15 days, and not less
than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Paying Agent of the notice of the
proposed payment. The Paying Agent shall promptly notify the Company and
the Trustee of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears
in the Security register not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the persons in whose names the
Securities (or their respective predecessor Securities) are registered on
such Special Record Date and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee and the Paying Agent of the proposed payment
pursuant to this clause, such manner shall be deemed practicable by the
Trustee and the Paying Agent.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon the registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 2.13. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if
then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Holders; provided that any such notice
may state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or
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omission of such numbers. The Company will promptly notify the Trustee of any
change in the "CUSIP" numbers.
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption.
Redemption of Securities, as permitted by the provisions of this
Indenture, shall be made in accordance with such provisions and this Article
III. The Company shall not have the right to redeem any Securities prior to
November 15, 2002, other than as provided in the next paragraph and Paragraph 5
of the Securities. On or after November 15, 2002, the Company shall have the
right to redeem all or any part of the Securities for cash at the Redemption
Prices specified in the form of Security attached as Exhibit A set forth therein
in Paragraph 5 thereof, in each case (subject to the right of Holders of record
on a Record Date to receive the corresponding interest due (and the
corresponding Liquidated Damages due, if any) on an Interest Payment Date
corresponding to such Record Date that is on or prior to such Redemption Date,
and subject to the provisions set forth in Section 3.5), including accrued and
unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date.
Notwithstanding the foregoing, at any time on or prior to November
15, 2000, the Company may redeem, on one or more occasions, up to an aggregate
of 35% of the aggregate principal amount of the Securities originally
outstanding at a redemption price equal to 110.95% of the principal amount
thereof, (subject to the right of Holders of record on a Record Date to receive
interest due (and the corresponding Liquidated Damages due, if any) on an
Interest Payment Date that is on or prior to such Redemption Date) together with
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption with cash from the Net Cash Proceeds to the Company of one or more
Public Equity Offerings; provided, that at least 65% of the aggregate principal
amount of the Securities originally outstanding remain outstanding immediately
after the occurrence of each such redemption; provided, further, that such
notice of redemption shall be sent within 30 days after the date of closing of
any such Public Equity Offering, and such redemption shall occur within 60 days
after the date such notice is sent.
Except as provided in this Section and Paragraph 5 of the
Securities, the Securities may not otherwise be redeemed at the option of the
Company.
SECTION 3.2. Notices to Trustee.
If the Company elects to redeem Securities pursuant to Paragraph 5
of the Securities, it shall notify the Trustee and the Paying Agent in writing
of the Redemption Date and
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the principal amount of Securities to be redeemed and whether it wants the
Paying Agent to give notice of redemption to the Holders.
If the Company elects to reduce the principal amount of Securities
to be redeemed pursuant to Paragraph 5 of the Securities by crediting against
any such redemption Securities it has not previously delivered to the Trustee
and the Paying Agent for cancellation, it shall so notify the Trustee, in the
form of an Officers' Certificate, and the Paying Agent of the amount of the
reduction and deliver such Securities with such notice.
The Company shall give each notice to the Trustee and the Paying
Agent provided for in this Section 3.2 at least 40 days before the Redemption
Date (unless a shorter notice shall be satisfactory to the Trustee and the
Paying Agent). Any such notice may be cancelled at any time prior to notice of
such redemption being mailed to any Holder and shall thereby be void and of no
effect.
SECTION 3.3. Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed pursuant to
Paragraph 5 thereof, the Trustee shall select the Securities to be redeemed on a
pro rata basis, by lot or by such other method as the Trustee shall determine to
be appropriate and fair and in such manner as complies with any applicable
Depositary, legal and stock exchange requirements.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
and the Paying Agent in writing of the Securities selected for redemption and,
in the case of any Security selected for partial redemption, the principal
amount thereof to be redeemed. Securities in denominations of $1,000 may be
redeemed only in whole. The Trustee may select for redemption portions (equal to
$1,000 or any integral multiple thereof) of the principal of Securities that
have denominations larger than $1,000. Provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities called
for redemption.
SECTION 3.4. Notice of Redemption.
At least 30 days, but not more than 60 days prior to the Redemption
Date, the Company shall mail a notice of redemption by first class mail, postage
prepaid, to the Trustee, the Paying Agent and each Holder whose Securities are
to be redeemed. At the Company's request, the Paying Agent shall give the notice
of redemption in the Company's name and at the Company's expense. Each notice
for redemption shall identify the Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price, including accrued and unpaid
interest and Liquidated Damages, if any, to be paid upon such redemption;
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(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered
to the Paying Agent at the address specified in such notice to collect the
Redemption Price;
(5) that, unless (a) the Company defaults in its obligation to
deposit with the Paying Agent cash which through the scheduled payment of
principal and interest in respect thereof in accordance with their terms
shall provide the amount to fund the Redemption Price in accordance with
Section 3.6 hereof or (b) such redemption payment is prohibited, interest
on Securities called for redemption ceases to accrue on and after the
Redemption Date and the only remaining right of the Holders of such
Securities is to receive payment of the Redemption Price, including
accrued and unpaid interest (and Liquidated Damages, if any) to the
Redemption Date, upon surrender to the Paying Agent of the Securities
called for redemption and to be redeemed;
(6) if any Security is being redeemed in part, the portion of
the principal amount, equal to $1,000 or any integral multiple thereof, of
such Security to be redeemed and that, after the Redemption Date, and upon
surrender of such Security, a new Security or Securities in aggregate
principal amount equal to the unredeemed portion thereof shall be issued;
(7) if less than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of such Securities to
be redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption;
(8) the CUSIP number of the Securities to be redeemed; and
(9) that the notice is being sent pursuant to this Section 3.4
and pursuant to the optional redemption provisions of Paragraph 5 of the
Securities.
SECTION 3.5. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.4
hereof, Securities called for redemption become due and payable on the
Redemption Date and at the Redemption Price, including accrued and unpaid
interest (and Liquidated Damages, if any) to the Redemption Date. Upon surrender
to the Trustee or Paying Agent, such Securities called for redemption shall be
paid at the Redemption Price, including interest and Liquidated Damages, if any,
accrued and unpaid to the Redemption Date; provided that if the Redemption Date
is after a regular Record Date and on or prior to the Interest Payment Date, to
which such Record Date relates, the accrued interest (and Liquidated Damages, if
any) shall be payable to the Holder of the redeemed Securities registered on the
relevant Record Date; and provided, further, that if a Redemption Date is a
Legal Holiday, payment shall be made on the next succeeding Business Day
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and no interest shall accrue for the period from such Redemption Date to such
succeeding Business Day.
SECTION 3.6. Deposit of Redemption Price.
On or prior to the Redemption Date, the Company shall deposit with
the Paying Agent (other than the Company or an Affiliate of the Company) cash
sufficient to pay the Redemption Price of all Securities to be redeemed on such
Redemption Date (other than Securities or portions thereof called for redemption
on that date that have been delivered by the Company to the Trustee for
cancellation). The Paying Agent shall promptly return to the Company any cash so
deposited which is not required for that purpose upon the written request of the
Company.
If the Company complies with the preceding paragraph and payment of
the Securities called for redemption is not prohibited for any reason, interest
on the Securities to be redeemed shall cease to accrue on the applicable
Redemption Date, whether or not such Securities are presented for payment.
Notwithstanding anything herein to the contrary, if any Security surrendered for
redemption in the manner provided in the Securities shall not be so paid upon
surrender for redemption because of the failure of the Company to comply with
the preceding paragraph, interest shall continue to accrue and be paid from the
Redemption Date until such payment is made on the unpaid principal, and, to the
extent lawful, on any interest not paid on such unpaid principal, in each case
at the rate and in the manner provided in Section 4.1 hereof and the Security.
SECTION 3.7. Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder, without service charge to the Holder, a new Security or Securities equal
in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Securities.
The Company shall pay the principal of and interest (and Liquidated
Damages, if any) on the Securities on the dates and in the manner provided
herein and in the Securities. An installment of principal of or interest (or
Liquidated Damages, if any) on the Securities 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 for the benefit of the Holders (on or before
10:00 a.m. New York City time to the extent necessary to provide the funds to
the Depositary in accordance with
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the Depositary's procedures) on that date cash deposited and designated for and
sufficient to pay the installment.
The Company shall pay interest on overdue principal and on overdue
installments of interest (and Liquidated Damages, if any) at the rate specified
in the Securities compounded semi-annually, to the extent lawful.
SECTION 4.2. Maintenance of Office or Agency.
The Company and the Subsidiary Guarantors shall maintain in the
Borough of Manhattan, The City of New York, an office or agency where Securities
may be presented or surrendered for payment, where Securities may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Company and the Subsidiary Guarantors in respect of the Securities and
this Indenture may be served. The Company and the Subsidiary Guarantors shall
give prompt written notice to the Trustee and the Paying Agent of the location,
and any change in the location, of such office or agency. If at any time the
Company and the Subsidiary Guarantors shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee and the Paying Agent 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 13.2 hereof.
The Company and the Subsidiary Guarantors may also from time to time
designate one or more other offices or agencies where the Securities may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company and the Subsidiary Guarantors
of their obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York, for such purposes. The Company and the Subsidiary
Guarantors shall give prompt written notice to the Trustee and the Paying Agent
of any such designation or rescission and of any change in the location of any
such other office or agency. The Company hereby initially designates the
Corporate Trust Office of the Trustee as such office.
SECTION 4.3. Limitation on Restricted Payments.
The Company and the Subsidiary Guarantors shall not, and shall not
permit any of their Subsidiaries to, directly or indirectly, make any Restricted
Payment if, after giving effect to such Restricted Payment on a pro forma basis,
(1) a Default or an Event of Default shall have occurred and be continuing, (2)
the Company is not permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio in Section 4.11 or (3) the aggregate
amount of all Restricted Payments made by the Company and its Subsidiaries,
including after giving effect to such proposed Restricted Payment, from and
after the Issue Date, would exceed the sum of (a) 50% of the aggregate
Consolidated Net Income of the Company for the period (taken as one accounting
period), commencing on the first day after the Issue Date, to and including the
last day
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of the fiscal quarter ended immediately prior to the date of each such
calculation (or, in the event Consolidated Net Income for such period is a
deficit, then minus 100% of such deficit), plus (b) the aggregate Net Cash
Proceeds received by the Company as a Capital Contribution or from the sale of
the Company's Qualified Capital Stock (other than in each case (i) to a
Subsidiary of the Company, (ii) to the extent applied in connection with a
Qualified Exchange, (iii) to the extent applied to repurchase Capital Stock
pursuant to clause (g) of the definition of Permitted Payments and (iv) to the
extent received by the Company or any Subsidiary Guarantor pursuant to clause
(c) or (d) of the definition of Permitted Payments) after the Issue Date.
The provisions of the immediately preceding paragraph shall not
prohibit or be violated by (A) a Qualified Exchange; (B) the payment or making
of any Restricted Payment within 60 days after the date of declaration thereof
or the making of any binding commitment in respect thereof, if at said date of
declaration or commitment, such Restricted Payment would have complied with the
provisions contained in clauses (1), (2) and (3) of the immediately preceding
paragraph; and (C) Permitted Payments. The full amount of any Restricted Payment
made pursuant to the foregoing clause (B) (but not pursuant to clauses (A) or
(C)) of the immediately preceding sentence, however, shall be deducted in the
calculation of the aggregate amount of Restricted Payments available to be made
referred to in clause (3) of the immediately preceding paragraph.
Additionally, the foregoing clause (3) of the first paragraph of
this Section 4.3 shall not prohibit any payment of cash dividends to Parent on
or after May 15, 2003, in each case (i) made not less than 2 Business Days nor
more than 15 Business Days after the then most recent Interest Payment Date,
provided the Company shall have first paid to the Holders all interest (and
Liquidated Damages, if any) due and owing on the Securities on or prior to such
Interest Payment Date, and (ii) the proceeds of which are used by Parent
concurrently with such payment to make a scheduled interest payment on the
Parent Discount Notes as required by the terms of the Parent Discount Notes in
effect on the Issue Date. The full amount of any Restricted Payment made
pursuant to this paragraph, however, shall be deducted in the calculation of the
aggregate amount of Restricted Payments available to be made referred to in
clause (3) of the first paragraph of this Section 4.3.
For purposes of this Section 4.3, the amount of any Restricted
Payment, if other than in cash, shall be the fair market value thereof, as
determined in the good faith reasonable judgment of the Board of Directors of
the Company.
SECTION 4.4. Corporate and Partnership Existence.
Except as otherwise permitted by Article V, Section 4.14 or Section
11.4, the Company and the Subsidiary Guarantors shall do or cause to be done all
things necessary to preserve and keep in full force and effect their respective
corporate, partnership or other organizational existence, as the case may be,
and the corporate, partnership or other organizational existence, as the case
may be, of each of their Subsidiaries in accordance with the respective
organizational documents of each of them and the material rights (charter and
statutory) and
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material corporate franchises of the Company, the Subsidiary Guarantors and each
of their respective Subsidiaries; provided, however, that neither the Company
nor any Subsidiary Guarantor shall be required to preserve, with respect to
themselves, any right or franchise, and with respect to any of their respective
Subsidiaries, any such existence, right or franchise, if (a) the Company shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and (b) the loss thereof is not adverse in any
material respect to the Holders.
SECTION 4.5. Payment of Taxes and Other Claims.
The Company and the Subsidiary Guarantors shall, and shall cause
each of their Subsidiaries to, 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 the Company,
any Subsidiary Guarantor or any of their Subsidiaries or any of their respective
properties and assets and (ii) all lawful claims, whether for labor, materials,
supplies or services, which have become due and payable and which by law have or
may become a Lien upon the property and assets of the Company, any Subsidiary
Guarantor or any of their Subsidiaries; provided, however, that neither the
Company nor any Subsidiary Guarantor shall be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which disputed amounts adequate reserves have
been established in accordance with GAAP.
SECTION 4.6. Maintenance of Properties and Insurance.
The Company and the Subsidiary Guarantors shall cause all material
properties used or useful to the conduct of their business and the business of
each of their Subsidiaries to be maintained and kept in good condition, repair
and working order (reasonable wear and tear excepted) and supplied with all
necessary equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in their reasonable
judgment may be necessary, so that the business carried on in connection
therewith may be properly conducted at all times; provided, however, that
nothing in this Section 4.6 shall prevent the Company or any Subsidiary
Guarantor from discontinuing any operation or maintenance of any of such
properties, or disposing of any of them, if such discontinuance or disposal is
(a)(i) in the judgment of the Board of Directors of the Company, desirable in
the conduct of the business of the Company and (ii) not adverse in any material
respect to the Holders or (b) otherwise permitted under Section 4.14.
The Company and the Subsidiary Guarantors shall provide, or cause to
be provided, for themselves and each of their Subsidiaries, insurance (including
appropriate self-insurance) against loss or damage of the kinds that, in the
reasonable, good faith opinion of the Board of Directors of the Company is
adequate and appropriate for the conduct of the business of the Company, the
Subsidiary Guarantors and such Subsidiaries in a prudent manner, with (except
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for self-insurance) reputable insurers or with the government of the United
States of America or an agency or instrumentality thereof, in such amounts, with
such deductibles, and by such methods as shall be customary, in the reasonable,
good faith opinion of the Company and adequate and appropriate for the conduct
of the business of the Company, the Subsidiary Guarantors and such Subsidiaries
in a prudent manner for entities similarly situated in the industry.
SECTION 4.7. Compliance Certificate; Notice of Default.
(b) The Company shall deliver to the Trustee within 120
days after the end of its fiscal year an Officers' Certificate, one of the
signers of which shall be the principal executive, principal financial or
principal accounting officer of the Company, complying with Section 314(a)(4) of
the TIA and stating that a review of its activities and the activities of its
Subsidiaries, if any, during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture (without regard to notice requirements or grace periods) and further
stating, as to each such Officer signing such certificate, whether or not the
signer knows of any failure by the Company, any Subsidiary Guarantor or any
Subsidiary of the Company to comply with any conditions or covenants in this
Indenture and, if such signer does know of such a failure to comply, the
certificate shall describe such failure with particularity. The Officers'
Certificate shall also notify the Trustee should the relevant fiscal year end on
any date other than the current fiscal year end date.
(d) The Company shall, so long as any of the Securities
are outstanding, deliver to the Trustee, promptly upon becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default or
Event of Default and what action the Company is taking or proposes to take with
respect thereto. The Trustee shall not be deemed to have knowledge of any
Default, any Event of Default or any such fact unless one of its Trust Officers
receives written notice thereof from the Company or any of the Holders.
SECTION 4.8. Reports.
Whether or not the Company is subject to the reporting requirements
of Section 13 or 15(d) of the Exchange Act, the Company shall furnish to the
Trustee, to each Holder and to prospective purchasers of Securities identified
to the Company by an Initial Purchaser, within 15 days after it is or would have
been (if it were subject
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to such reporting requirements) required to file such with the Commission,
annual and quarterly financial statements substantially equivalent to financial
statements that would have been included in reports filed with the Commission,
if such entity were subject to the requirements of Section 13 or 15(d) of the
Exchange Act, including, with respect to annual information only, a report
thereon by the Company's certified independent public accountants as such would
be required in such reports to the Commission, and, in each case, together with
a management's discussion and analysis of financial condition and results of
operations which would be so required; and, unless the Commission shall not
accept such reports, file with the Commission the annual, quarterly and other
reports which it is or (if it were subject to such reporting requirements) would
have been required to file with the Commission. Notwithstanding anything
contrary herein the Trustee shall have no duty to review such documents for
purposes of determining compliance with any provisions of this Indenture.
SECTION 4.9. Limitation on Status as Investment Company.
The Company and the Subsidiary Guarantors shall not and shall not
permit any of their Subsidiaries to become required to register as an
"investment company" (as that term is defined in the Investment Company Act of
1940, as amended), or otherwise become subject to regulation under the
Investment Company Act.
SECTION 4.10. Limitation on Transactions with Affiliates.
Neither the Company nor any of the Subsidiary Guarantors shall be
permitted after the Issue Date to enter into any contract, agreement,
arrangement or transaction with any Affiliate (an "Affiliate Transaction"), or
any series of related Affiliate Transactions (other than Exempted Affiliate
Transactions), unless the terms of such Affiliate Transaction are fair and
reasonable to the Company or such Subsidiary Guarantor, as the case may be, and
are at least as favorable as the terms which could reasonably be expected to be
obtained by the Company or such Subsidiary Guarantor, as the case may be, in a
comparable transaction made on an arm's length basis with persons who are not
Affiliates.
Without limiting the foregoing, in connection with any Affiliate
Transaction or series of related Affiliate Transactions (other than Exempted
Affiliate Transactions) (1) involving consideration to either party in excess of
$1 million, the Company must deliver an Officers' Certificate to the Trustee,
stating that the terms of such Affiliate Transaction are fair and reasonable to
the Company, and no less favorable to the Company than could reasonably be
expected to have been obtained in an arm's length transaction with a
non-Affiliate, and (2) involving consideration to either party in excess of $5
million, the Company must also, prior to the consummation thereof, obtain a
favorable written opinion as to the fairness of such transaction to the Company
from a financial point of view from an independent investment banking firm of
national reputation or, if pertaining to a matter for which such investment
banking firms do not customarily render such opinions, an appraisal or valuation
firm of national reputation; provided, that this sentence shall not apply to the
sale or purchase of products by the Company or its Subsidiaries to or from any
Affiliate of LGP or any Related Party thereof, which sale or purchase is in the
ordinary course of business and in accordance with industry practice.
SECTION 4.11. Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock.
Except as set forth in this Section 4.11, the Company and the
Subsidiary Guarantors shall not, and shall not permit any of their Subsidiaries
to, directly or indirectly, issue, assume, guaranty, incur, become directly or
indirectly liable with respect to (including as a result of an
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Acquisition), or otherwise become responsible for, contingently or otherwise
(individually and collectively, to "incur" or, as appropriate, an "incurrence"),
any Indebtedness or any Disqualified Capital Stock (including Acquired
Indebtedness), other than Permitted Indebtedness. Notwithstanding the foregoing,
if (i) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect on a pro forma basis to, such
incurrence of Indebtedness (including, without duplication, guarantees of
Indebtedness of the Company and the Subsidiary Guarantors otherwise permitted by
this Indenture) or Disqualified Capital Stock and (ii) on the date of such
incurrence (the "Incurrence Date"), the Consolidated Coverage Ratio of the
Company for the Reference Period immediately preceding the Incurrence Date,
after giving effect on a pro forma basis to such incurrence of such Indebtedness
(without duplication) or Disqualified Capital Stock and, to the extent set forth
in the definition of Consolidated Coverage Ratio, the use of proceeds thereof,
would be at least 2.0 to l (the "Debt Incurrence Ratio"), then the Company may
incur such Indebtedness or Disqualified Capital Stock and the Subsidiary
Guarantors may incur such Indebtedness other than Disqualified Capital Stock.
In addition, the foregoing limitations shall not apply to:
(a) the incurrence by the Company or any Subsidiary Guarantor of
Purchase Money Indebtedness on or after the Issue Date, provided, that (i) the
aggregate principal amount of such Indebtedness incurred on or after the Issue
Date and outstanding at any time pursuant to this paragraph (a) (including any
Indebtedness issued to refinance, replace or refund such Indebtedness) shall
not exceed $20.0 million, and (ii) in each case, such Indebtedness as originally
incurred shall not constitute more than 100% of the cost (determined in
accordance with GAAP) to the Company or such Subsidiary Guarantor, as
applicable, of the property so purchased or leased;
(b) the incurrence by the Company or any Subsidiary Guarantor of
Indebtedness in an aggregate principal amount outstanding at any time (including
Indebtedness incurred to refinance, replace or refund such Indebtedness) of up
to $15.0 million (which may be incurred pursuant to the Credit Agreement); and
(c) the incurrence by the Company or any Subsidiary Guarantor of
Indebtedness pursuant to the Credit Agreement up to an aggregate principal
amount outstanding at any time (including any Indebtedness incurred to
refinance, replace or refund such Indebtedness) of $125.0 million, minus the
amount of any such Indebtedness retired with the Net Cash Proceeds from any
Asset Sale or assumed by a transferee in an Asset Sale.
Indebtedness or Disqualified Capital Stock of any Person which is
outstanding at the time such Person becomes a Subsidiary of the Company
(including upon designation of any subsidiary or other person as a Subsidiary)
or is merged with or into or consolidated with the Company or a Subsidiary of
the Company shall be deemed to have been incurred at the time such Person
becomes such a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company, as applicable.
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Notwithstanding anything to the contrary contained in this
Indenture, (i) the Subsidiary Guarantors each may guaranty Indebtedness of the
Company or any other Subsidiary Guarantor that is permitted to be incurred under
this Indenture, either at the time such Subsidiary Guarantor becomes a
Subsidiary Guarantor of the Securities or if later the time the Company or such
other Subsidiary Guarantor incurs such Indebtedness, and (ii) the Company may
guaranty Indebtedness of any Subsidiary Guarantor permitted to be incurred under
this Indenture.
Notwithstanding anything to the contrary contained in this
Indenture, the Company and the Subsidiary Guarantors shall not, and shall not
permit any of their Subsidiaries to, incur any Indebtedness that is
contractually subordinate to any other Indebtedness of the Company or any
Subsidiary Guarantor unless such Indebtedness is at least as subordinate to the
Securities and the Guarantees, as applicable.
SECTION 4.12. Limitations on Dividends and Other Payment
Restrictions Affecting Subsidiaries.
The Company and the Subsidiary Guarantors shall not, and shall not
permit any of their Subsidiaries to, directly or indirectly, create, assume or
suffer to exist any consensual restriction on the ability of any Subsidiary of
the Company to pay dividends or make other distributions to or on behalf of, or
to pay any obligation to or on behalf of, or otherwise to transfer assets or
property to or on behalf of, or make or pay loans or advances to or on behalf
of, the Company or any Subsidiary of the Company, except (a) restrictions
imposed by the Securities or this Indenture or by other indebtedness of the
Company (which may also be guaranteed by the Subsidiary Guarantors) ranking pari
passu with the Securities or the Guarantees, as applicable, provided such
restrictions are not materially more restrictive than those imposed by this
Indenture and the Securities, (b) restrictions imposed by applicable law, (c)
existing restrictions under Indebtedness outstanding on the Issue Date, (d)
restrictions under any Acquired Indebtedness not incurred in violation of this
Indenture or any agreement relating to any property, asset, or business acquired
by the Company or any of its Subsidiaries, which restrictions in each case
existed at the time of acquisition, were not put in place in connection with or
in anticipation of such acquisition and are not applicable to any person, other
than the person acquired, or to any property, asset or business, other than the
property, assets and business so acquired, (e) any such restriction or
requirement imposed by Indebtedness incurred under the Credit Agreement in
accordance with this Indenture, provided such restriction or requirement is not
materially more restrictive than that imposed by the CIT Credit Facility as of
the Issue Date, (f) restrictions with respect solely to a Subsidiary of the
Company imposed pursuant to a binding agreement which has been entered into for
the sale or disposition of all or substantially all of the Equity Interests or
assets of such Subsidiary, provided such restrictions apply solely to the Equity
Interests or assets of such Subsidiary which are being sold, (g) restrictions on
transfer contained in Purchase Money Indebtedness incurred pursuant to clause
(a) of the second paragraph of Section 4.11, provided such restrictions relate
only to the transfer of the property acquired with the proceeds of such Purchase
Money Indebtedness, and (h) in connection with and pursuant to permitted
Refinancings, replacements of restrictions imposed pursuant to clauses (a), (c),
(d), (e) or (g) of this Section 4.12
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that are not materially more restrictive than those
being replaced and do not apply to any other person or assets than those that
would have been covered by the restrictions in the Indebtedness so refinanced.
Notwithstanding the foregoing, neither (a) customary provisions restricting
subletting or assignment of any lease entered into in the ordinary course of
business, consistent with industry practice, nor (b) Liens permitted under the
terms of this Indenture shall in and of themselves be considered a restriction
on the ability of the applicable Subsidiary to transfer such agreement or
assets, as the case may be.
SECTION 4.13. Reserved.
SECTION 4.14. Limitation on Sales of Assets and Subsidiary Stock.
The Company and the Subsidiary Guarantors shall not, and shall not
permit any of their Subsidiaries to, in one or a series of related transactions,
convey, sell, transfer, assign or otherwise dispose of, directly or indirectly,
any of its property, business or assets (other than cash or Cash Equivalents),
including by merger or consolidation (in the case of a Subsidiary Guarantor),
and including any sale or other transfer or issuance of any Equity Interests
(other than directors' qualifying shares) of any Subsidiary of the Company,
whether by the Company or a Subsidiary of the Company, and including (except as
provided in clause (vi) of the second paragraph of this Section 4.14) any Sale
and Leaseback Transaction (any of the foregoing, an "Asset Sale"), unless (1)(a)
within 360 days after the date of such Asset Sale, the Net Cash Proceeds
therefrom (the "Asset Sale Offer Amount") are applied to the optional redemption
of the Securities in accordance with the terms of this Indenture and other
Indebtedness of the Company ranking on a parity with the Securities from time to
time outstanding with similar provisions requiring the Company to make an offer
to purchase or to redeem such Indebtedness with the proceeds from asset sales,
pro rata in proportion to the respective principal amounts (or accreted values
in the case of Indebtedness issued with an original issue discount) of the
Securities and such other Indebtedness then outstanding or to the repurchase of
the Securities and such other Indebtedness pursuant to a cash offer (subject
only to conditions required by applicable law, if any) (pro rata in proportion
to the respective principal amounts (or accreted values in the case of
Indebtedness issued with an original issue discount) of the Securities and such
other Indebtedness then outstanding) (the "Asset Sale Offer") at a purchase
price of 100% of principal amount (or accreted value in the case of Indebtedness
issued with an original issue discount) (the "Asset Sale Offer Price"), together
with accrued and unpaid interest and Liquidated Damages, if any, to the date of
payment, made within 360 days of such Asset Sale, or (b) within 360 days
following such Asset Sale, the Asset Sale Offer Amount is used (i) to make one
or more Acquisitions or invested in assets and property (other than notes,
bonds, obligations and securities) which in the good faith reasonable judgment
of the Board of Directors of the Company shall constitute or be a part of a
Related Business of the Company or such Subsidiary (if it continues to be a
Subsidiary) immediately following such transaction or (ii) to retire permanently
Indebtedness incurred under the Credit Agreement pursuant to clause (c) of the
second paragraph of Section 4.11 (including that in the case of a revolver or
similar arrangement that makes credit available, such commitment is so
permanently reduced by such amount), (2) at least 75% of the consideration for
such Asset
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Sale or series of related Asset Sales consists of cash or Cash Equivalents,
provided that (x) the amount of any liabilities (as shown on the Company's most
recent consolidated balance sheet) of the Company or any Subsidiary (other than
Subordinated Indebtedness) that are assumed by the transferee in such Asset Sale
(provided that the Company and its Subsidiaries are released from all
obligations in respect thereof) and (y) any notes or other obligations received
by the Company or any such Subsidiary Guarantor from such transferee that are
promptly (but in no event more than 90 days after receipt) converted by the
Company or such Subsidiary Guarantor into cash or Cash Equivalents (to the
extent of the cash or Cash Equivalents, as the case may be, received), shall be
deemed to be cash or Cash Equivalents, as the case may be, for purposes of this
provision, and such cash and Cash Equivalents shall be deemed to be Net Cash
Proceeds received from the Asset Sale of the related property sold for such
notes or other obligations, for purposes of this Section 4.14, and, provided,
further, this clause (2) shall not apply to the sale or disposition of assets as
a result of a foreclosure (or a secured party taking ownership of such assets in
lieu of foreclosure) or as a result of an involuntary proceeding in which the
Company cannot, directly or through its Subsidiaries, direct the type of
proceeds received, and (3) with respect to any Asset Sale or series of related
Asset Sales, the Net Cash Proceeds of which exceed $500,000, the Board of
Directors of the Company determines in good faith that the Company or such
Subsidiary, as applicable, receives fair market value for such Asset Sale.
Notwithstanding the foregoing provisions of this Section 4.14, the
following transactions shall not be deemed Asset Sales:
(i) the Company and the Subsidiary Guarantors may, in
the ordinary course of business, convey, sell, lease, transfer,
assign or otherwise dispose of property in the ordinary course of
business;
(ii) the Company and the Subsidiary Guarantors may (x)
convey, sell, lease, transfer, assign or otherwise dispose of assets
pursuant to and in accordance with the limitation on mergers, sales
or consolidations provisions in this Indenture, (y) make Restricted
Payments permitted by Section 4.3 and (z) engage in Exempted
Affiliate Transactions;
(iii) the Company and the Subsidiary Guarantors may
convey, sell, transfer, assign or otherwise dispose of assets or
issue Capital Stock to the Company or any of the Subsidiary
Guarantors;
(iv) the Company and the Subsidiary Guarantors may
sell or dispose of damaged, worn out or other obsolete personal
property in the ordinary course of business so long as such property
is no longer necessary for the proper conduct of the business of the
Company or such Subsidiary Guarantor, as applicable;
(v) the Company and the Subsidiary Guarantors may
exchange assets held by the Company or a Subsidiary Guarantor for
assets held by any person or
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entity; provided that (i) the assets received by the Company or a
Subsidiary Guarantor in any such exchange in the good faith
reasonable judgment of the Board of Directors of the Company shall
immediately constitute, be a part of, or be used in, a Related
Business, (ii) the Board of Directors of the Company has determined
that the terms of any exchange are fair and reasonable, and (iii)
any such exchange shall be deemed to be an Asset Sale to the extent
that the Company or any Subsidiary Guarantor receives cash or Cash
Equivalents in such exchange;
(vi) the Company and each of the Subsidiary Guarantors
may engage in Sale and Leaseback Transactions with respect to
property acquired after the Issue Date (other than property acquired
in exchange for or with the proceeds from the sale or other
disposition of property held by the Company or any Subsidiary
Guarantor on the Issue Date);
(vii) the Company and each of the Subsidiary Guarantors
may liquidate Cash Equivalents in the ordinary course of business;
(viii) the Company and each of the Subsidiary Guarantors
may create or assume Liens (or permit any foreclosure thereon) not
prohibited by this Indenture;
(ix) the Company and each of the Subsidiary Guarantors
may surrender or waive contract rights or the settlement, release or
surrender of contract, tort or other claims of any kind; and
(x) the Company and the Subsidiary Guarantors,
collectively, may convey, sell, transfer, assign or otherwise
dispose of assets having an aggregate fair market value not
exceeding $2 million in any fiscal year.
An acquisition of Securities pursuant to an Asset Sale Offer may be
deferred until the accumulated Net Cash Proceeds from Asset Sales not applied to
the uses set forth in clause (1)(b) above (the "Excess Proceeds") exceeds $10
million. Each Asset Sale Offer shall remain open for 20 Business Days following
its commencement (the "Asset Sale Offer Period"). Upon expiration of the Asset
Sale Offer Period, the Company shall apply the Asset Sale Offer Amount plus an
amount equal to accrued and unpaid interest and Liquidated Damages, if any, to
the purchase of all Indebtedness properly tendered (on a pro rata basis if the
Asset Sale Offer Amount is insufficient to purchase all Indebtedness so
tendered) at the Asset Sale Offer Price (together with accrued interest and
Liquidated Damages, if any). To the extent that the aggregate amount of
Indebtedness tendered pursuant to an Asset Sale Offer is less than the Asset
Sale Offer Amount, the Company may use any remaining Net Cash Proceeds for
general corporate purposes as otherwise permitted by this Indenture and
following each Asset Sale Offer the Excess Proceeds amount shall be reset to
zero.
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All Net Cash Proceeds from an Event of Loss (other than the proceeds
of any business interruption insurance) shall be invested or otherwise used as
provided in clause (1) of the first paragraph of this Section 4.14, all within
18 months from the occurrence of such Event of Loss.
Notice of an Asset Sale Offer shall be sent, on or prior to the
commencement of the Asset Sale Offer, by first-class mail, by the Company to
each Holder at its registered address, with a copy to the Trustee. The notice to
the Holders shall contain all information, instructions and materials required
by applicable law or otherwise material to such Holders' decision to tender
Securities pursuant to the Asset Sale Offer. The notice, which (to the extent
consistent with this Indenture) shall govern the terms of an Asset Sale Offer,
shall state:
(1) that the Asset Sale Offer is being made pursuant to such
notice and this Section 4.14;
(2) the Asset Sale Offer Amount, the Asset Sale Offer Price
(including the amount of accrued but unpaid interest (and Liquidated
Damages, if any)), and the date of purchase;
(3) that any Security or portion thereof not tendered or
accepted for payment will continue to accrue interest if interest is then
accruing;
(4) that, unless the Company defaults in depositing cash with
the Paying Agent (which may not for purposes of this Section 4.14,
notwithstanding anything in this Indenture to the contrary, be the
Company or any Affiliate of the Company) in accordance with the last
paragraph of this Section 4.14, any Security, or portion thereof, accepted
for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Asset Sale Purchase Date;
(5) that Holders electing to have a Security, or portion
thereof, purchased pursuant to an Asset Sale Offer will be required to
surrender their Security, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Security completed, to the Paying
Agent (which may not for purposes of this Section 4.14, notwithstanding
any other provision of this Indenture, be the Company or any Affiliate of
the Company) at the address specified in the notice;
(6) that Holders will be entitled to withdraw their elections,
in whole or in part, if the Paying Agent receives, prior to the expiration
of the Asset Sale Offer, a facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Securities the Holder
is withdrawing and a statement containing a facsimile signature and
stating that such Holder is withdrawing his election to have such
principal amount of the Securities purchased;
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(7) that if Indebtedness in a principal amount in excess of
the principal amount of Securities to be acquired pursuant to the Asset
Sale Offer are tendered and not withdrawn, the Company shall purchase
Indebtedness on a pro rata basis in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an
original issue discount) thereof (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of
$1,000 or integral multiples of $1,000 shall be acquired);
(8) that Holders whose Securities were purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; and
(9) the circumstances and relevant facts regarding such Asset
Sales.
Any Asset Sale Offer shall be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws and any provisions of this Indenture which conflict with such
laws shall be deemed to be superseded by the provisions of such laws.
On or before the date of purchase, the Company shall (i) accept for
payment Securities or portions thereof properly tendered pursuant to the Asset
Sale Offer (on a pro rata basis if required pursuant to clause (7) above), (ii)
deposit with the Paying Agent cash sufficient to pay the Asset Sale Offer Price
for all Securities or portions thereof so accepted and (iii) deliver to the
Trustee Securities so accepted together with an Officers' Certificate setting
forth the Securities or portions thereof being purchased by the Company. The
Paying Agent shall promptly mail or deliver to Holders of Securities so accepted
payment in an amount equal to the Asset Sale Offer Price for such Securities,
and the Trustee shall promptly authenticate and mail or deliver to such Holders
a new Security equal in principal amount to any unpurchased portion of the
Security surrendered. Any Securities not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof.
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If the payment date in connection with an Asset Sale Offer is on or
after an interest payment Record Date and on or before the associated Interest
Payment Date, any accrued and unpaid interest (and Liquidated Damages due on
such Interest Payment Date, if any) shall be paid to the person in whose name a
Security is registered at the close of business on such Record Date, and such
interest (and Liquidated Damages, if applicable) shall not be payable to Holders
who tender Securities pursuant to such Asset Sale Offer.
SECTION 4.15. Waiver of Stay, Extension or Usury Laws.
Each of the Company and the Subsidiary Guarantors covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
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 which would prohibit or
forgive the Company or any Subsidiary Guarantor from paying all or any portion
of the principal of, premium of, or interest (or Liquidated Damages, if any) on
the Securities as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the performance of this
Indenture; and (to the extent that it may lawfully do so) each of the Company
and the Subsidiary Guarantors hereby expressly waives all benefit or advantage
of any such law, and covenants that it shall not hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law had been enacted.
SECTION 4.16. Limitation on Liens Securing Indebtedness.
The Company and the Subsidiary Guarantors shall not, and shall not
permit any of their Subsidiaries to, create, incur, assume or suffer to exist,
to secure any Indebtedness, any Lien of any kind, other than Permitted Liens,
upon any of their respective assets now owned or acquired on or after the date
of this Indenture or upon any income or profits therefrom unless the Company
provides, and causes its Subsidiaries to provide, concurrently therewith or
immediately thereafter, that the Securities and the Guarantees, as applicable,
are equally and ratably so secured for so long as such Indebtedness so secured
remains outstanding; provided that, if such Indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Securities with the same
relative priority as such Subordinated Indebtedness shall have with respect to
the Securities; provided, further, that, in the case of Indebtedness of a
Subsidiary Guarantor, if such Subsidiary Guarantor shall cease to be a
Subsidiary Guarantor in accordance with the provisions of this Indenture, such
equal and ratable Lien to secure the Securities shall, without any further
action, cease to exist.
SECTION 4.17. Rule 144A Information Requirement.
The Company shall furnish to the Holders of the Securities and
prospective purchasers of Securities designated by the Holders of Transfer
Restricted Securities, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities
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Act until such time as either the Company has concluded an offer to exchange the
Exchange Securities for the Initial Securities or a registration statement
relating to resales of the Securities has become effective under the Securities
Act. The Company shall also furnish such information during the pendency of any
suspension of effectiveness of such resale registration statement.
SECTION 4.18. Limitations on Lines of Business.
Neither the Company nor any of its Subsidiaries shall directly or
indirectly engage to any substantial extent in any line or lines of business
activity other than that which, in the reasonable good faith judgment of the
Board of Directors of the Company, is a Related Business.
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation.
The Company shall not consolidate with or merge with or into another
person or, directly or indirectly, sell, lease, convey or transfer all or
substantially all of its assets (computed on a consolidated basis), whether in a
single transaction or a series of related transactions, to another Person or
group of affiliated Persons or adopt a plan of liquidation, unless (i) either
(a) the Company is the continuing entity or (b) the resulting, surviving or
transferee entity or, in the case of a plan of liquidation, the entity which
receives the greatest value from such plan of liquidation is a corporation
organized under the laws of the United States, any state thereof or the District
of Columbia and expressly assumes by supplemental indenture all of the
obligations of the Company in connection with the Securities and this Indenture;
(ii) no Default or Event of Default shall exist or shall occur immediately after
giving effect on a pro forma basis to such transaction; (iii) immediately after
giving effect to such transaction on a pro forma basis, the Consolidated Net
Worth of the consolidated surviving or transferee entity or, in the case of a
plan of liquidation, the entity which receives the greatest value from such plan
of liquidation is at least equal to the Consolidated Net Worth of the Company
immediately prior to such transaction; and (iv) immediately after giving effect
to such transaction on a pro forma basis, the consolidated resulting, surviving
or transferee entity or, in the case of a plan of liquidation, the entity which
receives the greatest value from such plan of liquidation would immediately
thereafter be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio set forth in Section 4.11.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise) of all or substantially all of the properties and assets of
one or more Subsidiaries, the Company's interest in which constitutes all or
substantially all of the properties and assets of the Company
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shall be deemed to be the transfer of all or substantially all of the properties
and assets of the Company.
SECTION 5.2. Successor Corporation Substituted.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company or consummation of a plan of
liquidation in accordance with Section 5.1 the successor corporation formed by
such consolidation or into which the Company is merged or to which such transfer
is made or, in the case of a plan of liquidation, the entity which receives the
greatest value from such plan of liquidation shall succeed to, and (except in
the case of a lease) be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
corporation had been named therein as the Company, and (except in the case of a
lease) the Company shall be released from the obligations under the Securities
and this Indenture except with respect to any obligations that arise from, or
are related to, such transaction.
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) failure by the Company to pay any installment of
interest (or Liquidated Damages, if any) upon the Securities as and
when the same becomes due and payable, and the continuance of any
such failure for a period of 30 days;
(ii) failure by the Company to pay all or any part of
the principal of or premium, if any, on the Securities when and as
the same becomes due and payable at maturity, upon redemption, by
acceleration, or otherwise, including, without limitation, payment
of the Change of Control Purchase Price or the Asset Sale Offer
Price, or otherwise;
(iii) failure by the Company or any Subsidiary of the
Company to observe or perform any other covenant or agreement
contained in the Securities or this Indenture and the continuance of
such failure for a period of 30 days after written notice
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is given to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in aggregate principal amount
of the Securities outstanding, specifying such Default;
(iv) a decree, judgment, or order by a court of
competent jurisdiction shall have been entered adjudicating the
Company or any of its Significant Subsidiaries as bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization of the Company or any of its Significant Subsidiaries
under any bankruptcy or similar law, and such decree or order shall
have continued undischarged and unstayed for a period of 60 days; or
a decree, judgment or order of a court of competent jurisdiction
appointing a receiver, liquidator, trustee, or assignee in
bankruptcy or insolvency for the Company, any of its Significant
Subsidiaries, or any substantial part of the property of any such
Person, or for the winding up or liquidation of the affairs of any
such Person, shall have been entered, and such decree, judgment, or
order shall have remained in force undischarged and unstayed for a
period of 60 days;
(v) the Company or any of its Significant Subsidiaries
shall institute proceedings to be adjudicated a voluntary bankrupt,
or shall consent to the filing of a bankruptcy proceeding against
it, or shall file a petition or answer or consent seeking
reorganization under any bankruptcy or similar law or similar
statute, or shall consent to the filing of any such petition, or
shall consent to the appointment of a Custodian, receiver,
liquidator, trustee, or assignee in bankruptcy or insolvency of it
or any substantial part of its assets or property, or shall make a
general assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts generally as they become due,
fail generally to pay its debts as they become due, or take any
corporate action in furtherance of any of the foregoing;
(vi) a default in any Indebtedness of the Company or any
of its Subsidiaries, with an aggregate principal amount in excess of
$15 million (a) resulting from the failure to pay principal at
maturity or (b) as a result of which the maturity of such
Indebtedness has been accelerated prior to its stated maturity; and
(vii) final unsatisfied judgments not covered by
insurance for the payment of money, or the issuance of any warrant
of attachment against any portion of the property or assets of the
Company or any of its Subsidiaries, aggregating in excess of $15
million, at any one time shall be rendered against the Company or
any of its Subsidiaries and not be stayed, bonded or discharged for
a period (during which execution shall not be effectively stayed) of
60 days.
SECTION 6.2. Acceleration of Maturity Date; Rescission and
Annulment.
If an Event of Default occurs and is continuing (other than an Event
of Default specified in Section 6.1(iv) or Section 6.1(v) above relating to the
Company or any of its
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Significant Subsidiaries), then, and in every such case, unless the principal of
all of the Securities shall have already become due and payable, either the
Trustee or the Holders of at least 25% in aggregate principal amount of then
outstanding Securities, by notice in writing to the Company (and to the Trustee
if given by Holders) (an "Acceleration Notice"), may declare all principal,
determined as set forth below, and accrued interest (and Liquidated Damages, if
any) thereon to be due and payable immediately. If an Event of Default specified
in Section 6.1(iv) or (v) above relating to the Company or any of its
Significant Subsidiaries occurs, all principal and accrued interest (and
Liquidated Damages, if any) thereon will be immediately due and payable on all
outstanding Securities without any declaration or other act on the part of
Trustee or the Holders.
At any time after such a declaration of acceleration being made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of not less
than a majority in aggregate principal amount of then outstanding Securities, by
written notice to the Company and the Trustee, may rescind, on behalf of all
Holders, any such declaration of acceleration if:
(1) the Company has paid or deposited with the Trustee cash
sufficient to pay:
(A) all overdue interest and Liquidated Damages, if
any, on all Securities,
(B) the principal of (and premium, if any, applicable
to) any Securities which would become due other than by reason
of such declaration of acceleration, and interest thereon at
the rate borne by the Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by
the Securities,
(D) all sums paid or advanced by the Trustee hereunder
and the compensation, expenses, disbursements and advances of
the Trustee and its agents and counsel, and all other amounts
due the Trustee under Section 7.7 and
(2) all Events of Default, other than the non-payment of the
principal of, premium, if any, and interest on Securities which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 6.12.
Notwithstanding the previous sentence of this Section 6.2, no waiver shall be
effective against any Holder for any Event of Default or event which with notice
or lapse of time or both would be an Event of Default with respect to (i) any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding Security affected thereby, unless all such
affected Holders agree, in writing, to waive such Event of Default or other
event and (ii)
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any provision requiring supermajority approval to amend, unless such default has
been waived by such a supermajority. No such waiver shall cure or waive any
subsequent default or impair any right consequent thereon.
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if an Event of Default in payment of
principal, premium or interest specified in clause (i) or (ii) of Section 6.1
hereof occurs and is continuing, the Company shall, upon demand of the Trustee,
pay to it, for the benefit of the Holders of such Securities, the whole amount
then due and payable on such Securities for principal, premium (if any), and
interest (and Liquidated Damages, if any), and, to the extent that payment of
such interest shall be legally enforceable, interest on any overdue principal
(and premium, if any), and on any overdue interest (and Liquidated Damages, if
any), at the rate borne by the Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including compensation to, and expenses, disbursements and advances
of the Trustee and its agents and counsel and all other amounts due the Trustee
under Section 7.7.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust in favor of the
Holders, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 6.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any (and
Liquidated Damages, if any), or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise to take any and all actions under
the TIA, including
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(1) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest (and Liquidated Damages, if
any) owing and unpaid in respect of the Securities and to file such other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee and its
agent and counsel and all other amounts due the Trustee under Section 7.7)
and of the Holders allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel, and any
other amounts due the Trustee under Section 7.7 hereof.
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 Securities
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 6.5. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust in favor of the Holders, and any
recovery of judgment shall, after provision for the payment of compensation to,
and expenses, disbursements and advances of the Trustee and its agents and
counsel and all other amounts due the Trustee under Section 7.7, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 6.6. Priorities.
Any money collected by the Trustee pursuant to this Article VI shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal, premium
(if any), or interest (or Liquidated Damages, if any), upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
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FIRST: To the Trustee in payment of all amounts due pursuant to
Section 7.7 hereof;
SECOND: To the Holders in payment of the amounts then due and unpaid
for principal of, premium (if any), and interest (and Liquidated Damages, if
any) on, the Securities in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for principal,
premium (if any), and interest (and Liquidated Damages, if any), respectively;
and
THIRD: To the Company, the Subsidiary Guarantors or such other
Person as may be lawfully entitled thereto, the remainder, if any, each as their
respective interests may appear.
The Trustee may, but shall not be obligated to, fix a record date
and payment date for any payment to the Holders under this Section 6.6.
SECTION 6.7. Limitation on Suits.
No Holder of any Security shall have any right to order or direct
the Trustee to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
(A) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(B) the Holders of not less than 25% in aggregate principal
amount of then outstanding Securities shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default
in its own name as Trustee hereunder;
(C) such Holder or Holders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities to be incurred or reasonably probable to be incurred in
compliance with such request;
(D) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(E) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in aggregate principal amount of the outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatsoever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
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provided and for the equal and ratable benefit of all the Holders.
SECTION 6.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision of this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, and premium (if any), and interest (and
Liquidated Damages, if any) on, such Security on the Maturity Dates of such
payments as expressed in such Security (in the case of redemption, the
Redemption Price on the applicable Redemption Date, in the case of a Change of
Control, the Change of Control Purchase Price on the Change of Control Purchase
Date, and in the case of an Asset Sale, the Asset Sale Offer Price on the
relevant purchase date) and to institute suit for the enforcement of any such
payment after such respective dates, and such rights shall not be impaired
without the consent of such Holder.
SECTION 6.9. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 2.7
hereof, no right or remedy herein conferred upon or reserved to the Trustee or
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and 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 6.10. Delay or Omission Not Waiver.
No delay or omission by the Trustee or by any Holder of any Security
to exercise any right or remedy arising upon any Event of Default shall impair
the exercise of any such right or remedy or constitute a waiver of any such
Event of Default. Every right and remedy given by this Article VI or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 6.11. Control by Holders.
The Holder or Holders of a majority in aggregate principal amount of
then outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred upon the Trustee, provided, that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
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(2) the Trustee shall not determine that the action so
directed would be unjustly prejudicial to the Holders not taking part in
such direction, and
(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.12. Waiver of Existing or Past Default.
Subject to Section 6.8, the Holder or Holders of not less than a
majority in aggregate principal amount of the outstanding Securities may, on
behalf of all Holders, waive any existing or past Default or Event of Default
hereunder and its consequences under this Indenture, except a default
(A) in the payment of the principal of, premium, if any, or
interest (or Liquidated Damages, if any) on, any Security as specified in
clauses (i) and (ii) of Section 6.1 hereof and not yet cured, or
(B) in respect of a covenant or provision hereof which, under
Article IX, cannot be modified or amended without the consent of the
Holder of each outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair the exercise of any right arising therefrom.
SECTION 6.13. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that in any suit for
the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or omitted to be taken by it
as Trustee, any court may in its discretion require the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or defenses made by such
party litigant; but the provisions of this Section 6.13 shall not apply to any
suit instituted by the Company, to any suit instituted by the Trustee, to any
suit instituted by any Holder, or group of Holders, holding in the aggregate
more than 10% in aggregate principal amount of the outstanding Securities, or to
any suit instituted by any Holder for enforcement of the payment of principal
of, or premium (if any), or interest (or Liquidated Damages, if any) on, any
Security on or after the respective Maturity Date expressed in such Security
(including, in the case of redemption, on or after the Redemption Date).
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SECTION 6.14. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Subsidiary Guarantors, the
Trustee and the Holders shall be restored severally and respectively to their
former positions hereunder and thereafter all rights and remedies of the Trustee
and the Holders shall continue as though no such proceeding had been instituted.
ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein expressed,
subject to the terms hereof.
SECTION 7.1. Duties of Trustee.
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
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 others, and no
covenants or obligations shall be implied in or read into this
Indenture which are adverse to 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. However, in the case of any such certificates or
opinions which by any provision hereof are specifically required to
be furnished to the Trustee, the Trustee shall examine the
certificates and opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
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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 7.1,
(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 6.11 hereof.
(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 to take or omit to take any
action under this Indenture or at the request, order or direction of the Holders
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), (d) and (f) of this
Section 7.1.
(f) The Trustee shall not be liable for interest on any assets
received by it except as the Trustee may agree in writing with the Company
(including without limitation to the extent the Trustee receives funds prior to
the interest payment date in order to comply with the provisions of Section
4.1). Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
SECTION 7.2. Rights of Trustee.
Subject to Section 7.1 hereof:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in such document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 13.4 and 13.5 hereof. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on such certificate or advice of counsel.
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(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it or its
agent takes or omits to take in good faith which it believes to be authorized or
within its rights or powers conferred upon it by 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.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders, pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
(g) Unless otherwise specifically provided for in this
Indenture, any demand, request, direction or notice from the Company or any
Subsidiary Guarantor shall be sufficient if signed by an Officer of the Company
or such Subsidiary Guarantor, as applicable.
(h) The Trustee shall have no duty to inquire as to the
performance of the Company's or any Subsidiary Guarantor's covenants in Article
IV hereof or as to the performance by any Agent of its duties hereunder. In
addition, the Trustee shall not be deemed to have knowledge of any Default or
Event of Default except (i) any Event of Default occurring pursuant to Sections
6.1(i), 6.1(ii) and 4.1 hereof, or (ii) any Default or Event of Default of which
the Trustee shall have received written notification or obtained actual
knowledge.
(i) Whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate.
SECTION 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, any
Subsidiary Guarantor, any of their Subsidiaries, or their respective Affiliates
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights. However, the Trustee must comply with Sections 7.10 and
7.11 hereof.
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SECTION 7.4. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy
of this Indenture or the Securities and it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement in the Securities, other than the Trustee's
certificate of authentication, or the use or application of any funds received
by a Paying Agent other than the Trustee.
SECTION 7.5. Notice of Default.
If an Event of Default occurs and is continuing and if it is known
to the Trustee, the Trustee shall mail to each Securityholder notice of the
uncured Event of Default within 90 days after such Event of Default occurs.
Except in the case of an Event of Default in payment of principal (or premium,
if any), of, or interest (or Liquidated Damages, if any) on, any Security
(including the payment of the Change of Control Purchase Price on the Change of
Control Payment Date, the payment of the Redemption Price on the Redemption Date
and the payment of the Asset Sale Offer Price on the relevant purchase date),
the Trustee may withhold the notice if and so long as a Trust Officer in good
faith determines that withholding the notice is in the interest of the
Securityholders.
SECTION 7.6. Reports by Trustee to Holders.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, the Trustee shall, if required by law, mail to each
Securityholder a brief report dated as of such May 15 that complies with TIA
Section 313(a). The Trustee also shall comply with TIA SectionSection 313(b) and
313(c).
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or automatic quotation system.
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed.
SECTION 7.7. Compensation and Indemnity.
The Company and the Subsidiary Guarantors jointly and severally
agree to 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 and the Subsidiary
Guarantors shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances incurred or made by it in accordance with
this Indenture. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents, accountants, experts and
counsel.
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The Company and the Subsidiary Guarantors jointly and severally
agree to indemnify the Trustee (in its capacity as Trustee) and each of its
officers, directors, attorneys-in-fact and agents for, and hold it harmless
against, any claim, demand, expense (including but not limited to reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel),
loss or liability incurred by it without negligence or bad faith on the part of
the Trustee, arising out of or in connection with the administration of this
trust and its rights or duties hereunder, including the reasonable costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. The Company and the Subsidiary
Guarantors shall defend the claim and the Trustee shall provide reasonable
cooperation at the Company's and the Subsidiary Guarantors' expense in the
defense. The Trustee may have separate counsel and the Company and the
Subsidiary Guarantors shall pay the reasonable fees and expenses of such
counsel; provided, that the Company and the Subsidiary Guarantors will not be
required to pay such fees and expenses if they assume the Trustee's defense and
there is no conflict of interest between the Company and the Subsidiary
Guarantors and the Trustee in connection with such defense. The Company and the
Subsidiary Guarantors need not pay for any settlement made without their written
consent. The Company and the Subsidiary Guarantors 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 and the Subsidiary Guarantors' payment
obligations in this Section 7.7, the Trustee shall have a lien prior to the
Securities on all assets held or collected by the Trustee, in its capacity as
Trustee, except assets held in trust to pay principal and premium, if any, of or
interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.1(iv) or (v) of this Indenture occurs, the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
The Company's and the Subsidiary Guarantors' obligations under this
Section 7.7 and any lien arising hereunder shall survive the resignation or
removal of the Trustee, the discharge of the Company's and the Subsidiary
Guarantors' obligations pursuant to Article VIII of this Indenture and any
rejection or termination of this Indenture under any Bankruptcy Law.
SECTION 7.8. Replacement of Trustee.
The Trustee may resign by so notifying the Company in writing. The
Holder or Holders of a majority in aggregate principal amount of the outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee in
writing and may appoint a successor trustee with the Company's consent. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
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(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian or other public officer takes charge
of the Trustee or its property; or
(d) 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 promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder or
Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that
and provided that all sums owing to the retiring Trustee provided for in Section
7.7 hereof have been paid, the retiring Trustee shall transfer all property held
by it as trustee to the successor Trustee, subject to the lien provided in
Section 7.7 hereof, the resignation or removal of the retiring Trustee shall
become effective, and the successor Trustee shall have all the rights, powers
and duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each 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
Holder or Holders of at least 10% in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company's and the Subsidiary Guarantors' obligations under Section 7.7
hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
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SECTION 7.10. Eligibility; Disqualification.
The Trustee shall at all times satisfy the requirements of TIA
Section 310(a)(1), (2) and (5). The Trustee shall have a combined capital and
surplus of at least $25 million as set forth in its most recent published annual
report of condition. The Trustee shall comply with TIA Section 310(b).
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.
ARTICLE VIII
DISCHARGE; LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Discharge; Option to Effect Legal Defeasance or
Covenant Defeasance.
This Indenture shall cease to be of further effect (except that the
Company's and the Subsidiary Guarantors' obligations under Section 7.7 and the
Trustee's and the Paying Agent's obligations under Sections 8.6 and 8.7 shall
survive) when all outstanding Securities theretofore authenticated and issued
have been delivered (other than destroyed, lost or stolen Securities that have
been replaced or paid) to the Trustee for cancellation and the Company or the
Subsidiary Guarantors have paid all sums payable hereunder. In addition, the
Company may elect at any time to have Section 8.2 or Section 8.3, at the
Company's option, of this Indenture applied to all outstanding Securities upon
compliance with the conditions set forth below in this Article VIII.
SECTION 8.2. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company and the Subsidiary Guarantors shall
be deemed to have been discharged from their respective obligations with respect
to all outstanding Securities on the date the 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 and this Indenture shall cease to be of
further effect as to all outstanding Securities and Guarantees, except as to be
deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and the
Company and the Subsidiary Guarantors shall be deemed to have satisfied all
other of their respective obligations under such Securities and this Indenture
(and the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging
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the same), except for the following which shall survive until otherwise
terminated or discharged hereunder: (a) the rights of Holders of outstanding
Securities to receive payments in respect of the principal of, premium, if any,
and interest (and Liquidated Damages, if any) on such Securities when such
payments are due from the trust described in Section 8.5, (b) the Company's
obligations with respect to such Securities under Sections 2.4, 2.6, 2.7, 2.10,
4.2, 8.5, 8.6 and 8.7 hereof and (c) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and the Company's and the Subsidiary
Guarantors' obligations in connection therewith. Subject to compliance with this
Article VIII, the Company may exercise its option under this Section 8.2
notwithstanding the prior exercise of its option under Section 8.3 hereof with
respect to the Securities.
SECTION 8.3. Covenant Defeasance.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, the Company and the Subsidiary Guarantors shall
be released from their respective obligations under the covenants contained in
Sections 4.3, 4.6, 4.7, 4.8, 4.10, 4.11, 4.12, 4.14, 4.16, 4.17 and 4.18,
Article V and Article X hereof with respect to the outstanding Securities on and
after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Securities shall thereafter be deemed not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder. For this purpose, such Covenant Defeasance means that, with respect
to the outstanding Securities, neither the Company nor any Subsidiary Guarantor
need comply with and shall have any 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, but, except as specified above, the remainder of this Indenture and
such Securities shall be unaffected thereby. In addition, upon the Company's
exercise under Section 8.1 hereof of the option applicable to this Section 8.3,
Sections 6.1(iii) through 6.1(vii) hereof shall not constitute Events of Default
with respect to the Securities.
SECTION 8.4. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Securities:
(a) (1) The Company shall irrevocably have deposited or caused
to be deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 hereof who shall agree to comply with the provisions of this
Article VIII applicable to it), in trust, for the benefit of the Holders of the
Securities, cash, U.S. Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest (and Liquidated Damages, if any) on such outstanding Securities on the
stated date for payment thereof
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or on the redemption date of such principal or installment of principal of,
premium, if any, or interest on such Securities, and the holders of Securities
must have a valid, perfected, exclusive security interest in such trust, (ii) in
the case of Legal Defeasance before the date that is one year prior to the
Stated Maturity, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of this Indenture, there
has been a change in the applicable Federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of such outstanding Securities will not recognize income, gain or
loss for Federal income tax purposes as a result of such Legal Defeasance and
will be subject to Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred; (iii) in the case of Covenant Defeasance before the date that is
one year prior to the Stated Maturity, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to such
Trustee confirming that the Holders of such outstanding Securities will not
recognize income, gain or loss for Federal income tax purposes as a result of
such Covenant Defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit; (v) such
Legal Defeasance or Covenant Defeasance will not result in a breach or violation
of, or constitute a default under any material agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound; (vi) the Company shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of such Securities over the
other creditors of the Company with the intent of defeating, hindering, delaying
or defrauding other creditors of the Company; and (vii) the Company shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that the conditions precedent provided for in, in the case of the
Officers' Certificate, (i) through (vi) and, in the case of the opinion of
counsel, clauses (i), (with respect to the validity and perfection of the
security interest) (ii), (iii) and (v) of this paragraph, have been complied
with.
SECTION 8.5. Deposited Cash and U.S. Government Obligations to be
Held in Trust; Other Miscellaneous Provisions.
Subject to Section 8.6 hereof, all cash and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.5, the
"Paying Agent") pursuant to Section 8.4 hereof in respect of the outstanding
Securities shall be held in trust and applied by the Paying Agent, in accordance
with the provisions of such Securities and this Indenture, to the payment,
either directly or through any other Paying Agent as the Trustee may determine,
to the Holders of such Securities of all sums due and to become due thereon in
respect of principal, premium, if any, and interest (and Liquidated Damages, if
any), but such money need not be segregated from other funds except to the
extent required by law.
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The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 8.4 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 Securities.
SECTION 8.6. Repayment to the Company.
(a) Anything in this Article VIII to the contrary
notwithstanding, the Trustee or the Paying Agent shall deliver or pay to the
Company from time to time upon the request of the Company any cash or U.S.
Government Obligations held by it as provided in Section 8.4 hereof which in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee (which may
be the opinion delivered under Section 8.4(a) hereof), are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
(b) Any cash and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest (and Liquidated Damages, if any) on any Security and remaining
unclaimed for two years after such principal, and premium, if any, or interest
has become due and payable shall be paid to the Company on its request; and the
Holder of such Security shall thereafter look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 8.7. Reinstatement.
If the Trustee or Paying Agent is unable to apply any cash or U.S.
Government Obligations in accordance with Section 8.2 or 8.3 hereof, as the case
may be, of this Indenture by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, or if any event occurs at any time in the period ending on the 91st
day after the date of deposit pursuant to Section 8.2 or 8.3 hereof which event
would constitute an Event of Default under Section 6.1 (iv) or (v) had Legal
Defeasance or Covenant Defeasance, as the case may be, not occurred, then the
Company's and the Subsidiary Guarantors' obligations under this Indenture and
the Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying
Agent is permitted to apply such money in accordance with Sections 8.2 and 8.3
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest (and Liquidated Damages,
if any) on any Security following the
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reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the cash or U.S.
Government Obligations held by the Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holder, the Company or any Subsidiary
Guarantor, when authorized by Board Resolutions, and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect, or inconsistency,
or make any other provisions with respect to matters or questions
arising under this Indenture which shall not be inconsistent with
the provisions of this Indenture, provided such action pursuant to
this clause (1) shall not adversely affect the interests of any
Holder in any respect;
(2) to add to the covenants of the Company or the
Subsidiary Guarantors for the benefit of the Holders, or to
surrender any right or power herein conferred upon the Company or
the Subsidiary Guarantors or make any other change that does not
adversely affect the rights of any Holder;
(3) to provide for collateral for or additional
Subsidiary Guarantors of the Securities;
(4) to evidence the succession of another Person to
the Company, and the assumption by any such successor of the
obligations of the Company, herein and in the Securities in
accordance with Article V;
(5) to comply with the TIA;
(6) to evidence the succession of another corporation
to any Subsidiary Guarantor and assumption by any such successor of
the Guarantee of such Subsidiary Guarantor (as set forth in Section
11.4) in accordance with Article XI;
(7) to evidence the release of any Subsidiary
Guarantor in accordance with Article XI;
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(8) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with respect to the
Securities;
(9) in any other case where a supplemental indenture
is required or permitted to be entered into pursuant to the
provisions of this Indenture without the consent of any Holder; or
(10) to provide for the issuance and authorization of
the Exchange Securities.
SECTION 9.4. Amendments, Supplemental Indentures and Waivers with
Consent of Holders.
Subject to Section 6.8 hereof, with the consent of the Holders of at
least a majority in principal amount of the Securities then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for such Securities), by written act of said Holders delivered to the Company
and the Trustee, the Company or any Subsidiary Guarantor, when authorized by
Board Resolutions, and the Trustee may amend or supplement this Indenture or the
Securities or enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or the Securities or of modifying in any
manner the rights of the Holders under this Indenture or the Securities;
provided that no such modification may, without the consent of holders of at
least 66 2/3% in aggregate principal amount of Securities at the time
outstanding, modify the provisions (including the defined terms therein) of
Article X or Article XI of this Indenture in a manner adverse to the holders.
Subject to Section 6.8, the Holder or Holders of not less than a majority in
aggregate principal amount of then outstanding Securities may waive compliance
by the Company or any Subsidiary Guarantor with any provision of this Indenture
or the Securities. Notwithstanding any of the above, however, no such amendment,
supplemental indenture or waiver shall, without the consent of the Holder of
each outstanding Security affected thereby:
(1) change the Maturity Date on any Security, or
reduce the principal amount thereof or the rate (or extend the time
for payment) of interest thereon or any premium payable upon the
redemption at the option of the Company thereof, or change the place
of payment where, or the coin or currency in which, any Security or
any premium or the interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment on or
after the Maturity Date thereof (or in the case of redemption at the
option of the Company, on or after the Redemption Date), or reduce
the Change of Control Purchase Price or the Asset Sale Offer Price
or alter the provisions (including the defined terms used herein)
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of Article III of this Indenture or Paragraph 5 of the Securities
regarding the right of the Company to redeem the Securities at its
option in a manner adverse to the Holders; or
(2) reduce the percentage in principal amount of the
outstanding Securities, the consent of whose Holders is required for
any such amendment, supplemental indenture or wavier provided for in
this Indenture; or
(3) modify any of the waiver provisions, except to
increase any required percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without
the consent of the Holder of each outstanding Security affected
thereby; or
(4) cause the Securities or any Guarantee to become
subordinate in right of payment to any other Indebtedness.
It shall not be necessary for the consent of the Holders under this
Section 9.2 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 becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture or waiver.
After an amendment, supplement or waiver under this Section 9.2 or
under Section 9.4 hereof becomes effective, it shall bind each Holder.
In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
SECTION 9.3. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by
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a Holder is a continuing consent by the Holder and every subsequent Holder of a
Security or portion of a Security that evidences the same debt as the consenting
Holder's Security, even if notation of the consent is not made on any Security.
However, any such Holder or subsequent Holder may revoke the consent as to his
Security or portion of his Security by written notice to the Company or the
Person designated by the Company as the Person to whom consents should be sent
if such revocation is received by the Company or such Person before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. 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, and only those Persons (or
their duly designated proxies), shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (4) of Section 9.2 hereof, in which case, the amendment, supplement
or waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided, that any such
waiver shall not impair or affect the right of any Holder to receive payment of
principal and premium of and interest (and Liquidated Damages, if any) on a
Security, on or after the respective dates set for such amounts to become due
and payable expressed in such Security, or to bring suit for the enforcement of
any such payment on or after such respective dates.
SECTION 9.5. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee or require the Holder to put an appropriate notation on the
Security. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms. Any failure to make the appropriate notation or to issue a new Security
shall not affect the validity of such amendment, supplement or waiver.
SECTION 9.6. Trustee to Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; provided, that the Trustee may, but
shall not be obligated to, execute
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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
stating that the execution of any amendment, supplement or waiver authorized
pursuant to this Article IX is authorized or permitted by this Indenture.
ARTICLE X
RIGHT TO REQUIRE REPURCHASE
SECTION 10.1. Repurchase of Securities at Option of the Holder Upon
a Change of Control.
(a) In the event that a Change of Control has occurred,
each holder of Securities shall have the right, at such holder's option,
pursuant to an offer (subject only to conditions required by applicable law, if
any) by the Company (the "Change of Control Offer"), to require the Company to
repurchase all or any part of such holder's Securities (provided, that the
principal amount of such Securities must be $1,000 or an integral multiple
thereof) on a date (the "Change of Control Purchase Date") that is no later than
45 Business Days after the occurrence of such Change of Control, at a cash price
equal to 101% of the principal amount thereof (the "Change of Control Purchase
Price"), together with accrued and unpaid interest and Liquidated Damages, if
any, to the Change of Control Purchase Date.
(b) In the event that, pursuant to this Section 10.1,
the Company shall be required to commence a Change of Control Offer, the Company
shall follow the procedures set forth in this Section 10.1 as follows:
(i) the Change of Control Offer shall commence within
15 Business Days following the occurrence of a Change of Control;
(ii) the Change of Control Offer shall remain open for
at least 20 Business Days following its commencement (the "Change of
Control Offer Period");
(iii) upon the expiration of the Change of Control
Offer Period, the Company promptly shall purchase all of the
tendered Securities at the Change of Control Purchase Price;
(iv) if the Change of Control is on or after an
interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest (and
Liquidated Damages, if any, due on such Interest Payment Date) will
be paid to the Person in whose name a Security is registered at the
close of business on such Record Date, and such interest (and
Liquidated Damages, if applicable) will not be
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payable to Securityholders who tender Securities pursuant to the
Change of Control Offer;
(v) the Company shall provide the Trustee and the
Paying Agent with written notice of the Change of Control Offer at
least three Business Days before the commencement of any Change of
Control Offer; and
(vi) on or before the commencement of any Change of
Control Offer, the Company or the Trustee (upon the request and at
the expense of the Company) shall send, by first-class mail, a
notice to each of the Securityholders, which (to the extent
consistent with this Indenture) shall govern the terms of the Change
of Control Offer and shall state:
(A) that the Change of Control Offer is
being made pursuant to this Section 10.1 and that all
Securities, or portions thereof, tendered will be accepted for
payment;
(B) the Change of Control Purchase Price
(including the amount of accrued but unpaid interest (and
Liquidated Damages, if any)) and the Change of Control
Purchase Date;
(C) that any Security, or portion thereof,
not tendered or accepted for payment will continue to accrue
interest;
(D) that, unless the Company defaults in
depositing cash with the Paying Agent in accordance with the
last paragraph of this Section 10.1, or such payment is
prevented for any reason, any Security, or portion thereof,
accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control
Purchase Date;
(E) that Holders electing to have a
Security, or portion thereof, purchased pursuant to a Change
of Control Offer will be required to surrender the Security,
with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Security completed, to the Paying Agent
(which may not for purposes of this Section 10.1,
notwithstanding anything in this Indenture to the contrary, be
the Company or any Affiliate of the Company) at the address
specified in the notice prior to the expiration of the Change
of Control Offer;
(F) that Holders will be entitled to
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withdraw their election, in whole or in part, if the Paying
Agent receives, prior to the expiration of the Change of
Control Offer, a facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the
Securities the Holder is withdrawing and a statement
containing a facsimile signature and stating that such Holder
is withdrawing his election to have such principal amount of
Securities purchased;
(G) that Holders whose Securities are
purchased only in part will be issued new Securities equal in
principal amount to the unpurchased portion of the Securities
surrendered; and
(H) a brief description of the events
resulting in such Change of Control.
Any Change of Control Offer shall be made in compliance with all
applicable laws, rules and regulations, including, if applicable, Regulation 14E
under the Exchange Act and the rules thereunder and all other applicable Federal
and state securities laws and any provisions of this Indenture which conflict
with such laws shall be deemed to be superseded by the provisions of such laws.
On or before the Change of Control Purchase Date, the Company shall
(i) accept for payment Securities or portions thereof properly tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent cash
sufficient to pay the Change of Control Purchase Price (together with accrued
and unpaid interest and Liquidated Damages, if any), of all Securities so
tendered and (iii) deliver to the Trustee Securities so accepted together with
an Officers' Certificate listing the Securities or portions thereof being
purchased by the Company. The Paying Agent promptly will pay the Holders of
Securities so accepted an amount equal to the Change of Control Purchase Price
(together with accrued and unpaid interest and Liquidated Damages, if any), and
the Trustee promptly will authenticate and deliver to such Holders a new
Security equal in principal amount to any unpurchased portion of the Security
surrendered. Any Securities not so accepted will be delivered promptly by the
Company to the Holder thereof. The Company publicly will announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Purchase Date.
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ARTICLE XI
GUARANTEE
SECTION 11.1. Guarantee.
(a) If any Person becomes a Subsidiary of the Company,
whether pursuant to the acquisition by the Company or any Subsidiary Guarantor
of Equity Interests of such Person, or otherwise, such Subsidiary (in each case,
a "Subsidiary Guarantor") shall, to the fullest extent permitted by applicable
law, irrevocably and unconditionally guarantee (the "Guarantee") to each Holder
of a Security authenticated and delivered by the Trustee and to the Trustee and
its successors and assigns, irrespective of the validity and enforceability
against the Company and any other Subsidiary Guarantors of this Indenture, the
Securities or the obligations of the Company under this Indenture or the
Securities, that: (x) the principal of and premium (if any), and interest (and
Liquidated Damages, if any) on the Securities will be paid in full when due,
whether at the Maturity Date or Interest Payment Date, by acceleration, call for
redemption, upon a Change of Control, an Asset Sale Offer or otherwise; (y) all
other obligations of the Company to the Holders or the Trustee under this
Indenture or the Securities will be promptly paid in full or performed, all in
accordance with the terms of this Indenture and the Securities; and (z) in case
of any extension of time of payment or renewal of any Securities or any of such
other obligations, they will be paid in full when due or performed in accordance
with the terms of the extension or renewal, whether at maturity, by
acceleration, call for redemption, upon a Change of Control, an Asset Sale Offer
or otherwise. Failing payment when due of any amount so guaranteed for whatever
reason, each Subsidiary Guarantor shall be obligated to pay the same before
failure so to pay becomes an Event of Default.
If the Company or a Subsidiary Guarantor defaults in the payment of
the principal of, premium, if any, or interest (or Liquidated Damages, if any)
on, the Securities when and as the same shall become due, whether upon maturity,
acceleration, call for redemption, upon a Change of Control Offer, upon an Asset
Sale Offer or otherwise, without the necessity of action by the Trustee or any
Holder, each Subsidiary Guarantor shall be required, jointly and severally, to
promptly make such payment in full.
Each Subsidiary Guarantor shall, within five Business Days after
becoming a Subsidiary of the Company, execute and deliver to the Trustee a
supplemental indenture, which shall be in a form satisfactory to the Trustee,
making such Subsidiary Guarantor a party to this Indenture.
(b) Each Subsidiary Guarantor hereby agrees to the
fullest extent permitted by applicable law, that its obligations with regard to
this Guarantee shall be unconditional, irrespective of the validity, regularity
or enforceability of the Securities or this Indenture, the absence of any action
to enforce the same, any delays in obtaining or realizing upon or failures to
obtain or realize upon collateral, the recovery of any judgment against the
Company,
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any action to enforce the same or any other circumstances that might otherwise
constitute a legal or equitable discharge or defense of a Subsidiary Guarantor.
Each Subsidiary Guarantor hereby waives to the fullest extent permitted by
applicable law diligence, presentment, demand of payment, filing of claims with
a court in the event of insolvency or bankruptcy of the Company, any right to
require a proceeding first against the Company or right to require the prior
disposition of the assets of the Company to meet its obligations, protest,
notice and all demands whatsoever and covenants that this Guarantee will not be
discharged except by complete performance of the obligations contained in the
Securities and this Indenture.
(c) If any Holder or the Trustee is required by any
court or otherwise to return to either the Company or any Subsidiary Guarantor,
or any Custodian or similar official acting in relation to either the Company or
such Subsidiary Guarantor, any amount paid by either the Company or such
Subsidiary Guarantor to the Trustee or such Holder, this Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and effect.
Each Subsidiary Guarantor agrees that it will not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. Each
Subsidiary Guarantor further agrees that, as between such Subsidiary Guarantor,
on the one hand, and the Holders and the Trustee, on the other hand, (i) the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Section 6.2 hereof for the purposes of this Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration as to the Company
of the obligations guaranteed hereby, and (ii) in the event of any declaration
of acceleration of those obligations as provided in Section 6.2 hereof, those
obligations (whether or not due and payable) will forthwith become due and
payable by each of the Subsidiary Guarantors for the purpose of this Guarantee.
(d) It is the intention of each Subsidiary Guarantor and
the Company that the obligations of each Subsidiary Guarantor hereunder shall be
in, but not in excess of, the maximum amount permitted by applicable law.
Accordingly, if the obligations in respect of the Guarantee would be annulled,
avoided or subordinated to the creditors of any Subsidiary Guarantor by a court
of competent jurisdiction in a proceeding actually pending before such court as
a result of a determination both that such Guarantee was made by such Subsidiary
Guarantor without fair consideration and, immediately after giving effect
thereto, such Subsidiary Guarantor was insolvent or unable to pay its debts as
they mature or left with an unreasonably small capital, then the obligations of
such Subsidiary Guarantor under such Guarantee shall be reduced by such court if
and to the extent such reduction would result in the avoidance of such
annulment, avoidance or subordination; provided, however, that any reduction
pursuant to this paragraph shall be made in the smallest amount as is strictly
necessary to reach such result. For purposes of this paragraph, "fair
consideration", "insolvency", "unable to pay its debts as they mature",
"unreasonably small capital" and the effective times of reductions, if any,
required by this paragraph shall be determined in accordance with applicable
law.
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SECTION 11.2. Execution and Delivery of Guarantee.
Each Subsidiary Guarantor shall, by virtue of such Subsidiary
Guarantor's execution and delivery of an indenture supplement pursuant to
Section 11.1 hereof, be deemed to have signed on each Security issued hereunder
the notation of guarantee set forth on the form of the Securities attached
hereto as Exhibit A to the same extent as if the signature of such Subsidiary
Guarantor appeared on such Security.
The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the guarantee
set forth in Section 11.1 on behalf of each Subsidiary Guarantor. The notation
of a guarantee set forth on any Security shall be null and void and of no
further effect with respect to the guarantee of any Subsidiary Guarantor which,
pursuant to Section 11.4, is released from such Guarantee.
SECTION 11.3. 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 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 11.4. Limitation on Merger of Subsidiary Guarantors and
Release of Subsidiary Guarantors.
No Subsidiary Guarantor shall consolidate or merge with or into
(whether or not such Subsidiary Guarantor is the surviving person) another
person unless (i) subject to the provisions of the following paragraph the
person formed by or surviving any such consolidation or merger (if other than
such Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor pursuant to a supplemental indenture in form reasonably satisfactory
to the Trustee, pursuant to which such person shall unconditionally guarantee,
on a basis senior in right of payment to all existing and future subordinated
Indebtedness of such person, all of such Subsidiary Guarantor's obligations
under such Subsidiary Guarantor's guarantee and this Indenture on the terms set
forth in this Indenture; and (ii) immediately before and immediately after
giving effect to such transaction on a pro forma basis, no Default or Event of
Default shall have occurred or be continuing.
Upon the sale or disposition (whether by merger, stock purchase,
asset sale or otherwise) of a Subsidiary Guarantor (or all or substantially all
of the assets of any such Subsidiary Guarantor or 50% or more of the Equity
Interests of any such Subsidiary Guarantor) to an entity which is not a
Subsidiary Guarantor or the designation of a Subsidiary to become an
Unrestricted
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<PAGE> 91
Subsidiary, which transaction is otherwise in compliance with this Indenture
(including, without limitation, the provisions of Section 4.14), such Subsidiary
Guarantor will be deemed released from its obligations under its Guarantee of
the Securities; provided, however, that any such termination shall occur only to
the extent that all obligations of such Subsidiary Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure, any Indebtedness of the Company or any other Subsidiary
of the Company shall also terminate upon such release, sale or transfer.
ARTICLE XII
RESERVED
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of the TIA, the imposed duties, upon
qualification of this Indenture under the TIA, shall control.
SECTION 13.2. Notices.
Any notices or other communications to the Company or any Subsidiary
Guarantor or the Trustee required or permitted hereunder shall be in writing,
and shall be sufficiently given if made by hand delivery, by telex, by
telecopier or registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company or any Subsidiary Guarantor:
Big 5 Corp.
2525 East El Segundo Boulevard
El Segundo, California 90245
Attention: President
Telecopy: (310) 297-7595
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<PAGE> 92
with a copy to:
Leonard Green & Partners
11111 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
Attention: Jennifer Holden Dunbar
Telecopy: (310) 954-0404
with a copy to:
Irell & Manella LLP
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067
Attention: Edmund M. Kaufman, Esq.
Telecopy: (310) 203-7199
if to the Trustee:
First Trust National Association
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Corporate Trust Department
Telecopy: (612) 244-0711
Any party by notice to each other party may designate additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party 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 telecopied; and five Business Days after
mailing if sent by registered or certified mail, postage prepaid (except that a
notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be
mailed to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication
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<PAGE> 93
is mailed in the manner provided above, it is duly given, whether or not the
addressee receives it.
SECTION 13.3. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA Section 312(c).
SECTION 13.4. 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, such Person
shall furnish to the Trustee:
(1) an Officers' Certificate (in form and substance
reasonably satisfactory to the Trustee) stating that, in the
opinion of the signers, all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been met;
and
(2) an Opinion of Counsel (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion
of such counsel, all such conditions precedent have been met.
SECTION 13.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate
or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such
covenant or condition has been met; and
(4) a statement as to whether or not, in the opinion of
each such Person, such condition or covenant has been met; provided,
however, that with respect to matters of fact an Opinion of Counsel
may rely on an Officers'
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<PAGE> 94
Certificate or certificates of public officials.
SECTION 13.6. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting
of Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 13.7. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in New York, New York are authorized or obligated by law or
executive order to close. 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 13.8. Governing Law.
THIS INDENTURE, THE GUARANTEES AND THE SECURITIES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. 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 INDENTURE AND THE SECURITIES, 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, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
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. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE TRUSTEE OR ANY SECURITYHOLDER TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE COMPANY AND THE SUBSIDIARY GUARANTORS IN ANY OTHER JURISDICTION.
SECTION 13.9. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or any Subsidiary Guarantor or any of their
respective Subsidiaries.
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<PAGE> 95
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 13.10. No Recourse Against Others.
No partner, incorporator, direct or indirect stockholder, director,
officer or employee, as such, past, present or future, of the Company or any
Subsidiary Guarantor, or any successor entity, shall have any personal liability
in respect of the obligations of the Company and the Subsidiary Guarantors under
the Securities, this Indenture or for any claim based on, in respect of, or by
reason of such obligations or their creation solely by reason of his, her or its
status as such partner, incorporator, stockholder, director, officer or
employee. Each Securityholder by accepting a Security waives and releases all
such liability, and acknowledges and consents to the transactions constituting
the Recapitalization. The waiver and release are part of the consideration for
the issuance of the Securities. Notwithstanding the foregoing, nothing in this
Section 13.9 shall in any way limit the obligation of any Subsidiary Guarantor
pursuant to any guarantee of the Securities.
SECTION 13.11. Successors.
All agreements of the Company and the Subsidiary Guarantors in this
Indenture and the Securities shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 13.12. Duplicate Originals.
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of them
together shall represent the same agreement.
SECTION 13.13. Severability.
In case any one or more of the provisions in this Indenture or in
the Securities or in the Guarantees shall be held invalid, illegal or
unenforceable, in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions shall not in any way be affected or impaired thereby, it being
intended that all of the provisions hereof shall be enforceable to the full
extent permitted by law.
SECTION 13.14. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and headings of the
Articles and the 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 or provisions hereof.
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<PAGE> 96
SECTION 13.15. Qualification of Indenture.
The Company shall qualify this Indenture under the TIA in accordance
with the terms and conditions of the Registration Rights Agreement and shall pay
all reasonable costs and expenses (including reasonable attorneys' fees for the
Company and the Trustee) incurred in connection therewith, including, but not
limited to, costs and expenses of qualification of this Indenture and the
Securities and printing this Indenture and the Securities. The Trustee shall be
entitled to receive from the Company any such Officers' Certificates, Opinions
of Counsel or other documentation as it may reasonably request in connection
with any such qualification of this Indenture under the TIA.
SECTION 13.16. Registration Rights.
Certain Holders of the Securities may be entitled to certain
registration rights with respect to such Securities pursuant to, and subject to
the terms of, the Registration Rights Agreement.
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<PAGE> 97
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
BIG 5 CORP.,
a Delaware corporation
By: /s/ CHARLES P. KIRK
-----------------------------------
Name: Charles P. Kirk
Title: Senior Vice President
Attest: /s/ GARY S. MEADE
------------------------------
Name: Gary S. Meade
Title: Secretary
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By: /s/ KATHE BARRETT
-----------------------------------
Name: Kathe Barrett
Title: Trust Officer
<PAGE> 98
EXHIBIT A
[FORM OF SECURITY]
BIG 5 CORP.
10 7/8% SERIES A1 SENIOR NOTE DUE 2007
CUSIP No. ______________
No. $
Big 5 Corp., a Delaware corporation (hereinafter called the
"Company," which term includes any successors under the Indenture hereinafter
referred to), for value received, hereby promises to pay to _____, or registered
assigns, the principal sum of _____ Dollars, on November 15, 2007.
Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1
Reference is made to the further provisions of this Security on the
reverse side, which will, for all purposes, have the same effect as if set forth
at this place.
IN WITNESS WHEREOF, the Company has caused this Instrument to be
duly executed.
Dated:
BIG 5 CORP.
a Delaware corporation
By:
-----------------------------------
Name:
Title:
Attest:
-------------------------------
Name:
Title:
- --------
(1) Series A should be replaced with Series B in the Exchange Securities.
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<PAGE> 99
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned
Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By
-----------------------------------
Authorized Signatory
Dated:
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<PAGE> 100
BIG 5 CORP.
10 7/8% SERIES A(2) Senior Note due 2007
Unless and until it is exchanged in whole or in part for Securities
in definitive form, this Security 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 Depositary Trust Company (55 Water Street, New York, New York) ("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 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.(3)
THE NOTES (OR THEIR PREDECESSORS) EVIDENCED HEREBY WERE
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE NOTES EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THE NOTES EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
NOTES EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
SUCH NOTES MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A
FOREIGN
- --------
(2) Series A should be replaced with Series B in the Exchange Securities.
(3) This paragraph should only be added if the Security is issued in global
form.
A-3
<PAGE> 101
PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE
904 OF REGULATION S UNDER THE SECURITIES ACT, OR (d) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY
SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
NOTES EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE.(4)
1. Interest.
Big 5 Corp., a Delaware corporation (hereinafter called the
"Company," which term includes any successors under the Indenture hereinafter
referred to), promises to pay interest on the principal amount of this Security
at the rate of 10 7/8% per annum. To the extent it is lawful, the Company
promises to pay interest on any interest payment due but unpaid on such
principal amount at a rate of 10 7/8% per annum compounded semi-annually.
The Company will pay interest semi-annually on May 15 and November
15 of each year (each, an "Interest Payment Date"), commencing May 15, 1998.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid on the Securities, from
the date of the original issuance. Interest will be computed on the basis of a
360-day year consisting of twelve 30-day months.
2. Method of Payment.
The Company shall pay interest (and Liquidated Damages, if any) on
the Securities (except defaulted interest) to the Persons who are the registered
Holders at the close of business on the Record Date immediately preceding the
Interest Payment Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. Except as provided below, the Company shall pay
principal and interest (and Liquidated Damages, if any) in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for payment of public and private debts ("Cash"). The Securities will be payable
as to principal, premium and interest (and Liquidated Damages, if any) at the
office or agency of the Company maintained for such purpose within the Borough
of Manhattan, the City and State of New York or, at the option of the Company,
payment of
- --------
(4) This paragraph should be included only for the Transfer Restricted
Securities.
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<PAGE> 102
principal, premium and interest (and Liquidated Damages, if any) may be made by
check mailed to the Holders at their addresses set forth in the register of
Holders, and provided that payment by wire transfer of immediately available
funds will be required with respect to principal of and interest (and Liquidated
Damages, if any) and premium on all Global Securities and all other Securities
the Holders of which shall have provided wire transfer instructions to the
Company or the Paying Agent at least 5 Business Days prior to the relevant
record date.
3. Paying Agent and Registrar.
Initially, First Trust National Association (the "Trustee"), will
act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders. The Company or any of
its Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or co-Registrar.
4. Indenture.
The Company issued the Securities under an Indenture, dated as of
November 13, 1997 (the "Indenture"), between the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as in effect on the date of the Indenture. The Securities
are subject to all such terms, and Holders of Securities are referred to the
Indenture and said Act for a statement of them. The Securities are senior
obligations of the Company limited in aggregate principal amount to
$131,000,000. Each Holder of this Security, by accepting the same, (a) agrees to
and shall be bound by such provisions, (b) authorizes and directs the Trustee on
his behalf to take such action as may be provided in the Indenture and (c)
appoints the Trustee his attorney-in-fact for such purpose.
5. Redemption.
Except as provided in this Paragraph 5 or in Article III of the
Indenture, the Company shall not have the right to redeem any Securities. The
Securities may be redeemed in whole or from time to time in part at any time on
and after November 15, 2002, at the option of the Company, at the Redemption
Price (expressed as a percentage of principal amount) set forth below with
respect to the indicated Redemption Date, in each case (subject to the right of
Holders of record on a Record Date that is on or prior to such Redemption Date
to receive interest due on the Interest Payment Date to which such Record Date
relates), plus any accrued but unpaid interest (and Liquidated Damages, if any)
to the Redemption Date.
If redeemed during
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<PAGE> 103
<TABLE>
<CAPTION>
the 12-month period
commencing November 15, Redemption Price
----------------------- ----------------
<S> <C>
2002....................... 105.475%
2003....................... 103.650%
2004....................... 101.825%
2005 and thereafter........ 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to November
15, 2000, the Company may redeem, on one or more occasions, up to an aggregate
of 35% of the aggregate principal amount of the Securities originally
outstanding at a redemption price equal to 110.95% of the principal amount
thereof, (subject to the right of Holders of record on a Record Date to receive
interest due on an Interest Payment Date that is on or prior to such Redemption
Date) together with accrued and unpaid interest and Liquidated Damages, if any,
to the date of redemption, with cash from the Net Cash Proceeds to the Company
of one or more Public Equity Offerings; provided that at least 65% of the
aggregate principal amount of the Securities originally outstanding remain
outstanding after the occurrence of each such redemption; provided, further,
that such notice of redemption shall be sent within 30 days after the date of
closing of any such Public Equity Offering, and such redemption shall occur
within 60 days after the date such notice is sent.
Any such redemption will comply with Article III of the Indenture.
6. Notice of Redemption.
Notice of redemption will be sent by first class mail, at least 30
days and not more than 60 days prior to the Redemption Date to the Holder of
each Security to be redeemed at such Holder's last address as then shown upon
the registry books of the Registrar. Securities may be redeemed in part in
multiples of $1,000 only.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent on such Redemption Date, the
Securities called for redemption will cease to bear interest and the only right
of the Holders of such Securities will be to receive payment of the Redemption
Price, plus any accrued and unpaid interest (and Liquidated Damages, if any) to
the Redemption Date.
7. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder may register
the transfer of, or exchange Securities in accordance with, the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay
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<PAGE> 104
any taxes and fees required by law or permitted by the Indenture. The Registrar
need not register the transfer of or exchange any Securities (a) selected for
redemption except the unredeemed portion of any Security being redeemed in part
or (b) for a period beginning 15 Business Days before the mailing of a notice of
an offer to repurchase or redemption and ending at the close of business on the
day of such mailing.
8. Persons Deemed Owners.
Prior to due presentment for the registration of a transfer of any
Security, the Trustee, any Agent and the Company may deem and treat the Person
in whose name any Security is registered as the absolute owner of such Security
for all purposes, and none of the Trustee, any Agent or the Company shall be
affected by notice to the contrary.
9. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee and the Paying Agent(s) will pay the money back to
the Company at its written request. After that, all liability of the Trustee and
such Paying Agent(s) with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
Except as set forth in the Indenture, if the Company irrevocably
deposits with the Trustee, in trust, for the benefit of the Holders, cash, U.S.
Government Obligations or a combination thereof, in such amounts as will be
sufficient in the opinion of a nationally recognized firm of independent public
accountants selected by the Trustee, to pay the principal of, premium, if any,
and interest (and Liquidated Damages, if any) on the Securities to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Securities (including the financial covenants, but excluding its
obligation to pay the principal of, premium, if any, and interest (and
Liquidated Damages, if any) on the Securities). Upon satisfaction of certain
additional conditions set forth in the Indenture, the Company may elect to have
its obligations discharged with respect to outstanding Securities.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may
be amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may under certain circumstances amend or supplement
the Indenture or the Securities to, among other things, cure any
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<PAGE> 105
ambiguity, defect or inconsistency, or make any other change that does not
adversely affect the rights of any Holder of a Security.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and any Subsidiary Guarantor to, among other things, incur additional
Indebtedness and issue Preferred Stock, pay dividends or make certain other
Restricted Payments, enter into certain transactions with Affiliates, incur
Liens, sell assets and subsidiary stock, merge or consolidate with any other
Person or transfer (by lease, assignment or otherwise) substantially all of the
properties and assets of the Company. The limitations are subject to a number of
important qualifications and exceptions. The Company must periodically report to
the Trustee on compliance with such limitations.
13. Ranking.
Payment of principal, premium, if any, and interest (and Liquidated
Damages, if any) on the Securities is senior, in the manner and to the extent
set forth in the Indenture, to all existing and future Indebtedness of the
Company that is subordinated to the Securities.
14. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Company shall be required
to offer to purchase on the Change of Control Purchase Date all outstanding
Securities at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest (and Liquidated Damages, if any), if any, to
the Change of Control Purchase Date. Holders of Securities will receive a Change
of Control Offer from the Company prior to any related Change of Control
Purchase Date and may elect to have such Securities purchased by completing the
form entitled "Option of Holder to Elect Purchase" appearing below.
(b) The Indenture imposes certain limitations on the ability of the
Company, the Subsidiary Guarantors or any of their respective Subsidiaries to
sell assets and subsidiary stock. In the event the proceeds from an Asset Sale
exceed certain amounts, as specified in the Indenture, the Company will be
required either to reinvest the proceeds of such Asset Sale in a Related
Business, repay certain Indebtedness or make an offer to purchase each Holder's
Securities at 100% of the principal amount thereof, plus accrued interest (and
Liquidated Damages, if any), if any, to the purchase date.
15. Notation of Guarantee.
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<PAGE> 106
As set forth more fully in the Indenture, the Persons constituting
Subsidiary Guarantors from time to time, in accordance with the provisions of
the Indenture, unconditionally and jointly and severally guarantee, in
accordance with Section 11.1 of the Indenture, to the Holder and to the Trustee
and its successors and assigns, that (i) the principal of and interest (and
Liquidated Damages, if any) on the Security will be paid, whether at the
Maturity Date or Interest Payment Dates, by acceleration, call for redemption,
upon a Change of Control Offer, upon an Asset Sale Offer or otherwise, and all
other obligations of the Company to the Holder or the Trustee under the
Indenture or this Security will be promptly paid in full or performed, all in
accordance with the terms of the Indenture and this Security, and (ii) in the
case of any extension of payment or renewal of this Security or any of such
other obligations, they will be paid in full when due or performed in accordance
with the terms of such extension or renewal, whether at the Maturity Date, as so
extended, by acceleration, call for redemption, upon a Change of Control Offer,
upon an Asset Sale Offer or otherwise. Such guarantees shall cease to apply, and
shall be null and void, with respect to any Subsidiary Guarantor who, pursuant
to Article XI of the Indenture, is released from its guarantees, or whose
guarantees otherwise cease to be applicable pursuant to the terms of the
Indenture.
When a successor assumes all the obligations of its predecessor
under the Securities and the Indenture, the predecessor will be released from
those obligations.
16. Defaults and Remedies.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Securities may declare all the Securities to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company or any of
its Significant Subsidiaries, all outstanding Securities will become due and
payable without further action or notice. Securityholders may not enforce the
Indenture, the Securities or the Guarantees except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in aggregate principal
amount of the then outstanding Securities may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Securityholders notice of
any continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company, any Subsidiary Guarantor, any of their Subsidiaries or any of their
respective Affiliates, and may otherwise deal with such Persons as if it were
not the Trustee.
A-9
<PAGE> 107
18. No Recourse Against Others.
No partner, incorporator, direct or indirect stockholder, partner,
director, officer or employee, as such, past, present or future, of the Company
or any Subsidiary Guarantor, or any successor entity, shall have any personal
liability in respect of the obligations of the Company and the Subsidiary
Guarantors under the Securities or the Indenture solely by reason of his, her or
its status as such partner, incorporator, stockholder, director, officer or
employee. Each Holder of a Security by accepting a Security waives and releases
all such liability, and acknowledges and consents to the transactions
constituting the Recapitalization. The waiver and release are part of the
consideration for the issuance of the Securities. Notwithstanding the foregoing,
nothing in this paragraph shall in any way limit the obligation of any
Subsidiary Guarantor pursuant to any guarantee of the Securities.
19. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this
Security.
20. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
22. Additional Rights of Holders of Transfer Restricted Securities.(5)
In addition to the rights provided to Holders of Securities under
the Indenture, Holders of Securities shall have all the rights set forth in the
Registration Rights Agreement.
23. Governing Law.
A-10
- --------
(5) This paragraph should be included only for the Initial Securities.
<PAGE> 108
The Indenture and the Securities shall be governed by and construed
in accordance with the internal laws of the State of New York.
A-11
<PAGE> 109
[FORM OF ASSIGNMENT]
I or we assign this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee
- -------------------------------
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Dated: Signed:
---------------- -------------------------------------------------
- --------------------------------------------------------------------------------
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee*
- --------
NOTICE: The Signature must be guaranteed by an Institution which is a member of
one of the following recognized signature Guarantee Programs: (i) The Securities
Transfer Agent Medallion Program (STAMP); (ii) The New York Stock Exchange
Medallion Program (MNSP); (iii) The Stock Exchange Medallion Program (SEMP); or
(iv) in such other guarantee program acceptable to the Trustee.
A-12
<PAGE> 110
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.14 or Article X of the Indenture, check the appropriate
box: [ ] Section 4.14 [ ] Article X.
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.14 or Article X of the Indenture, as the case
may be, state the amount you want to be purchased: $________.
Date: Signature:
--------------- ----------------------------------------
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee**
- --------
NOTICE: The Signature must be guaranteed by an Institution which is a member of
one of the following recognized signature Guarantee Programs: (i) The Securities
Transfer Agent Medallion Program (STAMP); (ii) The New York Stock Exchange
Medallion Program (MNSP); (iii) The Stock Exchange Medallion Program (SEMP); or
(iv) in such other guarantee program acceptable to the Trustee.
A-13
<PAGE> 111
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES(6)
The following exchanges of a part of this Global Security for
Definitive Securities have been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Amount Signature of
decrease in increase in of this Global authorized officer of
Principal Amount Principal Amount Security following Trustee or
Date of of this Global of this Global such decrease (or Securities
Exchange Security Security increase) Custodian
- -------- ---------------- ---------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
</TABLE>
- --------
(6) This schedule should only be added if the Security is issued in global
form.
A-14
<PAGE> 112
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
TRANSFER RESTRICTED SECURITIES(7)
Re: 10 7/8% SERIES A SENIOR NOTES DUE 2007 OF BIG 5 CORP.
This Certificate relates to $______ principal amount of Securities
held in (check applicable space) _____ book-entry or ______ definitive form by
_________________ (the "Transferor").
The Transferor (check applicable box):
[ ] has requested the Trustee by written order to deliver in exchange
for its beneficial interest in the Global Security held by the Depositary a
Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial interest
in such Global Security (or the portion thereof indicated above); or
[ ] has requested the Trustee by written order to exchange or
register the transfer of a Security or Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that Transferor is familiar with
the Indenture relating to the above-captioned Securities and as provided in
Section 2.6 of such Indenture, the transfer of this Security does not require
registration under the Securities Act (as defined below) because:
[ ] Such Security is being acquired for the Transferor's own
account, without transfer (in satisfaction of Section 2.6(a)(ii)(A) or Section
2.6(d)(i)(A) of the Indenture).
[ ] Such Security is being transferred to a "qualified institutional
buyer" (within the meaning of Rule 144A promulgated under the Securities Act),
that is aware that any sale of Securities to it will be made in reliance on Rule
144A under the Securities Act and that is acquiring such Transfer Restricted
Security for its own account, or for the account of another such "qualified
institutional buyer" (in satisfaction of Section 2.06(a)(ii)(B) or Section
2.06(d)(i)(B) of the Indenture).
[ ] Such Security is being transferred pursuant to an exemption from
registration in accordance with Rule 144, or outside the United States in an
Offshore Transaction in compliance with Rule 904 under the Securities Act, or
pursuant to an effective registration statement under the Securities Act (in
satisfaction of Section 2.6(a)(ii)(C) or Section
- --------
(7) This Certificate shall be included only for Initial Securities.
A-15
<PAGE> 113
2.6(d)(i)(C) of the Indenture).
[ ] Such Security is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the
Securities Act and in accordance with applicable securities laws of the states
of the United States, other than as provided in the immediately preceding
paragraph. An Opinion of Counsel to the effect that such transfer does not
require registration under the Securities Act accompanies this Certificate (in
satisfaction of Section 2.6(a)(ii)(D) or Section 2.6(d)(i)(D) of the Indenture).
----------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
-----------------------------------
Date:
-------------------------------
A-16
<PAGE> 114
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
SECURITIES(8)
Re: 10 7/8% SERIES B SENIOR NOTES DUE 2007 OF BIG 5 CORP.
This Certificate relates to $______ principal amount of Securities
held in (check applicable box) _____ book-entry or ______ definitive form by
_____ (the "Transferor").
The Transferor (check applicable box):
[ ] has requested the Trustee by written order to deliver in
exchange for its beneficial interest in the Global Security held by the
Depositary a Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial interest
in such Global Security (or the portion thereof indicated above); or
[ ] has requested the Registrar by written order to exchange or
register the transfer of a Security or Securities.
- --------
(8) This certificate shall be included only for the Exchange Securities.
A-17
<PAGE> 115
EXHIBIT 10.8
November 13, 1997
Big 5 Corp.
2525 East El Segundo Boulevard
El Segundo, CA 90245
Dear Sirs:
We refer to the Financing Agreement, dated March 8, 1996 (as previously amended,
the "Agreement") between United Merchandising Corp., a California corporation,
as borrower ("UMC") and The CIT Group/Business Credit, Inc., as agent and lender
(individually the "Agent", and together with the other lenders, the "Lenders").
Capitalized terms not otherwise defined herein shall be as defined in the
Agreement. UMC has informed the Lenders of its intent to merge with and into Big
5 Corp., a Delaware corporation (hereafter the "Company"), with the result,
among other things, that the Company will be the new borrower under the
Agreement. Additionally, the Company's parent, Big 5 Corporation, a Delaware
corporation, as guarantor will merge with and into Big 5 Holdings Corp., a
Delaware corporation, with the result that Big 5 Holdings Corp. will be the new
Guarantor. The Company and the Lenders hereby agree that the Agreement is
amended, as follows:
1. All references to "United Merchandising Corp., a California
corporation" in the Agreement are hereby deleted in every instance where they
appear, and "Big 5 Corp., a Delaware corporation" is inserted in lieu thereof.
2. The definitions of "Anniversary Date", "Early Termination Date", "Early
Termination Fee", "EBITDA" and "Net Worth" set forth in Section 1 of the
Agreement are hereby deleted in their entirety, and the following are inserted
in lieu thereof:
"ANNIVERSARY DATE shall mean the date occurring one (1) year from the date
of November 13, 1997 and the same date in every year thereafter, provided,
however, that if the Company gives notice, in accordance with Section 10 of this
Financing Agreement, to terminate on an Anniversary Date and such date is not a
Business Day, then the Anniversary Date shall be the next succeeding Business
Day."
"EARLY TERMINATION DATE shall mean the date on which the Company
terminates this Financing Agreement or the Line of Credit which date is prior to
the fifth Anniversary Date."
"EARLY TERMINATION FEE shall: i) mean the fee the Agent for the account of
the Lenders is entitled to charge the Company in the event the Company
terminates the Line of Credit or this Financing Agreement on a date prior to the
fifth Anniversary Date; and ii) be determined by calculating the sum of (a) the
average daily balance of the Revolving Loans for the period from the date of
this Amendment Letter to the Early Termination Date and (b) the average daily
undrawn face amount of the Letters of Credit outstanding for the period from the
date of this Amendment Letter to the Early Termination Date and multiplying that
sum by three tenths of one percent (.30%) per annum for the number of days from
the Early Termination Date to the fifth Anniversary Date".
<PAGE> 1
EXHIBIT 5.1
[IRELL & MANELLA LLP LETTERHEAD]
December 23, 1997
Big 5 Corp.
2525 El Segundo Boulevard
El Segundo, California 90245
RE: Series B 10-7/8% Senior Notes Due 2007
Ladies and Gentlemen:
We have acted as counsel to Big 5 Corp., a Delaware corporation (the
"Company"), in connection with the offer to exchange (the "Exchange Offer") all
of the Company's previously issued $131,000,000 aggregate principal amount of
Series A 10-7/8% Senior Notes due 2007 (the "Old Notes") for $131,000,000
aggregate principal amount of Series B 10-7/8% Senior Notes due 2007 (the "new
Notes"). A registration statement on Form S-4 relating to the Exchange Offer
has been filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Registration Statement"). Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to them in
the Registration Statement.
As such counsel, we have examined the Registration Statement, the form
of Indenture under which the New Notes would be issued (the "New Note
Indenture"), the Indenture under which the Old Notes were issued, the charter
instruments of the Company and such other documents as we deemed appropriate
and we have made such other factual and legal investigations as we deemed
necessary or appropriate in order to render this opinion. Based upon such
examinations and investigations, it is our opinion that the New Notes, when
issued pursuant to the terms of the New Note Indenture and the Exchange Offer,
will be legally issued, fully paid, non-assessable and binding obligations of
the Company.
We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration
Statement. This opinion is furnished to you in connection with the registration
of the New Notes pursuant to the Exchange Offer and may not be relied upon by,
nor copies delivered to, any other person or entity without our prior written
consent.
Sincerely,
/s/ IRELL & MANELLA LLP
IRELL & MANELLA LLP
<PAGE> 1
BIG 5 CORP.
(currently known as "New Big 5 Corp.")
$131,000,000
10 7/8% Series A Senior Notes due 2007
PURCHASE AGREEMENT
November 7, 1997
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON CORPORATION
<PAGE> 2
$131,000,000
10 7/8% Series A Senior Notes due 2007
of BIG 5 CORP.
(currently known as "New Big 5 Corp.")
PURCHASE AGREEMENT
November 7, 1997
Donaldson, Lufkin & Jenrette Securities Corporation
Credit Suisse First Boston Corporation
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
Big 5 Corp., a Delaware corporation (the "Company"), which is currently
known as "New Big 5 Corp." and will be the surviving entity of the Company
Merger described below, proposes to issue and sell to Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") and Credit Suisse First Boston
Corporation (each, an "Initial Purchaser" and, together, the "Initial
Purchasers") an aggregate of $131,000,000 in principal amount of its 10 7/8%
Series A Senior Notes due 2007 (the "Series A Notes"), subject to the terms and
conditions set forth herein. The Series A Notes are to be issued pursuant to the
provisions of an indenture (the "Indenture"), to be dated as of the Closing Date
(as defined below), between the Company and First Trust National Association, as
trustee (the "Trustee"). The Series A Notes and the Series B Notes (as defined
below) issuable in exchange therefor are collectively referred to herein as the
"Notes." The Notes will be guaranteed by all future Subsidiaries of the Company,
as further provided in the Indenture. Capitalized terms used but not defined
herein shall have the meanings given to such terms in the Offering Memorandum
(as defined herein). Prior to the Recapitalization, (i) United Merchandising
Corp., a California corporation ("UMC"), will merge (the "Company Merger") with
and into the Company and the Company
2
<PAGE> 3
will change its name to "Big 5 Corp." and (ii) Big 5 Corporation, a Delaware
corporation and parent of UMC, will merge (the "Parent Merger") with and into
Big 5 Holdings Corp., a Delaware corporation and the surviving corporation in
the Parent Merger ("Parent"). The Company is currently a wholly owned subsidiary
of UMC and following the consummation of the Company Merger and the Parent
Merger (collectively, the "Mergers"), the Company will be a wholly owned
subsidiary of Parent.
1. Offering Memorandum. The Series A Notes will be offered and sold to
the Initial Purchasers pursuant to one or more exemptions from the registration
requirements under the Securities Act of 1933, as amended (the "Act"). The
Company has prepared a preliminary offering memorandum, dated October 27, 1997
(the "Preliminary Offering Memorandum"), and a final offering memorandum, dated
November 8, 1997 (the "Offering Memorandum"), each relating to the Series A
Notes.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Series A Notes (and all
securities (other than the Series B Notes) issued in exchange therefor or in
substitution thereof) shall bear the following legend:
"THE NOTES (OR THEIR PREDECESSORS) EVIDENCED HEREBY WERE ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND THE NOTES EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE NOTES EVIDENCED HEREBY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE
HOLDER OF THE NOTES EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY
THAT (A) SUCH NOTES MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(l)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION
3
<PAGE> 4
MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED
STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (d) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTES EVIDENCED HEREBY OF
THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
2. Agreements to Sell and Purchase. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchasers, and the Initial Purchasers agree,
severally and not jointly, to purchase from the Company, the principal amount of
Series A Notes set forth opposite the name of such Initial Purchaser on Schedule
A hereto at a purchase price equal to 96.549% of the principal amount thereof
(the "Purchase Price").
3. Terms of Offering. The Initial Purchasers have advised the Company
that the Initial Purchasers will make offers (the "Exempt Resales") of the
Series A Notes purchased hereunder on the terms set forth in the Offering
Memorandum, as amended or supplemented, solely to (i) persons whom the Initial
Purchasers reasonably believe to be "qualified institutional buyers" as defined
in Rule 144A under the Act ("QIBs") and (ii) to persons permitted to purchase
the Series A Notes in offshore transactions in reliance upon Regulation S under
the Act (each, a "Regulation S Purchaser") (such persons specified in clauses
(i) and (ii) being referred to herein as the "Eligible Purchasers"). The Initial
Purchasers will offer the Series A Notes to Eligible Purchasers initially at the
offering price set forth on the cover of the Offering Memorandum. Such price may
be changed at any time without notice.
4
<PAGE> 5
Holders (including subsequent transferees) of the Series A Notes will have
the registration rights set forth in the registration rights agreement (the
"Registration Rights Agreement"), to be dated the Closing Date, substantially as
described in the Offering Memorandum and containing other customary and
reasonable provisions. Pursuant to the Registration Rights Agreement, the
Company will agree to file with the Securities and Exchange Commission (the
"Commission"), under the circumstances set forth therein, (i) a registration
statement under the Act (the "Exchange Offer Registration Statement") relating
to the Company's 10 7/8% Series B Senior Notes (the "Series B Notes"), to be
offered in exchange for the Series A Notes (such offer to exchange being
referred to as the "Exchange Offer") and/or (ii) a shelf registration statement
pursuant to Rule 415 under the Act (the "Shelf Registration Statement" and,
together with the Exchange Offer Registration Statement, the "Registration
Statements") relating to the resale by certain holders of the Series A Notes and
use its reasonable best efforts to cause such Registration Statements to be
declared and remain effective and usable for the periods specified in the
Registration Rights Agreement and to consummate the Exchange Offer. This
Agreement, the Indenture, the Notes, the Registration Rights Agreement, the CIT
Credit Facility and the Recapitalization Agreement are hereinafter sometimes
referred to collectively as the "Operative Documents."
4. Delivery and Payment.
(a) Delivery of, and payment of the Purchase Price for, the Series
A Notes shall be made at such location as may be mutually acceptable to the
parties hereto. Such delivery and payment shall be made at 9:00 a.m., New York
City time, on the third business day following the date of this Agreement, or at
such other time as shall be agreed upon by the Initial Purchasers and the
Company. The time and date of such delivery and the payment are herein called
the "Closing Date."
(b) One or more of the Series A Notes in the definitive global
form, registered in the name of Cede & Co., as nominee of the Depository Trust
Company ("DTC"), having an aggregate principal amount corresponding to the
aggregate principal amount of the Series A Notes (collectively, the "Global
Note"), shall be delivered by the Company to the Initial Purchasers (or as the
Initial Purchasers direct), in each case with any transfer taxes thereon duly
paid by the Company against payment by the Initial Purchasers of the Purchase
Price thereof by wire transfer in same day funds to an account designated by
order of the Company. The Global Note shall be made available to the Initial
Purchasers for inspection not later than 9:30 a.m., New York City time, on the
business day immediately preceding the Closing Date.
5
<PAGE> 6
5. Agreements of the Company. The Company hereby agrees with each
Initial Purchaser as follows:
(a) To advise the Initial Purchasers promptly and, if requested by
an Initial Purchaser, confirm such advice in writing, (i) of the issuance by any
state securities commission of any stop order suspending the qualification or
exemption from qualification of any Series A Notes for offering or sale in any
jurisdiction designated by an Initial Purchaser pursuant to Section 5(e) hereof,
or the initiation of any proceeding by any state securities commission or any
other federal or state regulatory authority for such purpose and (ii) of the
happening of any event during the period referred to in Section 5(d) below that
makes any statement of a material fact made in the Offering Memorandum, as then
amended or supplemented, untrue or that requires any additions to or changes in
the Offering Memorandum, as then amended or supplemented, in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Company shall use its reasonable best efforts to prevent the
issuance of any stop order or order suspending the qualification or exemption of
any Series A Notes under any state securities or Blue Sky laws and, if at any
time any state securities commission or other federal or state regulatory
authority shall issue an order suspending the qualification or exemption of any
Series A Notes under any state securities or Blue Sky laws, the Company shall
use its reasonable best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time.
(b) To furnish the Initial Purchasers and those persons identified
by the Initial Purchasers to the Company, without charge, as many copies of the
Offering Memorandum, and any amendments or supplements thereto, as the Initial
Purchasers may reasonably request. Subject to the Initial Purchasers' compliance
with their representations and warranties and agreements set forth in Section 7
hereof, the Company consents to the use of the Preliminary Offering Memorandum
(prior to the availability of the Offering Memorandum) and the Offering
Memorandum, and any amendments and supplements thereto, by the Initial
Purchasers in connection with Exempt Resales.
(c) During the period referred to in Section 5(d) below, (i) not
to make any amendment or supplement to the Offering Memorandum of which the
Initial Purchasers shall not previously have been advised or to which the
Initial Purchasers shall reasonably object within a reasonable time after being
so advised and (ii) to prepare promptly upon the Initial Purchasers' reasonable
request, any amendment or supplement to the Offering Memorandum which may be
necessary or advisable in connection with Exempt Resales.
6
<PAGE> 7
(d) If, after the date hereof during such period as in the Initial
Purchasers' reasonable judgment the Initial Purchasers are required to deliver
the Offering Memorandum in connection with Exempt Resales by them, any event
shall occur as a result of which it becomes necessary to amend or supplement the
Offering Memorandum in order to make the statements therein, in the light of the
circumstances as of the date the Offering Memorandum is delivered to an Eligible
Purchaser, not misleading, or if it is necessary to amend or supplement the
Offering Memorandum to comply with any applicable law, promptly to prepare an
appropriate amendment or supplement to such Offering Memorandum so that the
statements therein, as so amended or supplemented, will not, in the light of the
circumstances when it is so delivered, be misleading, or so that such Offering
Memorandum, as so amended or supplemented, will comply with applicable law, and
to furnish to the Initial Purchasers and such other persons as the Initial
Purchasers may designate such number of copies thereof as the Initial Purchasers
may reasonably request.
(e) Prior to the sale of all the Series A Notes pursuant to Exempt
Resales as contemplated hereby, to cooperate with the Initial Purchasers and
counsel to the Initial Purchasers in connection with the registration or
qualification of the Series A Notes for offer and sale to the Initial Purchasers
and pursuant to Exempt Resales under the securities or Blue Sky laws of such
jurisdictions as the Initial Purchasers may reasonably request and to continue
such qualification in effect so long as required to consummate such Exempt
Resales and to file such consents to service of process or other documents as
may be necessary in order to effect such registration or qualification;
provided, however, that the Company shall not be required in connection
therewith to register or qualify as a foreign corporation in any jurisdiction in
which it is not now so qualified or to take any action that would subject it to
service of process or taxation other than as to matters and transactions
relating to Exempt Resales, in any jurisdiction in which it is not now so
subject.
(f) For a period of five years after the Closing Date and
thereafter so long as an Initial Purchaser is making a market in the Notes, to
furnish to the Initial Purchasers (or any such Initial Purchaser that is making
a market in the Notes after such five year period, as applicable) as soon as
available copies of all reports or other communications furnished by the Company
or any of the guarantors, if any, of the Notes under the Indenture (the
"Guarantors") to its security holders or furnished to or filed with the
Commission or any national securities exchange on which any class of securities
of the Company is listed and such other publicly available information
concerning the Company and/or its subsidiaries as the Initial Purchasers may
reasonably request.
7
<PAGE> 8
(g) For so long as any of the Series A Notes remain outstanding
and during any period in which the Company and the Guarantors are not subject to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to make available to any holder of Series A Notes in connection
with any sale thereof and any prospective purchaser of such Series A Notes from
such holder, upon request, the information ("Rule 144A Information") required by
Rule 144A(d)(4) under the Act.
(h) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to performance of the obligations of the Company under this
Agreement, including, without limitation: (i) all fees and expenses in
connection with the preparation, printing and distribution of the Preliminary
Offering Memorandum, the Offering Memorandum and all amendments and supplements
thereto (including financial statements) prior to or during the period specified
in Section 5(d), including the mailing and delivering of copies thereof to the
Initial Purchasers and persons designated by them as specified herein, (ii) all
costs and expenses related to the issuance and delivery of the Series A Notes to
the Initial Purchasers and pursuant to Exempt Resales, including any transfer or
other taxes payable thereon, (iii) all costs of printing or reproduction of any
agreements or documents in connection with the offering, purchase, sale or
delivery of the Series A Notes, (iv) all expenses in connection with the
registration or qualification of the Series A Notes for offer and sale under the
securities or Blue Sky laws of the several states referred to in Section 5(e)
hereof and all costs of printing or producing any preliminary and supplemental
Blue Sky memoranda in connection therewith (including the filing fees and
reasonable fees and disbursements of counsel for the Initial Purchasers in
connection with such registration or qualification and memoranda relating
thereto), (v) the cost of printing certificates representing the Series A Notes,
(vi) all expenses and listing fees in connection with the application for
quotation of the Series A Notes in the National Association of Securities
Dealers, Inc. ("NASD") Automated Quotation System - PORTAL ("PORTAL"), (vii) the
reasonable fees and expenses of the Trustee and Trustee's counsel in connection
with the Indenture and the Notes, (viii) all costs and charges of any transfer
agent, registrar and/or depositary (including DTC), (ix) any fees charged by
rating agencies for the rating of the Notes and (x) all costs and expenses of
the Exchange Offer and any Registration Statement.
(i) To use its reasonable best efforts to effect the inclusion of
the Series A Notes in PORTAL and to maintain the listing of the Series A Notes
on PORTAL for so long as the Series A Notes are outstanding.
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<PAGE> 9
(j) To use its reasonable best efforts to obtain the approval of
DTC for "book-entry" transfer of the Notes, and to comply with all of its
agreements set forth in the representation letters of the Company to DTC
relating to the approval of the Notes by DTC for "book entry" transfer.
(k) During the period beginning on the date hereof and continuing
to and including the Closing Date, not to offer, sell, contract to sell or
otherwise transfer or dispose of any debt securities of the Company or any
warrants, rights or options to purchase or otherwise acquire debt securities of
the Company substantially similar to the Notes (other than the Notes) without
the prior written consent of DLJ.
(l) Not to, and not to permit any of its affiliates (as such term
is defined in Rule 501(b) under the Act) to, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
the Act) that would reasonably be expected to be integrated with the sale of the
Series A Notes to the Initial Purchasers or pursuant to Exempt Resales in a
manner that would require the registration of any such sale of the Series A
Notes under the Act.
(m) Except in connection with the Exchange Offer or the filing of
the Shelf Registration Statement, as the case may be, not to, and not to
authorize or knowingly permit any person acting on its behalf to, solicit any
offer to buy or offer to sell the Notes by means of any form of general
solicitation or general advertising (as such terms are used in Regulation D
under the 1933 Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Act.
(n) To use its reasonable best efforts to do and perform all
things required or necessary to be done and performed under this Agreement by it
prior to the Closing Date and to satisfy all conditions precedent to the
delivery of the Series A Notes.
6. Representations and Warranties of the Company. As of the date
hereof, the Company represents and warrants to each Initial Purchaser (it being
understood that all representations and warranties herein with respect to the
condition, financial or otherwise, or the earnings, business, management or
operations of the Company give effect to the Mergers as if they had occurred as
of the date hereof) that:
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<PAGE> 10
(a) The Preliminary Offering Memorandum and the Offering
Memorandum do not, and as supplemented or amended 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 the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not apply
to statements in or omissions from the Preliminary Offering Memorandum or the
Offering Memorandum (or any supplement or amendment thereto) based solely upon
information relating to any Initial Purchaser furnished to the Company in
writing by such Initial Purchaser expressly for use therein. The Company
acknowledges for all purposes of this Agreement that (i) the last paragraph on
the cover page of the Preliminary Offering Memorandum and the Offering
Memorandum, (ii) the information contained in the first paragraph, the first two
sentences of the third paragraph, the fourth paragraph, the fifth sentence of
the sixth paragraph, and the eighth, ninth and tenth paragraphs under the
caption "Plan of Distribution" in the Preliminary Offering Memorandum and the
Offering Memorandum, and (iii) the information regarding stabilization on page
ii of the Preliminary Offering Memorandum and the Offering Memorandum constitute
the only information relating to the Initial Purchasers furnished to the Company
in writing by any Initial Purchaser expressly for use in the Preliminary
Offering Memorandum or the Offering Memorandum and that the Initial Purchasers
shall not be deemed to have provided any other information (and therefore are
not responsible for any such statement or omission) pertaining to any
arrangement or agreement with respect to any party other than the Initial
Purchasers. No contract or document that would be required to be described in
the Offering Memorandum if the Offering Memorandum were contained in a
registration statement on Form S-1 filed under the Act is not so described. No
stop order preventing the use of the Preliminary Offering Memorandum or the
Offering Memorandum, or any amendment or supplement thereto, or any order
asserting that any of the transactions contemplated by this Agreement are
subject to the registration requirements of the Act, has been issued.
(b) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Delaware. The
Company has full corporate power and authority to carry on its business and to
own, lease and operate its properties as described in the Preliminary Offering
Memorandum and the Offering Memorandum. The Company has the requisite corporate
power and authority to authorize the offering of the Notes and to execute,
deliver and perform its obligations under each Operative Document to which it is
a party. The Company is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which such
qualification
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<PAGE> 11
is required, except where the failure to be so qualified or in good standing
would not (i) have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company, (ii) materially
interfere with or materially adversely affect the issuance or marketability of
the Series A Notes pursuant hereto or (iii) adversely affect in any manner the
validity of this Agreement or any of the other Operative Documents (the events
referred to in clauses (i) through (iii), a "Material Adverse Effect"). The
Company has no subsidiaries, and, following consummation of the Mergers, the
Company will be the only operating subsidiary of Parent.
(c) All of the outstanding capital stock of the Company (i) has
been duly authorized and validly issued, (ii) is fully paid, nonassessable and
not subject to any preemptive or similar rights and (iii) following consummation
of the Mergers, will be owned by Parent.
(d) This Agreement has been duly authorized, executed and
delivered by the Company and, assuming the due execution and delivery by the
Initial Purchasers, is a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except (i) as the
enforceability thereof may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally, (ii) for general principles of equity (regardless
of whether enforcement is brought in a proceeding at law or in equity) and (iii)
limitations of applicable law regarding the enforceability of any rights to
contribution or indemnification.
(e) On the Closing Date, the Indenture will have been duly
authorized and validly executed and delivered by the Company. When the Indenture
has been duly executed and delivered by the Company, the Indenture will be a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms (assuming the due execution and delivery of the
Indenture by the Trustee) except (i) as the enforceability thereof may be
limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally, (ii) for
general principles of equity (regardless of whether enforcement is brought in a
proceeding at law or in equity) and (iii) the waiver as to stay, extension or
usury laws may not be enforceable. On the Closing Date, the Indenture will
conform in all material respects to the requirements of the Trust Indenture Act
of 1939, as amended (the "TIA"), and the rules and regulations of the Commission
applicable to an indenture which is qualified thereunder.
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<PAGE> 12
(f) On the Closing Date, the Series A Notes will have been duly
authorized and validly executed and delivered by the Company. When the Series A
Notes have been issued, executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the Series A Notes
will be entitled to the benefits of the Indenture and will be valid and binding
obligations of the Company, enforceable in accordance with their terms except
(i) as the enforceability thereof may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, (ii) for general principles of equity
(regardless of whether enforcement is brought in a proceeding at law or in
equity) and (iii) the waiver as to stay, extension or usury laws may not be
enforceable. The Series A Notes, when authenticated, executed and delivered,
will conform in all material respects to the description thereof contained in
the Offering Memorandum.
(g) On the Closing Date, the Series B Notes will have been duly
authorized by the Company. When the Series B Notes are executed and
authenticated in accordance with the provisions of the Indenture and delivered
in exchange for Series A Notes in accordance with the Indenture and the Exchange
Offer, the Series B Notes will be entitled to the benefits of the Indenture and
will be the valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, except (i) as the enforceability
thereof may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, (ii) for general principles of equity (regardless of whether
enforcement is brought in a proceeding at law or in equity) and (iii) the waiver
as to stay, extension or usury laws may not be enforceable.
(h) On the Closing Date, the Registration Rights Agreement will
have been duly authorized and validly executed and delivered by the Company.
When the Registration Rights Agreement has been duly executed and delivered by
the Company, the Registration Rights Agreement will be a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms (assuming the due execution and delivery of the Registration Rights
Agreement by the Initial Purchasers) except (i) as the enforceability thereof
may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally, (ii) for
general principles of equity (regardless of whether enforcement is brought in a
proceeding at law or in equity) and (iii) limitations of applicable law
regarding the enforceability of any rights to
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<PAGE> 13
contribution or indemnification. The Registration Rights Agreement conforms in
all material respects to the description thereof in the Offering Memorandum.
(i) On the Closing Date, the Recapitalization Agreement will have
been duly authorized and validly executed and delivered by Parent and will be a
valid and binding agreement of Parent, enforceable against Parent in accordance
with its terms (assuming the due execution and delivery of the Recapitalization
Agreement by each other party thereto) except (i) as the enforceability thereof
may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and (ii)
for general principles of equity (regardless of whether enforcement is brought
in a proceeding at law or in equity). Each transaction comprising the
Recapitalization conforms to the descriptions thereof in the Offering
Memorandum.
(j) Neither the Company nor Parent (i) is in violation of its
certificate of incorporation or by-laws, or (ii)(a) before giving effect to the
Recapitalization is, or (b) assuming that the Recapitalization is consummated as
contemplated by the Offering Memorandum will be, in default in the performance
of any obligation, agreement, covenant or condition contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument to which the
Company or Parent is a party or by which the Company, Parent or any of their
respective property is bound, except in the case of clause (ii) for any such
violations and defaults as would not, singly or in the aggregate, have a
Material Adverse Effect. There exists no condition that, with notice, the
passage of time or otherwise, would constitute a default under any such document
or instrument, except for any such defaults or violations as would not, singly
or in the aggregate, have a Material Adverse Effect.
(k) The execution, delivery and performance by the Company and
Parent of each Operative Agreement to which either of them is a party, the
issuance and sale of the Series A Notes as contemplated by this Agreement and
the Offering Memorandum and the consummation of the transactions contemplated by
this Agreement, each other Operative Document and the Offering Memorandum will
not (i) require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such as may
be required under the securities or Blue Sky laws of the various states or as
previously have been made or obtained (or in the case of the Registration Rights
Agreement, will be obtained and made in accordance therewith) and assuming the
accuracy of the representations and warranties of the Initial Purchasers in
Section 7 hereof), or (ii) violate the certificate of incorporation or by-laws
of the Company or
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<PAGE> 14
Parent, or (iii) constitute a breach of any of the terms or provisions of, or a
default under, or cause an acceleration of any obligation under, or result in
the imposition or creation of (or the obligation to create or impose) a Lien (as
defined below) with respect to, any indenture, loan agreement, mortgage, lease
or other agreement or instrument to which the Company or Parent is a party or by
which the Company or Parent or their respective property is subject, or (iv)
violate or conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or agency having
jurisdiction over the Company, Parent or their respective property (assuming the
accuracy of the representations and warranties of the Initial Purchasers in
Section 7 hereof, compliance with all applicable state securities and Blue Sky
laws, and, in the case of the Registration Rights Agreement, compliance with the
Act, the Exchange Act and the TIA), or (v) result in the termination or
revocation of any permit (as defined below) of the Company or Parent or result
in any other impairment of the rights of the holder of any such permit, except,
in the case of clause (iii), (iv) or (v) above, for such conflicts or violations
as would not, singly or in the aggregate, have a Material Adverse Effect.
(l) The Company has good and marketable title to, or valid
leasehold interests in, all its properties and assets, in each case free and
clear of all liens, encumbrances, pledges, claims, security interests,
mortgages, assessments, easements, rights of way, covenants, restrictions,
rights of first refusal, defects in title, encroachments and other burdens or
adverse claims (collectively, "Liens"), except such as do not, singly or in the
aggregate, have a Material Adverse Effect. Any real property and buildings held
under lease by the Company are held by the Company under valid, subsisting and
enforceable leases with such exceptions as do not, singly or in the aggregate,
have a Material Adverse Effect.
(m) There is no legal or governmental proceeding pending or, to
the Company's knowledge, threatened to which the Company or Parent is bound or
could reasonably be expected to be a party or to which any of their respective
property is or could reasonably be expected to be subject, except for any such
proceedings as would not, singly or in the aggregate, be reasonably expected to
have a Material Adverse Effect.
(n) To the Company's knowledge, no action has been taken and no
law, statute, rule or regulation or order has been enacted, adopted or issued by
any governmental agency or body which prevents the execution, delivery or
performance of any of the Operative Documents, the consummation of any of the
transactions contemplated thereunder or the issuance of the Series A Notes, or
suspends the sale of the Series A Notes in any jurisdiction referred to in
Section
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<PAGE> 15
5(e). No injunction, restraining order or other order or relief of any nature by
a federal or state court or other tribunal of competent jurisdiction has been
issued with respect to the Company or Parent which would prevent or suspend the
issuance or sale of the Series A Notes in any jurisdiction referred to in
Section 5(e) or the consummation of any transaction contemplated by the
Operative Documents.
(o) Except as would not, singly or in the aggregate, have a
Material Adverse Effect, (i) the Company is not in violation of any Federal,
state or local laws or regulations relating to pollution or protection of human
health or the environment ("Environmental Laws"), which violation includes, but
is not limited to, noncompliance with or lack of any permits (as defined below)
or other governmental authorizations; and (ii) (A) the Company has not received
any communication, whether from a governmental authority or otherwise, alleging
any such violation or noncompliance, and there are no circumstances, either
past, present or that are reasonably foreseeable, that are reasonably likely to
lead to such violation in the future, (B) there is no pending or, to the
Company's knowledge, threatened claim, action, investigation or notice by any
person or entity alleging potential liability for investigatory, cleanup, or
governmental response costs, or natural resources or property damages, or
personal injuries, attorney's fees or penalties relating to any actual, alleged
or, to the Company's knowledge, threatened pollution or contamination, or, to
the Company's knowledge, any circumstances forming the basis of any violation,
or alleged violation, of any Environmental Law (collectively, "Environmental
Claims"), and (C) there are no past or present actions, activities,
circumstances, conditions, events or incidents that could reasonably be expected
to form the basis of any Environmental Claim against the Company or against any
person or entity whose liability for any Environmental Claim the Company has
retained or assumed either contractually or by operation of law.
(p) Except for the Initial Purchasers, there are no contracts,
agreements or understandings between the Company or Parent and any person
granting such person the right to require the Company to include securities held
by such person in any Registration Statement.
(q) Except as would not be unlawful, neither the Company nor
Parent has (i) taken, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company or Parent to facilitate
the sale or resale of the Notes or (ii) since the date of the Preliminary
Offering Memorandum (A) sold, bid for, purchased or paid any person any
compensation for soliciting purchases of the
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<PAGE> 16
Notes or (B) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company or Parent.
(r) Except for the Initial Purchasers, there are no contracts,
agreements or understandings between the Company or Parent and any person that
would give rise to a valid claim against the Company, Parent or any Initial
Purchaser for a brokerage commission, finder's fee or like payment in connection
with the issuance, purchase and sale of the Notes.
(s) The Company has no knowledge of any actionable violation by
the Company of any Federal, state or local law relating to employment practices,
discrimination in the hiring, promotion or pay of employees or any applicable
wage or hour laws, or of any provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA") or the rules and regulations promulgated
thereunder, except for any such violation as would not, singly or in the
aggregate, have a Material Adverse Effect. There is (A) no material unfair labor
practice complaint pending against the Company or, to the best knowledge of the
Company, threatened against it, before the National Labor Relations Board or any
state or local labor relations board, and no significant grievance or
significant arbitration proceeding arising out of or under any collective
bargaining agreement is pending against the Company or, to the knowledge of the
Company, threatened against it, (B) no labor strike, dispute, slowdown or
stoppage ("Labor Dispute") in which the Company is involved nor, to the best
knowledge of the Company, is any Labor Dispute imminent, other than routine
disciplinary and grievance matters, except with respect to any matter specified
in clause (A) or (B) above as would not, singly or in the aggregate, have a
Material Adverse Effect. Except as set forth in the Offering Memorandum, there
exist no material employment, consulting, severance or termination agreements or
arrangements between the Company or Parent and any current or former officer or
director of the Company, Parent or any of their predecessor entities, and there
are no collective bargaining or other labor union agreements to which the
Company or Parent is a party or by which either of them is bound.
(t) The Company has such permits, licenses, consents, exemptions,
franchises, authorizations and other approvals ("permits") of, and has made all
filings with and notice to, all governmental or regulatory authorities and
self-regulatory organizations and all courts and other tribunals, including,
without limitation, under any applicable Environmental Laws, as are necessary to
own, lease, license and operate its properties and to conduct its business,
except where the failure to have any such permit or to make any such filing or
notice would not, singly or in the aggregate, have a Material Adverse Effect.
Each such permit is
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<PAGE> 17
valid and in full force and effect and the Company is in compliance with all the
terms and conditions of its permits and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect thereto; no
event has occurred (including the receipt of any notice from any authority or
governing body) which allows or, after notice or elapse of time or both, would
allow revocation, suspension or termination of any such permit, or results or,
after notice or lapse of time or both, would result in any other impairment of
the rights of the holder of any such permit; and such permits contain no
restrictions that are unduly burdensome to the Company, except, in each case,
where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(u) Except as would not, singly or in the aggregate, have a
Material Adverse Effect: (i) the Company owns or possesses, free and clear of
all Liens, valid rights to all patents, patent rights, copyrights, computer
databases and software, logos, slogans, inventions, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade names
and all licenses, applications and registrations related to the foregoing used
in the business of the Company (collectively, the "Intellectual Property"); (ii)
the Company has not received any notice of infringement of or conflict with
asserted rights of others with respect to any Intellectual Property, and has no
knowledge of any infringement of the Intellectual Property by any person; and
(iii) the use of the Intellectual Property in connection with the business and
operations of the Company does not infringe on the rights of any person.
(v) The Company maintains reasonably adequate insurance covering
its properties, operations, personnel and businesses, including, without
limitation, product liability insurance.
(w) The accountants, KPMG Peat Marwick LLP, that have certified
the financial statements and related notes included in the Preliminary Offering
Memorandum and the Offering Memorandum are independent public accountants with
respect to the Company as would be required by the Act and the Exchange Act if
the Offering Memorandum were a prospectus included in a registration statement
on Form S-1 filed with the Commission under the Act. The historical financial
statements of the Company, together with the related notes, included in the
Preliminary Offering Memorandum and the Offering Memorandum
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<PAGE> 18
comply as to form in all material respects with the requirements applicable to
registration statements on Form S-1 under the Act.
(x) The historical financial statements of the Company, together
with related notes forming part of the Preliminary Offering Memorandum and the
Offering Memorandum (and any amendment or supplement thereto), present fairly
the financial position, results of operations and changes in financial position
of the Company on the basis stated in the Preliminary Offering Memorandum and
the Offering Memorandum at the respective dates or for the respective periods to
which they apply; such statements and related notes have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the other
financial and statistical information and data included in the Preliminary
Offering Memorandum and the Offering Memorandum (and any amendment or supplement
thereto) are presented and prepared on a basis consistent with such financial
statements and the books and records of the Company.
(y) The pro forma financial statements and related notes thereto
included in the Preliminary Offering Memorandum and the Offering Memorandum give
effect to assumptions made on a reasonable basis and in good faith and present
fairly the historical and proposed transactions contemplated by the Preliminary
Offering Memorandum and the Offering Memorandum; and such pro forma financial
statements and related notes comply as to form in all material respects with the
requirements applicable to pro forma financial statements included in
registration statements on Form S-1 under the Act. The other pro forma financial
and statistical information and data included in the Preliminary Offering
Memorandum and the Offering Memorandum are, in all material respects, presented
and prepared on a basis consistent with such pro forma financial statements.
(z) The Company is not and, after giving effect to the
consummation of the Recapitalization, will not be, an "investment company," as
such term is defined in the Investment Company Act of 1940, as amended.
(aa) Neither the Company nor any agent acting on behalf of the
Company has taken, and none of them will take, any action that would cause this
Agreement or the issuance or sale of the Series A Notes to violate Regulation G
(12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R.
Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the
Federal Reserve System.
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<PAGE> 19
(ab) Since the respective dates as of which information is given in
the Offering Memorandum, other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement), (i) there has not occurred any material adverse change or any
development involving a prospective material adverse change in the condition,
financial or otherwise, or the earnings, business, management or operations of
the Company, (ii) there has not been any material adverse change or any
development involving a prospective material adverse change in the capital stock
or in the long-term debt of the Company and (iii) the Company has not incurred
any material liability or obligation, direct or contingent.
(ac) No "nationally recognized statistical rating organization" as
such term is defined for purposes of Rule 436(g)(2) under the Act (i) has
imposed (or has informed the Company that it is considering imposing) any
condition (financial or otherwise) on the Company's retaining any rating
assigned to the Company or any securities of the Company or (ii) has indicated
to the Company that it is considering (a) the downgrading, suspension, or
withdrawal of, or any review for a possible change in, any rating so assigned or
(b) any change in the outlook for any rating of the Company or any securities of
the Company.
(ad) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, contains all the information specified in, and
meeting the requirements of, Rule 144A(d)(4) under the Act.
(ae) No form of general solicitation or general advertising (within
the meaning of Regulation D under the Act) was or will be used by the Company,
Parent or any of their respective representatives (other than the Initial
Purchasers, as to whom the Company makes no representation) in connection with
the offer and sale of the Series A Notes contemplated hereby. No securities of
the same class as the Series A Notes have been issued and sold by the Company
within the six-month period immediately prior to the date hereof.
(af) No registration under the Act of the Series A Notes is
required for the sale of the Series A Notes to the Initial Purchasers as
contemplated hereby or for the Exempt Resales, assuming the accuracy of the
Initial Purchasers' representations and warranties and agreements set forth in
Section 7 hereof.
(ag) The Company, Parent and their respective affiliates and all
persons acting on their behalf (other than the Initial Purchasers, as to whom
the Company and Parent make no representation) have complied with and will
comply with the offering restrictions requirements of Regulation S under the Act
(including,
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without limitation, provisions regarding directed selling efforts (within the
meaning of Regulation S)) in connection with any offering of the Series A Notes
outside the United States.
(ah) Assuming the accuracy of the Initial Purchasers'
representations, warranties and agreements set forth in Section 7 hereof, prior
to the effectiveness of any Registration Statement, the Indenture is not
required to be qualified under the TIA.
(ai) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(aj) Except as would not, singly or in the aggregate, have a
Material Adverse Effect, (a) all Tax returns required to be filed by the Company
or Parent have been filed and all such returns are true, complete, and correct
in all material respects, and (b) all Taxes that are due or claimed to be due
from the Company or Parent have been paid other than those (i) currently payable
without penalty or interest or (ii) being contested in good faith and by
appropriate proceedings and for which adequate reserves, if necessary, have been
established in accordance with generally accepted accounting principles. None of
the income tax returns of the Company or Parent are currently being examined by
the United States Internal Revenue Service or any other governmental body or
agency. For purposes of this Agreement, the term "Tax" and "Taxes" shall mean
all Federal, state, local and foreign taxes, and other assessments of a similar
nature (whether imposed directly or through withholding), including any
interest, additions to tax, or penalties applicable thereto.
(ak) Immediately after and after giving effect to the offering of
the Series A Notes as contemplated hereby and the consummation of the
Recapitalization, (i) the present fair salable value of the Company's assets
shall be more than the amount that will be required to pay its debts (including
contingent
20
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and unliquidated debts) as they become absolute and matured, (ii) the Company's
assets, at a fair valuation, shall be greater than the sum of its debts
(including contingent and unliquidated debts), (iii) the Company shall not be
engaged in a business or transaction for which its remaining assets are
unreasonably small in relation to such business or transaction, and (iv) the
Company shall not intend to incur or believe that it will incur debts beyond its
ability to pay such debts as they become absolute and matured. The Company
disclaims any intent to hinder, defraud or delay its creditors, or to prefer
some creditors over others, and believes that the Notes are being incurred for
proper purposes in good faith.
(al) Each certificate signed by any officer of the Company and
delivered to the Initial Purchasers or counsel for the Initial Purchasers in
connection with this Agreement on or prior to the Closing Date shall be deemed
to be a representation and warranty of the Company to the Initial Purchasers as
to the matters covered thereby.
The Company acknowledges that the Initial Purchasers and, for purposes of
the opinions to be delivered to the Initial Purchasers pursuant to Section 9
hereof, counsel to the Company and counsel to the Initial Purchasers, will rely
upon the accuracy and truth of the foregoing representations and hereby consents
to such reliance.
7. Initial Purchasers' Representations and Warranties. Each of the
Initial Purchasers, severally and not jointly, represents and warrants to the
Company and agrees that:
(a) Such Initial Purchaser is a QIB with such knowledge and
experience in financial and business matters as is necessary in order to
evaluate the merits and risks of an investment in the Series A Notes.
(b) Such Initial Purchaser (A) is not acquiring the Series A Notes
with a view to any distribution thereof or with any present intention of
offering or selling any of the Series A Notes in a transaction that would
violate the Act or the securities laws of any state of the United States or any
other applicable jurisdiction and (B) will be reoffering and reselling the
Series A Notes only to (x) QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A and (y) in offshore
transactions in reliance upon Regulation S under the Act.
(c) Such Initial Purchaser represents and warrants that (i) no
form of general solicitation or general advertising (within the meaning of
Regulation D under the Act) has been or will be used by such Initial Purchaser
or
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any of its representatives in connection with the offer and sale of the Series A
Notes pursuant hereto, and (ii) it has not and will not solicit offers for or
offer to sell Series A Notes in any manner involving a public offering within
the meaning of Section 4(2) of the Act.
(d) Such Initial Purchaser agrees that, in connection with Exempt
Resales, such Initial Purchaser will solicit offers to buy the Series A Notes
only from, and will offer to sell the Series A Notes only to, Eligible
Purchasers, and will make available copies of the Preliminary Offering
Memorandum (as then amended or supplemented through the respective dates of such
offers) in connection with such offers and (assuming the Company's compliance
with Section 5(b) hereof) will deliver a copy of the Offering Memorandum (as
then amended or supplemented) to each purchaser of Series A Notes from it
contemporaneously with or prior to the delivery of any Note to each such
Purchaser. Each Initial Purchaser further agrees that it will offer to sell the
Series A Notes only to, and will solicit offers to buy the Series A Notes only
from (1)(A) QIBs who, in purchasing the Series A Notes will be deemed to have
represented and agreed that (x) they are purchasing the Series A Notes for their
own accounts or accounts with respect to which they exercise sole investment
discretion and that they or such accounts are QIBs and (y) they acknowledge that
the seller of such Series A Notes may be relying on the exemption from the
provisions of Section 5 of the Act provided by Rule 144A thereunder and that
such Series A Notes will not have been registered under the Act and (B)
Regulation S Purchasers who, in purchasing the Series A Notes will be deemed to
have represented and agreed that their purchase of Series A Notes pursuant to
Regulation S is not part of a plan or a scheme to evade the registration
provisions of the Act and (2) Eligible Purchasers that agree that (x) Series A
Notes purchased by them may be resold, pledged or otherwise transferred within
the time period referred to under Rule 144(k) (taking into account the
provisions of Rule 144(d) under the Act, if applicable) under the Act, as in
effect on the date of the transfer of such Series A Notes, only (I) to the
Company or any of its subsidiaries, (II) to a person whom the seller reasonably
believes is a QIB purchasing for its own account or for the account of a QIB in
a transaction meeting the requirements of Rule 144A under the Act, (III) in an
offshore transaction (as defined in Rule 902 under the Act) meeting the
requirements of Rule 904 of the Act, (IV) in a transaction meeting the
requirements of Rule 144 under the Act, (V) in accordance with another exception
from the registration requirements of the Act (and based upon an opinion of
counsel acceptable to the Company) or (VI) pursuant to an effective registration
statement and, in each case, in accordance with the applicable securities laws
of any state of the United States or any other acceptable jurisdiction and (y)
they will deliver to
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<PAGE> 23
each person to whom such Series A Notes or an interest therein is transferred a
notice substantially to the effect of the foregoing.
The Initial Purchasers acknowledge that the Company and, for purposes of
the opinions to be delivered to each Initial Purchaser pursuant to Section 9
hereof, counsel to the Company and counsel to the Initial Purchasers will rely
upon the accuracy and truth of the foregoing representations and the Initial
Purchasers hereby consent to such reliance.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Initial
Purchasers, their directors, their officers and each person, if any, who
controls an Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any
reasonable legal or other expenses incurred in connection with defending or
investigating any matter, including any action that could give rise to any such
losses, claims, damages, liabilities or judgments) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Offering Memorandum (or any amendment or supplement thereto), the Preliminary
Offering Memorandum or any Rule 144A Information or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by any such
untrue statement or omission or alleged untrue statement or omission (i) based
upon information relating to an Initial Purchaser furnished in writing to the
Company by such Initial Purchaser expressly for use in the Preliminary Offering
Memorandum or the Offering Memorandum, or (ii) contained in the Preliminary
Offering Memorandum or the Offering Memorandum, as the case may be, if a copy of
the Offering Memorandum (as then amended or supplemented) was not sent or given
by or on behalf of the Initial Purchasers to the person asserting such loss,
claim, damage or liability, at or prior to the written confirmation of the sale
of the Series A Notes and the untrue statement or omission or alleged untrue
statement or omission was corrected in the Offering Memorandum (as then amended
or supplemented).
(b) Each Initial Purchaser agrees to indemnify and hold harmless
the Company, its directors and officers and each person who controls (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company
to the same extent as the foregoing indemnity from the Company but only
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<PAGE> 24
with reference to information relating to such Initial Purchaser furnished in
writing to the Company by such Initial Purchaser expressly for use in the
Preliminary Offering Memorandum or the Offering Memorandum.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
(provided that the failure to give such notice shall not relieve the
indemnifying party of its obligations under this Section 8 unless and only to
the extent that the indemnifying party is materially prejudiced by the failure
to notify) and the indemnifying party shall assume promptly the defense of such
action, including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all reasonable fees and expenses of such
counsel, as incurred (except that in the case of any action in respect of which
indemnity may be sought pursuant to both Sections 8(a) and 8(b), the Company
shall assume promptly the defense of such action as provided in this Section
8(c) and an Initial Purchaser shall not be required to assume the defense of
such action pursuant to this Section 8(c), but may employ separate counsel and
participate in the defense thereof; provided the fees and expenses of such
separate counsel, if any, retained by an Initial Purchaser (except as provided
below) shall be at the expense of such Initial Purchaser). Any indemnified party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the indemnified party unless (i) the employment of
such counsel shall have been specifically authorized in writing by the
indemnifying party, (ii) the indemnifying party shall have failed promptly to
assume the defense of such action or employ counsel reasonably satisfactory to
the indemnified party or (iii) the named parties to any such action (including
any impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
representation of such indemnified party and any such indemnifying party by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the indemnifying party shall not have the right to assume the defense of
such action on behalf of the indemnified party). In any such case, the
indemnifying party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys (in addition to any
local counsel) for all indemnified parties and all such reasonable fees and
expenses shall
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<PAGE> 25
be reimbursed as they are incurred. Such firm shall be designated in writing by
DLJ, in the case of the parties indemnified pursuant to Section 8(a), and by the
Company, in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any action (i) effected with its written consent or
(ii) effected without its written consent if the settlement is entered into more
than 60 days after such indemnifying party shall have received a written request
from the indemnified party for reimbursement for the fees and expenses of
counsel (in any case where such fees and expenses are at the expense of the
indemnifying party, and except with respect to fees and expenses the amount of
which is being contested in good faith by the indemnifying party, with respect
to which this clause (ii) shall not apply) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is an actual or potential party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or failure to
act by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section
8 is unavailable to an indemnified party (other than due to the failure of the
indemnified party to provide notice as required by Section 8(c)), or is
insufficient in respect of any losses, claims, damages, liabilities or judgments
referred to herein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities and
judgments (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and any of the Initial
Purchasers, on the other hand, from the offering of the Series A Notes or (ii)
if the allocation provided by clause 8(d)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(d)(i) above but also the relative
fault of the Company, on the one hand, and any Initial Purchaser, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company, on the
one hand, and any
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<PAGE> 26
of the Initial Purchasers, on the other hand, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Series A Notes
(before deducting expenses but after deducting discounts and commissions
received by the Initial Purchasers) received by the Company, and the total
discounts and commission received by such Initial Purchaser bear to the total
price to investors of the Series A Notes, in each case as set forth in the table
on the cover page of the Offering Memorandum. The relative fault of the Company,
on the one hand, and any of the Initial Purchasers, on the other hand, 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 an Initial Purchaser, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Initial Purchasers 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 any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any reasonable legal or other expenses incurred by such indemnified
party in connection with investigating or defending any matter that could have
given rise to such losses, claims, damages, liabilities or judgments.
Notwithstanding the provisions of this Section 8, no Initial Purchaser (and its
related indemnified parties) shall be required to contribute any amount in
excess of the amount by which the total discounts and fees received by such
Initial Purchaser in connection with the sale of Series A Notes pursuant to this
Agreement exceeds the amount of any damages which such Initial Purchaser (and
any related indemnified party) 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 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations
to contribute pursuant to this Section 8(d) are several in proportion to the
respective principal amount of Series A Notes purchased by each of the Initial
Purchasers hereunder, and not joint.
(e) The remedies provided for in this Section 8 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
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<PAGE> 27
9. Conditions of Initial Purchasers' Obligations. The obligations of
the Initial Purchasers to purchase the Series A Notes under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the date hereof and on
the Closing Date with the same force and effect as if made on and as of the
Closing Date.
(b) On or after the date hereof, (i) there shall not have occurred
any downgrading, suspension or withdrawal of, nor shall any notice have been
given of any potential or intended downgrading, suspension or withdrawal of, or
of any review (or any potential or intended review) for a possible change that
does not indicate the direction of the possible change in, any rating of the
Company or any securities of the Company (including, without limitation, the
placing of any of the foregoing ratings on credit watch with negative or
developing implications or under review with an uncertain direction) by any
"nationally recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Act, (ii) there shall not have occurred
any change, nor shall any notice have been given of any potential or intended
change, in the outlook for any rating of the Company or any securities of the
Company by any such rating organization and (iii) no such rating organization
shall have given notice that it has assigned (or is considering assigning) a
lower rating to the Notes than that on which the Notes were marketed.
(c) The Initial Purchasers shall have received on the Closing
Date a certificate dated the Closing Date, signed by the Executive Vice
President and Chief Financial Officer and the Secretary, Vice President and
General Counsel of the Company, confirming, as of the Closing Date, the matters
set forth in paragraphs (a), (b), (e) (the first clause of which may be limited
to the Company's knowledge) and (p) of this Section 9.
(d) Since the respective dates as of which information is given in
the Offering Memorandum, other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement), (i) there shall not have occurred any change or any development
involving a prospective change in the condition, financial or otherwise, or the
earnings, business, management or operations of the Company, (ii) there shall
not have been any change or any development involving a prospective change in
the capital stock or increase in the long-term debt of the Company and (iii) the
Company
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<PAGE> 28
shall not have incurred any material liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(d)(i),
9(d)(ii) or 9(d)(iii), in your good faith judgment, is material and adverse and,
in your good faith judgment, makes it impracticable to market the Series A Notes
on the terms and in the manner contemplated in the Offering Memorandum.
(e) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the issuance or
sale of any of the Series A Notes, prevent the consummation of the
Recapitalization or otherwise have a Material Adverse Effect; no action, suit or
proceeding shall be pending against or, to the knowledge of the Company,
threatened against, the Company or Parent before any court or arbitrator or any
governmental body, agency or official which would reasonably be expected to
prohibit, interfere with or adversely affect the issuance or sale of the Notes,
the consummation of the Recapitalization or otherwise have a Material Adverse
Effect; and no stop order, injunction, restraining order, or order of any nature
preventing the use of the Offering Memorandum, or any amendment or supplement
thereto, or any order asserting that any of the transactions contemplated by
this Agreement are subject to the registration requirements of the Act shall
have been issued.
(f) On the Closing Date, the Initial Purchasers shall have
received an opinion, dated the Closing Date, of Irell & Manella LLP, special
counsel for the Company, substantially to the effect that:
(1) The Company has been duly organized, is validly existing
as a corporation in good standing under the laws of the State of
Delaware and has full corporate power and authority to carry on its
business and to own, lease and operate its properties as described
in the Preliminary Offering Memorandum and the Offering Memorandum.
The Company has the requisite corporate power and authority to
authorize the offering of the Notes and to execute, deliver and
perform its obligations under each Operative Document to which it is
a party.
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<PAGE> 29
(2) The Company is duly qualified and is in good standing as
a foreign corporation authorized to do business in each jurisdiction
in which such qualification is required, except where the failure to
be so qualified or in good standing would not be reasonably expected
to have a Material Adverse Effect.
(3) All of the outstanding capital stock of the Company (i)
has been duly authorized and validly issued, (ii) is fully paid,
nonassessable and, to such counsel's knowledge, not subject to any
preemptive or similar rights and (iii) is owned of record by Parent.
(4) This Agreement has been duly authorized, executed and
delivered by the Company.
(5) The Indenture has been duly authorized, executed and
delivered by the Company.
(6) (a) In any action or proceeding arising out of or
relating to the Indenture or the Registration Rights Agreement in
any court of the State of California or in any federal court sitting
in California, such court should recognize and give effect to the
governing laws provisions of the Indenture or the Registration
Rights Agreement, as applicable, wherein the parties thereto agree
(to the extent set forth therein) that such agreements shall be
governed by, and construed in accordance with, the laws of the State
of New York; and (b) a court of the State of California or a federal
court sitting in California should apply the usury law of the State
of New York to the Notes issued pursuant to the Indenture and, to
the extent it provides for additional interest on the Notes, the
Registration Rights Agreement. Such opinion may be based on and
subject to analysis and qualifications reasonably satisfactory to
the Initial Purchasers.
(7) The Series A Notes have been duly authorized by the
Company.
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<PAGE> 30
(8) The Series B Notes have been duly authorized by the
Company.
(9) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company.
(10) The Recapitalization Agreement has been duly authorized
by Parent and, on the Closing Date, will have been duly executed and
delivered by Parent and will be a valid and binding agreement of
Parent, enforceable against Parent in accordance with its terms
(assuming the due execution and delivery of the Recapitalization
Agreement by each other party thereto) except (i) as the
enforceability thereof may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and (ii) for general
principles of equity (regardless of whether enforcement is brought
in a proceeding at law or in equity).
(11) The statements in the Offering Memorandum under the
captions "Summary--The Recapitalization," "The Recapitalization,"
"Management--Management Stock Purchases," "Principal
Stockholders--Repurchase of Common Stock and PE Warrant," "Principal
Stockholders--Parent Equity and Debt," "Financing Arrangements" and
"Description of Notes," insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to
therein, fairly summarize in all material respects the information
called for with respect to such legal matters, documents and
proceedings.
(12) The execution and delivery of and performance by the
Company and Parent of each Operative Document to which either of
them is a party, the issuance and sale of the Series A Notes as
contemplated by this Agreement and the Offering Memorandum and the
consummation of the transactions contemplated by this Agreement,
each other Operative Document and the Offering Memorandum do not (i)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency
30
<PAGE> 31
(except such as may be required under the securities or Blue Sky
laws of the various states or as previously have been made or
obtained, or, in the case of the Registration Rights Agreement, will
be obtained and made, and assuming the accuracy of the
representations and warranties of the Initial Purchasers in Section
7 hereof), or (ii) violate the certificate of incorporation or
by-laws of the Company or Parent, or (iii) constitute a breach of
any of the terms or provisions of, or a default under, or cause an
acceleration of any obligation under, or result in the imposition or
creation of (or the obligation to create or impose) a Lien with
respect to, any indenture, loan agreement, mortgage, lease or other
agreement which is listed on the certificate of Charles P. Kirk,
Senior Vice President and Chief Financial Officer of the Company,
attached to such opinion, or (iv) violate or conflict with any
applicable law, rule or regulation which in such counsel's
experience is customarily applicable to transactions of the type
provided for in the Operative Documents or any judgment, order or
decree of any court or any governmental body or agency having
jurisdiction over the Company, Parent or their respective property
and known to such counsel (assuming the accuracy of the
representations, warranties and agreements of the Initial Purchasers
in Section 7 hereof, compliance with all applicable state securities
and Blue Sky laws, and, in the case of the Registration Rights
Agreement, compliance with the Act, the Exchange Act and the TIA),
except, in the case of clause (i), (iii) and (iv) above, for such
conflicts or violations as would not, singly or in the aggregate,
have a Material Adverse Effect.
(13) After due inquiry, such counsel does not know of any
legal or governmental proceeding pending or threatened which would
be required to be described in the Offering Memorandum if the
Offering Memorandum were a prospectus included in a registration
statement on Form S-1 and is not so described.
(14) The Company is not and, after giving effect to the
consummation of the Recapitalization, will not be, an
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<PAGE> 32
"investment company," as such term is defined in the Investment
Company Act of 1940, as amended.
(15) Each of the Preliminary Offering Memorandum and the
Offering Memorandum (except for the financial statements, including
the notes thereto, and supporting schedules and other financial,
statistical and accounting data included therein or omitted
therefrom, as to which no opinion is expressed), as of its date and
as amended or supplemented through the date hereof, appear on its
face to comply with the requirements of Rule 144A(d)(4) under the
Act.
(16) No registration under the Act of the Series A Notes or
qualification of the Indenture under the TIA is required for the
sale of the Series A Notes to the Initial Purchasers as contemplated
by this Agreement or for the Exempt Resales, assuming (i) the
accuracy of, and compliance with, the Initial Purchaser's
representations and agreements contained in Section 7 of this
Agreement and (ii) the accuracy of the representations and
agreements of the Company set forth in this Agreement and (iii) that
the offer, sale and delivery of the Series A Notes have been made as
contemplated by this Agreement and the Offering Memorandum.
In addition, Irell & Manella LLP shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent accountants of the Company, and the
Initial Purchasers at which the contents of the Offering Memorandum and related
matters were discussed and, although such counsel is not passing upon, and does
not assume any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Offering Memorandum and has made no independent
check or verification thereof, on the basis of the foregoing, no facts have come
to such counsel's attention (relying to the extent such counsel deems
appropriate as to materiality upon the opinions of officers and other
representatives of the Company) that have led such counsel to believe that the
Offering Memorandum, as of its date and as of the Closing Date, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that such
counsel need not express any opinion or belief with re-
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<PAGE> 33
spect to the financial statements and schedules and other financial and
statistical data included therein or excluded therefrom.
(g) On the Closing Date, the Initial Purchasers shall have
received an opinion, dated the Closing Date, of Kramer, Levin, Naftalis &
Frankel, special New York counsel for the Company, substantially to the effect
that:
(1) Assuming the due authorization, execution and delivery
of the Indenture by the Company and the Trustee, the Indenture is a
valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except (i) as the
enforceability thereof may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, (ii) for general
principles of equity (regardless of whether enforcement is brought
in a proceeding at law or in equity) and (iii) the waiver as to
stay, extension or usury laws may not be enforceable.
(2) Assuming the due authorization of the Series A Notes by
the Company, when executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the
Initial Purchasers in accordance with the terms of this Agreement,
the Series A Notes will be valid and binding obligations of the
Company, entitled to the benefits of the Indenture and enforceable
against the Company in accordance with their terms, except (i) as
the enforceability thereof may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, (ii) for general
principles of equity (regardless of whether enforcement is brought
in a proceeding at law or in equity) and (iii) the waiver as to
stay, extension or usury laws may not be enforceable.
(3) Assuming the due authorization of the Series B Notes by
the Company, when executed and authenticated in accordance with the
provisions of the Indenture and delivered in exchange for Series A
Notes in accordance with the Indenture and the Exchange Offer, the
Series B Notes will be valid and binding obligations of the Company,
entitled to the
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<PAGE> 34
benefits of the Indenture and enforceable against the Company in
accordance with their terms, except (i) as the enforceability
thereof may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, (ii) for general principles
of equity (regardless of whether enforcement is brought in a
proceeding at law or in equity) and (iii) the waiver as to stay,
extension or usury laws may not be enforceable.
(4) Assuming the due authorization, execution and delivery
of the Registration Rights Agreement by the Company and the Initial
Purchasers, the Registration Rights Agreement is a valid and binding
agreement of the Company, enforceable against the Company in
accordance with its terms, except (i) as the enforceability thereof
may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium or other similar laws affecting
creditors' rights generally, (ii) for general principles of equity
(regardless of whether enforcement is brought in a proceeding at law
or in equity) and (iii) no opinion need be expressed as to the
validity, binding nature or enforceability of any rights to
contribution or indemnification contained in the Registration Rights
Agreement.
(h) The Initial Purchasers shall have received on the Closing Date
an opinion, dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel for the Initial Purchasers, in form and substance reasonably
satisfactory to the Initial Purchasers.
(i) The Initial Purchasers shall have received an opinion from
Houlihan Lokey Howard & Zukin Financial Advisors (satisfactory to the Initial
Purchasers and their counsel) dated the Closing Date, to the effect that,
assuming the Recapitalization has been consummated as proposed, both immediately
before and after giving effect to the Recapitalization: (a) on a pro forma
basis, the fair value and present fair saleable value of the respective assets
of Parent and the Company are greater than the respective total amount of stated
liabilities of Parent and the Company, including, but not limited to, identified
contingent liabilities; (b) the fair value and present fair saleable value of
the respective assets of Parent and the Company are not less than the amount
required to pay their probable liability of their respective debts as they
become absolute and mature; (c) neither Parent nor the
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<PAGE> 35
Company has stated debts or stated liabilities beyond its respective ability to
pay as such debts and liabilities mature; (d) the capital remaining in the
Parent and the Company, respectively, after the Recapitalization would not be
unreasonably small for the business in which they are respectively engaged, as
their respective management has indicated it is now conducted and is proposed to
be conducted following the consummation of the Recapitalization; and (e) the
fair value and present fair saleable value of the assets of Parent or the
Company (as the case may be) exceed the respective total amount of stated
liabilities of Parent or the Company (as the case may be), including but not
limited to identified contingent liabilities of the Parent or the Company (as
the case may be) by an amount at least equal to its respective "capital" (as
defined and computed in accordance with Sections 154 and 244 of the General
Corporation Law of the State of Delaware).
(j) The Initial Purchasers shall have received, at the time this
Agreement is executed and at the Closing Date, letters dated the date hereof in
form and substance satisfactory to the Initial Purchasers from KPMG Peat Marwick
LLP, independent public accountants, in each case containing the information and
statements of the type ordinarily included in accountants' "comfort letters" to
the Initial Purchasers with respect to the financial statements and certain
financial information contained in the Offering Memorandum.
(k) The Series A Notes shall have been approved by the NASD for
trading and duly listed in PORTAL.
(l) The Company shall have executed the Registration Rights
Agreement and the Initial Purchasers shall have received an original copy
thereof, duly executed by the Company.
(m) The Company and the Trustee shall have executed the Indenture
and the Initial Purchasers shall have received an original copy thereof, duly
executed by the Company.
(n) Each of the Company Merger and the Parent Merger shall have
become effective.
(o) Concurrently with the offering of the Series A Notes as
contemplated hereby and by the Offering Memorandum: (i) the Old Notes shall be
defeased in accordance with Article Nine of the indenture governing the Old
Notes (the "Old Note Indenture"); (ii) the Company shall send or cause to be
sent notices of redemption to the holders of the Old Notes in accordance with
Article
35
<PAGE> 36
Three of the Old Note Indenture; (iii) the Parent Note Financing shall be
consummated; (iv) the Parent Old Preferred shall be redeemed; and (v) each other
transaction comprising the Recapitalization shall be substantially consummated.
(p) The Company shall not have failed at or prior to the Closing
Date to perform or comply in all material respects with any of the agreements
herein contained and required to be performed or complied with by the Company at
or prior to the Closing Date.
10. Effectiveness of Agreement and Termination. This Agreement shall
become effective upon the delivery of this Agreement by the parties hereto.
This Agreement may be terminated at any time prior to the Closing Date by
the Initial Purchasers by written notice to the Company if any of the following
has occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in the Initial
Purchasers' good faith judgment, is material and adverse and would, in the
Initial Purchasers' good faith judgment, make it impracticable to market the
Series A Notes on the terms and in the manner contemplated in the Offering
Memorandum, (ii) the suspension or material limitation of trading in securities
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market, (iii) the suspension of trading of any securities
of the Company on any exchange or in the over-the-counter market, (iv) the
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental authority
which in your good faith opinion materially and adversely affects, or will
materially and adversely affect, the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole, (v)
the declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
good faith opinion has a material adverse affect on the financial markets in the
United States and would, in the Initial Purchasers' good faith judgment, make it
impracticable to market the Series A Notes on the terms and in the manner
contemplated in the Offering Memorandum.
If on the Closing Date any of the Initial Purchasers shall fail or refuse
to purchase the Series A Notes which it has agreed to purchase hereunder on such
date and the aggregate principal amount of the Series A Notes which such
defaulting
36
<PAGE> 37
Initial Purchaser agreed but failed or refused to purchase is not more than
one-tenth of the aggregate principal amount of the Series A Notes to be
purchased on such date by all Initial Purchasers, each non-defaulting Initial
Purchaser shall be obligated to purchase the Series A Notes which such
defaulting Initial Purchaser or Initial Purchasers, as the case may be, agreed
but failed or refused to purchase on such date; provided that in no event shall
the aggregate principal amount of the Series A Notes which any Initial Purchaser
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 10 by an amount in excess of one-ninth of such principal amount of
the Series A Notes without the written consent of such Initial Purchaser. If on
the Closing Date any Initial Purchaser or Initial Purchasers shall fail or
refuse to purchase the Series A Notes and the aggregate principal amount of the
Series A Notes with respect to which such default occurs is more than one-tenth
of the aggregate principal amount of the Series A Notes to be purchased by all
Initial Purchasers and arrangements satisfactory to the Initial Purchasers and
the Company for purchase of such Series A Notes are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Initial Purchaser and the Company. In any such case which
does not result in termination of this Agreement, either you or the Company
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, to the Offering
Memorandum or any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve any defaulting Initial Purchaser
from liability in respect of any default of any such Initial Purchaser under
this Agreement. Any notice of termination pursuant to this Section 10 shall be
by telephone, telex, facsimile or telegraph, confirmed in writing by letter sent
within three days thereof.
11. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company, to Big 5 Corp.,
2525 East El Segundo Boulevard, El Segundo, California 90245, Attention:
President, with a copy to Leonard Green & Partners, 11111 Santa Monica
Boulevard, Suite 2000, Los Angeles, California 90025, Attention: Jennifer Holden
Dunbar, and with a copy to Irell & Manella LLP, 333 South Hope Street, Suite
3300, Attention: Edmund M. Kaufman, Esq., (ii) if to any Initial Purchasers, c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, with a copy to Skadden, Arps,
Slate, Meagher & Flom LLP at 300 South Grand Avenue, Suite 3400, Los Angeles,
California 90071, Attention: Nick P. Saggese, Esq. or (iii) in any case to such
other address as the person to be notified may have requested in writing.
37
<PAGE> 38
The respective indemnities, contribution agreements, representations,
warranties and other statements and agreements of the Company and the Initial
Purchasers set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Series A Notes, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of an Initial Purchaser, the officers
or directors of an Initial Purchaser, any person controlling an Initial
Purchaser, the Company, the officers or directors of the Company, or any person
controlling the Company, (ii) acceptance of the Series A Notes and payment for
them hereunder and (iii) termination of this Agreement.
If for any reason the Series A Notes are not delivered by or on behalf of
the Company as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 10), the Company agrees to reimburse the
Initial Purchasers for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them. Notwithstanding any
termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(h) hereof. The Company also
agrees to reimburse the Initial Purchasers, their respective directors and
officers and any person controlling either of the Initial Purchasers for any and
all fees and expenses (including, without limitation, the fees and disbursements
of counsel) reasonably incurred by them in connection with enforcing their
rights hereunder.
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the parties hereto and their
respective successors and the officers and directors and other persons referred
to in Section 8, all as and to the extent provided in this Agreement, and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Series A Notes from the Initial Purchasers merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
38
<PAGE> 39
Please confirm that the foregoing correctly sets forth the agreement among
the Company and the several Initial Purchasers.
Very truly yours,
BIG 5 CORP. (currently known as "New Big
5 Corp.")
By: /s/ CHARLES P. KIRK
-----------------------------------
Name: Charles P. Kirk
Title: Senior Vice President
The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON
CORPORATION
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ DONALD S. KINSEY
---------------------------------
Name: Donald S. Kinsey
Title: Vice President
<PAGE> 40
SCHEDULE A
<TABLE>
<CAPTION>
Principal Amount
Initial Purchaser of Notes
----------------- ----------------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation ................. $ 78,600,000
Credit Suisse First Boston Corporation ... $ 52,400,000
============
Total ............................... $131,000,000
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF NOVEMBER 13, 1997
BY AND AMONG
BIG 5 CORP.,
AS ISSUER
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
AND
CREDIT SUISSE FIRST BOSTON CORPORATION,
AS INITIAL PURCHASERS
- --------------------------------------------------------------------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of November 13, 1997, among BIG 5 CORP., a Delaware corporation
(the "Issuer"), and DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION and
CREDIT SUISSE FIRST BOSTON CORPORATION (collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated
November 7, 1997, among the Issuer and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Issuer to the Initial
Purchasers of $131,000,000 aggregate principal amount of Series A 10 7/8% Senior
Notes due 2007 (the "Notes"). In order to induce the Initial Purchasers to enter
into the Purchase Agreement, the Issuer has agreed to provide to the Initial
Purchasers and their respective direct and indirect transferees, among other
things, the registration rights for the Notes set forth in this Agreement. The
execution of this Agreement is a condition to the closing of the transactions
contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings (and, unless otherwise indicated, capitalized terms used
herein without definition shall have the respective meanings ascribed to them by
the Purchase Agreement):
Applicable Period: See Section 2(b) hereof.
controlling person: See Section 7 hereof.
Effectiveness Period: See Section 3(a) hereof.
Effectiveness Target Date: See Section 4(a)(ii) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
1
<PAGE> 3
Exchange Notes: See Section 2(a) hereof.
Exchange Offer: See Section 2(a) hereof.
Exchange Offer Registration Statement: See Section 2(a) hereof.
Holder: Any holder of Transfer Restricted Securities.
indemnified party: See Section 7 hereof.
Indemnified Person: See Section 7 hereof.
indemnifying person: See Section 7 hereof.
Indenture: The Indenture, dated as of the date hereof, by and
between the Issuer and First Trust National Association, as trustee, pursuant to
which the Notes are being issued, as amended or supplemented from time to time
in accordance with the terms thereof.
Initial Purchasers: See the introductory paragraphs to this
Agreement.
Inspectors: See Section 5(m) hereof.
Issue Date: As defined in the Offering Memorandum.
Issuer: See the introductory paragraphs to this Agreement.
Liquidated Damages: See Section 4(a) hereof.
Notes: See the introductory paragraphs to this Agreement.
Offering Memorandum: The final Offering Memorandum dated November 8,
1997 related to the sale of the Notes.
Participating Broker-Dealer: See Section 2(b) hereof.
Person or person: An individual, trustee, corporation, partnership,
joint stock company, trust, unincorporated association, union, business
association, limited liability company, limited liability partnership, firm or
other legal entity.
2
<PAGE> 4
Prospectus: The prospectus included in any 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 offering of any portion of the
Exchange Notes and/or the Transfer Restricted Securities (as applicable),
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.
Records: See Section 5(m) hereof.
Registration Default: See Section 4(a)(iv) hereof.
Registration Statement: Any registration statement of the Issuer,
including, but not limited to, the Exchange Offer Registration Statement or a
registration statement of the Issuer that otherwise covers any of the Transfer
Restricted Securities 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.
Rule 144: Rule 144 promulgated pursuant to the Securities Act, as
currently in effect, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
Rule 144A: Rule 144A promulgated pursuant to the Securities Act, as
currently in effect, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated pursuant to 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 Act: The Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
3
<PAGE> 5
Shelf Notice: See Section 2(c) hereof.
Shelf Registration Statement: See Section 3(a) hereof.
TIA: The Trust Indenture Act of 1939, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Transfer Restricted Securities: The Notes upon original issuance
thereof and at all times subsequent thereto, until in the case of any such
Notes, the earliest to occur of, the date on which (i) a Registration Statement
covering such Notes has been declared effective by the SEC and such Notes have
been disposed of in accordance with such effective Registration Statement, (ii)
such Notes are sold in compliance with Rule 144 or are eligible for sale under
Rule 144(k) or (iii) such Notes cease to be outstanding (including, without
limitation, upon an exchange of such Notes for Exchange Notes in the Exchange
Offer).
Trustee: The trustee under the Indenture and, if existent, under any
indenture governing the Exchange Notes.
Underwritten registration or underwritten offering: A registration
in which securities of the Issuer are sold to an underwriter for reoffering to
the public.
2. Exchange Offer
(a) The Issuer agrees to file with the SEC within 60 days after the
Issue Date a registration statement under the Securities Act with respect to an
offer to exchange (the "Exchange Offer") any and all of the Transfer Restricted
Securities for a like aggregate principal amount of debt securities of the
Issuer (the "Exchange Notes"), which Exchange Notes will be (i) substantially
identical in all material respects to the Notes, except that such Exchange
Notes will not contain terms with respect to transfer restrictions, and (ii)
entitled to the benefits of the Indenture or a trust indenture which is
identical to the Indenture (other than such changes to the Indenture or any such
identical trust indenture as are necessary to comply with any requirements of
the SEC to effect or maintain the qualification thereof under the TIA), and
which, in either case, has been qualified under the TIA, and (iii) registered
pursuant to an effective Registration Statement in compliance with the
Securities Act. The Exchange Offer will be registered pursuant to the Securities
Act on an appropriate form of Registration Statement (the "Exchange Offer
Registration Statement"), and will comply with all applicable tender offer rules
and regulations promulgated
4
<PAGE> 6
pursuant to the Exchange Act and shall be duly registered or qualified pursuant
to all applicable state securities or Blue Sky laws, except as would subject the
Issuer to general taxation or service of process where it is not currently
subject. The Exchange Offer shall not be subject to any condition, other than
that the Exchange Offer does not violate any applicable law, policy or
interpretation of the staff of the SEC. No securities shall be included in the
Exchange Offer Registration Statement other than the Exchange Notes. The Issuer
agrees (x) to use its reasonable best efforts to cause such Exchange Offer
Registration Statement to be declared effective under the Securities Act within
135 days after the Issue Date; (y) to keep the Exchange Offer open for not less
than 30 days (or such longer period required by applicable law) after the date
that the notice of the Exchange Offer referred to below is mailed to Holders;
and (z) to use its reasonable best efforts to consummate the Exchange Offer
within 45 days after the Effectiveness Target Date. As promptly as practicable
after the Exchange Offer Registration Statement is declared effective, the
Issuer will commence the offer of Exchange Notes in exchange for properly
tendered Notes. For each Note validly tendered pursuant to the Exchange Offer,
the holder of such Note will receive the Exchange Notes having a principal
amount at maturity equal to that of the tendered Note.
Each Holder who participates in the Exchange Offer will be required
to represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement or understanding with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Notes, and that such Holder is not an "affiliate" of the
Issuer within the meaning of Rule 405 of the Securities Act (or that if it is
such an affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable). Each Holder that
is not a Participating Broker-Dealer will be required to represent that it is
not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. Each Holder that (i) is a Participating Broker-Dealer and (ii)
will receive Exchange Notes for its own account in exchange for the Transfer
Restricted Securities that it acquired as the result of market-making or other
trading activities will be required to acknowledge that it will deliver a
Prospectus as required by law in connection with any resale of such Exchange
Notes. The Issuer shall allow Participating Broker-Dealers and other persons, if
any, subject to prospectus delivery requirements to use the Prospectus included
in the Exchange Offer Registration Statement in connection with the resale of
the Exchange Notes. Upon consummation of the Exchange Offer in accordance with
this Agreement, the Issuer shall have no further
5
<PAGE> 7
obligation to register Transfer Restricted Securities pursuant to Section 3 of
this Agreement.
(b) The Issuer shall include within the Exchange Offer Registration
Statement a section entitled "Plan of Distribution," reasonably acceptable to
the Initial Purchasers, 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 acquired Notes as the result of
market-making activities or other trading activities (and not directly from the
Issuer) and 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 (a
"Participating Broker-Dealer"). Such "Plan of Distribution" section shall also
allow the use of the Prospectus by all persons subject to the prospectus
delivery requirements of the Securities Act, including all Participating
Broker-Dealers, and include a statement describing the means by which
Participating Broker-Dealers may resell the Exchange Notes.
The Issuer shall use its reasonable best efforts to keep the
Exchange Offer Registration Statement effective under the Securities Act and to
amend and supplement the Prospectus contained therein, in order to permit such
Prospectus to be lawfully delivered by all persons subject to the prospectus
delivery requirements of the Securities Act for such period of time as is
necessary to comply with applicable law and the policies, rules and regulations
of the SEC as announced from time to time in connection with any resale of the
Exchange Notes provided that such period shall not exceed 180 days from the
consummation of the Exchange Offer (or such longer period if extended pursuant
to the last paragraph of Section 5 hereof) (the "Applicable Period").
In connection with the Exchange Offer, the Issuer shall:
(a) mail as promptly as practicable to each Holder a copy of the
Prospectus forming part of the Exchange Offer Registration Statement,
together with an appropriate letter of transmittal and related documents;
(b) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York; and
(c) permit Holders to withdraw tendered 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.
6
<PAGE> 8
As soon as practicable after the close of the Exchange Offer, the
Issuer shall:
(i) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Exchange Offer;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Notes so accepted for exchange; and
(iii) cause the Trustee to authenticate and deliver promptly to each
Holder of Notes, Exchange Notes equal in principal amount to the Notes of
such Holder so accepted for exchange.
(c) If (1) prior to the consummation of the Exchange Offer, any
change in law or in the applicable interpretations of the staff of the SEC do
not permit the Issuer to effect the Exchange Offer, or (2) for any other reason
the Exchange Offer is not consummated within 180 days of the Issue Date, then
the Issuer shall as promptly as practicable deliver to the Holders and the
Trustee written notice thereof (the "Shelf Notice"), and the Issuer shall file a
Registration Statement pursuant to Section 3 hereof. Following the delivery of a
Shelf Notice to the Holders of Transfer Restricted Securities, the Issuer shall
not have any further obligation to conduct the Exchange Offer pursuant to this
Section 2.
3. Shelf Registration
If the Issuer is required to deliver a Shelf Notice as contemplated
by Section 2(c) hereof, then:
(a) Shelf Registration. The Issuer shall prepare and file with the
SEC, within 45 days after such filing obligation arises, a Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415
covering all of the Transfer Restricted Securities (the "Shelf Registration
Statement"). The Shelf Registration Statement shall be on Form S-1 or another
appropriate form permitting registration of the Transfer Restricted Securities
for resale by the Holders in the manner or manners designated by the Holders of
a majority in aggregate principal amount of the outstanding Transfer Restricted
Securities (including, without limitation, an underwritten offering). The
Issuer shall not permit any securities other than the Transfer Restricted
Securities to be included in the Shelf Registration Statement. The Issuer shall
use its reasonable best efforts to cause the Shelf Registration Statement to be
7
<PAGE> 9
declared effective pursuant to the Securities Act on or prior to 135 days after
such obligation arises and to keep the Shelf Registration Statement continuously
effective under the Securities Act until the earlier of (i) the date which is 24
months following the Issue Date (or such longer period if extended pursuant to
the last paragraph of Section 5 hereof), (ii) the date that all Transfer
Restricted Securities covered by the Shelf Registration Statement have been sold
in the manner set forth and as contemplated in the Shelf Registration Statement
or (iii) the date that there ceases to be outstanding any Transfer Restricted
Securities (the "Effectiveness Period").
(b) Supplements and Amendments. The Issuer shall use its reasonable
best efforts to keep the Shelf Registration Statement continuously effective
during the Effectiveness Period by supplementing and amending the Shelf
Registration Statement if required by the rules, regulations or instructions
applicable to the registration form used for such Shelf Registration Statement,
or if reasonably requested in writing timely received setting forth the reasons
for such request by the Holders of a majority in aggregate principal amount of
the Transfer Restricted Securities covered by such Registration Statement or by
any underwriter of such Transfer Restricted Securities.
4. Liquidated Damages
(a) The Issuer and the Initial Purchasers agree that the Holders of
Transfer Restricted Securities will suffer damages if the Issuer fails to
fulfill its obligations pursuant to Section 2 or Section 3 hereof and that it
would not be possible to ascertain the extent of such damages. Accordingly, in
the event of such failure by the Issuer to fulfill such obligations, the Issuer
hereby agrees to pay liquidated damages ("Liquidated Damages") to each Holder of
Transfer Restricted Securities under the circumstances and to the extent set
forth below:
(i) if either the Exchange Offer Registration Statement or, if
applicable, the Shelf Registration Statement has not been filed with the
SEC on or prior to the applicable date specified for such filing; or
(ii) if either the Exchange Offer Registration Statement or, if
applicable, the Shelf Registration Statement is not declared effective by
the SEC on or prior to the applicable date specified for such
effectiveness (the "Effectiveness Target Date"); or
(iii) if an Exchange Offer Registration Statement becomes effective,
but the Issuer fails to consummate the Exchange Offer within 45 days of
the
8
<PAGE> 10
earlier of the effectiveness of such registration statement or 135 days
after the Issue Date; or
(iv) the Shelf Registration Statement is declared effective by the
SEC but thereafter such Shelf Registration Statement ceases to be
effective or usable in connection with resales of Notes during the
Effectiveness Period;
(any of the foregoing, a "Registration Default"), then the Issuer shall pay
Liquidated Damages to each Holder, with respect to the first 90-day period or
portion thereof immediately following the occurrence of such Registration
Default, in an amount equal to $0.05 per week per $1,000 principal amount of
Transfer Restricted Securities held by such Holder. Upon a Registration Default,
Liquidated Damages will accrue at the rate specified above until such
Registration Default is cured and the amount of Liquidated Damages will increase
by an additional $0.05 per week per $1,000 principal amount of Transfer
Restricted Securities with respect to each subsequent 90-day period or portion
thereof, up to a maximum amount of Liquidated Damages of $0.30 per week per
$1,000 principal amount of Transfer Restricted Securities (regardless of whether
one or more than one Registration Default is outstanding). Following the cure of
any Registration Default relating to any Transfer Restricted Securities, the
accrual of Liquidated Damages with respect to such Registration Default will
cease. A Registration Default under clause (i) above shall be cured on the date
that the Exchange Offer Registration Statement or the Shelf Registration
Statement, as applicable, is filed with the SEC; a Registration Default under
clause (ii) above shall be cured on the date that the Exchange Offer
Registration Statement or the Shelf Registration Statement, as applicable, is
declared effective by the SEC; a Registration Default under clause (iii) above
shall be cured on the earlier of the date (A) the Exchange Offer is consummated
or (B) the Issuer delivers a Shelf Notice to the Holders of Transfer Restricted
Securities; and a Registration Default under clause (iv) above shall be cured on
the earlier of (A) the date the Shelf Registration Statement is declared
effective and is usable or (B) the Effectiveness Period expires.
(b) The Issuer shall notify the Trustee within one business day
after each and every date on which a Registration Default first occurs. Accrued
and unpaid Liquidated Damages shall be paid by the Issuer to the Holders by wire
transfer of immediately available funds to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified on each interest payment date provided in the Indenture (whether or
not any interest is then payable on the Notes) and on each payment date provided
in the Indenture, including, without limitation, whether upon redemption,
maturity (by acceleration or otherwise),
9
<PAGE> 11
purchase upon a change of control or purchase upon a sale of assets. Each
obligation to pay Liquidated Damages with respect to any Registration Default
shall be deemed to commence accruing on the date of such Registration Default
and to cease accruing when such Registration Default has been cured. In no event
shall the Issuer pay Liquidated Damages in excess of the applicable maximum
weekly amount set forth above, regardless of whether one or multiple
Registration Defaults exist.
(c) The parties hereto agree that the Liquidated Damages provided
for in this Section 4 constitute a reasonable estimate of the damages that will
be suffered by Holders by reason of the failure to file the Exchange Offer
Registration Statement or the Shelf Registration Statement, the failure of the
Exchange Offer Registration Statement or the Shelf Registration Statement to be
declared effective, the failure to consummate the Exchange Offer or the failure
of the Shelf Registration Statement to remain effective, as the case may be, in
accordance with this Agreement.
5. Registration Procedures
In connection with the registration of any Exchange Notes or
Transfer Restricted Securities pursuant to Sections 2 or 3 hereof, the Issuer
shall effect such registration to permit the sale of such Exchange Notes or
Transfer Restricted Securities (as applicable) in accordance with the intended
method or methods of disposition thereof, and pursuant thereto the Issuer
shall:
(a) Prepare and file with the SEC, a Registration Statement or
Registration Statements as prescribed by Section 2 or Section 3 hereof, and to
use its reasonable best efforts to cause such Registration Statement to become
effective and remain effective as provided herein; provided that if (1) such
filing is pursuant to Section 3 hereof, or (2) a Prospectus contained in an
Exchange Offer Registration Statement filed pursuant to Section 2 hereof 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 Registration Statement or Prospectus or any amendments or
supplements thereto, the Issuer shall furnish to and afford the Holders of the
Transfer Restricted Securities and each such Participating Broker-Dealer, as the
case may be, covered by such Registration Statement, 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. Such documents
shall be so furnished at least 3 business days prior to such filing, or such
later date as is reasonable under the circumstances. The Issuer shall not file
any Registration
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<PAGE> 12
Statement or Prospectus or any amendments or supplements thereto in respect of
which the Holders, pursuant to this Agreement, must be afforded an opportunity
to review prior to the filing of such document, if the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities covered by such
Registration Statement, or such Participating Broker-Dealer, as the case may be,
their counsel, or the managing underwriters, if any, shall reasonably object
within a reasonable time after receipt of any such materials.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration Statement or Exchange Offer Registration
Statement, as the case may be, as may be necessary to keep such Registration
Statement continuously effective for the Effectiveness Period or the Applicable
Period, as the case may be, or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Registration Statement have been
sold; cause the related Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) under the Securities Act; and comply with the
applicable provisions of the Securities Act, the Exchange Act and the rules and
regulations of the SEC promulgated thereunder with respect to the disposition
of all securities covered by such Registration Statement, as so amended, or in
such Prospectus, as so supplemented, and with respect to the subsequent resale
of any Exchange Notes being sold by a Participating Broker-Dealer covered by any
such Prospectus; the Issuer shall be deemed not to have used its reasonable best
efforts to keep a Registration Statement effective during the Applicable Period
or the Effectiveness Period, as the case may be, if it voluntarily takes any
action that would result in selling Holders of the Transfer Restricted
Securities covered thereby or Participating Broker-Dealers seeking to sell
Exchange Notes not being able to sell such Transfer Restricted Securities or
such Exchange Notes during such Period, unless (i) such action is required by
applicable law, or (ii) such action is taken by the Issuer in good faith and for
valid business reasons (not including avoidance of its obligations hereunder),
including, but not limited to, suspension of the Registration Statement or other
actions taken solely in connection with or in anticipation of the acquisition or
divestiture of assets, material financings or other transactions effected in
good faith for valid business reasons.
(c) If (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof 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 the selling Holders
of Transfer Restricted Securities, or each
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<PAGE> 13
known Participating Broker-Dealer, as the case may be, their counsel (if
previously identified to the Issuer in writing) and the managing underwriters,
if any, as promptly as practicable and, if requested, confirm such notice in
writing, (i) when a Prospectus, any Prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective (including in any
such written notice a statement that any Holder may, upon request, obtain,
without charge, one conformed copy of such 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
Registration Statement or of any order preventing or suspending the use of any
Prospectus or the initiation of any proceedings for that purpose, (iii) if at
any time a Prospectus is required by the Securities Act to be delivered in
connection with sales of the Transfer Restricted Securities or resales of the
Exchange Notes the representations and warranties of the Issuer contained in
any agreement (including any underwriting agreement) contemplated by Section
5(l) hereof cease to be true and correct in all material respects, (iv) of the
receipt by the Issuer of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement or any
of the Transfer Restricted Securities or the Exchange Notes to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation of any proceeding for such purpose, (v) of the happening of any
material event or any material information becoming known that makes any
statement made in such Registration Statement or related 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 such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, 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 not misleading, and that in the case of
the 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 the Issuer's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) If (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, use its reasonable best
efforts to prevent the issuance of any order
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<PAGE> 14
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus and, if any such order is
issued, to use its reasonable best efforts to obtain the withdrawal of any such
order at the earliest possible moment.
(e) If a Shelf Registration Statement is filed pursuant to Section 3
hereof and if requested by the managing underwriters, if any, or the Holders of
a majority in aggregate principal amount of the Transfer Restricted Securities
being sold in connection with an underwritten offering, (i) as promptly as
practicable incorporate in a prospectus supplement or post-effective amendment
such information relating to underwriters, if any, any Holder of Transfer
Restricted Securities or the plan of distribution of the Transfer Restricted
Securities as the managing underwriter, if any, or such Holders may reasonably
request to be included therein, (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 supplement or post-effective amendment pursuant to clause (i),
and (iii) supplement or make amendments to such Registration Statement with such
information as is required in connection with any reasonable request made
pursuant to clause (i).
(f) If (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, furnish to each selling
Holder of Transfer Restricted Securities and to each such Participating
Broker-Dealer who so requests and to each managing underwriter, if any, without
charge, one conformed copy of the Registration Statement or Registration
Statements and each post-effective amendment thereto, including financial
statements and schedules, and, if requested, all documents incorporated or
deemed to be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, deliver to each selling
Holder, or each such Participating Broker-Dealer, as the case may be, its
counsel (if previously identified to the Issuer in writing), and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each form of preliminary Prospectus), and each amend-
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<PAGE> 15
ment or supplement thereto and any documents incorporated by reference therein,
as such Persons may reasonably request; and, subject to the last paragraph of
this Section 5 hereof, the Issuer hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Holders or,
during the Applicable Period, each such Participating Broker-Dealer, as the case
may be, and their underwriters or agents, if any, and dealers, if any, in
connection with the offering and sale of the Transfer Restricted Securities
covered by, or the sale by Participating Broker-Dealers of the Exchange Notes
pursuant to, such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Transfer Restricted Securities
or any delivery of a Prospectus contained in the Exchange Offer Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes
during the Applicable Period, use its reasonable best efforts to register or
qualify, and to cooperate with the selling Holders of Transfer Restricted
Securities 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 Transfer Restricted Securities for offer and sale under
the securities or Blue Sky laws of such jurisdictions as any selling Holder,
Participating Broker-Dealer, or the managing underwriters reasonably request in
writing; keep each such registration or qualification (or exemption therefrom),
effective during the period such Registration Statement is required to be kept
effective and do any and all other acts or things reasonably necessary or
advisable to enable the disposition in such jurisdictions of the Exchange Notes
held by Participating Broker-Dealers or the Transfer Restricted Securities
covered by the applicable Registration Statement; provided that the Issuer shall
not be required to (A) qualify as a foreign corporation or as a dealer in
securities 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 any such jurisdiction where it is not then so subject.
(i) If a Shelf Registration Statement is filed pursuant to Section 3
hereof, cooperate with the selling Holders of Transfer Restricted Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities 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 ("DTC"), and enable such
Transfer Restricted Securities to be in such denominations and registered in
such names as the managing
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<PAGE> 16
underwriters, if any, or Holders may reasonably request at least two business
days prior to any sale of the Transfer Restricted Securities.
(j) If (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof 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 5(c)(v) or 5(c)(vi) above, as promptly as
practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at
the expense of the Issuer, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related 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 Transfer Restricted Securities being sold thereunder or to the purchasers
of the Exchange Notes to whom such Prospectus will be delivered by a
Participating Broker-Dealer, any such 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.
(k) Prior to the effective date of the first Registration Statement
relating to the Transfer Restricted Securities, (i) provide the Trustee with
certificates for the Transfer Restricted Securities in a form eligible for
deposit with DTC and (ii) provide a CUSIP number for the Transfer Restricted
Securities.
(l) In connection with an underwritten offering of Transfer
Restricted Securities pursuant to a Shelf Registration Statement, enter into an
underwriting agreement as is customary in underwritten offerings and take all
other customary and appropriate actions as are reasonably requested by the
managing underwriters in order to expedite or facilitate the registration or the
disposition of such Transfer Restricted Securities, and in such connection, (i)
make such representations and warranties to the underwriters, with respect to
the business of the Issuer and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, as are customarily made by issuers to underwriters in
underwritten offerings; (ii) obtain opinions of counsel to the Issuer and
updates thereof in form and sub-
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<PAGE> 17
stance reasonably satisfactory to the managing underwriters, addressed to the
underwriters covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
underwriters; (iii) obtain "cold comfort" letters and updates thereof in form
and substance reasonably satisfactory to the managing underwriters from the
independent certified public accountants of the Issuer (and, if necessary, any
other independent certified public accountants of any subsidiary of the Issuer
or of any business acquired or proposed to be acquired by it for which financial
statements and financial data are, or are required to be, included in the
Registration Statement), addressed to each of the underwriters, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings and such other
matters as are reasonably requested by underwriters as permitted by Statement on
Auditing Standards No. 72; and (iv) if an underwriting agreement is entered
into, the same shall contain indemnification provisions and procedures no less
favorable than those set forth in Section 7 hereof (or such other reasonable
provisions and procedures acceptable to Holders of a majority in aggregate
principal amount of Transfer Restricted Securities covered by such Registration
Statement and the managing underwriters) with respect to all parties to be
indemnified pursuant to said Section. The above shall be done at each closing
under such underwriting agreement, or as and to the extent required thereunder.
(m) If (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof 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 Transfer Restricted Securities being
sold, or each such Participating Broker-Dealer, as the case may be, any
underwriter participating in any such disposition of Transfer Restricted
Securities, 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, pertinent corporate documents and properties 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 relevant information reasonably requested by any such Inspector in
connection with such Registration Statement. Records which the Issuer
determines, in good faith, to be confidential and any Records which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors, unless
(i) the release of such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction or (ii) the information in such Records
has been made generally available to the public, other than as a result of the
disclosure or failure to safeguard by such Inspector. No information obtained
pursuant to this paragraph (m)
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<PAGE> 18
shall be used by any person or entity obtaining access thereto in connection
with any transactions in securities of the Issuer in violation of law. In
addition, notwithstanding anything to the contrary contained herein, the Issuer
shall not be required to provide any information to the Holders or the
underwriters that the Issuer is prohibited by law from disclosing.
(n) Provide an indenture trustee for the Transfer Restricted
Securities or the Exchange Notes, as the case may be, and cause the Indenture to
be qualified under the TIA not later than the effective date of the Exchange
Offer or the first Registration Statement relating to the Transfer Restricted
Securities; and in connection therewith, cooperate with the trustee under any
such indenture and the Holders of the Transfer Restricted Securities, 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
reasonable best efforts to cause such trustee to execute, all customary
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.
(o) Comply with all applicable rules and regulations of the SEC and,
as soon as reasonably practicable after the effective date of the applicable
Registration Statement, make generally available to the holders of Exchange
Notes and the Holders, if any, a consolidated earning statement of the Issuer
(which need not be certified by an independent public accountant) that satisfies
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
(p) If an Exchange Offer is to be consummated, upon delivery of the
Transfer Restricted Securities by Holders to the Issuer (or to such other Person
as directed by the Issuer), in exchange for the Exchange Notes, the Issuer
shall, where appropriate, mark or cause to be marked on such Transfer Restricted
Securities that such Transfer Restricted Securities are being cancelled in
exchange for the Exchange Notes; in no event shall such Transfer Restricted
Securities be marked as paid or otherwise satisfied.
(q) Cooperate with each seller of Transfer Restricted Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Transfer Restricted Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD").
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<PAGE> 19
(r) Use its reasonable best efforts to take all other steps
necessary to effect the registration of the Transfer Restricted Securities
covered by a Registration Statement contemplated hereby.
(s) Use its reasonable best efforts to cause the Transfer Restricted
Securities or the Exchange Notes, as applicable, covered by an effective
registration statement required by Section 2 or Section 3 hereof to be rated by
one or two rating agencies, if and as so requested by the Holders of a majority
in aggregate principal amount of Transfer Restricted Securities relating to such
registration statement or the managing underwriters in connection therewith, if
any.
The Issuer may require each seller of Transfer Restricted Securities
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 Transfer Restricted Securities or
Exchange Notes to be sold by such Participating Broker-Dealer, as the case may
be, as the Issuer may, from time to time, reasonably request. The Issuer may
exclude from such registration the Transfer Restricted Securities or Exchange
Notes of any seller or Participating Broker-Dealer, as the case may be, who
fails to furnish such information within a reasonable time (and in any event
within ten business days) after receiving such request. Each seller of Transfer
Restricted Securities as to which a Shelf Registration is being effected, and
each Participating Broker-Dealer utilizing a Prospectus from the Exchange Offer
Registration Statement, agrees to furnish reasonably promptly to the Issuer all
information required to be disclosed in order to make any information previously
furnished to the Issuer by such seller or Participating Broker-Dealer not
materially misleading. No such seller or Participating Broker-Dealer, as
applicable, shall be entitled to Liquidated Damages pursuant to Section 4 hereof
if such person fails so to provide all such reasonably requested information to
the extent that any such failure by such person is the primary reason for the
assessment of Liquidated Damages.
Each Holder of Transfer Restricted Securities and each Participating
Broker-Dealer agrees by acquisition of such Transfer Restricted Securities 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 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi)
hereof, such Holder shall forthwith discontinue disposition of such Transfer
Restricted Securities covered by such Registration Statement or Prospectus or
such Exchange Notes to be sold by such Participating Broker-Dealer, as the case
may be, until such Holder's or Participating
18
<PAGE> 20
Broker-Dealer's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(j) hereof, or until it is advised in writing by the
Issuer that the use of the applicable Prospectus may be resumed, and has
received copies of any amendments or supplements thereto. In the event the
Issuer gives any such notice, and subsequently delivers to each Holder or
Participating Broker-Dealer copies of such supplemented or amended Prospectus,
then each Holder or Participating Broker-Dealer will either destroy or return to
the Issuer all copies (other than permanent file copies then in such Holder's or
Participating Broker-Dealer's possession) of any Prospectus that, as a result of
such occurrence leading to such notice, is no longer accurate.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuer shall be borne by the Issuer,
whether or not the Exchange Offer or a Shelf Registration Statement 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 an underwritten offering
and (B) fees and expenses of compliance with state securities or Blue Sky laws
(including, without limitation, reasonable fees and disbursements of counsel in
connection with Blue Sky qualifications of the Transfer Restricted Securities or
Exchange Notes), (ii) printing expenses (including, without limitation, expenses
of printing certificates for Transfer Restricted Securities or Exchange Notes in
a form eligible for deposit with DTC and of printing Prospectuses if the
printing of Prospectuses is requested by the managing underwriters, if any, or,
in respect of Transfer Restricted Securities or Exchange Securities to be sold
by any Participating Broker-Dealer during the Applicable Period, by the Holders
of a majority in aggregate principal amount of the Transfer Restricted
Securities included in any Registration Statement or of such Exchange
Securities, as the case may be), (iii) fees and disbursements of counsel for the
Issuer, (iv) fees and disbursements of all independent certified public
accountants referred to in Section 5(l)(iii) hereof (including, without
limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (v) the fees and expenses of any
"qualified independent underwriter" or other independent appraiser participating
in an offering pursuant to Section 3 of Schedule E to the By-laws of the NASD,
(vi) rating agency fees, (vii) fees and expenses of all other Persons retained
by the Issuer, (viii) internal expenses of the Issuer (including, without
limitation, all salaries and expenses of officers and employees of the Issuer
performing legal or accounting duties), (ix) the expense of any required
financial audits and (x) the fees and expenses incurred in
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<PAGE> 21
connection with the listing of the securities to be registered on any securi
ties exchange. Nothing contained in this Section 6 shall create an obligation on
the part of the Issuer to pay or reimburse any Holder for any underwriting
commission or discount attributable to any such Holder's Transfer Restricted
Securities included in an underwritten offering pursuant to a Registration
Statement filed in accordance with the terms of this Agreement, or to guarantee
such Holder any profit or proceeds from the sale of such Notes.
(b) In connection with any Shelf Registration Statement hereunder,
the Issuer shall reimburse the Holders of the Transfer Restricted Securities
being registered in such registration for the reasonable fees and disbursements
of not more than one firm of attorneys chosen by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities to be included
in such Registration Statement.
7. Indemnification
The Issuer agrees to indemnify and hold harmless (i) each of the
Purchasers, each Holder of Transfer Restricted Securities, each Holder of
Exchange Securities and each Participating Broker-Dealer, (ii) each person, if
any, who controls (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) any such Person (any of the persons referred to
in this clause (ii) being hereinafter referred to as a "controlling person"),
and (iii) the respective officers, directors, partners, employees,
representatives and agents of any of such Person or any controlling person (any
person referred to in clause (i), (ii) or (iii) may hereinafter be referred to
as an "Indemnified Person") to the fullest extent lawful, from and against any
and all losses, claims, damages, liabilities, judgments, actions and reasonable
expenses (including, without limitation, and as incurred, reimbursement of all
reasonable costs of investigating, preparing, pursuing or defending any claim or
action, or any investigation or proceeding by any governmental agency or body,
commenced or threatened, including the reasonable fees and expenses of counsel
to any Indemnified Person) caused by, related to, based upon, arising out of or
in connection with any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or Prospectus (as amended
or supplemented if the Issuer shall have furnished any amendments or supplements
thereto) or any preliminary Prospectus, or caused by, arising out of or based
upon 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, claims, damages, liabilities or expenses are caused by
20
<PAGE> 22
(i) any untrue statement or omission or alleged untrue state ment or omission
made in reliance upon and in conformity with information relating to any
Indemnified Person furnished to the Issuer or any underwriter in writing by such
Indemnified Person expressly for use therein, or (ii) any untrue statement
contained in or omission from a preliminary Prospectus or Prospectus, as
applicable, if a copy of the Prospectus (as then amended or supplemented, if the
Issuer shall have furnished to or on behalf of the Holder participating in the
distribution relating to the relevant Registration Statement any amendments or
supplements thereto) was not sent or given by or on behalf of such Holder to the
person asserting any such losses, liabilities, claims, damages or expenses who
purchased Securities, if such is required by law at or prior to the written
confirmation of the sale of such Securities to such person and the untrue
statement contained in or omission from such preliminary Prospectus or
Prospectus, as applicable, was corrected in the Prospectus (as then amended or
supplemented). The Issuer shall notify the Holders promptly upon becoming aware
thereof of the institution, threat or assertion of any claim, proceeding
(including any governmental investigation) or litigation of which it shall have
become aware in connection with the matters addressed by this Agreement which
involves the Issuer or an Indemnified Person.
In connection with any Registration Statement in which a Holder of
Transfer Restricted Securities is participating, such Holder of Transfer
Restricted Securities agrees, severally and not jointly, to indemnify and hold
harmless the Issuer and its directors, officers, partners, employees,
representatives and agents and each person who controls the Issuer within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Issuer to each Indemnified
Person, but only with reference to information relating to such Indemnified
Person and furnished to the Issuer in writing by such Indemnified Person
expressly for use in any Registration Statement or Prospectus, any amendment or
supplement thereto, or any preliminary Prospectus. The liability of any
Indemnified Person pursuant to this paragraph shall in no event exceed the
proceeds (net of reasonable commissions) received by such Indemnified Person
from sales of Transfer Restricted Securities or Exchange Notes giving rise to
such obligations.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
person") in writing, (provided that the failure to give such notice shall not
relieve the indemnify-
21
<PAGE> 23
ing person of its obligations under this Section 7 unless and only to the extent
that the indemnifying person is materially prejudiced by the failure to notify)
and the indemnifying person, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying person may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party, unless (i) the indemnifying person and the indemnified
party shall have mutually agreed in writing to the contrary, (ii) the
indemnifying person shall have failed promptly to assume the defense and employ
counsel reasonably satisfactory to the indemnified party or (iii) the named
parties to any such action (including any impleaded parties) include both such
indemnified party and the indemnifying person, or any affiliate of the
indemnifying person and such indemnified party shall have been reasonably
advised by counsel that representation of such indemnified party and any such
indemnifying party by the same counsel would be inappropriate under applicable
standards of professional conduct (whether or not such representation by the
same counsel has been proposed) due to actual or potential differing interests
between them (in which case the indemnifying person shall not have the right to
assume the defense of such action on behalf of such indemnified party), it being
understood, however, that the indemnifying person shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) for all such
indemnified parties, which firm shall be reasonably satisfactory to the
indemnifying parties. Such separate firm for sellers of Transfer Restricted
Securities shall be designated in writing by those indemnified parties who sold
a majority in outstanding aggregate principal amount of Transfer Restricted
Securities sold by all such indemnified parties, and any such separate firm for
the Issuer, its directors, its officers and such control persons of the Issuer
shall be designated in writing by the Issuer. The indemnifying person shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying person agrees to indemnify any indemnified party
from and against any loss or liability by reason of such settlement or judgment
to the extent of such indemnifying party's indemnification obligation hereunder.
No indemnifying person shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party,
22
<PAGE> 24
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
If the indemnification provided for in the first and second
paragraphs of this Section 7 is unavailable to an indemnified party in respect
of any losses, claims, damages, liabilities, or expenses referred to therein
(other than by reason of the exceptions provided therein), then each
indemnifying person under such paragraphs, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages, liabilities,
or expenses (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnified party on the one hand and the indemnifying
person(s) on the other in connection with the statements or omissions that
resulted in such losses, claims, damages, liabilities, or expenses or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the indemnifying
person(s) and the indemnified party, as well as any other relevant equitable
considerations. The relative fault of the Issuer on the one hand and any
Indemnified Persons on the other 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 Issuer or by such Indemnified Persons and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if such indemnified parties were treated as one entity for such purpose)
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities and expenses referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall an
Indemnified Person be required to contribute any amount in excess of the amount
by which proceeds received by such Indemnified Person from sales of Transfer
Restricted Securities or Exchange Notes exceeds the amount of any damages that
such Indemnified Person has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of
23
<PAGE> 25
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
7 will be in addition to any liability which the indemnifying parties may
otherwise have to the indemnified parties referred to above. The Indemnified
Persons' obligations to contribute pursuant to this Section 7 are several in
proportion to the respective principal amount of Securities sold by each of the
Indemnified Persons hereunder and not joint.
8. Rules 144 and 144A
The Issuer covenants that it will file the reports required to be
filed by it pursuant to the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder in a timely manner and, if at any
time the Issuer is not required to file such reports, it will, upon the
reasonable request of any Holder of Transfer Restricted Securities, make
available information required by Rule 144 and Rule 144A under the Securities
Act in order to permit sales pursuant to Rule 144 and Rule 144A. The Issuer
further covenants that it will take such further action as any Holder of
Transfer Restricted Securities may reasonably request, all to the extent
required from time to time to enable such Holder to sell Transfer Restricted
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 and Rule 144A, or (b) any similar
rule or regulation hereafter adopted by the SEC (it being expressly understood
that the foregoing shall not create any obligation on the part of the Issuer to
file periodic or other reports under the Exchange Act at any time that it is not
otherwise required to file such reports pursuant to the Exchange Act).
9. Underwritten Registrations
(a) If any of the Transfer Restricted Securities covered by any
Shelf Registration Statement are 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 Transfer Restricted Securities included in such
offering and shall be reasonably acceptable to the Issuer.
24
<PAGE> 26
No Holder of Transfer Restricted Securities may participate in any
underwritten registration hereunder, unless such Holder (a) agrees to sell such
Holder's Transfer Restricted Securities 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.
(b) Each Holder of Transfer Restricted Securities agrees, if
requested (pursuant to a timely written notice) by the managing underwriters in
an underwritten offering or by a placement agent in a private offering of the
Issuer's debt securities, not to effect any private sale or distribution
(including a sale pursuant to Rule 144(k) or Rule 144A under the Securities Act,
but excluding non-public sales to any of its affiliates, officers, directors,
employees and controlling persons), of any of the Notes, except pursuant to an
Exchange Offer, during the period beginning 10 days prior to, and ending 90 days
after, the closing date of the underwritten or private offering, as applicable.
The foregoing provisions shall not apply to any Holder of Transfer
Restricted Securities if such Holder is prevented by applicable statute or
regulation from entering into any such agreement; provided, however, that if it
receives a written request as provided in the preceding paragraph, no such
Holder shall effect any disposition of Notes that would otherwise be restricted
by the provisions of the preceding pararaph without providing reasonable advance
written notice of such disposition to the Issuer, the managing underwriter or
the placement agent, as the case may be.
The Issuer agrees, without the written consent of the managing
underwriters in an underwritten offering of Transfer Restricted Securities
covered by a Registration Statement filed pursuant to Section 3 hereof, not to
effect any public or private sale or distribution of its respective debt
securities, including a sale pursuant to Regulation D or Rule 144A under the
Securities Act, during the period beginning 10 days prior to, and ending 90 days
after, the closing date of each underwritten offering made pursuant to such
Registration Statement (provided, however, that such period shall be extended by
the number of days from and including the date of the giving of any notice
pursuant to Section 5(c)(v) or (c)(vi) hereof to and including the date when
each seller of Transfer Restricted Securities covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 5(j) hereof).
25
<PAGE> 27
10. Miscellaneous
(a) No Inconsistent Agreements. The Issuer has not, as of the date
hereof, and the Issuer shall not, after the date of this Agreement, enter into
any agreement with respect to any of its securities that is inconsistent with
the rights granted to the Holders of Transfer Restricted Securities in this
Agreement or otherwise conflicts with the provisions hereof. The Issuer will not
enter into any agreement with respect to any of its securities which will grant
to any Person piggy-back registration rights with respect to a Registration
Statement.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to or departures from the provisions
hereof may not be given, unless the Issuer has obtained the written consent of
Holders of at least a majority of the then outstanding aggregate principal
amount of Transfer Restricted Securities. Notwithstanding the foregoing, a
waiver or consent to or departure from the provisions hereof with respect to a
matter that relates exclusively to the rights of Holders whose securities are
being sold pursuant to a Registration Statement and that does not directly or
indirectly affect, impair, limit or compromise the rights of other Holders may
be given by Holders of at least a majority in aggregate principal amount of the
Transfer Restricted Securities being sold by such Holders pursuant to such
Registration Statement; provided that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(c) Notices. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee),
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, next-day air courier or telecopier:
(i) if to a Holder of Transfer Restricted Securities, at the most
current address given by the Trustee to the Issuer;
26
<PAGE> 28
(ii) if to the Issuer, Big 5 Corp., 2525 East El Segundo Boulevard,
El Segundo, California 90245, Attention: President, with a copy to Leonard
Green & Partners, 11111 Santa Monica Boulevard, Suite 2000, Los Angeles,
California 90025, Attention: Jennifer Holden Dunbar, and with a copy to
Irell & Manella LLP, 1800 Avenue of the Stars, Suite 900, Los Angeles,
California 90067, Attention: Edmund M. Kaufman, Esq.; and
(iii) if to any Initial Purchasers, c/o Donaldson, Lufkin & Jenrette
Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, with a copy to Skadden, Arps, Slate,
Meagher & Flom LLP at 300 South Grand Avenue, Suite 3400, Los Angeles,
California 90071, Attention: Nick P. Saggese, Esq.
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 mail, postage prepaid, if mailed; one business day
after being timely delivered to a nationally recognized next-day air courier, if
made by next-day air courier; and when receipt is acknowledged by the addressee,
if telecopied on a business day on such business day, if not on a business day,
on the first business day thereafter.
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 Transfer Restricted Securities. The Issuer
agrees that the Holders of the Notes shall be third-party creditor beneficiaries
to the agreements made hereunder by the Initial Purchasers and the Issuer, and
each Holder shall have the right to enforce such agreements directly to the
extent it deems such enforcement necessary or advisable to protect its rights
hereunder.
(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.
27
<PAGE> 29
(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 GOV ERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(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 reasonable 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 hereto 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) Entire Agreement. This Agreement, together with the Purchase
Agreement, is intended by the parties hereto as a final expression of their
agreement, and is intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. Any and all prior oral or written
agreements, representations, warranties, contracts, understandings,
correspondence, conversations and memoranda between the Initial Purchasers, 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 are merged
herein and replaced hereby.
(k) Notes Held by the Issuer or its Affiliates. Whenever the consent
or approval of Holders of a specified percentage of Transfer Restricted
Securities is required hereunder, Transfer Restricted Securities held by the
Issuer or its affiliates (as such term is defined in Rule 405 under the
Securities Act) (other than the Initial Purchasers or subsequent Holders of
Transfer Restricted Securities or Exchange Notes if such subsequent Holders are
deemed to be affiliates solely by reason of their holdings of such Transfer
Restricted Securities or Exchange Notes), shall not be
28
<PAGE> 30
counted in determining whether such consent or approval was given by the Holders
of such required percentage.
(l) Survival. This Agreement is intended to survive the consummation
of the transactions contemplated by the Purchase Agreement. The indemnification
and contribution obligations under section 7 of this Agreement shall survive the
termination of the Issuer's obligations under sections 2 and 3 of this
Agreement.
29
<PAGE> 31
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
BIG 5 CORP.
By: /s/ CHARLES P. KIRK
------------------------------------
Name: Charles P. Kirk
Title: Senior Vice President
The foregoing Registration Rights
Agreement is hereby confirmed and
accepted as of the date first
above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON CORPORATION
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ DONALD S. KINSEY
-------------------------------
Name: Donald S. Kinsey
Title: Vice President
<PAGE> 1
MANAGEMENT SERVICES AGREEMENT
This MANAGEMENT SERVICES AGREEMENT (this "Agreement"), dated as of
November 13, 1997 (the "Execution Date"), is made by and between BIG 5 CORP., a
Delaware corporation ("Big 5"), and BIG 5 HOLDINGS CORP., a Delaware corporation
("Big 5 Holdings"), on the one hand (Big 5 and Big 5 Holdings are hereinafter
referred to as "Company"), and LEONARD GREEN & ASSOCIATES, L.P., a California
limited partnership ("LGA"), on the other hand.
WHEREAS, prior to the Execution Date, pursuant to an oral agreement,
LGA has provided certain management, consulting and financial planning services
to the Company, as well as certain financial advisory and investment banking
services in connection with major financial transactions that have been
undertaken by the Company;
WHEREAS, the Company and LGA desire to amend their prior oral
agreement in certain respects (i.e., reducing the annual fee for management
services), and to memorialize their agreement, as amended, in writing;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto hereby agree as follows:
1. Retention.
1.1 General Services. Subject to the terms and conditions
hereof, the Company hereby retains LGA, and LGA hereby agrees to be retained by
the Company, to provide management, consulting and financial planning services
to the Company on an ongoing basis in connection with the operation and growth
of the Company and any subsidiaries during the term of this Agreement (the
"General Services").
1.2 Major Transaction Services. Subject to the terms and
conditions hereof, the Company hereby retains LGA, and LGA hereby agrees to be
retained by the Company, to provide financial advisory and investment banking
services to the Company in connection with major financial transactions that may
be undertaken from time to time in the future ("Major Transaction Services" and,
together with the General Services, the "Services").
<PAGE> 2
2. Compensation.
2.1 General Services Fee. In consideration of the General
Services, the Company shall pay LGA an annual fee of Three Hundred Thirty Three
Thousand Three Hundred Thirty Three Dollars and Thirty Three Cents
($333,333.33). Such fee shall be payable in equal monthly installments, in
advance, on the first day of each month commencing on the first such day
following the date hereof.
2.2 Major Transaction Services Fee. In consideration of Major
Transaction Services provided by LGA from time to time, the Company shall pay
LGA reasonable and customary fees for services of like kind, taking into
consideration all relevant factors, including but not limited to the complexity
of the subject transaction, the time devoted to providing such services and the
value of LGA's investment banking expertise and relationships within the
business and financial community.
2.3 Expenses. In addition to the fees to be paid to LGA under
Sections 2.1 and 2.2 hereof, the Company shall pay to, or on behalf of, LGA,
promptly as billed, all reasonable out-of-pocket expenses incurred by LGA in
connection with the Services rendered hereunder. Such expenses shall include,
among other things, fees and disbursements of counsel, travel expenses, word
processing charges, messenger and duplicating services, facsimile expenses and
other customary expenditures.
3. Term.
3.1 Term. This Agreement shall terminate, and be of no further
force and effect, on May 31, 2005.
3.2 Survival of Certain Obligations. Notwithstanding any other
provision hereof, (1) the Company's obligation to pay amounts due pursuant to
Section 2 hereof with respect to periods prior to the conclusion of the term and
(2) the provisions of Section 5 hereof, shall survive any termination of this
Agreement.
4. Decisions/Authority of Management Advisor.
4.1 Limitation on LGA Liability and Scope of Duties. The
Company reserves the right to make all decisions with regard to any matter upon
which LGA has rendered advice and consultation, and there shall be no liability
to LGA for any such advice accepted by the Company pursuant to the provisions of
this Agreement. The Company further acknowledges that LGA renders advice and
services to others (including actual or potential competitors of the Company)
and agrees that LGA owes no fiduciary or similar duties to the Company in
connection with any Services hereunder.
4.2 Independent Contractor. LGA shall act solely as an
independent contractor and shall have complete charge of its personnel engaged
in the
-2-
<PAGE> 3
performance of the Services. As an independent contractor, LGA shall have
authority only to act as advisor to the Company and shall have no authority to
enter into any agreement or to make any representation, commitment or warranty
binding upon the Company or to obtain or incur any right, obligation or
liability on behalf of the Company.
5. Indemnification.
5.1 Indemnification/Reimbursement of Expenses. The Company
shall (i) indemnify LGA and GREEN EQUITY INVESTORS, L.P., a Delaware limited
partnership ("GEI"), their respective Affiliates (as hereinafter defined), and
the partners (general or limited), shareholders, directors, officers, employees,
agents and controlling persons of LGA, GEI and their respective Affiliates
(collectively, the "Indemnified Parties"), to the fullest extent permitted by
law, from and against any and all losses, claims, damages and liabilities, joint
or several, to which any Indemnified Party may become subject, caused by,
related to or arising out of the Services or any other advice or services
contemplated by this Agreement or the engagement of LGA pursuant to, and the
performance by LGA of the Services contemplated by, this Agreement, and (ii)
promptly reimburse each Indemnified Party for all costs and expenses (including
reasonable attorneys' fees and expenses), as incurred, in connection with the
investigation of, preparation for or defense of any pending or threatened claim
or any action or proceeding arising therefrom, whether or not such Indemnified
Party is a party and whether or not such claim, action or proceeding is
initiated or brought by or on behalf of the Company and whether or not resulting
in any liability. For purposes of this Agreement, "Affiliates" shall mean any
person or entity directly or indirectly controlling or controlled by or under
common control with a specified person or entity or which is an employee, agent,
director, officer, partner (limited or general) or shareholder of such specified
entity. For purposes of this definition, "control," when used with respect to
any specified person or entity, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such person or entity, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
5.2 Limited Liability. The Company shall not be liable under
the indemnification contained in Section 5.1 to the extent that such loss,
claim, damage, liability, cost or expense is found in a final non-appealable
judgment by a court of competent jurisdiction to have resulted from LGA's bad
faith or gross negligence. The Company further agrees that no Indemnified Party
shall have any liability (whether direct or indirect, in contract, tort or
otherwise) to the Company, holders of its securities or its creditors related to
or arising out of the engagement of LGA pursuant to, or the performance by LGA
of the Services contemplated by, this Agreement, except to the extent that any
loss, claim, damage, liability, cost or expense is found in a final
non-appealable judgment by a court of competent jurisdiction to have resulted
from LGA's bad faith or gross negligence.
-3-
<PAGE> 4
6. Miscellaneous.
6.1 Assignment. Neither of the parties hereto shall assign
this Agreement or the rights and obligations hereunder, in whole or in part,
without the prior written consent of the other party; provided, however, that,
without obtaining such consent, LGA may assign this Agreement or its rights and
obligations hereunder to any of its Affiliates (other than any such Affiliate
which competes with the Company). Subject to the foregoing, this Agreement will
be binding upon and inure solely for the benefit of the parties hereto and their
respective successors and assigns, and no other person shall acquire or have any
right hereunder or by virtue hereof.
6.2 Joint and Several Liability. Big 5 and Big 5 Holdings
shall be jointly and severally liable for all obligations of the Company to LGA
and to all Indemnified Parties arising under or in connection with this
Agreement.
6.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California as applied to
contracts made and performed within the State of California without regard to
principles of conflict of laws.
6.4 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 lawful and
enforceable means to achieve the same or substantially the same result as that
contemplated by such invalid, illegal, void or unenforceable 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 which may
be hereafter declared invalid, illegal, void or unenforceable.
6.5 Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the subject matter of this
Agreement and memorializes and supersedes all written or verbal representations,
warranties, commitments and other understandings prior to the date of this
Agreement; PROVIDED, HOWEVER, that notwithstanding the foregoing, LGA shall be
entitled to receive payment of all General Services Fees and Major Transaction
Services Fees arising under the prior oral agreement prior to December 1, 1997,
and the provisions of sections 4 and 5 of this Agreement shall also apply to all
Services rendered by LGA to the Company prior to the Execution Date.
6.6 Further Assurances. Each party hereto agrees to use all
reasonable efforts to obtain all consents and approvals and to do all other
things necessary
-4-
<PAGE> 5
to consummate the transactions contemplated by this Agreement. The parties agree
to take such further action and to deliver or cause to be delivered any
additional agreements or instruments as any of them may reasonably request for
the purpose of carrying out this Agreement and the agreements and transactions
contemplated hereby.
6.7 Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party, as determined by the court,
shall be entitled to recover reasonable attorneys' fees and costs in addition to
any other available remedy.
6.8 Headings. The headings in this Agreement are for
convenience and reference only and shall not limit or otherwise affect the
meaning hereof.
6.9 Amendment and Waiver. This Agreement may be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may be given, provided that the same are in writing and signed
by both of the parties hereto.
6.10 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.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Management
Services Agreement as of the date first appearing above.
BIG 5 CORP., a Delaware corporation
By: /s/ CHARLES P. KIRK
----------------------------------
Name: Charles P. Kirk
----------------------------------
Title: Senior Vice President
----------------------------------
BIG 5 HOLDINGS CORP., a Delaware
corporation
By: /s/ CHARLES P. KIRK
----------------------------------
Name: Charles P. Kirk
----------------------------------
Title: Senior Vice President
----------------------------------
LEONARD GREEN & ASSOCIATES, L.P., a
California limited partnership
By: /s/ JENNIFER HOLDEN DUNBAR
----------------------------------
Name: Jennifer Holden Dunbar
----------------------------------
Title: General Partner
----------------------------------
-6-
<PAGE> 1
EXHIBIT 10.8
November 13, 1997
Big 5 Corp.
2525 East El Segundo Boulevard
El Segundo, CA 90245
Dear Sirs:
We refer to the Financing Agreement, dated March 8, 1996 (as previously amended,
the "Agreement") between United Merchandising Corp., a California corporation,
as borrower ("UMC") and The CIT Group/Business Credit, Inc., as agent and lender
(individually the "Agent", and together with the other lenders, the "Lenders").
Capitalized terms not otherwise defined herein shall be as defined in the
Agreement. UMC has informed the Lenders of its intent to merge with and into Big
5 Corp., a Delaware corporation (hereafter the "Company"), with the result,
among other things, that the Company will be the new borrower under the
Agreement. Additionally, the Company's parent, Big 5 Corporation, a Delaware
corporation, as guarantor will merge with and into Big 5 Holdings Corp., a
Delaware corporation, with the result that Big 5 Holdings Corp. will be the new
Guarantor. The Company and the Lenders hereby agree that the Agreement is
amended, as follows:
1. All references to "United Merchandising Corp., a California
corporation" in the Agreement are hereby deleted in every instance where they
appear, and "Big 5 Corp., a Delaware corporation" is inserted in lieu thereof.
2. The definitions of "Anniversary Date", "Early Termination Date", "Early
Termination Fee", "EBITDA" and "Net Worth" set forth in Section 1 of the
Agreement are hereby deleted in their entirety, and the following are inserted
in lieu thereof:
"ANNIVERSARY DATE shall mean the date occurring one (1) year from the date
of November 13, 1997 and the same date in every year thereafter, provided,
however, that if the Company gives notice, in accordance with Section 10 of this
Financing Agreement, to terminate on an Anniversary Date and such date is not a
Business Day, then the Anniversary Date shall be the next succeeding Business
Day."
"EARLY TERMINATION DATE shall mean the date on which the Company
terminates this Financing Agreement or the Line of Credit which date is prior to
the fifth Anniversary Date."
"EARLY TERMINATION FEE shall: i) mean the fee the Agent for the account of
the Lenders is entitled to charge the Company in the event the Company
terminates the Line of Credit or this Financing Agreement on a date prior to the
fifth Anniversary Date; and ii) be determined by calculating the sum of (a) the
average daily balance of the Revolving Loans for the period from the date of
this Amendment Letter to the Early Termination Date and (b) the average daily
undrawn face amount of the Letters of Credit outstanding for the period from the
date of this Amendment Letter to the Early Termination Date and multiplying that
sum by three tenths of one percent (.30%) per annum for the number of days from
the Early Termination Date to the fifth Anniversary Date".
<PAGE> 2
"EBITDA shall mean, in any period, the net income (or net loss) of the
Company and its Subsidiaries, on a consolidated basis plus i) all amounts
deducted in determining net income in respect of Interest Expense, income tax
obligations (paid or accrued), depreciation expense and amortization expenses,
non-cash straight line rent expense and all other non-cash items, each
determined in accordance with GAAP consistently applied and ii) any
extraordinary loss associated with the extinguishment of (a) the debt due
General Electric Capital Corporation by the Company, or (b) the Subordinated
Debt."
"NET WORTH shall mean Total Assets of the Company and its Subsidiaries, on
a consolidated basis, in excess of Total Liabilities, and determined in
accordance with GAAP, on a consistent basis with the latest audited statements
of the Company and its Subsidiaries.
3. The definition of "Line of Credit" set forth in Section 1 of the
Agreement is hereby amended by deleting the dollar amount of "$100,000,000.00"
set forth therein, and inserting in lieu thereof the dollar amount of
"$125,000,000.00".
4. The definition of "Line of Credit Fee" set forth in Section 1 of the
Agreement is hereby amended by deleting the percentage of "three eight's of one
percent (.375%)" in subclause y, and inserting in lieu thereof the percentage of
"three hundred twenty-five hundredths of one percent (.325%)".
5. The definition of "Parent" set forth in Section 1 of the Agreement is
hereby deleted in its entirety, and the following is inserted in lieu thereof:
"PARENT shall mean Big 5 Holdings Corp., a Delaware corporation."
6. The definition of "Permitted Indebtedness" set forth in Section 1 of
the Agreement is hereby amended by deleting the words "Subordinated Debt" in
clause viii), and inserting in lieu thereof the words "Senior Notes".
7. The following definition of "Senior Notes" is hereby inserted between
the definitions of "Revolving Loans" and "Settlement Date":
"Senior Notes shall mean the Company issued 10 7/8% Senior Notes due
2007 in the amount of $131,000,000.00."
8. Paragraph 1 of Section 3 of the Agreement is hereby amended by deleting
the second sentence thereof, and inserting the following in lieu thereof: "Such
loans and advances shall be in amounts up to seventy percent (70%) during the
months of November, December, January and February of each year, and sixty-five
percent (65%) during the months of March through October of each year".
9. Paragraph 1 of Section 7 of the Agreement is hereby deleted in its
entirety, and the following is inserted in lieu thereof:
"1. Interest on the Revolving Loans (other than Libor Loans) shall
be payable monthly as of the end of each month and shall be an amount equal to
the sum of the Chase Manhattan Bank Rate and the applicable following
percentage:
Page No. 2
<PAGE> 3
i) 0.75%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is less than $25,000,000;
ii) 0.50%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $25,000,000 and less than $30,000,000;
iii) 0.25%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $30,000,000 and less than $35,000,000;
iv) 0.00%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $35,000,000;
in all instances the applicable percentage will become effective the month
following receipt of the financial statements evidencing that a change of rate
is appropriate and will be computed on a per annum basis, on the average of the
net balances (other than Libor Loans) owing by the Company in the Company's
account at the close of each day during such month. Interest on the Revolving
Loans which are Libor Loans shall be payable monthly as of the end of each month
and shall be an amount equal to the sum of the applicable Libor on each then
outstanding Revolving Loan which is a Libor Loan and the applicable following
percentage:
i) 2.50%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is less than $25,000,000;
ii) 2.25%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $25,000,000 and less than $30,000,000;
iii) 2.00%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $30,000,000 and less than $35,000,000;
iv) 1.75%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $35,000,000 and less than $40,000,000;
v) 1.50%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $40,000,000;
in all instances the applicable percentage will become effective the month
following receipt of the financial statements evidencing that a change of rate
is appropriate and will be computed on a per annum basis, on the average of the
net balances owing by the Company on such Libor Loan at the close of each day
during such month. The Company may elect to use Libor as to any new or then
outstanding Revolving Loans provided x) there is then no unwaived Default or
Event of Default, and y) the Company has so advised the Agent of its election to
use Libor and the Libor Period selected no later than three (3) Business Days
prior to the proposed borrowing or, in the case of a Libor election with respect
to a then
Page No. 3
<PAGE> 4
outstanding Revolving Loan, three (3) Business Days prior to the conversion of
any then outstanding Revolving Loans to Libor Loans and z) the election and
Libor shall be effective, provided, there is then no unwaived Default or Event
of Default, on the fourth Business Day following said notice. The Libor
elections must be for $100,000.00 or whole multiples thereof. If no such
election is timely made or can be made, then the Agent shall use the Chase
Manhattan Bank Rate and the applicable percentage set forth above to compute
interest. In the event of any change in the Chase Manhattan Bank Rate, the
interest rate hereunder shall change, as of the first day of the month following
any change, so as to reflect the changed Chase Manhattan Bank Rate. The rates
hereunder shall be calculated based on a 365-day year. The Agent shall be
entitled to charge the Company's account at the rate provided for herein when
due until all Obligation have been paid in full."
10. Paragraphs 8, 10, and 11 of Section 6 of the Agreement are hereby
deleted in their entirety, and the following are inserted in lieu thereof:
"8. The Company and its Subsidiaries shall have, as of the end of
each fiscal quarter, on a consolidated basis, a Net Worth, as defined herein, of
not less than ($50,000,000.00).
10. The Company and its Subsidiaries shall have, on a consolidated
basis, Working Capital, as defined herein, of not less than (i) $60,000,000.00,
as of the fiscal year ending December 31, 1997, and (ii) $70,000,000.00, as of
the end of each fiscal quarter thereafter.
11. If the Company's Availability on any one (1) Business Day of the
sixty (60) days immediately preceding the date on which the Company must deliver
to the Agent the Company's Consolidated Balance Sheet as of the relevant quarter
end was less than $5,000,000.00, then the Company and its Subsidiaries, shall
have, on a consolidated basis, at all times a Fixed Charged Coverage Ratio of no
less than 1.15 to 1.0."
11. Clause G. of Paragraph 9 of Section 6 of the Agreement is hereby
amended by:
(i) deleting the word "or" after the semi-colon (;) before z);
(ii) inserting the following at the end of said clause:
"or aa) in cash, to the Parent, on or after May 15, 2003,
provided that such dividends may not be declared and paid if a Default or Event
of Default is then in existence or will be in existence after giving effect to
such dividends, and provided further that such dividends may not be declared and
paid if they are prohibited under the terms and conditions of the Senior Notes;"
12. Paragraph 12 of Section 6 of the Agreement is hereby deleted in its
entirety.
13. Paragraph 1 of Section 9 of the Agreement is hereby amended by:
(i) deleting clause (j) thereof, and inserting the following in lieu
thereof: "(j) The Company shall default in the payment of, or other performance
under, any indenture or other instrument evidencing the Senior Notes, or any
other recourse indebtedness of the Company in excess of $3,000,000.00, if as a
result of such default, the maturity of any Indebtedness evidenced by any such
indenture or instrument is accelerated prior to its stated maturity."
Page No. 4
<PAGE> 5
(ii) (A) by deleting the words "Subordinated Debt" where they appear
in clause (k), and inserting the words "Senior Notes" in lieu thereof, and (B)
by deleting the period (.) at the end of clause (k), and inserting the following
in lieu thereof:
"; provided, however, that the Company at any time and from
time-to-time prior to November 15, 2000 may redeem up to an aggregate
thirty-five percent (35%) of the aggregate principal amount of the Senior Notes
originally outstanding, but only with the net cash proceeds received by the
Company from equity offerings by, or capital contributions from, Parent."
14. The word "third" in the first and fourth sentence of Section 10 is
hereby deleted, and the word "fifth" is inserted in lieu thereof.
15. The Company hereby represents and warrants to Lenders:
(i) the Company, as the surviving entity of its merger with UMC,
has, by operation of law, assumed all of the Obligations (as that term is
defined in the Agreement), to the Agent and the Lenders, and has further assumed
all duties and responsibilities of UMC under the Agreement; and
(ii) that all funds advanced to the Company under the Agreement will
be used for working capital and general corporate purposes.
16. The Company, as security for the prompt payment in full of all loans
and advances made and to be made to the Company from time to time by the Agent
on behalf of the Lenders pursuant to the Agreement, as well as to secure the
payment in full of the other Obligations, hereby pledges and grants to the Agent
for the benefit of the Lenders a continuing general lien upon and security
interest in all of its:
(a) present and hereafter acquired Inventory;
(b) present and future Accounts;
(c) present and future Documents of Title; and
(d) present and future General Intangibles.
The security interests granted hereunder shall extend and attach to:
(a) All Collateral which is presently in existence and which is
owned by the Company or in which the Company has any interest (but only to the
extent of such interest), whether held by the Company or others for its account;
and
(b) All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either the Agent or the Company from any
of the Company's customers.
17. In reliance on the above stated representations and warranties of
the Company, the Lenders consent (i) to the merger of UMC into the Company, and
the Company's assumption of all Obligations, duties and responsibilities of UMC
under the Agreement, and (ii) the merger of Big 5 Corporation into Guarantor,
and the Guarantor's assumption of all Obligations (as that term is defined in
the Guaranty) under the Guaranty. The Lenders hereby waive any Event of Default
existing as a result of the mergers, the assumptions, and the recapitalization
of the Company, as such recapitalization is described in the four page document
attached hereto as Exhibit A, and the Agent and each Lender hereby acknowledge
and consent to each of the transactions described in said Exhibit A.
18. The Company shall pay to the Agent on behalf of all Lenders who
committed to the amendments evidenced hereby to the Agent by October 23, 1997, a
fee in the amount of $125,000.00, which fee will be charged to the loan account
in full on the date that this Amendment Letter is executed, and which fee will
be shared with such Lenders based on the October 23, 1997 allocated commitment.
Page No. 5
<PAGE> 6
Except as otherwise hereinabove provided, no other amendment or modification of
the Agreement is hereby intended or implied. If the foregoing is in accordance
with your understanding, please so indicate by signing and returning to us the
enclosed copy of this letter.
Very truly yours,
The CIT Group/Business Credit, Inc. (as Agent
and Lender)
By: /s/
-----------------------------------------
Title: Vice President
-----------------------------------------
Read and Agreed to:
Big 5 Corp. (fka United Merchandising Corp.)
By: /s/ CHARLES P. KIRK
---------------------------------------
Title: Senior Vice President
---------------------------------------
BT Commercial Corporation (as Lender)
By:
---------------------------------------
Title:
---------------------------------------
National Bank of Canada (as Lender)
By:
---------------------------------------
Title:
---------------------------------------
Sanwa Business Credit Corporation (as Lender)
By:
---------------------------------------
Title:
---------------------------------------
Transamerica Business Credit (as Lender)
By:
---------------------------------------
Title:
---------------------------------------
Page No. 6
<PAGE> 1
EXHIBIT 23.1
To the Board of Directors
of Big 5 Corp.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Los Angeles, California
December 23, 1997
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
FIRST TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
BIG 5 CORP.
(Exact name of Registrant as specified in its charter)
Delaware 95-1854273
(State of Incorporation) (I.R.S. Employer
Identification No.)
2525 East El Segundo Boulevard
El Segundo, California 90245
(Address of Principal Executive Offices) (Zip Code)
10 7/8% SENIOR NOTES DUE 2007
(Title of the Indenture Securities)
<PAGE> 2
GENERAL
1. General Information Furnish the following information as to the
Trustee.
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe each
such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority is incorporated by reference to Registration Number 333-34585.
* Incorporated by reference to Registration Number 22-27000.
<PAGE> 3
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligors, or affiliates, are based
upon information furnished to the Trustee by the obligors. While the Trustee has
no reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, First Trust National Association, an Association organized and existing
under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Saint Paul and State of Minnesota on the 12th day of December,
1997.
FIRST TRUST NATIONAL ASSOCIATION
/s/ Sheryl A. Christopherson
----------------------------------
Sheryl A. Christopherson
Vice President
/s/ Christina M. Hatfield
- --------------------------------------
Christina M. Hatfield
Assistant Secretary
<PAGE> 4
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, FIRST TRUST NATIONAL ASSOCIATION hereby consents that reports
of examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: December 12, 1997
FIRST TRUST NATIONAL ASSOCIATION
/s/ Sheryl A. Christopherson
-----------------------------------
Sheryl A. Christopherson
Vice President
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
BIG 5 CORP.
OFFER FOR ALL OUTSTANDING SERIES A 10-7/8%
SENIOR NOTES DUE 2007
IN EXCHANGE FOR
SERIES B 10-7/8% SENIOR NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
PURSUANT TO THE PROSPECTUS
DATED , 1998
-------------------------
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998, UNLESS THE OFFER IS EXTENDED BY THE COMPANY
IN ITS SOLE DISCRETION.
- --------------------------------------------------------------------------------
-------------------------
The Exchange Agent for the Exchange Offer is:
FIRST TRUST NATIONAL ASSOCIATION
BY MAIL: BY OVERNIGHT DELIVERY OR HAND:
First Trust National Association First Trust National Association
180 East Fifth Street 180 East Fifth Street
St. Paul, Minnesota 55101 4th Floor Bond Drop Window
Attn: Specialized Finance Department St. Paul, Minnesota 55101
Attention: Specialized Finance Department
To Confirm by Telephone or for Information:
(612) 244-1197
Facsimile Transmissions:
(612) 244-1537
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same
meaning given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes
(as defined below) either if Old Notes are to be forwarded herewith or if
tenders of Old Notes are to be made by book-entry transfer to an account
maintained by First Trust National Association (the "Exchange Agent") at The
Depository Trust Company ("DTC") pursuant to the procedures set forth in "The
Exchange Offer -- Procedures for Tendering" in the Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such
Old Notes are not immediately available or who cannot deliver their Certificates
and all other required documents to the Exchange Agent on or prior to the
Expiration Date (as defined in the Prospectus) or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures" in the Prospectus. SEE INSTRUCTION 1.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
<PAGE> 2
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
- -------------------------------------------------------------------------------------------------------
IF BLANK, PLEASE PRINT NAME OLD NOTES TENDERED
AND ADDRESS OF REGISTERED HOLDER. (ATTACH ADDITIONAL LIST IF NECESSARY)
- -------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OF OLD
CERTIFICATE PRINCIPAL AMOUNT NOTES TENDERED (IF LESS
NUMBER(S)* OF OLD NOTES THAN ALL)**
----------------------------------------------------------------------
<S> <C> <C> <C>
---------- -------------- -----------------------
---------- -------------- -----------------------
---------- -------------- -----------------------
TOTAL AMOUNT
TENDERED: -------------- -----------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000
and integral multiples thereof. All Old Notes held shall be deemed tendered
unless a lesser number is specified in this column.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution______________________________________________
DTC Account Number_________________________________________________________
Transaction Code Number____________________________________________________
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holders(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Delivery Name of Institution which
Guaranteed Delivery If Guaranteed Delivery is to be made By Book-Entry
Transfer:
Name of Tendering Institution___________________________________________
DTC Account Number______________________________________________________
Transaction Code Number_________________________________________________
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:______________________________________________________________________
Address:___________________________________________________________________
___________________________________________________________________
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to Big 5 Corp., a Delaware corporation
(the "Company"), the above described aggregate principal amount of Series A
10-7/8% Senior Notes due 2007 (the "Old Notes") in exchange for a like aggregate
principal amount of Series B 10-7/8% Senior Notes due 2007 (including the
Guarantees, the "New Notes") which have been registered under the Securities Act
of 1933 (the "Securities Act"), upon the terms and subject to the conditions set
forth in the Prospectus dated _________, 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus"), receipt of which is
acknowledged, and in this Letter of Transmittal (which, together with the
Prospectus, constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Old
Notes, (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The name(s) and address(es) of the registered Holder(s) of the Old Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Old Notes. The
Certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Old Notes than
are tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered by
book-entry transfer, such Old Notes will be credited to an account maintained at
DTC), without expense to the tendering Holder, promptly following the expiration
or termination of the Exchange Offer.
-3-
<PAGE> 4
The undersigned understands that tenders of Old Notes pursuant to any
one of the procedures described in "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectus, the Company may
not be required to accept for exchange any of the Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Notes be issued
in the name(s) of the undersigned or, in the case of a book-entry transfer of
Old Notes, that such New Notes be credited to the account indicated above
maintained at DTC, if applicable, and substitute Certificates representing Old
Notes not exchanged or not accepted for exchange will be issued to the
undersigned or, in the case of a book-entry transfer of Old Notes, will be
credited to the account indicated above maintained at DTC. Similarly, unless
otherwise indicated under "Special Delivery Instructions," please deliver New
Notes to the undersigned at the address shown below the undersigned's signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (i) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (ii) ANY NEW NOTES TO BE RECEIVED BY THE UNDERSIGNED
ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (iii) THE UNDERSIGNED
HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF NEW NOTES TO BE
RECEIVED IN THE EXCHANGE OFFER, AND (iv) IF THE UNDERSIGNED IS NOT A
BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE
IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW NOTES.
BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER
OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER REPRESENTS AND
AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE
DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO
THIRD PARTIES, THAT (a) SUCH OLD NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY
AS A NOMINEE, OR (b) SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES
AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO
TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY
RESALE OF SUCH NEW NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE
REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS
DEFINED BELOW) IN CONNECTION WITH RESALES OF NEW NOTES RECEIVED IN EXCHANGE FOR
OLD NOTES, WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING
BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR
OTHER TRADING ACTIVITIES, FOR THE LESSER OF (i) A PERIOD ENDING 180 DAYS FROM
THE DATE ON WHICH THE REGISTRATION STATEMENT OF WHICH THE PROSPECTUS IS A PART
IS DECLARED EFFECTIVE OR (ii) SUCH PERIOD OF TIME AS SUCH BROKER-DEALER MUST
COMPLY WITH THE PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT IN ORDER
TO RESELL THE NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES WHICH WERE ACQUIRED
BY IT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES. IN THAT REGARD,
EACH BROKER-DEALER WHO ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY
TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT,
UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE
DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY
REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE
PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
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<PAGE> 5
STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF
CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH
PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES PURSUANT TO THE
PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO
CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR
SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS
GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE.
IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE SALE OF THE NEW NOTES, IT SHALL
EXTEND THE 180-DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING
BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE
OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE DATE
OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN PARTICIPATING
BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR AMENDED
PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES OR TO AND INCLUDING THE
DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF NEW NOTES MAY BE
RESUMED, AS THE CASE MAY BE.
A PARTICIPATING BROKER-DEALER WHO INTENDS TO USE THE PROSPECTUS IN
CONNECTION WITH THE RESALE OF THE NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES
PURSUANT TO THE EXCHANGE OFFER MUST NOTIFY THE COMPANY, OR CAUSE THE COMPANY TO
BE NOTIFIED, ON OR PRIOR TO THE EXPIRATION DATE, THAT IT IS A PARTICIPATING
BROKER-DEALER. Such notice may be given in the space provided for that purpose
on page 2 of this Letter of Transmittal or may be delivered to the Exchange
Agent at the address set forth on page 1 of this Letter of Transmittal.
Each New Note will bear interest from its issuance date. Interest will
accrue on the Old Notes that are tendered in exchange for the New Notes through
the issue date of the New Notes. Holders of the Old Notes that are accepted for
exchange will not receive interest that is accrued but unpaid on the Old Notes
at the time of exchange, but such interest will be payable, together with
interest on the New Notes, on the first Interest Payment Date after the
Expiration Date. Interest on the Old Notes accepted for exchange will cease to
accrue upon issuance of the New Notes.
All authority herein conferred or agreed to be conferred in this Letter
of Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
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<PAGE> 6
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered Holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered Holder(s) by
endorsements and documents transmitted herewith (including such opinions of
counsel, certifications and other information as may be required by the Company
or the Trustee for the Old Notes to comply with the restrictions on transfer
applicable to the Old Notes). If signature is by an attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or another acting in
a fiduciary capacity or representative capacity, please set forth the signer's
full title. See Instruction 5.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Date _______________________, 1998
Name(s)________________________________________________________________________
(PLEASE PRINT)
Address________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number_________________________________________________
_______________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
Authorized Signature___________________________________________________________
Name___________________________________________________________________________
(PLEASE PRINT)
Date________________________, 1998
Capacity or Title______________________________________________________________
Name of Firm___________________________________________________________________
Address________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number_________________________________________________
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<PAGE> 7
<TABLE>
<S> <C>
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SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6) (SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the New To be completed ONLY if New Notes are to
Notes are to be issued in the name of be sent to someone other than the registered
someone other than the registered Holder of Holder of the Old Notes whose name(s)
the Old Notes whose name(s) appear(s) appear(s) above, or to such registered
above. Holder(s) at an address other than that
shown above.
Issue New Notes:
Mail New Notes to:
Name_________________________________________
(PLEASE PRINT) Name___________________________________________
Address______________________________________ (PLEASE PRINT)
Address________________________________________
_____________________________________________
_______________________________________________
_____________________________________________
(INCLUDE ZIP CODE) _______________________________________________
_____________________________________________ (INCLUDE ZIP CODE)
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.) _______________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
- ----------------------------------------------- -----------------------------------------------
</TABLE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering" in the Prospectus. Certificates, or timely
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at one of its addresses set forth herein on or
prior to the Expiration Date. Old Notes may be tendered in whole or in part in
the principal amount of $1,000 and integral multiples of $1,000.
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available or (ii) who cannot deliver their Old Notes, this
Letter of Transmittal and all other required documents to the Exchange Agent on
or prior to the Expiration Date or (iii) who cannot complete the procedures for
delivery by book-entry transfer on a timely basis, may tender their Old Notes by
properly completing and duly executing a Notice of Guaranteed Delivery pursuant
to the guaranteed delivery procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures" in the Prospectus. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution (as defined
below); (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Company, must be
received by the Exchange Agent on or prior to the Expiration Date; and (iii) the
Certificates (or a Book-Entry Confirmation (as described in the Prospectus))
representing all tendered Old Notes, in proper form for transfer, together with
a Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
within three
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<PAGE> 8
New York Stock Exchange trading days after the Expiration Date, all as provided
in "The Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by facsimile or mail to the Exchange Agent, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice. For
Old Notes to be properly tendered pursuant to the guaranteed delivery procedure,
the Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to
the Expiration Date. As used herein and in the Prospectus, "Eligible
Institution" means a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act as "an eligible guarantor institution," including (as such terms
are defined therein) (i) a bank; (ii) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer, (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering Holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered Holder
(which term, for purposes of this document, shall include any
participant in DTC whose name appears on a security position listing as
the owner of the Old Notes) of Old Notes tendered herewith, unless such
Holder(s) has completed either the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" above,
or
(ii) such Old Notes are tendered for the account of a firm that
is an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the
signature(s) on this letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the Certificate number(s) and/or the
principal amount of Old Notes and any other required information should be
listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in the principal amount of $1,000 and integral multiples thereof.
If less than all the Old Notes evidenced by any Certificate submitted are to be
tendered, fill in the principal amount of Old Notes which are to be tendered in
the box entitled "Principal Amount of Old Notes Tendered (if less than all)." In
such case,
new Certificate(s) for the remainder of the Old Notes that were evidenced by
your old Certificate(s) will only be sent to the Holder of the Old Notes,
promptly after the Expiration Date. All Old Notes represented by
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<PAGE> 9
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above or in the
Prospectus on or prior to the Expiration Date. Any such notice of withdrawal
must specify the name of the person who tendered the Old Notes to be withdrawn,
the aggregate principal amount of Old Notes to be withdrawn, and (if
Certificates for Old Notes have been tendered) the name of the registered Holder
of the Old Notes as set forth on the Certificate for the Old Notes, if different
from that of the person who tendered such Old Notes. If Certificates for the Old
Notes have been delivered or otherwise identified to the Exchange Agent, then
prior to the physical release of such Certificates for the Old Notes, the
tendering Holder must submit the serial numbers shown on the particular
Certificates for the Old Notes to be withdrawn and the signature on the notice
of withdrawal must be guaranteed by an Eligible Institution, except in the case
of Old Notes tendered for the account of an Eligible Institution. If Old Notes
have been tendered pursuant to the procedures for book-entry transfer set forth
in the Prospectus under "The Exchange Offer -- Procedures for Tendering," the
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawal of Old Notes, in which case a notice of
withdrawal will be effective if delivered to the Exchange Agent by written,
telegraphic, telex or facsimile transmission. Withdrawals of tenders of Old
Notes may not be rescinded. Old Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time on or prior to the Expiration Date by following any of the
procedures described in the Prospectus under "The Exchange Offers -- Procedures
for Tendering."
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Notes which have been tendered
but which are withdrawn will be returned to the Holder thereof without cost to
such Holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered Holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must submit proper
evidence satisfactory to the Company, in its sole discretion, of such persons'
authority to so act.
-9-
<PAGE> 10
When this Letter of Transmittal is signed by the registered owner(s) of
the Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s)
or separate bond power(s) are required unless New Notes are to be issued in the
name of a person other than the registered Holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company or the Trustee for the Old Notes may require in accordance with the
restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Old Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion,
all questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Old Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for, may, in the view of
counsel to the Company, be unlawful. The Company also reserves the absolute
right, subject to applicable law, to waive any of the conditions of the Exchange
Offer set forth in the Prospectus under "The Exchange Offer -- Conditions" or
any conditions or irregularity in any tender of Old Notes of any particular
Holder whether or not similar conditions or irregularities are waived in the
case of other Holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will be
final and binding. No tender of Old Notes will be deemed to have been validly
made until all irregularities with respect to such tender have been cured or
waived. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent, nor any other person shall be under any duty to give
notification of any irregularities in tenders or incur any liability for failure
to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal
income tax law, a Holder whose tendered Old Notes are accepted for exchange is
required to provide the Exchange Agent with such Holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the Holder or other payee to a $50 penalty. In addition,
payments to such Holders or other payees with respect to Old Notes exchanged
pursuant to the Exchange Offer may be subject to 31% backup withholding.
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<PAGE> 11
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering Holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
Holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the Holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the Holder and no further amounts shall be retained or
withheld from payments made to the Holder thereafter. If, however, the Holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain Holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such Holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that Holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
Holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the Holder should
promptly notify the Exchange Agent. The Holder will then be instructed as to the
steps that must be taken in order to replace the Certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Certificate(s) have been followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, New Notes are to be delivered to, or are to be issued in
the name of, any person other than the registered Holder of the Old Notes
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Notes in connection with the Exchange Offer, then the amount of any such
transfer tax (whether imposed on the registered Holder or any other persons)
will be payable by the tendering Holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering Holder.
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<PAGE> 12
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL
OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO
THE EXPIRATION DATE.
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<PAGE> 13
TO BE COMPLETED BY ALL
TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME: FIRST TRUST NATIONAL ASSOCIATION
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN
Form W-9 TIN IN THE BOX AT RIGHT AND Social Security Number or
CERTIFY BY SIGNING AND Employer Identification Number
DATING BELOW
-------------------------------------------------------------------------------
Department of the Treasury Part 2
Internal Revenue Service Awaiting TIN |_|
--------------------------------------
CERTIFICATION - UNDER THE PENALTIES OF PERJURY,
I CERTIFY THAT (1) the number shown on this
form is my correct taxpayer identification
number (or I am waiting for a number to be
issued to me), (2) I am not subject to backup
withholding either because (i) I am exempt from
backup withholding, (ii) I have not been
notified by the Internal Revenue Service
("IRS") that I am subject to backup withholding
as a result of a failure to report all interest
or dividends, or (iii) the IRS has notified me
that I am no longer subject to backup
withholding, and (3) any other information
provided on this form is true and correct.
Payer's Request for Taxpayer SIGNATURE____________________________________________________________________
Identification Number (TIN)
and Certification DATE_________________________________________________________________________
You must cross out item (iii) in Part (2) above if you have been notified by
the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup
withholding.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU
PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and that either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments made to me on account of the New Notes shall be retained until I
provide a taxpayer identification number to the Exchange Agent and that, if I do
not provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
Signature ______________________ Date ____________________________
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<PAGE> 1
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
10-7/8% Series A Senior Notes due 2007
OF
BIG 5 CORP.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 10-7/8% Series A Senior Notes
due 2007 (the "OLD NOTES") are not immediately available, (ii) Old Notes, the
Letter of Transmittal and all other required documents cannot be delivered to
First Trust National Association (the "EXCHANGE AGENT"), on or prior to the
Expiration Date (as defined in the Prospectus referred to below) or (iii) the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery may be delivered by hand, overnight
courier or mail, or transmitted by facsimile transmission, to the Exchange
Agent. See "The Exchange Offer--Guaranteed Delivery Procedures" in the
Prospectus.
The Exchange Agent for the Exchange Offer is:
First Trust National Association
BY MAIL: BY OVERNIGHT DELIVERY: BY HAND:
180 East Fifth Street 180 East Fifth Street 180 East Fifth Street
St. Paul, Minnesota 55101 St. Paul, Minnesota 55101 St. Paul, Minnesota 55101
Attn:Specialized Finance Attn: Specialized Finance 4th Floor Bond Drop Window
Department Department Attn: Specialized Finance
Department
To Confirm by Telephone or for Information:
(612) 244-1197
Facsimile Transmissions
(612) 244-1537
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Big 5 Corp., a Delaware corporation
(the "COMPANY"), upon the terms and subject to the conditions set forth in the
Prospectus dated __________, 1998 (as the same may be amended or supplemented
from time to time, the "PROSPECTUS"), and the related Letter of Transmittal
(which together constitute the "EXCHANGE OFFER"), receipt of which is hereby
acknowledged, the aggregate principal amount of Old Notes set forth below
pursuant to the guaranteed delivery procedures set forth in the Prospectus under
the caption "The Exchange Offer--Guaranteed Delivery Procedures."
<TABLE>
<S> <C>
Aggregate Principal Name(s) of Registered Holder(s):
Amount Tendered: ___________________________ __________________________________________
Certificate No(s).
(if available): ____________________________ Address(es):______________________________
____________________________________________ __________________________________________
____________________________________________ __________________________________________
If Old Notes will be tendered by Area Code and Telephone Number(s):________
book-entry transfer, provide the
following information:
__________________________________________
DTC Account Number:_________________________ Signature(s):_____________________________
Date:_______________________________________ __________________________________________
</TABLE>
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
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<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office in the United States that is a
participant in the Security Transfer Medallion Program or the Stock Exchange
Medallion Program (each of the foregoing being referred to as an "ELIGIBLE
INSTITUTION"), hereby guarantees to deliver to the Exchange Agent, at its
address set forth above, either the Old Notes tendered hereby in proper form for
transfer, or confirmation of the book-entry transfer of such Old Notes to the
Exchange Agent's account at The Depositary Trust Company ("DTC"), pursuant to
the procedures for book-entry transfer set forth in the Prospectus, in either
case together with one or more properly completed and duly executed Letter(s) of
Transmittal (or facsimile thereof) or an Agent's Message (as defined in the
Letter of Transmittal) in connection with a book-entry transfer of Old Notes and
any other required documents within three business days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver (i) the Letter(s) of
Transmittal or an Agent's Message in connection with a book-entry transfer of
the Old Notes and (ii) the Old Notes tendered hereby or confirmation of
book-entry transfer of such Old Notes to the Exchange Agent within the time
period set forth above and that failure to do so could result in a financial
loss to the undersigned.
<TABLE>
<S> <C>
Name of Firm: ___________________________ ___________________________________________
(Authorized Signature)
Address: ________________________________ Title:_____________________________________
_________________________________________ Name:______________________________________
(Zip Code) (Please type or print)
Area Code and
Telephone Number:________________________ Date:______________________________________
</TABLE>
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY.
ACTUAL SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY,
A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS.
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